10-QPeriod: Q3 FY2007

EDISON INTERNATIONAL Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 2, 2007For Securities:EIX

Summary

Edison International reported solid financial results for the nine months ended September 30, 2007, with net income from continuing operations increasing to $886 million, or $2.67 per diluted share, compared to $817 million, or $2.48 per diluted share, in the prior year period. This growth was driven by stronger performance in both the electric utility segment, primarily due to regulatory rate adjustments and improved sales volumes, and the nonutility power generation segment, benefiting from higher energy margins and capacity revenues. The company also successfully managed its debt, completing significant refinancing activities that improved its liquidity and financial flexibility. However, investors should be aware of ongoing regulatory investigations, particularly concerning performance incentives at Southern California Edison, which could lead to potential refunds and penalties. Additionally, the company faces significant litigation related to its past tax positions and environmental remediation liabilities, although the ultimate financial impact of these matters remains uncertain.

Key Highlights

  • 1Net income from continuing operations increased by 8.4% to $886 million for the nine months ended September 30, 2007, compared to $817 million in the same period of 2006.
  • 2Diluted EPS from continuing operations rose to $2.67 from $2.48 year-over-year.
  • 3Southern California Edison (SCE) experienced a slight decrease in earnings due to specific one-time benefits in the prior year, but overall revenue benefited from rate changes and improved sales volume.
  • 4Edison Mission Group (EMG) saw a significant increase in year-to-date earnings due to higher energy margins and capacity revenues, despite charges related to early debt extinguishment.
  • 5Edison International completed substantial debt refinancing, issuing $2.7 billion in senior notes, which improved liquidity.
  • 6The company is managing its tax positions, having adopted FIN 48 and continuing to address IRS challenges on certain lease transactions, with potential liabilities and benefits noted.
  • 7SCE is facing a regulatory investigation into performance incentive rewards, with a Presiding Officer's Decision recommending significant refunds and penalties, which SCE is appealing.

Frequently Asked Questions

The increase in net income was driven by stronger performance in both the electric utility segment (SCE) and the nonutility power generation segment (EMG). SCE benefited from higher energy margins, improved sales volumes, and regulatory rate adjustments, while EMG saw higher energy margins, capacity revenues, and project income, despite incurring charges for early debt extinguishment.

Edison International is navigating several significant challenges. Southern California Edison (SCE) is under investigation for its performance incentive rewards, which could result in substantial refunds and penalties, though SCE is appealing the decision. The company is also dealing with ongoing IRS challenges related to past tax positions, particularly concerning leveraged lease transactions, which could have material financial impacts. Furthermore, there are ongoing legal proceedings, such as the Navajo Nation litigation, and potential environmental liabilities associated with its power generation facilities.

In 2007, Edison International, primarily through EMG, undertook significant debt refinancing, including issuing $2.7 billion in senior notes. These activities were used to repay existing debt, fund dividends for debt repurchases, and improve overall liquidity and financial flexibility. While these actions incurred substantial costs related to early debt extinguishment, they are expected to benefit the company's long-term financial health.