Summary of Significant Accounting Policies

Organization and Basis of Presentation

Edison International is the parent holding company of Southern California Edison Company ("SCE"). SCE is an investor-owned public utility primarily engaged in the business of supplying and delivering electricity to an approximately 50,000 square mile area of southern California. Edison International is also the parent company of Edison Energy Group, a company that holds interests in subsidiaries that are engaged in competitive businesses related to the generation, delivery, or use of electricity. Such competitive business activities are currently not material to report as a separate business segment. These combined notes to the consolidated financial statements apply to both Edison International and SCE unless otherwise described. Edison International's consolidated financial statements include the accounts of Edison International, SCE and other wholly owned and controlled subsidiaries. References to Edison International refer to the consolidated group of Edison International and its subsidiaries. References to Edison International Parent and Other refer to Edison International Parent and its nonutility subsidiaries. SCE's consolidated financial statements include the accounts of SCE and its wholly owned and controlled subsidiaries. All intercompany transactions have been eliminated from the consolidated financial statements.

Edison International's and SCE's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in the 2014 Form 10-K. This quarterly report should be read in conjunction with the financial statements and notes included in the 2014 Form 10-K.

In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and six-month periods ended June 30, 2015 are not necessarily indicative of the operating results for the full year.

The December 31, 2014 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Cash Equivalents

Cash equivalents included investments in money market funds. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less. The cash equivalents were as follows:



	Edison International				SCE
(in millions)	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Money market funds	$	56	$	35	$	26	$	5

Cash is temporarily invested until required for check clearing. Checks issued, but not yet paid by the financial institution, are reclassified from cash to accounts payable at the end of each reporting period as follows:



	Edison International				SCE
(in millions)	June 30, 2015		December 31, 2014		June 30, 2015		December 31, 2014
Book balances reclassified to accounts payable	$	123	$	180	$	123	$	177

Inventory

Inventory is primarily composed of materials, supplies and spare parts, and stated at the lower of cost or market, cost being determined by the average cost method.

San Onofre Impairment and Other Charges

As discussed in Note 1 of "Notes to Consolidated Financial Statements" included in the 2014 Form 10-K, in March 2014, SCE entered into a settlement agreement with The Utility Reform Network ("TURN"), the CPUC's Office of Ratepayer Advocates ("ORA"), SDG&E, the Coalition of California Utility Employees, and Friends of the Earth (together, the "Settling Parties") related to the regulatory proceedings for San Onofre. SCE recorded a pre-tax charge of approximately $231 million (approximately $96 million after-tax) in the first quarter of 2014.

In September 2014, SCE and the Settling Parties entered into an Amended and Restated Settlement Agreement (the "San Onofre OII Settlement Agreement") which was approved by the CPUC on November 20, 2014. As a result of these developments, SCE revised the pre-tax charge to $163 million (approximately $72 million after-tax) in the fourth quarter of 2014. Including amounts previously recorded in 2013, the total impact of the San Onofre OII Settlement Agreement was a pre-tax charge of $738 million (approximately $437 million after-tax).

Earnings Per Share

Edison International computes earnings per common share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares once the awards are vested. EPS attributable to Edison International common shareholders was computed as follows:



	Three months ended June 30,				Six months ended June 30,
(in millions, except per-share amounts)	2015		2014		2015		2014
Basic earnings per share – continuing operations:
Income from continuing operations attributable to common shareholders	$	379	$	352	$	678	$	550
Participating securities dividends	—		—		—		—
Income from continuing operations available to common shareholders	$	379	$	352	$	678	$	550
Weighted average common shares outstanding	326		326		326		326
Basic earnings per share – continuing operations	$	1.16	$	1.08	$	2.08	$	1.69
Diluted earnings per share – continuing operations:
Income from continuing operations available to common shareholders	$	379	$	352	$	678	$	550
Income impact of assumed conversions	—		1		—		1
Income from continuing operations available to common shareholders and assumed conversions	$	379	$	353	$	678	$	551
Weighted average common shares outstanding	326		326		326		326
Incremental shares from assumed conversions	2		3		3		3
Adjusted weighted average shares – diluted	328		329		329		329
Diluted earnings per share – continuing operations	$	1.15	$	1.07	$	2.06	$	1.68

In addition to the participating securities discussed above, Edison International also may award stock options which are payable in common shares and are included in the diluted earnings per share calculation. Stock option awards to purchase 1,981,596 and 45,951 shares of common stock for the three months ended June 30, 2015 and 2014, respectively, and 1,981,596 and 96,341 shares for the six months ended June 30, 2015 and 2014, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares during the respective periods and, therefore, the effect would have been antidilutive.

New Accounting Guidance

Accounting Guidance Not Yet Adopted

On May 28, 2014, the FASB issued an accounting standards update on revenue recognition including enhanced disclosures. Under the new standard, revenue is recognized when (or as) a good or service is transferred to the customer and the customer obtains control of the good or service. On July 9, 2015, the FASB approved a one-year deferral, updating the effective date to January 1, 2018. Edison International and SCE are currently evaluating this new guidance and cannot determine the impact of this standard at this time.

On April 7, 2015, the FASB issued an accounting standards update that will require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. Currently, these costs are presented as a deferred charge asset. Edison International and SCE will adopt this guidance in the first quarter of 2016. The adoption of this accounting standards update is not expected to have a material impact on Edison International's and SCE's consolidated financial statements.

On April 15, 2015, the FASB issued an accounting standard update on fees paid by a customer for software licenses. This new standard provides guidance about whether a cloud computing arrangement includes a software license which may be capitalized in certain circumstances. If a cloud computing arrangement does not include a software license, then the arrangement should be accounted for as a service contract. Edison International and SCE are currently evaluating this guidance, which is effective January 1, 2016, and expects this new standard will not have a material impact on the consolidated financial statements.