-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlKh2NP4EB35BUvdnBHj6nUPKZs0eyIql4xYaLYFrikME4ygnCAwPhocYvYBcHi6 m9Iw4vIAP5mWAk9RTP6qIw== 0000827052-96-000032.txt : 19960513 0000827052-96-000032.hdr.sgml : 19960513 ACCESSION NUMBER: 0000827052-96-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: AMEX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCECORP CENTRAL INDEX KEY: 0000827052 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 954137452 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09936 FILM NUMBER: 96559546 BUSINESS ADDRESS: STREET 1: 2244 WALNUT GROVE AVE STREET 2: P O BOX 800 CITY: ROSEMEAD STATE: CA ZIP: 91770 BUSINESS PHONE: 8183022222 10-Q 1 EDISON INTERNATIONAL 3/31/96 10Q PAGE SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 --------------------------------------- OR / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ---------------- ----------------- Commission File Number 1-9936 EDISON INTERNATIONAL (formerly SCEcorp) (Exact name of registrant as specified in its charter) CALIFORNIA 95-4137452 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2244 Walnut Grove Avenue (P.O. Box 999) Rosemead, California (Address of principal 91770 executive offices) (Zip Code) 818-302-2222 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at May 3, 1996 - -------------------------- --------------------------- Common Stock, no par value 441,578,131 PAGE EDISON INTERNATIONAL INDEX Page No. ---- Part I. Financial Information: Item 1. Consolidated Financial Statements: Consolidated Statements of Income--Three Months Ended March 31, 1996, and 1995 2 Consolidated Balance Sheets--March 31, 1996 and December 31, 1995 3 Consolidated Statements of Cash Flows--Three Months Ended March 31, 1996, and 1995 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 13 Part II. Other Information: Item 1. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 27 page 1 EDISON INTERNATIONAL PART I--FINANCIAL INFORMATION Item 1. Consolidated Financial Statements CONSOLIDATED STATEMENTS OF INCOME In thousands, except per-share amounts 3 Months Ended March 31, ------------------------- 1996 1995 ---------- ---------- (Unaudited) Electric utility revenue $1,760,134 $1,721,773 Diversified operations 207,520 100,260 ---------- ---------- Total operating revenue 1,967,654 1,822,033 ---------- ---------- Fuel 143,178 164,465 Purchased power 527,433 487,092 Provisions for regulatory adjustment clauses -- net 97,823 28,761 Other operating expenses 329,860 316,278 Maintenance 84,113 97,895 Depreciation and decommissioning 264,527 243,333 Income taxes 111,477 111,726 Property and other taxes 59,686 54,789 ---------- ---------- Total operating expenses 1,618,097 1,504,339 ---------- ---------- Operating income 349,557 317,694 ---------- ---------- Provision for rate phase-in plan (29,078) (29,775) Allowance for equity funds used during construction 4,402 5,524 Interest income 15,327 14,476 Minority interest (13,724) (11,651) Other nonoperating income -- net 8,465 4,544 ---------- ---------- Total other income (deductions) -- net (14,608) (16,882) ---------- ---------- Income before interest and other expenses 334,949 300,812 ---------- ---------- Interest on long-term debt 150,986 128,743 Other interest expense 23,761 23,639 Allowance for borrowed funds used during construction (2,767) (4,195) Capitalized interest (15,998) (13,137) Dividends on subsidiary preferred securities 11,878 12,217 ---------- ---------- Total interest and other expenses -- net 167,860 147,267 ---------- ---------- Net income $ 167,089 $ 153,545 ========== ========== Weighted-average shares of common stock outstanding 443,626 447,619 Earnings per share $.38 $.34 Dividends declared per common share $.25 $.25 The accompanying notes are an integral part of these financial statements. page 2 EDISON INTERNATIONAL CONSOLIDATED BALANCE SHEETS In thousands March 31, December 31, 1996 1995 ------------- ----------- (Unaudited) ASSETS Utility plant, at original cost $20,016,984 $19,850,179 Less -- accumulated provision for depreciation and decommissioning 8,732,739 8,569,265 ----------- ----------- 11,284,245 11,280,914 Construction work in progress 684,774 727,865 Nuclear fuel, at amortized cost 125,983 139,411 ----------- ----------- Total utility plant 12,095,002 12,148,190 ----------- ----------- Nonutility property -- less accumulated provision for depreciation of $180,191 and $133,670 at respective dates 3,373,170 3,140,385 Nuclear decommissioning trusts 1,294,661 1,260,095 Investments in partnerships and unconsolidated subsidiaries 1,196,060 1,190,294 Investments in leveraged leases 575,493 574,091 Other investments 77,068 65,963 ----------- ----------- Total other property and investments 6,516,452 6,230,828 ----------- ----------- Cash and equivalents 722,697 507,151 Receivables, including unbilled revenue, less allowances of $22,361 and $24,244 for uncollectible accounts at respective dates 963,494 1,054,954 Fuel inventory 111,207 114,357 Materials and supplies, at average cost 150,382 151,180 Accumulated deferred income taxes -- net 386,868 476,725 Prepayments and other current assets 77,100 126,184 ----------- ----------- Total current assets 2,411,748 2,430,551 ----------- ----------- Unamortized debt issuance and reacquisition expense 370,581 350,563 Rate phase-in plan 101,369 129,714 Unamortized nuclear plant -- net 41,936 67,185 Income tax-related deferred charges 1,791,017 1,723,605 Other deferred charges 966,478 865,599 ----------- ----------- Total deferred charges 3,271,381 3,136,666 ----------- ----------- Total assets $24,294,583 $23,946,235 =========== =========== The accompanying notes are an integral part of these financial statements. page 3 EDISON INTERNATIONAL CONSOLIDATED BALANCE SHEETS In thousands, except share amounts March 31, December 31, 1996 1995 ------------- ----------- (Unaudited) CAPITALIZATION AND LIABILITIES Common shareholders' equity: Common stock (443,644,275 and 443,607,674 shares outstanding at respective dates) $ 2,660,749 $ 2,660,096 Retained earnings 3,755,748 3,699,572 ----------- ----------- 6,416,497 6,359,668 Preferred securities of subsidiaries: Not subject to mandatory redemption 283,755 283,755 Subject to mandatory redemption 425,000 425,000 Long-term debt 7,217,974 7,195,197 ----------- ----------- Total capitalization 14,343,226 14,263,620 ----------- ----------- Other long-term liabilities 373,802 344,192 ----------- ----------- Current portion of long-term debt 251,439 40,328 Short-term debt 608,535 709,508 Accounts payable 346,098 419,522 Accrued taxes 660,922 557,095 Accrued interest 143,467 101,370 Dividends payable 113,343 113,334 Regulatory balancing accounts -- net 439,354 337,867 Deferred unbilled revenue and other current liabilities 944,950 1,004,879 ----------- ----------- Total current liabilities 3,508,108 3,283,903 ----------- ----------- Accumulated deferred income taxes -- net 4,304,419 4,339,259 Accumulated deferred investment tax credits 395,078 405,112 Customer advances and other deferred credits 696,531 680,210 ----------- ----------- Total deferred credits 5,396,028 5,424,581 ----------- ----------- Minority interest 673,419 629,939 ----------- ----------- Commitments and contingencies (Notes 1 and 2) Total capitalization and liabilities $24,294,583 $23,946,235 =========== =========== The accompanying notes are an integral part of these financial statements. page 4 EDISON INTERNATIONAL CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands 3 Months Ended March 31, ------------------------ 1996 1995 --------- ----------- (Unaudited) Cash flows from operating activities: Net income $ 167,089 $ 153,545 Adjustments for non-cash items: Depreciation and decommissioning 264,527 243,333 Amortization 28,969 13,519 Rate phase-in plan 28,345 26,255 Deferred income taxes and investment tax credits (20,022) 10,260 Equity in income from partnerships and unconsolidated subsidiaries (24,907) (15,048) Other long-term liabilities 29,610 23,792 Other -- net (6,432) (33,367) Changes in working capital: Receivables 105,325 102,075 Regulatory balancing accounts 101,487 42,973 Fuel inventory, materials and supplies 3,948 (37,414) Prepayments and other current assets 49,084 40,580 Accrued interest and taxes 142,053 89,524 Accounts payable and other current liabilities (114,521) (71,281) Distributions from partnerships and unconsolidated subsidiaries 15,302 35,969 ---------- ---------- Net cash provided by operating activities 769,857 624,715 ---------- ---------- Cash flows from financing activities: Long-term debt issued 1,048,518 231,708 Long-term debt repayments (1,027,633) (317,763) Common stock issued 653 -- Common stock repurchases -- (8,270) Nuclear fuel financing -- net (8,437) 22,010 Short-term debt financing -- net (100,973) (292,707) Dividends paid (110,911) (103,680) ---------- ---------- Net cash used by financing activities (198,783) (468,702) ---------- ---------- Cash flows from investing activities: Additions to property and plant (232,402) (245,844) Funding of nuclear decommissioning trusts (35,975) (24,157) Investments in partnerships and unconsolidated subsidiaries (96,266) (129,754) Other -- net 9,115 (5,542) ---------- ---------- Net cash used by investing activities (355,528) (405,297) ---------- ---------- Net increase (decrease) in cash and equivalents 215,546 (249,284) Cash and equivalents, beginning of period 507,151 533,957 ---------- ---------- Cash and equivalents, end of period $ 722,697 $ 284,673 ========== ========== The accompanying notes are an integral part of these financial statements. page 5 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Management's Statement In the opinion of management, all adjustments have been made that are necessary to present a fair statement of the financial position and results of operations for the periods covered by this report. Edison International's significant accounting policies were described in Note 1 of "Notes to Consolidated Financial Statements" included in its 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Edison International follows the same accounting policies for interim reporting purposes. This quarterly report should be read in conjunction with Edison International's 1995 Annual Report. Certain prior-period amounts were reclassified to conform to the March 31, 1996, financial statement presentation. Note 1. Regulatory Matters 1995 General Rate Case On January 10, 1996, the California Public Utilities Commission (CPUC) issued its decision on Southern California Edison Company's (SCE) 1995 general rate case. The decision affirmed the CPUC's interim order to reduce 1995 operating revenue by $67 million, but decreased 1996 operating revenue by an additional $9 million, which includes a decrease of $44 million for operating and maintenance expenses. The decision also authorized recovery of SCE's remaining investment in San Onofre Nuclear Generating Station Units 2 and 3, at a reduced rate of return, over an eight-year period. On April 10, 1996, the CPUC finalized the implementation details of the accelerated recovery of the San Onofre Units. On April 15, 1996, SCE began accelerating the recovery of its remaining investment of $2.6 billion. The accelerated recovery will continue through December 31, 2003, earning a 7.35% fixed rate of return (compared to the current 9.55%). Future operating costs and incremental capital expenditures at San Onofre are subject to an incentive pricing plan, where SCE receives about 4 cents per kilowatt-hour. Any differences from the incentive price will flow through to shareholders. Beginning in 2004, after SCE's investment is fully recovered, SCE would be required to share equally with ratepayers the benefits received from operation of the units. Performance-Based Ratemaking (PBR) SCE originally filed for a PBR mechanism in 1993, requesting a revenue- indexing formula to combine operating expenses and capital-related costs into a single index to determine most of its revenue (excluding fuel) from 1996-2000. The filing was subsequently divided between transmission and distribution, and power generation. Hearings concluded on the transmission and distribution phase in December 1994. The CPUC's restructuring decision, as further discussed below, requested comments addressing whether SCE's transmission and distribution PBR proposal should be amended or reviewed as filed. In January 1996, SCE requested the CPUC approve its PBR as filed. SCE expects to file its proposal for the power generation phase in July 1996. CPUC Restructuring Decision On December 20, 1995, the CPUC issued its decision on restructuring California's electric industry, which it had been considering since April 1994. The new market structure would provide competition and customer choice. The transition to a competitive electric market would begin page 6 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 1, 1998, with all consumers participating by 2003. Key elements of the decision include: o Creation of an independent power exchange to manage electric supply and demand. California's investor-owned utilities would be required to purchase from and sell to the exchange all of their power during the transition period, while other generators could voluntarily participate. o Creation of an independent system operator to have operational control of the utilities' transmission facilities and, therefore, control the scheduling and dispatch of all electricity on the state's power grid. o Availability of customer choice through time-of-use rates, direct customer access to generation providers with transmission arrangements through the system operator, and customer-arranged "contracts for differences" to manage price fluctuations from the power exchange. o Recovery of costs to transition to a competitive market (utility investments and obligations incurred to serve customers under the existing framework) through a non-bypassable charge, applied to all customers, called the "competition transition charge" (CTC). o CPUC-established incentives to encourage voluntary divestiture (through spin-off or sale to an unaffiliated entity) of at least 50% of utilities' gas-fueled generation to address market power issues. o Performance-based ratemaking (PBR) for those utility services not subject to competition. On March 19, 1996, SCE filed a plan outlining how SCE would propose to divest 50% of its gas-fueled generation. SCE's plan is contingent on assurances about transition cost recovery and the resolution of key issues related to: worker protection measures being in place for utility employees who could suffer hardship as a result of divestiture; utilities being permitted full recovery of the transition costs incurred during the divestiture process; appropriate rate-making measures to cover the contingency if the completion of the divestiture plan or commencement of the power exchange is delayed; and prudently incurred costs associated with fuel supply, transportation and storage contracts not being stranded by the divestiture. On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas & Electric Company filed a proposal with the Federal Energy Regulatory Commission (FERC) regarding the creation of the independent power exchange and the independent system operator. Recovery of costs to transition to a competitive market would be implemented through a non-bypassable CTC. This charge would apply to all customers who currently use utility services or begin utility service after this decision is effective. SCE estimates its potential transition costs through 2025 to be approximately $9.3 billion (net present value), based on incurred costs, and forecasts of future costs and assumed market prices. However, changes in the assumed market price could require material revisions to such estimates. The potential transition costs are comprised of: $4.9 billion from SCE's qualifying facility contracts, which are the direct result of legislative and regulatory mandates; and $4.4 billion from costs pertaining to certain generating plants and regulatory commitments consisting of costs incurred (whose recovery has been deferred by the CPUC) to provide service to customers. Such commitments include the recovery of income tax benefits previously flowed-through to customers, postretirement benefit transition costs, accelerated recovery page 7 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of nuclear plants (including San Onofre Unit 1 and San Onofre Units 2 and 3 as previously discussed), nuclear decommissioning and certain other costs. The undepreciated book value of a utility's generation plant will be calculated on the amount in rate base as of the decision date. Further, adverse financial consequences could result if an ambiguity in the CPUC's restructuring decision is not eliminated. The ambiguity relates to recovery of capital expenditures made for SCE's fossil generation units in 1996 and beyond in the calculation of the CTC. SCE believes that recovery of such capital expenditures is consistent with the intent of the restructuring decision and filed a petition on March 25, 1996, to clarify the decision. If these efforts at clarification, consistent with the decision's intent, are unsuccessful, then SCE estimates the negative effect on 1996 earnings would be approximately $50 million (pre-tax), based on SCE's 1996 capital budget for its fossil generation units. Because the restructuring of California's electric industry has widespread impact and the market structure requires the participation and oversight of the FERC, the CPUC will seek to build a California consensus involving the legislature, governor, public and municipal utilities, and customers. Once the consensus is in place, FERC approval will be sought, and together both agencies would move forward to implement the new market structure. In addition, the CPUC will prepare an environmental impact report. If the CPUC's restructuring decision is upheld and implemented as outlined, SCE would be allowed to recover its CTC (subject to a lower return on equity) and would continue to apply accounting standards that recognize the economic effects of rate regulation. The effect of such an outcome would not be expected to materially affect SCE's results of operations or financial position during the transition period. If revisions are made to the CPUC's restructuring decision that result in SCE no longer meeting the criteria to apply regulatory accounting standards to its generation operations, SCE may be required to write off its recorded generation-related regulatory assets. At March 31, 1996, these amounts totaled $1.3 billion (excluding balancing account overcollections of $237 million to be refunded to customers in June 1996), primarily for the recovery of income tax benefits previously flowed- through to customers, the Palo Verde Nuclear Generating Station phase-in plan and unamortized loss on reacquired debt. Although depreciation- related differences could result from applying a regulatory prescribed depreciation method (straight-line, remaining-life method) rather than a method that would have been applied absent the regulatory process, SCE believes that the depreciable lives of its generation-related assets would not vary significantly from that of an unregulated enterprise, as the CPUC bases depreciable lives on periodic studies that reflect the assets' physical useful life. SCE also believes that any depreciation-related differences would be recovered through the CTC. Additionally, if revisions are made to the CPUC's restructuring decision that result in all or a portion of the CTC not being probable of recovery, SCE could have additional write-offs associated with these costs if they are not recovered through another regulatory mechanism. At this time, SCE cannot predict when, or if, a consensus on restructuring will be reached, what revisions will ultimately be made in the CPUC's restructuring plan in subsequent proceedings or implementation phases, or the effect, after the transition period, that competition will have on its results of operations or financial position. FERC Stranded Cost/Open Access Transmission Decision On April 24, 1996, the FERC issued its decision on stranded cost recovery and open access transmission, which it had been considering since March page 8 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1995. The decision, which will be effective in July 1996, requires all electric utilities subject to the FERC's jurisdiction to file transmission tariffs which provide competitors with increased access to transmission facilities for wholesale transactions and also establishes information requirements for the transmission utility. The decision also provides utilities with the recovery of prior-service costs incurred under the current regulatory framework, which are known as stranded costs. In addition to providing recovery of stranded costs associated with existing wholesale customers, the FERC directed that it would be the primary jurisdiction for the recovery of stranded costs associated with retail- turned-wholesale customers, such as the formation of a new municipal electric system. Retail stranded costs resulting from a state-authorized retail direct-access program are the responsibility of the states and the FERC would only address recovery of these costs if the state has no authority to do so. Mohave Generating Station A 1994 CPUC decision stated that SCE was liable for expenditures related to a 1985 accident at the Mohave Generating Station. The CPUC ordered a second phase of this proceeding to quantify the disallowance. On December 22, 1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed a $38 million settlement agreement subject to CPUC approval. This agreement has been fully reflected in the financial statements. Canadian Gas Contracts In May 1994, SCE filed its testimony in the non-Qualified Facilities phase of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the DRA filed its report on the reasonableness of SCE's gas supply costs for both the 1993 and 1994 record periods. The report recommends a disallowance of $13.3 million for excessive costs incurred from November 1993 through March 1994 associated with SCE's Canadian gas purchase and supply contracts. The report requests the CPUC defer finding SCE's Canadian supply and transportation agreements reasonable for the duration of their terms and that the costs under these contracts be reviewed on a yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings are scheduled for late 1996. Palo Verde Rate-making Proposal On February 29, 1996, SCE filed a proposal with the CPUC requesting a new rate mechanism for its 15.8% share of the three units at Palo Verde. The filing was made in compliance with the CPUC's December 20, 1995, restructuring decision that directed SCE to file a rate-making proposal similar to rate-making approved for San Onofre in the 1995 general rate case. The proposed rate mechanism would allow SCE to accelerate the recovery of its share of Palo Verde's sunk cost (forecast to be $1.2 billion as of December 31, 1996), over a seven-year period, beginning January 1, 1997, and ending in 2003. During the seven-year period, SCE's return on rate base for Palo Verde sunk costs would be reduced to 7.34% from the current 9.55%, and SCE would also have the opportunity to recover the incremental costs of continued operation of Palo Verde at approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units operate at an average capacity factor of 77%. SCE recommended to the CPUC a schedule for this proceeding that calls for hearings to begin in June and a decision by year-end 1996. Note 2. Contingencies In addition to the matters disclosed in these notes, Edison International is involved in legal, tax and regulatory proceedings before various courts page 9 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and governmental agencies regarding matters arising in the ordinary course of business. Edison International believes the outcome of these proceedings will not materially affect its results of operations or liquidity. Brooklyn Navy Yard Project Edison Mission Energy (EME) owns, through a wholly-owned subsidiary, 50% of the Brooklyn Navy Yard project; however, it is initially funding all of the required equity and debt ($460 million) for the project and has provided a guarantee as a condition of obtaining financing for the project. Consolidated Edison Company of New York, which has contracted to buy most of the project's power, raised concerns regarding the timing of certain performance milestones and whether the plant's configuration and related performance comply with the terms of the contracts. EME and its project partner are attempting to resolve these issues in a manner satisfactory to the project and Consolidated Edison. EME believes the anticipated returns on the project will be substantially less than originally estimated. Environmental Protection Edison International is subject to numerous environmental laws and regulations, which require it to incur substantial costs to operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past operations on the environment. Edison International records its environmental liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. Edison International reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, Edison International records the lower end of this reasonably likely range of costs (classified as other long- term liabilities at undiscounted amounts). While Edison International has numerous insurance policies that it believes may provide coverage for some of these liabilities, it does not recognize recoveries in its financial statements until they are realized. Edison International's recorded estimated minimum liability to remediate its 62 identified sites (58 at SCE and 4 at EME) was $114 million at March 31, 1996. The ultimate costs to clean up Edison International's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; the varying costs of alternative cleanup methods; developments resulting from investigatory studies; the possibility of identifying additional sites; and the time periods over which site remediation is expected to occur. Edison International believes that, due to these uncertainties, it is reasonably possible that cleanup costs could exceed its recorded liability by up to $215 million. The upper limit of this range of costs was estimated using assumptions least favorable to Edison International among a range of reasonably possible outcomes. The CPUC allows SCE to recover environmental-cleanup costs at 24 of its sites, representing $90 million of Edison International's recorded liability, through an incentive mechanism (SCE may request to include page 10 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS additional sites). Under this mechanism, SCE will recover 90% of cleanup costs through customer rates; shareholders fund the remaining 10%, with the opportunity to recover these costs through insurance and other third- party recoveries. SCE has settled insurance claims with several carriers, and is continuing to pursue additional recovery. Costs incurred at SCE's remaining 34 sites are expected to be recovered through customer rates. SCE has filed a request with the CPUC to add 17 of these sites ($6 million in estimated minimum liability) to the incentive mechanism. SCE has recorded a regulatory asset of $104 million for its estimated minimum environmental-cleanup costs expected to be recovered through customer rates. Edison International's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination and the extent, if any, that Edison International may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can now be made for these sites. Edison International expects to clean up its identified sites over a period of up to 30 years. Remediation costs in each of the next several years are expected to range from $3 million to $6 million. In 1994, SCE utilized an estimating technique to quantify its potential liability for environmental cleanup in an effort to obtain a reasonably possible objective and reliable estimate of environmental cleanup. During 1995, EME completed a similar review of some of its sites where known contamination and potential liability exist and does not believe a material liability exists as of March 31, 1996. Based on currently available information, Edison International believes it is not likely that it will incur amounts in excess of the upper limit of the estimated range and, based upon the CPUC's regulatory treatment of environmental-cleanup costs, Edison International believes that costs ultimately recorded will not have a material adverse effect on its results of operations or financial position. There can be no assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to such estimates. Nuclear Insurance Federal law limits public liability claims from a nuclear incident to $8.9 billion. SCE and other owners of San Onofre and Palo Verde have purchased the maximum private primary insurance available ($200 million). The balance is covered by the industry's retrospective rating plan that uses deferred premium charges to every reactor licensee if a nuclear incident at any licensed reactor in the U.S. results in claims and/or costs which exceed the primary insurance at that plant site. Federal regulations require this secondary level of financial protection. The Nuclear Regulatory Commission exempted San Onofre Unit 1 from this secondary level, effective June 1994. The maximum deferred premium for each nuclear incident is $79 million per reactor, but not more than $10 million per reactor may be charged in any one year for each incident. Based on its ownership interests, SCE could be required to pay a maximum of $158 million per nuclear incident. However, it would have to pay no more than $20 million per incident in any one year. Such amounts include a 5% surcharge if additional funds are needed to satisfy public liability claims and are subject to adjustment for inflation. If the public liability limit above is insufficient, federal regulations will impose further revenue-raising measures to pay claims, including a possible additional assessment on all licensed reactor operators. page 11 EDISON INTERNATIONAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property damage insurance covers losses up to $500 million, including decontamination costs, at San Onofre and Palo Verde. Decontamination liability and property damage coverage exceeding the primary $500 million also has been purchased in amounts greater than federal requirements. Additional insurance covers part of replacement power expenses during an accident-related nuclear unit outage. These policies are issued primarily by mutual insurance companies owned by utilities with nuclear facilities. If losses at any nuclear facility covered by the arrangement were to exceed the accumulated funds for these insurance programs, SCE could be assessed retrospective premium adjustments of up to $44 million per year. Insurance premiums are charged to operating expense. page 12 EDISON INTERNATIONAL Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Earnings Edison International's earnings per share were 38 cents for the first quarter of 1996, compared to 34 cents for the first quarter of 1995. Southern California Edison Company's (SCE) earnings were 31 cents per share, unchanged from the same period in 1995. SCE's earnings reflect improved operating performance despite the lower authorized return on common equity and lower authorized operating expenses. The nonutility subsidiaries' quarterly earnings were up 4 cents from the same period in 1995 due to unusually high seasonal earnings from Edison Mission Energy's (EME) newly acquired First Hydro project. There were no comparable earnings from this project in 1995. In April 1996, EME completed a sale of four operating geothermal facilities and recorded an after-tax gain of approximately $16 million. EME had previously discontinued recording earnings for these projects due to the absence of an escalation in the market price of natural gas. Operating Revenue Electric utility revenue increased 2% during the first quarter of 1996, compared with the same period in 1995, primarily due to a similar increase in retail sales volume. Since the California Public Utilities Commission (CPUC) did not rule on 1996 authorized revenue until February 1996, new rates will be effective in the second quarter. About 99% of electric utility revenue is from retail sales. Retail rates are regulated by the CPUC and wholesale rates are regulated by the Federal Energy Regulatory Commission (FERC). In March 1995, SCE announced that it intends to freeze average rates for residential, small business and agricultural customers through 1996, and announced a five-year goal to reduce system average rates by 25% (from 10.7 cents per kilowatt-hour to below 10 cents per kilowatt-hour), after adjusting for inflation. In February 1996, the CPUC approved a system- wide rate reduction which will drop the average price per kilowatt-hour from 10.7 cents to 10.1 cents. Revenue from diversified operations increased over 100%, mainly due to an increase in EME's electric revenue from its First Hydro and Iberian Hy- Power projects. First Hydro, acquired in December 1995, is an independent power company whose principal assets consist of two pumped-storage electric power stations with a combined capacity of 2,088 megawatts. In January 1996, EME increased its ownership from 34% to 100% of Iberian Hy- Power, which consists of 18 hydroelectric plants located throughout Spain. There was no comparable revenue from these projects in 1995. Operating Expenses Fuel expense decreased 13%, primarily reflecting a decrease in SCE's gas- powered generation partially offset by an increase from EME's First Hydro and Iberian Hy-Power projects. The decrease in SCE's gas-powered generation was directly related to an increase in nuclear generation. In 1995, San Onofre Nuclear Generating Station Unit 2 was out of service for a scheduled refueling and maintenance outage for half of the first quarter. There was no comparable outage in 1996 and no comparable fuel expense from the EME projects in 1995. page 13 Purchased-power expense increased 8% for the quarter ended March 31, 1996, compared to the same period last year. SCE makes federally required power purchases from nonutility generators based on contracts with CPUC-mandated pricing. Energy prices under these contracts are generally higher than other energy sources. Provisions for regulatory adjustment clauses increased as kilowatt-hour sales exceeded CPUC-authorized estimates. Maintenance expense decreased 14% in the first quarter of 1996, compared with the year-earlier period, due to the scheduled refueling and maintenance outage at San Onofre Unit 2 during the first quarter of 1995. Unit 2 returned to service in May 1995. Other Income and Deductions The provision for rate phase-in plan reflects a CPUC-authorized, 10-year rate phase-in plan, which deferred the collection of revenue during the first four years of operation for the Palo Verde Nuclear Generating Station. The plan allows the deferred revenue (including interest) to be collected evenly over the final six years of each unit's plan. The plan ended in February 1996 for Unit 1, and will end in September 1996 and January 1998 for Units 2 and 3, respectively. The provision is a non-cash offset to the collection of deferred revenue. Minority interest increased 18%, primarily from EME's Loy Yang B project. Other nonoperating income increased primarily due to additional accruals at SCE for regulatory matters in the first quarter of 1995, partially offset by the reclassification of Edison Capital's equity losses from affiliates which was previously included in revenue from diversified operations in the first quarter of 1995. Interest and Other Expenses Interest on long-term debt increased 17%, reflecting EME's newly acquired First Hydro project. Other interest expense remained unchanged due to lower interest rates offset by higher balances in SCE's regulatory balancing accounts. Capitalized interest increased 22%, primarily due to an increase in construction activity at EME's Brooklyn Navy Yard and Paiton projects. FINANCIAL CONDITION Edison International's liquidity is primarily affected by debt maturities, dividend payments, capital expenditures and investments in partnerships and unconsolidated subsidiaries. Capital resources include cash from operations and external financings. In June 1994, Edison International lowered its quarterly common stock dividend by 30%, as the result of uncertainty of future earnings levels arising from the changing nature of California's electric utility regulation. In January 1995, Edison International authorized the repurchase of up to $150 million (increased to $300 million on April 18, 1996) of its common stock. Edison International repurchased 7,173,542 shares ($117 million) through May 3, 1996, funded by dividends from Edison International subsidiaries. For the first quarter of 1996, Edison International's cash flow coverage of dividends increased to 6.9 times from 6.0 times for the same period in 1995. Edison International's dividend payout ratio for the twelve-month period ended March 31, 1996, was 59%. page 14 Cash Flows from Operating Activities Net cash provided by operating activities totaled $770 million in the first quarter of 1996 compared to $625 million in the first quarter of 1995. Cash from operations exceeded capital requirements for both periods presented. Cash Flows from Financing Activities At March 31, 1996, Edison International and its subsidiaries had $1.9 billion of borrowing capacity available under lines of credit totaling $2.4 billion. SCE had available lines of credit of $1.4 billion, with $900 million for short-term debt and $500 million for the long-term refinancing of its variable-rate pollution-control bonds. The parent company had a $350 million, one-year term, line of credit with $50 million of borrowing capacity available. The nonutility companies had lines of credit of $610 million, with $480 million of borrowing capacity available to finance general cash requirements. Edison International's unsecured lines of credit are at negotiated or bank index rates with various expiration dates; the majority have five-year terms. SCE's short-term debt is used to finance fuel inventories, balancing account undercollections and general cash requirements. EME uses short- term debt and available credit lines mainly for construction projects until long-term construction or project loans are secured. Long-term debt is used mainly to finance capital expenditures. SCE's external financings are influenced by market conditions and other factors, including limitations imposed by its articles of incorporation and trust indenture. As of March 31, 1996, SCE could issue approximately $7.6 billion of additional first and refunding mortgage bonds and $4.3 billion of preferred stock at current interest and dividend rates. EME owns, through a wholly-owned subsidiary, 50% of the Brooklyn Navy Yard project. However, EME is initially funding all of the required equity and debt ($460 million) for the project; about $360 million had been spent through March 31, 1996. In December 1995, EME provided a guarantee as a condition of obtaining a $254 million tax-exempt financing for the project. Consolidated Edison of New York, which has contracted to buy most of the project's power, raised concerns regarding the timing of certain performance milestones and whether the plant's configuration and related performance comply with the terms of the contracts. EME and its project partner are attempting to resolve these issues in a manner satisfactory to the project and Consolidated Edison. In addition, EME, its project partner and Consolidated Edison are continuing to evaluate various options with respect to the ongoing development of the project. EME believes that its anticipated returns on the project will be substantially less than it had originally estimated. At March 31, 1996, EME had firm commitments to make equity and other contributions to its projects and contingent obligations to make additional contributions to its projects in the amount of $287 million and $454 million, respectively. Included in the contingent obligations are EME's guarantees related to the Brooklyn Navy Yard project, discussed above. The majority of the remaining amounts are for the expected four- year construction period of the Paiton project. In April 1996, EME and its partner ISAB S.p.A., completed a 1.9 trillion Italian lira ($1.2 billion) financing for a 507 MW power project located in Italy. In connection with the financing, EME has guaranteed equity contributions and subordinated debt totaling 244 billion Italian lira ($156 million). EME may incur additional obligations to make equity and other contributions to projects in the future. EME believes it will have sufficient liquidity to meet these equity requirements from cash provided page 15 by operating activities, proceeds from the repayment of loans to energy projects, funds available from EME's revolving line of credit and additional corporate borrowings. California law prohibits SCE from incurring or guaranteeing debt for its nonutility affiliates. Additionally, the CPUC regulates SCE's capital structure, limiting the dividends it may pay Edison International. At March 31, 1996, SCE had the capacity to pay $491 million in additional dividends and continue to maintain its authorized capital structure. These restrictions are not expected to affect Edison International's ability to meet its cash obligations. Cash Flows from Investing Activities The primary uses of cash for investing activities are additions to property and plant, the nonutilities' investments in partnerships and unconsolidated subsidiaries, and funding of nuclear decommissioning trusts. Decommissioning costs are accrued and recovered in rates over the term of each nuclear generating facility's operating license through charges to depreciation expense. SCE estimates that it will spend approximately $12.7 billion to decommission its nuclear facilities, primarily between 2013-2070. This estimate is based on SCE's current- dollar decommissioning costs ($2.0 billion), escalated using a 6.65% rate and an earnings assumption on trust funds ranging from 5.5% to 5.75%. These amounts are expected to be funded from independent decommissioning trusts, which receive SCE contributions of approximately $100 million per year (until decommissioning begins). The Financial Accounting Standards Board has issued an exposure draft related to accounting practices for removal costs, including decommissioning of nuclear power plants. SCE does not expect that the accounting changes proposed in the exposure draft would have an adverse effect on its results of operations due to its current and expected future ability to recover these costs through customer rates. Cash used for the nonutility subsidiaries' investing activities was $128 million for the three-month period ended March 31, 1996, compared to $181 million for the same period in 1995. Edison International's risk management policy allows the use of derivative financial instruments to mitigate risk. Changes in interest rates, electricity pool pricing and fluctuations in foreign currency exchange rates can have a significant impact on EME's results of operations. EME has attempted to mitigate the risk of interest rate fluctuations by arranging for fixed rate or variable rate financing with interest rate swaps or other hedging mechanisms for the majority of its corporate and project financings. As a result of interest rate hedging mechanisms, interest expense increased $2 million in the first quarter of 1996 and 1995. The maturity date of several of EME's interest rate swap agreements do not correspond to the term of the underlying debt. EME does not anticipate a material adverse effect on results of operations or financial position as a result of interest rate fluctuations. Projects in the United Kingdom (U.K.) sell their energy and capacity production through a centralized electricity pool, which establishes a half-hourly clearing price for electrical energy and capacity. The pool price is extremely volatile, and can vary by a factor of ten or more over the course of a few hours due to large differentials in demand according to the time of day. First Hydro mitigates a portion of the market risk of the pool by entering into contracts for differences (electricity rate swap agreements), where payments are made when pool selling prices rise above the prices specified in the contracts. These contracts act as a means of stabilizing production revenue by removing an element of net exposure to pool price volatility. First Hydro's electric revenue was decreased by $4 million in the first quarter of 1996 as a result of electricity rate swap agreements. page 16 As EME continues to expand into foreign markets, fluctuations in foreign currency exchange rates will continue to affect the amount of its equity contributions to, distributions from, and results of operations for its foreign projects. EME has hedged a portion of its current exposure to fluctuations in foreign exchange risks, where it deems appropriate, through offsetting obligations denominated in foreign currencies, and indexing underlying project agreements to U.S. dollars or other indices reasonably expected to correlate with foreign exchange movements. Projected Capital Requirements Edison International's projected capital requirements for the next five years are: 1996--$893 million; 1997--$757 million; 1998--$647 million; 1999--$690 million; and 2000--$673 million. Long-term debt maturities and sinking fund requirements for the five twelve-month periods following March 31, 1996, are: 1997--$236 million; 1998--$536 million; 1999--$570 million; 2000--$592 million; and 2001--$306 million. REGULATORY MATTERS SCE's 1996 CPUC-authorized revenue decreased $575 million, or 7.5%, including a one-time bill credit of $237 million, which customers will receive in June 1996, related to lower fuel costs than originally estimated. The remaining $338 million revenue reduction is primarily for a $242 million decrease in fuel costs, a $53 million decrease for lower costs of debt and equity (discussed below), a $24 million decrease for lower nuclear refueling costs and a $9 million decrease related to the 1995 general rate case (discussed below). On January 10, 1996, the CPUC issued its decision on SCE's 1995 general rate case. The decision affirmed the CPUC's interim order to reduce 1995 operating revenue by $67 million, but decreased 1996 operating revenue by an additional $9 million, which includes a decrease of $44 million for operating and maintenance expenses. The decision also authorized recovery of SCE's remaining investment in San Onofre Units 2 and 3 at a reduced rate of return over an eight-year period. On April 10, 1996, the CPUC finalized the implementation details of the accelerated recovery of the San Onofre units. On April 15, 1996, SCE began accelerating the recovery of its remaining investment of $2.6 billion. The accelerated recovery will continue through December 31, 2003, earning a 7.35% fixed rate of return (compared to the current 9.55%). Future operating costs and incremental capital expenditures at San Onofre are subject to an incentive pricing plan, where SCE receives about 4 cents per kilowatt-hour. Any differences from the incentive price will flow through to shareholders. Beginning in 2004, after SCE's investment is fully recovered, SCE would be required to share equally with ratepayers the benefits received from operation of the units. The CPUC's 1996 cost-of-capital decision authorized an increase to SCE's equity ratio from 47.75% to 48% and authorized SCE an 11.6% return on common equity, compared to 12.1% for 1995. This decision, excluding the effects of other rate actions, would reduce 1996 earnings by approximately 4 cents per share. A 1994 CPUC decision stated that SCE was liable for expenditures related to a 1985 accident at the Mohave Generating Station. The CPUC ordered a second phase of this proceeding to quantify the disallowance. On December 22, 1995, SCE and the CPUC's Division of Ratepayer Advocates (DRA) filed a $38 million settlement agreement, subject to CPUC approval. This agreement has been fully reflected in the financial statements. In May 1994, SCE filed its testimony in the non-Qualified Facilities phase of the 1994 Energy Cost Adjustment Clause proceeding. In May 1995, the DRA filed its report on the reasonableness of SCE's gas supply costs for page 17 both the 1993 and 1994 record periods. The report recommends a disallowance of $13.3 million for excessive costs incurred from November 1993 through March 1994 associated with SCE's Canadian gas purchase and supply contracts. The report requests the CPUC defer finding SCE's Canadian supply and transportation agreements reasonable for the duration of their terms and that the costs under these contracts be reviewed on a yearly basis. In December 1995, SCE filed rebuttal testimony. Hearings are scheduled for late 1996. On February 29, 1996, SCE filed a proposal with the CPUC requesting a new rate mechanism for its 15.8% share of the three units at Palo Verde. The filing was made in compliance with the CPUC's December 20, 1995, restructuring decision that directed SCE to file a rate-making proposal similar to ratemaking approved for San Onofre in the 1995 general rate case. The proposed rate mechanism would allow SCE to accelerate the recovery of its share of Palo Verde's sunk cost (forecast to be $1.2 billion as of December 31, 1996) over a seven-year period, beginning January 1, 1997, and ending in 2003. During the seven-year period, SCE's return on rate base for Palo Verde sunk costs would be reduced to 7.34% from the current 9.55%, and SCE would also have the opportunity to recover the incremental costs of continued operation of Palo Verde at approximately 3.5 cents per kilowatt-hour, provided the Palo Verde units operate at an average capacity factor of 77%. SCE recommended to the CPUC a schedule for this proceeding that calls for hearings to begin in June and a decision by year-end 1996. COMPETITIVE ENVIRONMENT SCE currently operates in a highly regulated environment in which it has an obligation to provide electric service to customers in return for an exclusive franchise within its service territory. This regulatory environment is changing. The generation sector has experienced competition from nonutility power producers and regulators are restructuring California's electric utility regulation. On December 20, 1995, the CPUC issued its decision on restructuring California's electric industry, which it had been considering since April 1994. The new market structure would provide competition and customer choice. The transition to a competitive electric market would begin January 1, 1998, with all consumers participating by 2003. Key elements of the decision include: o Creation of an independent power exchange to manage electric supply and demand. California's investor-owned utilities would be required to purchase from and sell to the exchange all of their power during the transition period, while other generators could voluntarily participate. o Creation of an independent system operator to have operational control of the utilities' transmission facilities and, therefore, control the scheduling and dispatch of all electricity on the state's power grid. o Availability of customer choice through time-of-use rates, direct customer access to generation providers with transmission arrangements through the system operator, and customer-arranged "contracts for differences" to manage price fluctuations from the power exchange. o Recovery of costs to transition to a competitive market (utility investments and obligations incurred to serve customers under the existing framework) through a non-bypassable charge, applied to all customers, called the "competition transition charge" (CTC). o CPUC-established incentives to encourage voluntary divestiture (through spin-off or sale to an unaffiliated entity) of at least 50% of utilities' gas-fueled generation to address market power issues. page 18 o Performance-based ratemaking (PBR) for those utility services not subject to competition. SCE originally filed for a PBR mechanism in 1993, requesting a revenue- indexing formula to combine operating expenses and capital-related costs into a single index to determine most of its revenue (excluding fuel) from 1996-2000. The filing was subsequently divided between transmission and distribution, and power generation. Hearings concluded on the transmission and distribution phase in December 1994. The CPUC's restructuring decision requested comments addressing whether SCE's transmission and distribution PBR proposal should be amended or reviewed as filed. In January 1996, SCE requested the CPUC approve its PBR as filed. SCE expects to file its proposal for the power generation phase in July 1996. On March 19, 1996, SCE filed a plan outlining how SCE would propose to divest 50% of its gas-fueled generation. SCE's plan is contingent on assurances about transition cost recovery and the resolution of key issues related to: worker protection measures being in place for utility employees who could suffer hardship as a result of divestiture; utilities being permitted full recovery of the transaction costs incurred during the divestiture process; appropriate rate-making measures to cover the contingency if the completion of the divestiture plan or commencement of the power exchange is delayed; and prudently incurred costs associated with fuel supply, transportation and storage contracts not being stranded by the divestiture. On April 29, 1996, SCE, Pacific Gas & Electric Company and San Diego Gas & Electric Company filed a proposal with the FERC regarding the creation of the independent power exchange and the independent system operator. SCE estimates its potential transition costs through 2025 to be approximately $9.3 billion (net present value), based on incurred costs, and forecasts of future costs and assumed market prices. However, changes in the assumed market price could require material revisions to such estimates. The potential transition costs are comprised of: $4.9 billion from SCE's qualifying facility contracts, which are the direct result of legislative and regulatory mandates; and $4.4 billion from costs pertaining to certain generating plants and regulatory commitments consisting of costs incurred (whose recovery has been deferred by the CPUC) to provide service to customers. Such commitments include the recovery of income-tax benefits previously flowed-through to customers, postretirement benefit transition costs, accelerated recovery of nuclear plants (including San Onofre Unit 1 and San Onofre Units 2 and 3 as previously discussed), nuclear decommissioning and certain other costs. The undepreciated book value of a utility's generation plant will be calculated on the amount in rate base as of the decision date. Further, adverse financial consequences could result if an ambiguity in the CPUC's restructuring decision is not eliminated. The ambiguity relates to recovery of capital expenditures made for SCE's fossil generation units in 1996 and beyond in the calculation of the CTC. SCE believes that recovery of such capital expenditures is consistent with the intent of the restructuring decision and filed a petition on March 25, 1996, to clarify the decision. If these efforts at clarification, consistent with the decision's intent, are unsuccessful, then SCE estimates the negative effect on 1996 earnings would be approximately $50 million (pre-tax), based on SCE's 1996 capital budget for its fossil generation units. Because the restructuring of California's electric industry has widespread impact and the market structure requires the participation and oversight of the FERC, the CPUC will seek to build a California consensus involving the legislature, governor, public and municipal utilities, and customers. Once the consensus is in place, FERC approval will be sought and together both agencies would move forward to implement the new market structure. In addition, the CPUC will prepare an environmental impact report. If the CPUC's restructuring decision is upheld and implemented as outlined, SCE page 19 would be allowed to recover its CTC (subject to a lower return on equity) and would continue to apply accounting standards that recognize the economic effects of rate regulation. The effect of such an outcome would not be expected to materially affect SCE's results of operations or financial position during the transition period. If revisions are made to the CPUC's restructuring decision that result in SCE no longer meeting the criteria to apply regulatory accounting standards to its generation operations, SCE may be required to write off its recorded generation-related regulatory assets. At March 31, 1996, these amounts totaled $1.3 billion (excluding balancing account overcollections of $237 million to be refunded to customers in June 1996), primarily for the recovery of income-tax benefits previously flowed- through to customers, the Palo Verde phase-in plan and unamortized loss on reacquired debt. Although depreciation-related differences could result from applying a regulatory prescribed deprecation method (straight- line, remaining-life method) rather than a method that would have been applied absent the regulatory process, SCE believes that the depreciable lives of its generation-related assets would not vary significantly from that of an unregulated enterprise, as the CPUC bases depreciable lives on periodic studies that reflect the assets' physical useful life. SCE also believes that any depreciation-related differences would be recovered through the CTC. Additionally, if revisions are made to the CPUC's restructuring decision that result in all or a portion of the CTC not being probable of recovery, SCE could have additional write-offs associated with these costs if they are not recovered through another regulatory mechanism. At this time, SCE cannot predict when, or if, a consensus on restructuring will be reached, what revisions will ultimately be made in the CPUC's restructuring plan in subsequent proceedings or implementation phases, or the effect, after the transition period, that competition will have on its results of operations or financial position. FERC Stranded Cost/Open Access Transmission Decision On April 24, 1996, the FERC issued its decision on stranded cost recovery and open access transmission, which it had been considering since March 1995. The decision, which will be effective in July 1996, requires all electric utilities subject to the FERC's jurisdiction to file transmission tariffs which provide competitors with increased access to transmission facilities for wholesale transactions and also establishes information requirements for the transmission utility. The decision also provides utilities with the recovery of prior-service costs incurred under the current regulatory framework, which are known as stranded costs. In addition to providing recovery of stranded costs associated with existing wholesale customers, the FERC directed that it would be the primary jurisdiction for the recovery of stranded costs associated with retail- turned-wholesale customers, such as the formation of a new municipal electric system. Retail stranded costs resulting from a state-authorized retail direct access program are the responsibility of the states and the FERC would only address recovery of these costs if the state has no authority to do so. ENVIRONMENTAL PROTECTION Edison International is subject to numerous environmental laws and regulations, which require it to incur substantial costs to operate existing facilities, construct and operate new facilities, and mitigate or remove the effect of past operations on the environment. As further discussed in Note 2 to the Consolidated Financial Statements, Edison International records its environmental liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. Edison International reviews its page 20 sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site. Unless there is a probable amount, Edison International records the lower end of this reasonably likely range of costs. Edison International's recorded estimated minimum liability to remediate its 62 identified sites (58 at SCE and 4 at EME) was $114 million at March 31, 1996. One of SCE's sites, a former pole-treating facility, is considered a federal Superfund site and represents 71% of Edison International's recorded liability. The ultimate costs to clean up Edison International's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process. Edison International believes that due to these uncertainties, it is reasonably possible that cleanup costs could exceed its recorded liability by up to $215 million. The upper limit of this range of costs was estimated using assumptions least favorable to Edison International among a range of reasonably possible outcomes. The CPUC allows SCE to recover environmental-cleanup costs at 24 of its sites, representing $90 million of Edison International's recorded liability, through an incentive mechanism. Under this mechanism, SCE will recover 90% of cleanup costs through customer rates; shareholders fund the remaining 10%, with the opportunity to recover these costs through insurance and other third-party recoveries. SCE has settled insurance claims with several carriers, and is continuing to pursue additional recovery. Costs incurred at SCE's remaining 34 sites are expected to be recovered through customer rates. SCE has recorded regulatory assets of $104 million for its estimated minimum environmental-cleanup costs expected to be recovered through customer rates. Edison International's identified sites include several sites for which there is a lack of currently available information, including the nature and magnitude of contamination, and the extent, if any, that Edison International may be held responsible for contributing to any costs incurred for remediating these sites. Thus, no reasonable estimate of cleanup costs can now be made for these sites. Edison International expects to clean up its identified sites over a period of up to 30 years. Remediation costs in each of the next several years are expected to range from $3 million to $6 million. In 1994, SCE utilized an estimating technique to quantify its potential liability for environmental cleanup in an effort to obtain a reasonably possible objective and reliable estimate of environmental cleanup. During 1995, EME completed a similar review of some of its sites where known contamination and potential liability exist, and does not believe a material liability exists as of March 31, 1996. Based on currently available information, Edison International believes it is not likely that it will incur amounts in excess of the upper limit of the estimated range and, based upon the CPUC's regulatory treatment of environmental-cleanup costs, Edison International believes that costs ultimately recorded will not have a material adverse effect on its results of operations or financial position. There can be no assurance, however, that future developments, including additional information about existing sites or the identification of new sites, will not require material revisions to such estimates. The 1990 federal Clean Air Act requires power producers to have emissions allowances to emit sulfur dioxide. Power companies receive emissions allowances from the federal government and may bank or sell excess allowances. SCE expects to have excess allowances under Phase II of the Clean Air Act (2000 and later). The act also calls for a study to determine if additional regulations are needed to reduce regional haze in the southwestern U.S. In addition, another study is underway to determine page 21 the specific impact of air contaminant emissions from the Mohave Coal Generating Station on visibility in Grand Canyon National Park. The potential effect of these studies on sulfur dioxide emissions regulations for Mohave is unknown. Edison International's projected capital expenditures to protect the environment are $1 billion for the 1996-2000 period, mainly for aesthetics treatment, including undergrounding certain transmission and distribution lines. The possibility that exposure to electric and magnetic fields (EMF) emanating from power lines, household appliances and other electric sources may result in adverse health effects is receiving increased attention. The scientific community has not yet reached a consensus on the nature of any health effects of EMF. However, the CPUC has issued a decision which provides for a rate-recoverable research and public education program conducted by California electric utilities, and authorizes these utilities to take no-cost or low-cost steps to reduce EMF in new electric facilities. SCE is unable to predict when or if the scientific community will be able to reach a consensus on any health effects of EMF, or the effect that such a consensus, if reached, could have on future electric operations. PALO VERDE STEAM TUBE RUPTURE In 1993, a steam generator tube ruptured at Palo Verde Unit 2; additional cracking was found in other tubes. Arizona Public Service Company (APS), the operating agent for Palo Verde, has taken, and will continue to take, remedial actions that it believes have slowed the rate of steam generator tube degradation in all three units. APS believes that the steam generators in only one of the units will have to be replaced within five to ten years. SCE estimates its share of the costs to be between $16 million and $30 million, plus replacement power costs which are subject to CPUC reasonableness review. SCE is evaluating APS' analyses, conducting its own review, and has not yet decided whether it supports replacement of the steam generators. VOLUNTARY RETIREMENT OFFER In March 1996, SCE announced it will take a one-time charge against earnings of approximately $65 million (pre-tax), in the second quarter of 1996, related to a voluntary retirement offer for non-union employees. SCE expects to offset these costs through lower expenses within a year. SCE anticipates negotiating a similar program for represented employees later this year, which could increase the total charge against earnings to approximately $100 million (pre-tax) by year-end. The actual amount charged to earnings will depend on the number of employees who accept the offer. page 22 PART II--OTHER INFORMATION Item 1. Legal Proceedings Qualifying Facilities ("QF") Litigation On May 20, 1993, four geothermal QFs filed a lawsuit against Southern California Edison Company ("SCE") in Los Angeles County Superior Court, claiming that SCE underpaid, and continues to underpay, the plaintiffs for energy. SCE denied the allegations in its response to the complaint. The action was brought on behalf of Vulcan/BN Geothermal Power Company, Elmore L.P., Del Ranch L.P., and Leathers L.P., each of which was partially owned by a subsidiary of Edison Mission Energy ("EME") (a subsidiary of Edison International) until April of this year when EME sold its interests in the projects to its nationwide partner. In October 1994, plaintiffs submitted an amended complaint to the court to add causes of action for unfair competition and restraint of trade. In July 1995, after several motions to strike had been heard by the court, the plaintiffs served a further amended complaint, which omitted the previous claims based on alleged restraint of trade. The plaintiffs alleged that the past underpayments totaled at least $21,000,000. In other court filings, plaintiffs have contended that the total amount of additional contract payments owing from the beginning of the alleged underpayments through the end of the contract term could total approximately $60,000,000. In addition to seeking compensatory damages and declaratory relief, the fourth amended complaint also seeks unspecified punitive damages and an injunction to enjoin SCE from "future" unfair competition. After a number of continuances, the matter was set for trial on June 18, 1996. On May 1, 1996, the parties entered into an agreement providing for a settlement of all claims in dispute. Pursuant to the agreement, the specific terms of which are confidential, SCE will pay jointly to the plaintiffs an amount which is less than $10,000,000 in order to resolve all claims prior to January 1, 1996. SCE intends to seek recovery of this payment in its annual Energy Cost Adjustment Clause ("ECAC") filing. SCE has also agreed, subject to California Public Utilities Commission ("CPUC") approval, to increase payments to plaintiffs for specified levels of energy deliveries for the period after December 31, 1995. Plaintiffs have received the right to continue the lawsuit as to the period after December 31, 1995, only in the event CPUC approval of the increased payments is not obtained. Between January 1994 and October 1994, SCE was named as a defendant in a series of eight lawsuits brought by independent power producers of wind generation. Seven of the lawsuits were filed in Los Angeles County Superior Court and one was filed in Kern County Superior Court. The lawsuits allege SCE incorrectly interpreted contracts with the plaintiffs by limiting fixed energy payments to a single 10-year period rather than beginning a new 10-year period of fixed energy payments for each stage of development. In its responses to the complaints, SCE denied the plaintiffs' allegations. In each of the lawsuits, the plaintiffs seek declaratory relief regarding the proper interpretation of the contracts. Plaintiffs allege a combined total of approximately $189,000,000 in damages, which includes consequential damages claimed in seven of the eight lawsuits. On March 1, 1995, the court in the lead Los Angeles County Superior Court case granted the plaintiffs' motion seeking summary adjudication that the contract language in question is not reasonably susceptible to SCE's position that there is only a single, 10-year period of fixed payments. In March 1995, a ninth lawsuit was filed in the Los Angeles County Superior Court raising claims similar to those alleged in the first seven cases filed in that court. SCE has responded to the complaint in the new lawsuit by denying its material allegations. On April 5, 1995, SCE filed a petition for writ of mandate, prohibition or other appropriate relief, requesting that the Court of Appeal issue a writ directing the Los Angeles Superior Court to vacate its March 1 order granting summary adjudication. In a decision filed August 9, 1995, the Court of Appeal issued a writ directing that the order be overturned, and a new order be entered denying the motion. A pending summary adjudication page 23 motion in the Kern County case has been withdrawn in light of the Court of Appeal decision. Furthermore, pursuant to stipulation of the parties, the Kern County case was ordered on April 3, 1996, to be coordinated with the Los Angeles cases so that it too will be tried in Los Angeles. As a result of the coordination, the April 22, 1996 trial date for the Kern County case has been stricken and no new trial date has been set. On February 6, 1996, plaintiffs in one of the actions filed their first amended and supplemental complaint. On March 6, 1996, SCE filed its new answer, denying the material allegations of the first amended and supplemental complaint. On April 16, 1996, SCE filed a motion for summary adjudication of certain of the causes of action in this complaint. The motion is set for hearing on May 16, 1996. Plaintiffs' motion to consolidate all eight cases for jury trial was denied without prejudice on March 25, 1996. Parties have since reached agreement in principle on a stipulation whereby at least the original Los Angeles cases would be consolidated for trial in January 1997, in return for plaintiffs' waiver of a jury trial. Nevertheless, with a trial date of June 26, 1996, the lead Los Angeles case is the only case currently scheduled for trial. The materiality of final judgments in favor of the plaintiffs in these cases would be largely dependent on the extent to which any damages or additional payments which might result from such judgments would be recoverable through SCE's ECAC. This matter was previously reported under the heading "QF Litigation" in Part I, Item 3 of Edison International's Annual Report on Form 10-K for the year ended December 31, 1995. Electric and Magnetic Fields ("EMF") Litigation SCE is involved in three lawsuits alleging that various plaintiffs developed cancer as a result of exposure to EMF from SCE facilities. SCE denies the material allegations in its responses to each of the lawsuits. Two of the lawsuits allege, among other things, that certain past and present employees of Grubb & Ellis ("Employee-Plaintiffs"), a real estate brokerage firm with offices located in a commercial building known as the Koll Center in Newport Beach, developed cancer as a result of exposure to EMF from electrical facilities owned by SCE and/or the other defendants located on the property. The lawsuits, served on SCE in 1994 ("First Case") and January 1995 ("Second Case"), respectively, also name Grubb & Ellis and the owners and developers of the Koll Center as defendants. No specific damage amounts are alleged in either complaint. The five named plaintiffs in the First Case, three Employee-Plaintiffs and the spouses of two of them, allege compensatory damages of $8,000,000 plus unspecified punitive damages, according to supplemental documentation they have prepared. In December, 1995 the court granted SCE's motion for summary judgment and dismissed the case. Plaintiffs have filed a Notice of Appeal. Supplemental documentation prepared by the four named plaintiffs in the Second Case, two Employee-Plaintiffs and their respective spouses, indicates they allege compensatory damages of approximately $13,500,000 plus unspecified punitive damages. On April 18, 1995, Grubb & Ellis filed a cross-complaint against the other codefendants, requesting indemnification and declaratory relief concerning the rights and responsibilities of the parties. Trial in the case has been set for November 4, 1996. A third case was filed in Orange County Superior Court and served on SCE in March 1995. The plaintiff alleges, among other things, that he developed cancer as a result of EMF emitted from SCE facilities which he alleges were not constructed in accordance with CPUC standards. No specific damage amounts are alleged in the complaint but supplemental documentation prepared by the plaintiff indicates that plaintiff will allege compensatory damages of approximately $5,500,000, plus unspecified page 24 punitive damages. A previous trial date was vacated and, pursuant to stipulation of the parties, no new trial date has been set. An evaluation conference is scheduled for August 16, 1996. These matters were previously reported under the heading "Environmental Litigation" in Part I, Item 3 of Edison International's Annual Report on Form 10-K for the year ended December 31, 1995. San Onofre Personal Injury Litigation An engineer for two contractors providing services for San Onofre has been diagnosed with chronic myelogenous leukemia. On July 12, 1994, the engineer and his wife sued SCE, San Diego Gas and Electric Company ("SDG&E") and Combustion Engineering, the manufacturer of the fuel rods for the plant, in the United States District Court for the Southern District of California. The plaintiffs alleged that the engineer's illness resulted from contact with radioactive fuel particles released from failed fuel rods. Plant records showed that the engineer's exposure to radiation was well below Nuclear Regulatory Commission ("NRC") safety levels. In the complaint, plaintiffs sought unspecified compensatory and punitive damages. SCE's December 23, 1994, answer to the complaint denied all material allegations. The trial began August 3, 1995, and on October 12, 1995, an eight member jury unanimously decided that radiation exposure at San Onofre was not the cause of the leukemia. Plaintiffs' motion for a new trial was denied on December 5, 1995. On April 11, 1996, the plaintiffs' appeal of the denial of their motion was argued before the Ninth Circuit Court of Appeals and the case was submitted for decision. An SCE engineer employed at San Onofre died in 1991 from cancer of the abdomen. On February 6, 1995, his children sued SCE, SDG&E and Combustion Engineering in the United States District Court for the Southern District of California. The plaintiffs allege that the engineer's illness resulted from, and was aggravated by, exposure to radiation at San Onofre, including contact with radioactive fuel particles. Plant records show that the engineer's exposure to radiation was well below NRC safety levels. In the complaint, plaintiffs sought unspecified compensatory and punitive damages. On April 3, 1995, the Court granted the defendants' motion to dismiss 14 of plaintiffs' 15 claims. Punitive damages are not available under the remaining claim. SCE's April 20, 1995, answer to the complaint denied all material allegations. On October 10, 1995, the Court ruled in favor of plaintiffs' request to include the Institute of Nuclear Power Operations (an organization dedicated to achieving excellence in nuclear power operations) as a defendant in the suit. On December 7, 1995, the court granted SCE's motion for summary judgment on the sole outstanding claim against it. Plaintiffs have indicated that they will appeal this ruling to the Ninth Circuit Court of Appeals. Trial of the case may be delayed pending such ruling. The impact on SCE, if any, from further proceedings in this case against the remaining defendants cannot be determined at this time. On July 5, 1995, a former SCE reactor operator employed at San Onofre and his wife sued SCE, SDG&E, Combustion Engineering and the Institute of Nuclear Power Operations in the U.S. District Court for the Southern District of California. Plaintiffs allege the former employee's acute myelogenous leukemia resulted from, and was aggravated by, exposure to radiation at San Onofre, including contact with radioactive fuel particles. The former employee subsequently died from his illness. Plaintiffs seek unspecified compensatory and punitive damages. On March 25, 1996, the court granted SCE's motion for summary judgment on all claims. It is anticipated that plaintiffs will appeal this ruling. Should plaintiffs do so, trial of the case may be delayed pending the ruling of the Court of Appeals. The impact on SCE, if any, from further proceedings in this case against the remaining defendants cannot be determined at this time. On August 31, 1995, the family of a former worker for a contractor at San Onofre, and later a temporary and then a permanent SCE employee at San Onofre, sued SCE, SDG&E, Combustion Engineering and the Institute of Nuclear Power Operations in the U.S. District Court for the Southern District of California. Plaintiffs allege the former employee's acute myelogenous leukemia, which resulted in his death in 1994, resulted from, and was aggravated by, exposure to radiation at San Onofre, including contact with radioactive fuel particles. Plaintiffs seek unspecified compensatory and punitive damages. SCE's answer to the complaint filed on November 13, 1995, denied all material allegations. A trial date will be set at the pretrial conference scheduled for October 7, 1996. On November 17, 1995, a SCE employee and his wife sued SCE in the U.S. District Court for the Southern District of California. Plaintiffs also named Combustion Engineering, the manufacturer of the fuel rods for the San Onofre plant. The employee worked for SCE at San Onofre from 1981 to 1990. Plaintiffs allege that the employee transported radioactive byproducts on his person, clothing and/or tools to his home where his wife was then exposed to radiation that caused her leukemia. Plaintiffs seek unspecified compensatory and punitive damages. SCE's December 19, 1995, partial answer to the complaint denied all material non-employment related allegations. SCE's motion to dismiss the claims of the plaintiffs' was granted on March 19, 1996. A trial date will be set at the pretrial conference that is scheduled for December 2, 1996, relative to the plaintiffs' claims. On November 28, 1995, a former contract worker at San Onofre, her husband, and her son, sued SCE in the U.S. District Court for the Southern District of California. Plaintiffs also named Combustion Engineering, the manufacturer of the fuel rods for the San Onofre plant. Plaintiffs allege that the former contract worker transported radioactive byproducts on her person and clothing to her home where her son was then exposed to radiation that caused his leukemia. Plaintiffs seek unspecified compensatory and punitive damages. SCE's January 2, 1996, answer denied all material allegations. These matters were previously reported under the heading "San Onofre Personal Injury Litigation" in Part I, Item 3 of Edison International's Annual Report on Form 10-K for the year ended December 31, 1995. Employment Discrimination Litigation On September 21, 1994, nine African-American employees filed a lawsuit against Edison International and SCE on behalf of an alleged class of African-American employees, alleging racial discrimination in job advancement, pay, training and evaluation. The lawsuit was filed in the United States District Court for the Central District of California. The plaintiffs seek injunctive relief, as well as an unspecified amount of compensatory and punitive damages, attorneys' fees, costs and interest. Edison International and SCE have responded by denying the material allegations of the complaint and asserting several affirmative defenses and are pursuing discovery. Prior deadlines for plaintiffs to file their motion for class certification have been suspended pending settlement discussions. The court has set a status conference for May 13, 1996. This matter was previously reported under the heading "Employment Discrimination Litigation" in Part I, Item 3 of Edison International's Annual Report on Form 10-K for the year ended December 31, 1995. Item 4. Submission of Matters to a Vote of Security Holders Election of Directors At Edison International's Annual Meeting of Shareholders on April 18, 1996, shareholders elected seventeen nominees to the Board of Directors. page 26 The number of broker non-votes for each nominee was zero. The number of votes cast for and withheld from each Director-nominee were as follows: Name Number of Votes ---- --------------------------- For Withheld ----------- ---------- Howard P. Allen 357,658,425 7,283,330 John E. Bryson 357,392,210 7,549,545 Winston H. Chen 358,558,143 6,383,612 Stephen E. Frank 358,226,545 6,715,210 Camilla C. Frost 358,057,970 6,883,785 Joan C. Hanley 358,488,025 6,453,730 Carl F. Huntsinger 358,397,831 6,543,924 Charles D. Miller 358,440,423 6,501,332 Luis G. Nogales 358,031,014 6,910,741 Ronald L. Olson 354,690,616 10,251,139 J. J. Pinola 357,098,182 7,843,573 James M. Rosser 358,424,123 6,517,632 E. L. Shannon, Jr. 358,387,207 6,554,548 Robert H. Smith 358,439,849 6,501,906 Thomas C. Sutton 358,441,298 6,500,457 Daniel M. Tellep 358,449,310 6,492,445 James D. Watkins 358,124,385 6,817,370 Edward Zapanta 358,410,148 6,531,607 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Articles of Incorporation 27. Financial Data Schedule 28. Articles of Incorporation (b) Reports on Form 8-K: January 11, 1996 --Item 5--Other Events-- California Public Utilities Commission decision in 1995 General Rate Case January 18, 1996 --Item 5--Other Events-- 1995 Earnings Report page 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDISON INTERNATIONAL (Registrant) By R. K. BUSHEY --------------------------------- R. K. BUSHEY Vice President and Controller By K. S. STEWART --------------------------------- K. S. STEWART Assistant General Counsel and Assistant Secretary May 10, 1996 EX-3 2 ARTICLES OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION OF EDISON INTERNATIONAL The undersigned, ALAN J. FOHRER and BEVERLY P. RYDER, hereby certify that they are the duly elected and acting Executive Vice President, Treasurer and Chief Financial Officer, and Secretary, respectively, of EDISON INTERNATIONAL, a California corporation, and that the Articles of Incorporation of said corporation shall be restated to read as set forth in full as follows: "RESTATED ARTICLES OF INCORPORATION OF EDISON INTERNATIONAL First: Edison International is the name of the corporation. Second: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. Third: This corporation is authorized to issue only two classes of shares, which shall be designated respectively "Preferred Stock" and "Common Stock." The total number of shares of Preferred Stock authorized to be issued is fifty million (50,000,000) shares. The total number of shares of Common Stock authorized to be issued is eight hundred million (800,000,000) shares. Fourth: The Preferred Stock may be issued from time to time in one or more series. To the extent not prohibited by law, the Board of Directors is authorized: (i) to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series, (ii) to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, including but not limited to rights, preferences, privileges, and restrictions regarding dividends, liquidation, conversion, redemption and voting (including provisions specifying more than one vote per share) and, (iii) within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Fifth: BUSINESS COMBINATIONS: 1. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in paragraph 2 of this Article Fifth, none of the following transactions shall be consummated unless and until such transaction shall have been approved by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class: (a) any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Shareholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or PAGE (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of more than ten percent (10%) of the total book value of the assets of the corporation and its consolidated subsidiaries as shown on the most recently available quarterly consolidated balance sheet of the corporation; or (c) the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder having an aggregate Fair Market Value of more than ten percent (10%) of the total book value of the assets of the corporation and its consolidated subsidiaries as shown on the most recently available quarterly consolidated balance sheet of the corporation; or (d) the adoption of any plan or proposal for the spinoff, split-off or split-up of the corporation or any material Subsidiary proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (e) any reclassification of any securities of the corporation (including any reverse stock split), any recapitalization of the capital stock of the corporation, any merger or consolidation of the corporation with or into any of its Subsidiaries, or any other transaction (whether or not with or involving any Interested Shareholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of stock or series thereof of the corporation or of any Subsidiary directly or indirectly Beneficially Owned (as hereinafter defined) by any Interested Shareholder or as a result of which the shareholders of the corporation would cease to be shareholders of a corporation incorporated under the laws of the State of California having, as parts of its articles of incorporation, provisions to the same effect as this Article Fifth; or (f) any agreement, contract or other arrangement providing for any of the transactions described in the foregoing paragraphs (a) through (e). The term "Business Combination" as used in this Article Fifth shall mean any transaction or proposed transaction which is referred to in any one or more of the foregoing subparagraphs (a) through (f) of this paragraph 1. 2. The provisions of paragraph 1 of this Article Fifth shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote of shareholders, if any, as is required by law and any other provision of any Article hereof, if such Business Combination has been approved by at least a majority of the Disinterested Directors (as hereinafter defined) at the time or if all the conditions specified in the following subparagraphs (a), (b), (c), (d), (e) and (f) are satisfied: (a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of any consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (1) (if applicable) the Highest Per Share Price (as hereinafter defined) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Shareholder which were acquired beneficially by such Interested Shareholder (x) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; and (2) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such later date is referred to in this Article Fifth as the "Determination Date"), whichever is higher. (b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Voting Stock other than the Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class or series of outstanding Voting Stock, whether or not the Interested Shareholder beneficially owns any shares of a particular class or series of Voting Stock): (1) (if applicable) the Highest Per Share Price paid in order to acquire any shares of such class or series of Voting Stock beneficially owned by the Interested Shareholder which were acquired beneficially by such Interested Shareholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; and (2) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; and (3) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Shareholder has previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Shareholder and, if the Interested Shareholder beneficially owns shares of any class or series of Voting Stock that were acquired with varying forms of consideration, the form of consideration to be received by holders of such class or series of Voting Stock shall be either cash or the form used to acquire beneficially the largest number of shares of such class or series of Voting Stock beneficially acquired by it prior to the Announcement Date. The price determined in accordance with paragraphs 2(a) and 2(b) shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combinations of shares or similar event. (d) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) except as approved by at least a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular dates therefor the full amount of any dividends (whether or not cumulative) payable on any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation; (ii) there shall have been (x) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by at least a majority of the Disinterested Directors, and (y) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to increase such annual rate was approved by at least a majority of the Disinterested Directors; and (iii) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder or as a result of a pro rata stock dividend or stock split. (e) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionally as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). 3. For the purposes of this Article Fifth: (a) A "person" shall mean any individual, firm, corporation or other entity. (b) "Interested Shareholder" shall mean any person or group (other than this corporation or any Subsidiary or any compensation plan or any benefit plan of this corporation or any Subsidiary or any trustee of, or fiduciary with respect to, any such plan when acting in such capacity, or any corporation formed pursuant to a resolution of the Board of Directors of this corporation which was approved by at least a majority of the Disinterested Directors as defined hereinafter) who or which: (1) is the Beneficial Owner, directly or indirectly, of more than ten percent (10%) of the voting power of the outstanding Voting Stock; or (2) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of ten percent (10%) or more of the voting power of the then outstanding Voting Stock; or (3) is an assignee of or has otherwise succeeded to any shares of Voting Stock representing more than one percent (1%) of the voting power of the outstanding Voting Stock, which shares were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (c) A person shall be a "Beneficial Owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting or disposing of any shares of Voting Stock. (d) For the purposes of determining whether a person is an Interested Shareholder pursuant to subparagraph (b) of paragraph 3 of this Article Fifth, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (c) of paragraph 3 of this Article Fifth but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise. (e) The term "Affiliate," used to indicate a relationship to a specified person, means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person. (f) The term "Associate," used to indicate a relationship with a specified person, means (A) any corporation, partnership or other organization of which such specified person is an officer or partner, (B) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, (C) any relative or spouse of such specified person, or any relative of such spouse, who has the same home as such specified person or who is a director or officer of the corporation or any of its parents or Subsidiaries and (D) any person who is a director, officer or partner of such specified person or of any corporation (other than the corporation or any wholly-owned Subsidiary of the corporation), partnership or other entity which is an Affiliate of such specified person. (g) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation or by a Subsidiary of the corporation or by the corporation and one or more Subsidiaries; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (b) of paragraph 3 of this Article Fifth the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. (h) "Disinterested Director" means any member of the Board of Directors of the corporation who was a member of the Board of Directors of the corporation on April 21, 1988, or who became a member of the Board of Directors of the corporation subsequent to that time and who is unaffiliated with, and not a nominee or representative of, an Interested Shareholder and who is recommended to succeed a Disinterested Director by at least a majority of Disinterested Directors then on the Board of Directors. Any reference to "Disinterested Directors" shall refer to a single Disinterested Director if there be but one. Any reference under this Article Fifth to an approval, designation or determination by "a majority of the Disinterested Directors" of the Board of Directors shall mean such approval, designation or determination by not less than a majority of the Disinterested Directors then serving on the Board of Directors. (i) "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape, for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations Systems or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by at least a majority of the Disinterested Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and (ii) in the case of stock of any class or series which is not traded on any United States registered securities exchange nor in the over-the-counter market or in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by at least a majority of the Disinterested Directors in good faith; and such determination by the Disinterested Directors shall be conclusive and binding for all purposes of this Article Fifth. (j) References to "Highest Per Share Price" with respect to any class of stock, means the highest amount of consideration paid for a share of such stock (including, without limitation, any brokerage commissions, transfer taxes and soliciting dealers' fees) and shall reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. (k) In the event of any Business Combination in which the corporation survives, the phrase "consideration other than cash to be received" as used in subparagraphs (a) and (b) of paragraph 2 of this Article Fifth shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. 4. At least a majority of the Disinterested Directors of the corporation shall have the power and duty to make a good faith determination, on the basis of information known to them, of all facts necessary to determine compliance with this Article Fifth, including without limitation: (a) whether a person is an Interested Shareholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; (d) whether the assets which are the subject of any Business Combination, or the securities issued or transferred by the corporation or any Subsidiary in any Business Combination, have an aggregate Fair Market Value of more than ten percent (10%) of the total book value of the assets of the corporation and its consolidated subsidiaries as shown on the most recently available quarterly consolidated balance sheet of the corporation; and (e) whether the requirements of paragraph 2 of this Article Fifth have been met. Such determination by a majority of the Disinterested Directors shall be conclusive and binding for all purposes of this Article Fifth. 5. Nothing contained in this Article Fifth shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. 6. The fact that a Business Combination complies with the provisions of Section 2 of this Article Fifth shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the shareholders of the corporation. 7. In addition to any affirmative vote required by law or these Articles of Incorporation, a proposal that the provisions of this Article Fifth be altered, amended or repealed in any respect, or any provision inconsistent therewith be adopted, shall require either (i) the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding Voting Stock voting together as a single class or (ii) approval by at least a majority of the Disinterested Directors and the affirmative vote of the holders of at least fifty percent (50%) of the voting power of the then outstanding Voting Stock voting together as a single class. Sixth: LIMITATION ON LIABILITY OF DIRECTORS AND AUTHORITY TO INDEMNIFY AGENTS 1. The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. 2. The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code." This Certificate of Restated Articles of Incorporation does not itself alter or amend the Articles of Incorporation of the corporation in any respect and has been approved by the Board of Directors. IN WITNESS WHEREOF, the undersigned have executed this certificate on this 7th day of May, 1996. ALAN J. FOHRER ----------------------------------------- ALAN J. FOHRER Executive Vice President, Treasurer and Chief Financial Officer of Edison International BEVERLY P. RYDER ----------------------------------------- BEVERLY P. RYDER Secretary of Edison International DECLARATION The undersigned ALAN J. FOHRER and BEVERLY P. RYDER, the Executive Vice President, Treasurer and Chief Financial Officer, and Secretary, respectively, of Edison International, each declares under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing certificate are true and correct of his or her own knowledge. Executed at Rosemead, California on this 7th day of May, 1996. ALAN J. FOHRER ----------------------------------------- ALAN J. FOHRER Executive Vice President, Treasurer and Chief Financial Officer of Edison International BEVERLY P. RYDER ----------------------------------------- BEVERLY P. RYDER Secretary of Edison International EX-27 3 EDISON INTERNATIONAL FINANCIAL DATA SCHEDULE
UT Edison International Financial Data Schedule -- Exhibit 27 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 12,095,002 6,516,452 2,411,748 3,271,381 0 24,294,583 2,660,749 0 3,755,748 6,416,497 425,000 283,755 7,217,974 0 3,406,074 369,800 251,439 0 80,557 15,835 9,330,118 24,294,583 1,967,654 111,477 1,506,620 1,618,097 349,557 (14,608) 334,949 155,982 178,967 11,878 167,089 110,913 88,967 769,857 $0.38 $0.38
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