Edison International (EIX)

EIX 
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Edison International (EIX)

Q3 2012 Earnings Call

November 01, 2012 5:00 pm ET

Executives

Scott Cunningham - Interim Head of Corporate Communications and Vice President of Investor Relations

Theodore F. Craver - Chairman, Chief Executive Officer and President

W. James Scilacci - Chief Financial Officer, Executive Vice President and Treasurer

Ronald L. Litzinger - President of Southern California Edison Company

Linda G. Sullivan - Former Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Acting Controller

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Gregg Orrill - Barclays Capital, Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Brian Chin - Citigroup Inc, Research Division

Kit Konolige - BGC Partners, Inc., Research Division

Kit Konolige

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Angie Storozynski - Macquarie Research

Leslie Rich - J.P. Morgan Asset Management, Inc.

Leslie Rich

Travis Miller - Morningstar Inc., Research Division

Ashar Khan

Presentation

Operator

Good afternoon. My name is Gabrielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Edison International Third Quarter 2012 Financial Teleconference. [Operator Instructions] After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] Today's call is being recorded. [Operator Instructions] And I would now like to turn the call over to Mr. Scott Cunningham, Vice President of Investor Relations. Mr. Cunningham, you may begin your conference.

Scott Cunningham

Thanks so much and good afternoon, everyone. Our principal speakers today will be Chairman and CEO, Ted Craver; and Chief Financial Officer, Jim Scilacci. Also with us are other members of the management team.

The presentation that accompanies Jim's comments, the earnings press release and our SEC filings are available on our website at www.edisoninvestor.com. We will be using these and other slides in our regular quarterly business update presentation that will be issued next week for our ongoing investor discussion.

During this call, we will make forward-looking statements about the financial outlook for Edison International and its subsidiaries, and about other future events. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. We urge you to read these carefully.

The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. When we get to Q&A, please limit yourself to 1 question and 1 follow-up. If you have further questions, please return to the queue.

With that, I'll turn the call over to Ted Craver.

Theodore F. Craver

Thank you, Scott, and good afternoon, everyone. Today, Edison International reported third quarter GAAP earnings of $0.58 per share compared with $1.31 per share 1 year ago. Core earnings were $0.72 per share compared with $1.26 per share 1 year ago.

The decrease in earnings was primarily due to 3 factors: Losses at Edison Mission Group, delay in the California Public Utilities Commission final decision on SCE's 2012 General Rate Case, and an increase in holding company costs due to state tax adjustments.

Jim Scilacci will provide additional details on the quarter in his remarks.

There are 3 main areas on which I will focus my comments this afternoon: Our restructuring efforts at Edison Mission Energy, the recently received Proposed Decision on SCE's 2012 General Rate Case and an update on the San Onofre Nuclear Generating Station, or SONGS, as we call it.

Let me start with Edison Mission Energy. In past earnings calls, I have explained Edison International's overall strategy. We believe the most effective way to participate in the growth opportunities arising from the substantial changes occurring in the electric power industry is through a dual platform of regulated and competitive businesses.

However, we are acutely aware that the competitive generation sector has been deeply challenged for some time by cyclically low margins and capacity values. For the last few years, EME has focused on developing innovative approaches to environmental compliance and careful capital stewardship, principally as a means to buy time for a recovery in power markets and energy margins, and stabilize the company.

But despite great efforts and many successes by EME, the adverse power market trends have only deepened and EME's operating losses this year have increased significantly and are expected to continue. At the same time, EME has a capital structure and financial leverage, created in better times, that is no longer workable under current and foreseeable conditions.

Under current projections, EME will not be able to repay the June 2013 bond maturity of $500 million. There is also no assurance that EME will pay the $97 million of interest due on its bonds on November 15 or within the 30-day grace period that follows. Failure to pay interest on the bonds will likely result in EME filing for bankruptcy protection under Chapter 11 of the Bankruptcy Code.

A bankruptcy filing by EME this year would result in its being deconsolidated from Edison International. This means that the assets and liabilities of EME would be removed from Edison International's consolidated balance sheet upon a bankruptcy filing. The earnings of EME would be included in Edison International's earnings up to the time of a bankruptcy filing, together with any charges related to deconsolidation.

After a bankruptcy filing, the results of EME would no longer be included as part of Edison International's earnings, and our results will largely be the earnings of Southern California Edison less our holding company costs.

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