Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
(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, 2005.
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 333-30785
California Infrastructure and Economic
Development Bank Special Purpose Trust SCE-1
(Issuer of the Certificates)
SCE Funding LLC
(Exact name of registrant as specified in its charter)
Delaware 95-4640661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2244 Walnut Grove Avenue,
Room 212T, Rosemead, California 91770
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 302-1850
Indicate by check |X| 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 at least
the past 90 days. YES |X| NO
----- --
Indicate by check mark |X| whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). YES __ NO |X|
----
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCE FUNDING LLC
BALANCE SHEETS
(in thousands)
March 31, December 31,
2005 2004
----------------------- -----------------------
(Unaudited)
ASSETS
------
Current Assets:
Cash & equivalents $ 1,920 $ 1,915
Restricted funds 58,403 61,375
Current portion of note receivable 246,267 246,300
Other receivable 4 8
----------------------- -----------------------
Total Current Assets 306,594 309,598
----------------------- -----------------------
Other Assets and Deferred Charges:
Note receivable - net of discount 425,287 486,953
Unamortized bond issuance costs 5,016 5,473
----------------------- -----------------------
Total Other Assets and Deferred Charges 430,303 492,426
----------------------- -----------------------
Total Assets $ 736,897 $ 802,024
======================= =======================
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
Current Liabilities:
Interest payable $ 601 $ 656
Current portion of long-term debt 246,267 246,300
Miscellaneous accrued expenses 25,461 29,059
----------------------- -----------------------
Total Current Liabilities 272,329 276,015
----------------------- -----------------------
Long term debt - net of discount 430,276 492,397
----------------------- -----------------------
Member's equity 34,292 33,612
----------------------- -----------------------
Total Liabilities and Member's Equity $ 736,897 $ 802,024
======================= =======================
The accompanying notes are an integral part of these financial statements
Page 1
SCE FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(Unaudited)
(in thousands)
3 Months Ended
March 31,
-------------------------------------------------------
2005 2004
------------------------ ------------------------
OPERATING REVENUES:
Interest Income $ 12,735 $ 16,378
------------------------ ------------------------
Total Operating Revenue 12,735 16,378
------------------------ ------------------------
OPERATING EXPENSES:
Interest Expense 12,235 16,164
Other Expenses 612 668
------------------------ ------------------------
Total Operating Expenses 12,847 16,832
------------------------ ------------------------
Net Loss (112) (454)
Member's Equity, beginning of period 33,612 31,293
Member Contributions (Transfers) - net 792 906
------------------------ ------------------------
Member's Equity, end of period $ 34,292 $ 31,745
======================== ========================
The accompanying notes are an integral part of these financial statements
Page 2
SCE FUNDING LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
3 Months Ended
March 31,
---------------------------------------------------
2005 2004
------------------------ ------------------------
Cash Flows from Operating Activities:
Net Loss $ (112) $ (454)
Adjustment to reconcile net loss to net
cash (used) provided by operating activities:
Amortization 1 1
Changes in working capital:
Restricted funds 2,972 963
Other receivable 4 5
Interest payable (55) (55)
Miscellaneous accrued expenses (3,597) (1,146)
------------------------ ------------------------
Net Cash Used by Operating Activities (787) (686)
------------------------ ------------------------
Cash Flows from Financing Activities:
Payment of principal on rate reduction notes (62,172) (62,196)
Capital Transfer from SCE 792 906
------------------------ ------------------------
Net Cash Used by Financing Activities (61,380) (61,290)
------------------------ ------------------------
Cash Flows from Investing Activities:
Note receivable collections from SCE 62,172 62,196
------------------------ ------------------------
Net Cash Provided by Investing Activities 62,172 62,196
------------------------ ------------------------
Net increase in cash and equivalents 5 220
Cash and equivalents, beginning of period 1,915 1,443
------------------------ ------------------------
Cash and equivalents, end of period $ 1,920 $ 1,663
======================== ========================
Cash payments for interest $ 11,817 $ 15,745
The accompanying notes are an integral part of these financial statements
Page 3
SCE FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
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.
SCE Funding LLC's significant accounting policies were described in Note 2 of "Notes to Financial
Statements" included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with
the Securities and Exchange Commission. SCE Funding LLC follows the same accounting policies for interim
reporting purposes. Results of operations for the interim periods are not necessarily indicative of results to
be expected for a full year. This quarterly report should be read in conjunction with SCE Funding LLC's Annual
Report on Form 10-K.
Note 1. Basis of Presentation.
The financial statements include the accounts of SCE Funding LLC (also referred to as the Note Issuer),
a Delaware special purpose limited liability company, whose sole member is Southern California Edison Company
(SCE), a provider of electric services. All of the issued and outstanding common stock of SCE is owned by its
parent holding company, Edison International. SCE Funding LLC was organized in June 1997, in order to effect the
purchase from SCE of Transition Property (as defined below) and to fund such purchase from the issuance of the
SCE Funding LLC Notes, Series 1997-1, Class A-1 through Class A-7 (Notes) to the California Infrastructure and
Economic Development Bank Special Purpose Trust SCE-1 (Trust) which issued certificates (Certificates) with terms
and conditions similar to the Notes. The proceeds from the sale of the Transition Property resulted in a
reduction in revenue requirements sufficient to enable SCE to provide a 10% electric rate reduction to SCE's
residential and small commercial customers in connection with electric industry restructuring mandated by
California Assembly Bill 1890, as amended by California Senate Bill 477 (collectively, the electric restructuring
legislation). This rate reduction became effective January 1, 1998.
SCE Funding LLC was organized for the limited purposes of issuing the Notes and purchasing Transition
Property. Transition Property is the right to be paid a specified amount from non-bypassable tariffs authorized
by the California Public Utilities Commission (CPUC) pursuant to the 1995 electric restructuring legislation.
For financial reporting purposes, the purchase of the Transition Property by the Note Issuer from SCE was treated
as the issuance of a promissory note by SCE to SCE Funding LLC, in the amount of approximately $2.5 billion.
Accordingly, the purchase of the Transition Property is classified as a note receivable on the accompanying
financial statements. Notwithstanding such classification, the Transition Property, for legal purposes, has been
sold by SCE to SCE Funding LLC.
SCE Funding LLC is restricted by its organizational documents from engaging in any other activities. In
addition, its organizational documents require it to operate in such a manner
Page 4
that it should not be consolidated in the bankruptcy estate of SCE, in the event SCE becomes subject to such a
proceeding.
SCE Funding LLC is legally separate from SCE. The assets and revenues of the Note Issuer, including,
without limitation, the Transition Property, are not available to creditors of SCE or Edison International, and
the note receivable from SCE to SCE Funding LLC (i.e., the Transition Property) is not legally an asset of SCE or
Edison International.
Certain prior-period amounts were reclassified to conform to the March 31, 2005 financial statement
presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis of the Note Issuer's financial condition and results of operations is in an
abbreviated format pursuant to Instruction H of Form 10-Q. Such analysis should be read in conjunction with the
Financial Statements included herein, and the Financial Statements and Notes to the Financial Statements included
in SCE Funding LLC's 2004 Annual Report on Form 10-K.
The Note Issuer is a special purpose, single member limited liability company organized in June 1997 for
the limited purposes of owning the Transition Property (as described below) and issuing notes secured primarily
by the Transition Property. SCE is the sole member of the Note Issuer. The Note Issuer's organizational
documents require it to operate in a manner such that it should not be consolidated in the bankruptcy estate of
SCE in the event SCE becomes subject to such a proceeding.
The Note Issuer issued $2,463,000,000 in principal amount of the Notes in December 1997 with scheduled
maturities ranging from 1 to 10 years and final maturities ranging from 3 to 12 years, pursuant to an indenture
with Deutsche Bank National Trust Company (formerly Bankers Trust Company of California, N.A.), as trustee (Note
Indenture). The Note Issuer also entered into a servicing agreement (Servicing Agreement) with SCE that requires
SCE to service the Transition Property on behalf of the Note Issuer.
The California Public Utilities Code (PU Code) provides for the creation of Transition Property. A
financing order dated September 3, 1997 (Financing Order), issued by the CPUC, together with the related Issuance
Advice Letter, establishes, among other things, separate non-bypassable charges (FTA Charges) payable by
residential electric customers and small commercial electric customers in an aggregate amount sufficient to repay
in full the Certificates, fund the Overcollateralization Subaccount established under the Note Indenture and pay
all related costs and fees. Under the PU Code and the Financing Order, the owner of the Transition Property is
entitled to collect FTA Charges until such owner has received amounts sufficient to retire all outstanding series
of Certificates and cover related fees and expenses and the Overcollateralization Amount described in the
Financing Order. The Transition Property is a
Page 5
property right under California law that includes, without limitation, ownership of the FTA Charges and any
adjustments thereto as described in the next paragraph.
In order to enhance the likelihood that actual collections with respect to the Transition Property are
neither more nor less than the amount necessary to amortize the Notes in accordance with their expected
amortization schedules, pay all related fees and expenses, and fund certain accounts established pursuant to the
Note Indenture as required, the Servicing Agreement requires SCE, as the Servicer of the Transition Property to
seek, and the Financing Order and the PU Code require the CPUC to approve, periodic adjustments to the FTA
Charges. Such adjustments will be based on actual collections and updated assumptions by the Servicer as to
future usage of electricity by specified customers, future expenses relating to the Transition Property, the
Notes and the Certificates, and the rate of delinquencies and write-offs. On August 19, 2004, SCE filed with the
CPUC an anniversary true-up mechanism advice letter filing. The filing confirmed that the FTA Charges then in
effect for residential and small commercial customers were adequate to service the Notes and therefore no
adjustment was necessary at that time. On December 15, 2004, SCE filed with the CPUC a routine annual true-up
mechanism advice letter filing. This filing decreased the FTA Charges for residential customers by 6.6%, from
..903 cents to .843 cents per kilowatt hour, and for small commercial customers by 6.6% from .955 cents to .892
cents per kilowatt hour, effective January 1, 2005.
In June 2002, the Servicing Agreement was amended to provide for a routine quarterly true-up adjustment
whenever, at the end of any of the first three calendar quarters of a year, the energy usage by SCE's customers
is at least 3% lower than assumed and the balance in the Collection Account (excluding the General Subaccount) is
below the required level. The purpose of the amendment was to further assure that actual collections are not
less than the amounts necessary for the purposes specified in the Note Indenture. Through March 31, 2005, it was
not necessary to file any such routine quarterly true-up adjustment.
Under the Servicing Agreement, during any period in which the Servicer does not maintain a short-term
rating of A-1 or better by Standard & Poor's or P-1 or better by Moody's Investors Service, the Servicer must
remit to the collection account maintained with the trustee for the Notes the total payments of FTA Charges
estimated to have been received by the Servicer on a given business day within two business days after receipt
thereof by the Servicer. Because of downgrades in its short-term ratings, SCE began making such daily
remittances on January 8, 2001. SCE currently has short-term ratings of A-2 from Standard and Poor's and P-2
from Moody's.
The Note Issuer is limited by its organizational documents from engaging in any activities other than
owning the Transition Property, issuing notes secured by the Transition Property and other limited collateral,
and activities related thereto. Accordingly, income statement effects are limited primarily to income generated
from the Transition Property, interest expense on the Notes, servicing fees to SCE, and incidental investment
interest income. During the three month period ended March 31, 2005, income generated from the Transition
Property was $12 million compared to $16 million for the same period in 2004. The decrease is due to a lower
outstanding note receivable from SCE. Interest expense for the three months ended March 31, 2005 was
Page 6
$12 million compared to $16 million for the same period in 2004. The decrease is due to a lower
outstanding balance of the Notes. Interest expense includes interest on the Notes, amortization of debt issuance
costs and the discount on the notes.
The Note Issuer uses collections with respect to the Transition Property to make scheduled principal and
interest payments on the Notes. Interest income earned on the Transition Property is expected to offset (1)
interest expense on the Notes, (2) amortization of debt issuance costs and the discount on the Notes, and (3) the
fees charged by SCE for servicing the Transition Property and providing administrative services to the Note
Issuer.
Attached as Exhibit 99.1 is the Quarterly Servicer's Certificate for the collection period December 2004
through February 2005 (dated March 21, 2005), delivered pursuant to the Note Indenture, which includes
information relating to the collections and distributions of the FTA Charges, and the balances in the reserve
subaccounts under the Note Indenture. As noted therein on page 2 line 4e, collections of FTA Charges and
interest earnings thereon (the General Subaccount Balance) totaled $71.5 million. and were sufficient to pay 96%
of all scheduled distributions and related expenses on the Notes, requiring a principal withdrawal of $3.4
million from the reserve subaccount as provided under the Note Indenture.
Forward-looking Information
In the preceding Management's Discussion and Analysis of Financial Condition and Results of Operations,
and elsewhere in this quarterly report, the Note Issuer uses the words could, estimates, expects, anticipates,
believes, planned and other similar expressions that are intended to identify forward-looking information that
involves risks and uncertainties. Actual results or outcomes could differ materially as a result of such
important factors as the commencement and outcome of voter initiatives and legal or regulatory proceedings
challenging the collection of FTA Charges or payment of the Notes or Certificates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Omitted with respect to the Note Issuer pursuant to Instruction H of Form 10-Q.
Page 7
PART II
Item 1. Legal Proceedings.
Omitted because there are no reportable proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Omitted with respect to the Note Issuer pursuant to Instruction H of Form 10-Q.
Item 3. Defaults Upon Senior Securities.
Omitted with respect to the Note Issuer pursuant to Instruction H of Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted with respect to the Note Issuer pursuant to Instruction H of Form 10-Q.
Item 5. Other Information.
Attached, with respect to the Note Issuer and the Trust, as Exhibit 99 is the Quarterly Servicer's
Certificate for the collection period December 2004 through February 2005 (dated March 21, 2005), delivered
pursuant to the Note Indenture, which includes information relating to the collection and distributions of the
FTA Charges and the balances in the reserve subaccounts under the Note Indenture.
Item 6. Exhibits.
(a) See the Exhibit Index of this report below.
Page 8
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.
Dated: May 9, 2005 SCE FUNDING LLC
as Registrant
By /s/ Robert C. Boada
-----------------------------------------------------
Name: Robert C. Boada
Title: Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
Page 9
Exhibit Index
-------------
Exhibit
Number
- ------
3.1 Certificate of Formation (incorporated by reference to the same titled
and numbered exhibit to the Note Issuer's Registration Statement on
Form S-3, File No. 333-30785)*
3.2 Limited Liability Company Agreement (incorporated by reference to the
same titled and numbered exhibit to the Note Issuer's Registration
Statement on Form S-3, File No. 333-30785)*
3.3 Amended and Restated Limited Liability Company Agreement (incorporated
by reference to the same titled exhibit, included as exhibit number
3.4 to the Note Issuer's Registration Statement on Form S-3, File No.
333-30785)*
32 Statement Pursuant to 18 U.S.C. 1350
99.1 Quarterly Servicer's Certificate dated March 21, 2005
- ----------------
* Incorporated by reference pursuant to Rule 12b-32.