<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I 1(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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 180, ROSEMEAD, CALIFORNIA 91770
------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (626) 302-1850
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
California Infrastructure and Economic Development Bank Special Purpose Trust
SCE-1 Rate Reduction Certificates, Series 1997-1: Class A-1 5.98% Certificates;
Class A-2 6.14% Certificates; Class A-3 6.17% Certificates; Class A-4 6.22%
Certificates; Class A-5 6.28% Certificates; Class A-6 6.38% Certificates; Class
A-7 6.42% Certificates, maturing serially from 1998 to 2009, and underlying SCE
Funding LLC Notes of the same respective classes
________________________________________________________________________________
(Title of Class)
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 at least the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 1, 1998 was $0.
DOCUMENTS INCORPORATED BY REFERENCE.
Not applicable.
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
SCE Funding LLC (the "Note Issuer") is a special purpose, single
member limited liability company organized under the laws of the State of
Delaware. Southern California Edison Company ("Edison"), as the sole member of
the Note Issuer, owns all of the equity securities of the Note Issuer. The
principal executive office of the Note Issuer is located at 2244 Walnut Grove
Avenue, Room 180, Rosemead, California 91770. Its phone number is (626) 302-
1850. The Note Issuer was organized in June 1997 for the limited purposes of
owning the Transition Property (as described below) and issuing notes secured by
the Transition Property and other limited collateral and related activities, and
is restricted by its organizational documents from engaging in other activities.
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 Edison in
the event Edison becomes subject to such a proceeding.
The only material business conducted by the Note Issuer has been
the acquisition of Transition Property (which is reported as a Note Receivable
on the financial statements) and the issuance on December 11, 1997 of
$2,463,000,000 in principal amount of the SCE Funding LLC Notes, Series 1997-1,
Class A-1 through Class A-7 (the "Notes"), with scheduled maturities ranging
from one to ten years and final maturities ranging from three to twelve years.
The specific interest rate and maturity of each class of Notes is specified
herein under Note 4 of the Notes to Financial Statements attached hereto. The
Notes were issued pursuant to an indenture between the Note Issuer and Bankers
Trust Company of California, N.A., as trustee (the "Indenture"). The Note Issuer
sold the Notes to the California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1, a Delaware business trust (the "Trust"), which
issued certificates corresponding to each class of Notes (the "Certificates") in
a public offering.
The Note Issuer has no employees. It has entered into a servicing
agreement (the "Servicing Agreement") with Edison pursuant to which Edison is
required to service the Transition Property on behalf of the Note Issuer. In
addition, the Note Issuer has entered into an administrative services agreement
with Edison pursuant to which Edison performs administrative and operational
duties for the Note Issuer.
TRANSITION PROPERTY
The California Public Utilities Code (the "PU Code") provides for
the creation of "Transition Property." A financing order dated September 3, 1997
(the "Financing Order") issued by the California Public Utilities Commission
(the "CPUC"), together with the related Issuance Advice Letter, establishes,
among other things, separate nonbypassable charges (the "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
1
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Overcollateralization Subaccount established under the 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 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 Indenture as required, the Servicing Agreement
requires Edison, as the servicer of the Transition Property (in such capacity,
the "Servicer"), 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. As of December 31, 1997, the Servicer has not
sought any such adjustments.
THE TRUST
The Trust was organized in November 1997 solely for the purpose of
purchasing the Notes and issuing the Certificates. It will not conduct any other
material business activities.
ITEM 2. PROPERTIES.
The Note Issuer has no materially important physical properties.
Its primary asset is the Transition Property described above in Item 1
(Business). The Note Issuer has not received any collections from the Transition
Property in 1997.
The Trust has no materially important physical properties. Its
primary assets are the Notes described above in Item 1 (Business). The Trust did
not receive any payments in respect of the Notes in 1997.
ITEM 3. LEGAL PROCEEDINGS.
On October 6, 1997 The Utility Reform Network ("TURN"), a
California consumer advocacy group, filed applications for rehearing with the
CPUC seeking rehearing of the Financing Order, alleging that the Financing Order
was unlawful on certain grounds. The CPUC denied the applications for rehearing
on October 22, 1997. On November 24, 1997, TURN, Public Media Center, Consumers
Union and Harvey Rosenfield filed a petition for writ of review of the Financing
Order with the California Supreme Court. In connection with their petition for
writ of review, TURN and the other petitioners requested that the California
Supreme
2
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Court issue an interim writ or order suspending implementation of the
Financing Order until such time as the Court resolved the petition for writ of
review. On November 25, 1997, Pacific Gas and Electric Company, San Diego Gas &
Electric Company and Edison jointly filed an opposition to the request for an
interim writ or order suspending implementation of the Financing Order. On
December 4, 1997, the California Supreme Court denied both the request for an
interim writ or order and the petition for writ of review.
On November 24, 1997, individuals representing TURN, Public Media
Center and the Coalition Against Utility Taxes filed a voter initiative with the
California Attorney General which seeks, among other things, to prohibit the
collection of any customer charges for the Certificates or, alternatively,
requires Edison to offset such charges with an equal credit to customers. In
February 1998, the California Secretary of State released the title and summary
prepared for the proposed initiative by the office of the California Attorney
General. The sponsors of the initiative are now seeking sufficient signatures to
qualify the initiative for the November 1998 statewide ballot. If the proposed
initiative were voted into law, costly and lengthy litigation might ensue. Under
the terms of the Servicing Agreement, Edison as the Servicer is required to take
such legal or administrative actions as may be reasonably necessary to block or
overturn any attempts to cause a repeal of, modification of or supplement to the
statute providing for the Certificates, or the Financing Order, or the rights of
holders of the Transition Property, by legislative enactment, voter initiative
or constitutional amendment that would be adverse to holders of the
Certificates. The costs of such actions would be payable out of collections of
the FTA Charges as an operating expense of the Note Issuer. If the initiative
were to qualify for the ballot, be voted into law and be upheld by the courts,
it could have a material adverse effect on the Note Issuer and the holders of
the Certificates.
No other legal proceedings affecting either the Note Issuer or
the Trust occurred in 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted with respect to the Note Issuer pursuant to Instruction I
of Form 10-K.
No matters were submitted for a vote or consent of holders of
Certificates in 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) There is no established public trading market for the Note
Issuer's equity securities. All of the Note Issuer's equity is owned by Edison.
The Note Issuer's equity securities, or membership interests, were sold to
Edison in June 1997 in exchange for an initial capital contribution of $5,000.
Edison has made capital contributions to the Note Issuer aggregating $13,240,000
as of December 31, 1997. The sale of the Note Issuer's membership interests to
Edison was exempt from registration under the Securities Act of 1933, as
amended,
3
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pursuant to Section 4(2) thereof. The Note Issuer has made no other sales of
unregistered securities.
The Indenture prohibits the Note Issuer from making any distributions
to the sole member from the amounts allocated to the Note Issuer unless no
default has occurred and is continuing thereunder and the book value of the
remaining equity of the Note Issuer, after giving effect to such distribution,
is equal to at least 0.5% of the original principal amount of all series of
Notes which then remains outstanding. As of December 31, 1997, the original
principal amount of all series of Notes which then remained outstanding is
$2,463,000,000. As of December 31, 1997, the Note Issuer has not made any
distributions. The Note Issuer intends to make distributions to the sole member
from time to time in the future as permitted by the Indenture and as approved by
the Note Issuer's Board of Directors.
The registered owner for each class of the Certificates is Cede & Co.,
as nominee of The Depository Trust Company ("DTC"). DTC has informed the Note
Issuer that as of December 31, 1997, there were 103 beneficial holders of
Certificates. The Certificates are not registered on any national securities
exchange and do not trade on any established trading market.
(b) The Note Issuer's Amendment No. 4 to the Registration Statement
No. 333-30785 on Form S-3, as filed with the Commission on November 21, 1997
(the "Registration Statement"), for the sale of the Notes and the Certificates
was declared effective by the Commission on November 24, 1997. The Certificates
were offered for sale beginning on December 3, 1997. Certificates in the
aggregate amount of $2,463,000,000 were sold on December 11, 1997. In connection
with the offering of the Certificates, Salomon Brothers Inc and Lehman Brothers
Inc. acted as the managing underwriters. The Notes registered under the
Registration Statement were all sold to the Trust pursuant to a note purchase
agreement. Notes and Certificates in the aggregate principal amount of
$3,000,000,000 were registered and $2,463,000,000 have been offered and sold to
date. The amount of each class of Notes and Certificates registered and the
respective sale prices are shown below:
<TABLE>
<CAPTION>
Principal Amount
----------------
Registered Sale Price
---------------- --------------
<S> <C> <C>
Class A-1 Notes and Certificates $ 246,300,000 $ 246,281,602
Class A-2 Notes and Certificates 307,251,868 307,241,053
Class A-3 Notes and Certificates 247,840,798 247,826,423
Class A-4 Notes and Certificates 246,030,125 245,977,573
Class A-5 Notes and Certificates 360,644,658 360,563,729
Class A-6 Notes and Certificates 739,988,148 739,668,547
Class A-7 Notes and Certificates 314,944,403 314,750,996
Total $2,463,000,000 $2,462,309,923
</TABLE>
4
<PAGE>
From the effective date of the Registration Statement to December
31, 1997, the amount of expenses incurred for the account of the Note Issuer in
connection with the issuance and distribution of the Notes and the Certificates
registered under the Registration Statement totaled $11,699,238 for underwriting
discount and commissions, approximately $259,000 for expenses incurred to or for
underwriters and approximately $859,000 for other expenses. Other expenses
incurred for the account of the Note Issuer prior to the effective date of the
Registration Statement in connection with the issuance and distribution of the
Notes and the Certificates total approximately $3,242,000. Management expects
that the total expenses paid or to be paid in connection with the issuance and
distribution of the Notes and the Certificates will aggregate $18,600,000.
Management believes that the above are reasonable estimates of the respective
expenses paid from the effective date of the Registration Statement to December
31, 1997 and the projected total expenses paid or to be paid in connection with
the offer and sale of the Notes and the Certificates. No expenses were paid
either directly or indirectly to directors, officers or affiliates of the Note
Issuer from the effective date of the Registration Statement to December 31,
1997.
The net offering proceeds to the Note Issuer after deducting the
original issue discount of $690,078 and the foregoing expenses from the
effective date of the Registration Statement to December 31, 1997 are
$2,449,492,684. As of December 31, 1997, there remain outstanding certain
expenses in connection with the issuance and distribution of the Notes.
Management expects that the net offering proceeds to the Note Issuer after
deducting total expected expenses will be $2,443,709,923, which is the same
amount that was used to purchase the Transition Property from Edison. Management
believes that the above are reasonable estimates of the net offering proceeds
after deducting expenses incurred from the effective date of the Registration
Statement to December 31, 1997 and after deducting projected total expenses paid
or to be paid in connection with the offer and sale of the Notes and the
Certificates. The Trust used all of the net proceeds from the sale of
Certificates to purchase the Notes from the Note Issuer.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to Instruction I of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following analysis of the Note Issuer's results of operations
is in an abbreviated format pursuant to Instruction I of Form 10-K.
As discussed under Item 1 (Business), the Note Issuer is a newly
organized entity established in June 1997 for limited purposes. As discussed
above under Item 5 (Market for Registrant's Common Equity and Related
Stockholder Matters), on December 11, 1997, the Note Issuer issued Notes in
order to purchase Transition Property, which is classified as a Note
5
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Receivable on the financial statements included under Item 8 (Financial
Statements and Supplementary Data). As the Note Issuer is restricted by its
organizational documents from engaging in activities other than those described
in Item 1 (Business), income statement effects were limited primarily to income
generated from the Transition Property, interest expense on the Notes and
incidental investment interest income.
In 1997, income generated from the Transition Property was
approximately $8.2 million. The Note Issuer also earned approximately $60,000 in
interest on other investments. Interest expense of approximately $8.2 million
relates to interest on the Notes and the amortization of debt issuance costs and
the discount on the Notes.
The Note Issuer expects to use 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 Edison for servicing the
Transition Property and providing administrative services to the Note Issuer.
(These agreements are discussed in greater detail in Note 5 to the financial
statements attached hereto.)
Collections of FTA Charges are currently meeting expectations and
were sufficient to pay approximately 99% of all scheduled payments on the Notes
and related expenses for the first Note payment date (March 25, 1998). The
remaining amount (approximately $715,000) was drawn from the Capital Subaccount
established under the Indenture (see discussion concerning restricted funds in
Note 2 of the Notes to Financial Statements), which amount will be replenished
to the extent there are sufficient excess collections in the future. The FTA
Charges will be adjusted at least annually if there is a material shortfall or
overage in collections. Management expects future collections of FTA Charges to
be sufficient to cover expenses and to make scheduled payments on the Notes on a
timely basis.
The Note Issuer does not expect any material adverse impact on the
Note Issuer or its financial position or results of operations as a result of
any inability of the computer systems on which it currently relies to recognize
the year 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to Note Issuer.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and related financial information required
to be filed hereunder are indexed on page F-1 of this report and are
incorporated herein by reference. In addition, Exhibit 99.1 contains financial
information regarding collections of FTA Charges for the month of December 1997.
6
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted with respect to the Note Issuer pursuant to Instruction I
of Form 10-K.
Not applicable to the Trust.
7
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following financial statements of the Note Issuer and report
of independent public accountants are included in Item 8 (Financial Statements
and Supplementary Data):
Report of Independent Public Accountants
Balance Sheet
Statement of Operations and Changes in Member's Equity
Statement of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedule.
None.
3. Exhibits.
The following exhibits are filed as a part of this report:
Exhibit
Number
- -------
3.1 Certificate of Formation (incorporated
by reference to the same titled
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 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 exhibit number 3.4 to the
Note Issuer's Registration Statement
on Form S-3, File No. 333-30785)
4.1 Note Indenture (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
8
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4.2 Series Supplement (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
4.3 Note (incorporated by reference to the
same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
4.4 Amended and Restated Declaration and
Agreement of Trust (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
4.5 First Supplemental Agreement of Trust
(incorporated by reference to the same
titled exhibit to the Note Issuer's
Current Report on Form 8-K filed with
the Commission on December 11, 1997)
4.6 Rate Reduction Certificate (incorporated
by reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
10.1 Transition Property Purchase and Sale
Agreement (incorporated by reference
to the same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
10.2 Transition Property Servicing
Agreement (incorporated by reference
to the same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
10.3 Note Purchase Agreement (incorporated
by reference to the same titled
exhibit to the Note Issuer's Current
Report on Form 8-K filed with the
Commission on December 11, 1997)
10.4 Fee and Indemnity Agreement
(incorporated by reference to the same
titled exhibit to the Note Issuer's
Current Report on Form 8-K filed with
the Commission on December 11, 1997)
23.1 Consent of Arthur Andersen LLP
9
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27.1 Financial Data Schedule
99.1 Annual Statement
(b) Reports on 8-K.
The Note Issuer filed a Current Report on Form 8-K dated December 11,
1997 filing certain agreements entered into by the Note Issuer and the Trust.
10
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of March 30, 1998.
SCE FUNDING LLC
as Registrant
By /s/ Theodore F. Craver, Jr.
-----------------------------
Name: Theodore F. Craver, Jr.
Title: President
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Theodore F. Craver, Jr. Director and President March 30, 1998
- ----------------------------- (Principal Executive Officer)
Theodore F. Craver, Jr.
/s/ Mary C. Simpson Director, Treasurer (Principal March 30, 1998
- ----------------------------- Financial and Accounting
Mary C. Simpson Officer)
/s/ Anand Maniktala Director March 30, 1998
- -----------------------------
Anand Maniktala
<PAGE>
Report of Independent Public Accountants
To the Member of SCE Funding LLC:
We have audited the accompanying balance sheet of SCE Funding LLC (a Delaware
Limited Liability Company) as of December 31, 1997 and the related statements of
operations and changes in member's equity and cash flows for the period from
inception (June 27, 1997) to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCE Funding LLC as of December
31, 1997, and the results of its operations and its cash flows for the period
from inception (June 27, 1997) to December 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1998
F-1
<PAGE>
SCE FUNDING LLC
BALANCE SHEET
AT DECEMBER 31, 1997
(In thousands)
<TABLE>
<S> <C>
ASSETS
------
Current Assets:
Cash and equivalents $ 6,616
Interest receivable 8,163
----------
Total Current Assets $ 14,779
----------
Other Assets & Deferred Charges:
Restricted cash 12,254
Note receivable - net of discount 2,443,812
Unamortized bond issuance costs 15,974
----------
Total Other Assets and Deferred Charges $2,472,040
----------
TOTAL ASSETS $2,486,819
==========
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
Current Liabilities:
Accrued interest payable $ 8,142
Current portion of long-term debt 246,300
Miscellaneous accrued expenses 3,382
----------
Total Current Liabilities $ 257,824
Long term debt-net of discount 2,216,014
Member's equity at December 31, 1997 12,981
----------
Total Liabilities and Member's Equity $2,486,819
==========
</TABLE>
F-2
<PAGE>
SCE FUNDING LLC
STATEMENT OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
FROM INCEPTION (JUNE 27, 1997) TO DECEMBER 31, 1997
(In thousands)
<TABLE>
<S> <C>
Operating Revenue:
Interest Income $ 8,304
-------
Total Operating Revenue 8,304
-------
Operating Expenses:
Interest Expense 8,231
Other Expenses 332
-------
Total Operating Expenses 8,563
-------
Net Income (Loss) $ (259)
Member's Equity at Inception (June 27, 1997) -
Member's Contributions 13,240
-------
Member's Equity at December 31, 1997 $12,981
=======
</TABLE>
F-3
<PAGE>
SCE Funding LLC
Statement of Cash Flows
FROM INCEPTION (JUNE 27, 1997) TO DECEMBER 31, 1997
(In thousands)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income (Loss) $ (259)
Adjustment for non cash items:
Amortization of bond discount and issuance costs 89
Amortization of discount on note receivable (102)
Changes in working capital:
Interest receivable (8,163)
Accrued interest payable 8,142
Miscellaneous accrued expenses 3,382
------------
Net Cash Provided by Operating Activities 3,089
============
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable 2,462,310
Payment of bond issuance costs (16,059)
Equity Contribution from Edison 13,240
------------
Net Cash Provided by Financing Activities 2,459,491
============
Cash Flows from Investing Activities:
Purchase of note receivable (2,443,710)
Restricted funds (12,254)
------------
Net Cash Used by Investing Activities (2,455,964)
============
Net increase in cash and equivalents 6,616
Cash and equivalents, beginning of year -
------------
Cash and equivalents, end of year $ 6,616
============
NONCASH TRANSACTIONS:
Discount on Note Receivable $ 19,290
Discount on Notes Payable $ 690
</TABLE>
The accompanying Notes are an integral part of this Financial Statement
F-4
<PAGE>
SCE FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements include the accounts of SCE Funding LLC, a Delaware
special purpose limited liability company, whose sole member is Southern
California Edison Company ("Edison"), a provider of electric services. Edison is
a wholly owned subsidiary of Edison International. SCE Funding LLC was formed
on June 27, 1997, in order to effect the purchase from Edison of Transition
Property (as defined below) and to fund such purchase from the issuance of notes
(the "Notes") to the California Infrastructure and Economic Development Bank
Special Purpose Trust SCE-1 (the "Trust") which issued certificates (the
"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 Edison to provide a 10% electric rate
reduction to Edison's residential and small commercial customers in connection
with electric industry restructuring mandated by California Assembly Bill 1890,
as amended by 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 nonbypassable tariffs authorized by the California Public
Utility Commission (the "CPUC") pursuant to the electric restructuring
legislation. For financial reporting purposes, the purchase of the Transition
Property by SCE Funding LLC from Edison was conducted through the issuance of a
promissory note by Edison 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 of the Transition Property, the Transition Property, for legal
purposes, has been sold by Edison to SCE Funding LLC.
F-5
<PAGE>
SCE Funding LLC is restricted by its organizational documents from engaging in
any other activities. In addition, SCE Funding LLC's organizational documents
require it to operate in such a manner that it should not be consolidated in the
bankruptcy estate of Edison, in the event Edison becomes subject to such a
proceeding.
SCE Funding LLC is legally separate from Edison. The assets and revenue of SCE
Funding LLC, including, without limitation, the Transition Property, are not
available to creditors of Edison or Edison International, and the promissory
note from Edison to SCE Funding LLC (i.e., the Transition Property) is not
legally an asset of Edison or Edison International.
2. Summary of Accounting Policies
Cash Equivalents
Cash equivalents include working funds and short-term investments with
maturities of 90 days or less.
Restricted Funds
SCE Funding LLC is required to maintain funds of approximately $12 million.
These funds are invested in short term securities with maturities of 90 days or
less. They are to be used to make scheduled payments on the Notes to the Trust
and to pay other expenses of SCE Funding LLC in the event that collections of
the nonbypassable tariffs prove insufficient to make such payments.
Unamortized Bond Issuance Costs
The costs associated with the issuance of the Notes to the Trust have been
capitalized and will be amortized over the life of the Notes.
Income Taxes
SCE Funding LLC is a single-member limited liability company for federal and
state income tax purposes. Accordingly, any
F-6
<PAGE>
income tax effect of SCE Funding LLC's activities will be reflected in Edison's
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions may affect the reported amount of revenue,
expenses, assets, and liabilities and disclosure of contingencies. Actual
results could differ from these estimates.
3. Fair Value of Financial Instruments
Due to their short maturities, amounts reported for cash equivalents and
restricted funds approximate fair value. In addition to these amounts, at
December 31, 1997, SCE Funding LLC had a financial asset (representing its note
receivable from Edison), and financial liabilities (representing its Notes to
the Trust) each with a cost basis of approximately $2.5 billion. The note
receivable is carried at cost, which approximates fair value. Fair value is
estimated based on brokers' quotes of notes with similar characteristics.
Financial liabilities are recorded at cost, which approximates fair value, and
their fair value is based on brokers' quotes.
4. Long Term Debt
In December 1997, SCE Funding LLC issued approximately $2.5 billion of Notes
to the Trust. The Notes consist of seven classes and have maturities ranging
from one to 10 years, and bear interest at rates ranging from 5.98% to 6.42%.
The Notes are secured solely by the Transition Property (see Note 1) and certain
other assets of SCE Funding LLC, and the holders of the Notes do not have any
recourse to any assets or revenue of Edison or Edison International. For
financial reporting purposes the Transition Property is shown as a Note
Receivable, with the same scheduled maturities and interest rates as the Notes
to the Trust (see table below). Notwithstanding such classification of the
Transition Property, the Transition Property has been sold by Edison to SCE
Funding LLC.
F-7
<PAGE>
Principal and interest payments on the Notes are due quarterly and are paid from
funds deposited monthly with the Trustee for the Notes by Edison as servicer of
the Transition Property. The debt service requirements include an
overcollateralization amount, which will be retained for the benefit of the
holders of the Notes. Any amounts not required for debt service will be
returned to SCE Funding LLC. Scheduled maturities and interest rates for the
Notes payable to the Trust at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Class Scheduled Interest Amount
Maturity Rate (in
Date thousands)
----
<S> <C> <C> <C>
A-1 December 26, 1998 5.98% $ 246,300
A-2 March 25, 2000 6.14% 307,252
A-3 March 25, 2001 6.17% 247,841
A-4 March 25, 2002 6.22% 246,030
A-5 September 25, 2003 6.28% 360,645
A-6 September 25, 2006 6.38% 739,988
A-7 December 26, 2007 6.42% 314,944
----------
$2,463,000
Less: Current Maturities (246,300)
Less:Unamortized Discount (686)
----------
Long-Term Debt $2,216,014
----------
</TABLE>
5. Significant Agreements and Related Party Transactions
Under the Transition Property Servicing Agreement, Edison, the servicer, is
required to manage and administer the Transition Property of SCE Funding LLC and
to collect the nonbypassable tariffs from the electricity ratepayers on behalf
of SCE Funding LLC. SCE Funding LLC shall pay an annual servicing fee equal to
.25% of the outstanding principal balance of the Notes for so long as the
nonbypassable tariff is included as a line item on the bills otherwise sent to
electricity ratepayers or 1.5% of the outstanding principal balance of the Notes
if the nonbypassable tariff is not included as a line item on bills otherwise
sent to electricity ratepayers but, instead, is billed separately to electricity
ratepayers. SCE Funding LLC incurred a total of $330,000 in servicing fees in
1997. Edison is also entitled to receive as compensation any
F-8
<PAGE>
interest earnings on the nonbypassable tariff collections,and any late payment
charges collected from Edison's customers prior to remittance to the Trust.
The Trust was created solely for the purpose of purchasing the Notes from SCE
Funding LLC, issuing the Certificates, and applying the payments received in
respect of the Notes to the payment of interest and principal in respect of the
Certificates. Under the Trust Agreement, Bankers Trust Company, the Certificate
Trustee, is responsible for purchasing the Notes and authenticating and
delivering the Certificates to the investors. Bankers Trust Company Delaware,
the Delaware Trustee, is responsible for the maintenance of all records that are
necessary to form and maintain the existence of the Trust. All fees and
expenses of the Certificate Trustee and the Delaware Trustee will be paid by SCE
Funding LLC.
F-9
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Sequential
Numbered
Exhibit Exhibit
Number Description Page
- ------- ----------- ----------
<S> <C> <C>
3.1 Certificate of Formation (incorporated
by reference to the same titled
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 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 exhibit number 3.4 to the
Note Issuer's Registration Statement
on Form S-3, File No. 333-30785)
4.1 Note Indenture (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
4.2 Series Supplement (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
4.3 Note (incorporated by reference to the
same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
4.4 Amended and Restated Declaration and
Agreement of Trust (incorporated by
reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
4.5 First Supplemental Agreement of Trust
(incorporated by reference to the same
titled exhibit to the Note Issuer's
Current Report on Form 8-K filed with
the Commission on December 11, 1997)
4.6 Rate Reduction Certificate (incorporated
by reference to the same titled exhibit
to the Note Issuer's Current Report on
Form 8-K filed with the Commission on
December 11, 1997)
10.1 Transition Property Purchase and Sale
Agreement (incorporated by reference
to the same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
10.2 Transition Property Servicing
Agreement (incorporated by reference
to the same titled exhibit to the Note
Issuer's Current Report on Form 8-K
filed with the Commission on December
11, 1997)
10.3 Note Purchase Agreement (incorporated
by reference to the same titled
exhibit to the Note Issuer's Current
Report on Form 8-K filed with the
Commission on December 11, 1997)
10.4 Fee and Indemnity Agreement
(incorporated by reference to the same
titled exhibit to the Note Issuer's
Current Report on Form 8-K filed with
the Commission on December 11, 1997)
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
99.1 Annual Statement
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into SCE Funding LLC's previously filed
Registration Statement File No. 333-30785.
Arthur Andersen LLP
Los Angeles, California
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-27-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 14,779
<TOTAL-DEFERRED-CHARGES> 15,974
<OTHER-ASSETS> 2,456,066
<TOTAL-ASSETS> 2,486,819
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 13,240
<RETAINED-EARNINGS> (259)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 12,981
0
0
<LONG-TERM-DEBT-NET> 2,216,014
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 246,300
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 11,524
<TOT-CAPITALIZATION-AND-LIAB> 2,486,819
<GROSS-OPERATING-REVENUE> 8,304
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 332
<TOTAL-OPERATING-EXPENSES> 332
<OPERATING-INCOME-LOSS> 7,972
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 7,972
<TOTAL-INTEREST-EXPENSE> 8,231
<NET-INCOME> (259)
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 8,231
<CASH-FLOW-OPERATIONS> 3,089
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
ANNUAL STATEMENT
Page 1 of 3
January 19, 1998
Monthly Servicer's Certificate
(to be delivered pursuant to Section 3.01(b)(i) of
the Transition Property Servicing Agreement on or before each Remittance Date)
Southern California Edison Company, as Servicer
- --------------------------------------------------------------------------------
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE TRUST
SCE-1
- --------------------------------------------------------------------------------
Pursuant to the Transition Property Servicing Agreement dated as of December 11,
1997 (the "Transition Property Servicing Agreement") between Southern California
Edison Company, as Servicer, and SCE Funding LLC, as Note Issuer, the Servicer
does hereby certify as follows:
Collection Period: December 1997
Remittance Date: January 20, 1998
<TABLE>
<S> <C>
a. FTA Payments estimated to have been received by the Servicer attributable
to Residential Customers during this Collection Period: $2,611,219.51
b. FTA Payments estimated to have been received by the Servicer attributable
to Small Commercial Customers during this Collection Period: 444,748.04
c. Remittance Shortfall attributable to Residential Customers for this
Collection Period: 0.00
d. Remittance Shortfall attributable to Small Commercial Customers for
this Collection Period: 0.00
e. Excess Remittance attributable to Residential Customers for this
Collection Period: 0.00
f. Excess Remittance attributable to Small Commercial Customers for
this Collection Period: 0.00
-------------
The Aggregate Remittance Amount remitted by the Servicer to the Collection
Account for this Collection Period is (a + b + c + d - e - f): $3,055,967.54
=============
</TABLE>
Capitalized terms used in this Monthly Servicer's Certificate have their
respective meanings set forth in the Transition Property Servicing Agreement.
In WITNESS HEREOF, the undersigned has duly executed and delivered this
Monthly Servicer's Certificate this 19th day of January, 1998.
SOUTHERN CALIFORNIA EDISON COMPANY, as Servicer
By /s/ Mary C. Simpson
------------------------------
Title Assistant Treasurer
---------------------------
<PAGE>
Page 2 of 3 January 19, 1998
Monthly Servicer's Certificate
(to be delivered pursuant to Section 3.01(b)(i) of
the Transition Property Servicing Agreement on or before each Remittance Date)
Southern California Edison Company, as Servicer
- --------------------------------------------------------------------------------
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE TRUST
SCE-1
- --------------------------------------------------------------------------------
Pursuant to the Transition Property Servicing Agreement dated as of December 11,
1997 (the "Transition Property Servicing Agreement") between Southern California
Edison Company, as Servicer, and SCE Funding LLC, as Note Issuer, the Servicer
does hereby certify as follows:
Collection Period: December 1997
<TABLE>
<S> <C>
Residential:
1. For this Collection Period:
a. Sales at the current FTA charge 496,887,721 kWh
b. Current FTA Charge 1.723 cents/kWh
c. Sales at the previous FTA charge 0 kWh
d. Previous FTA charge 0.000 cents/kWh
e. Billed FTA not accounted for in prior
periods $0.00
f. Billed FTA Charges (a x b + c x d + e) $8,561,375.43
g. Collection Curve
Month 1 Estimated Collections 30.5%
Month 2 Estimated Collections 44.2%
Month 3 Estimated Collections 19.5%
Month 4 Estimated Collections 3.8%
Month 5 Estimated Collections 1.5%
Month 6 Estimated Collections 0.0%
h. Total (sum of all d above) 99.5%
i. Estimated FTA Payments (f x h) $8,518,568.56
</TABLE>
2. Aggregate Remittance amount for this Collection Period:
<TABLE>
<CAPTION>
Collection
Period Collection Percent Billed FTA Charges Remittance Amounts
(A) (B) (C) (B x C)
---------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
a. Month 6 Estimated Collections Jul-97 0.0% 0.00 0.00
b. Month 5 Estimated Collections Aug-97 0.0% 0.00 0.00
c. Month 4 Estimated Collections Sep-97 0.0% 0.00 0.00
d. Month 3 Estimated Collections Oct-97 0.0% 0.00 0.00
e. Month 2 Estimated Collections Nov-97 0.0% 0.00 0.00
f. Month 1 Estimated Collections Dec-97 30.5% 8,561,375.43 $2,611,219.51
-------------
$2,611,219.51
=============
</TABLE>
3. For the June 1997 Collection Period:
<TABLE>
<S> <C>
a. Estimated FTA Payments $0.00
b. Actual FTA Payments $0.00
c. If (a > b), (a - b) equals Excess Remittance $0.00
d. If (b > a), (b - a) equals Remittance Shortfall $0.00
</TABLE>
<PAGE>
Page 3 of 3 January 19, 1998
MONTHLY SERVICER'S CERTIFICATE
(to be delivered pursuant to Section 3.01(b)(i) of
the Transition Property Servicing Agreement on or before each Remittance Date)
Southern California Edison Company, as Servicer
- -------------------------------------------------------------------------------
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK SPECIAL PURPOSE TRUST
SCE-1
- -------------------------------------------------------------------------------
Pursuant to the Transition Property Servicing Agreement dated as of December
11, 1997 (the "Transition Property Servicing Agreement") between Southern
California Edison Company, as Servicer, and SCE Funding LLC, as Note Issuer,
the Servicer does hereby certify as follows:
Collection Period: December 1997
<TABLE>
<S> <C>
Small Commercial:
1. For this Collection Period:
a. Sales at the current FTA charge 85,051,851 kWh
b. Current FTA Charge 1.882 cents/kWh
c. Sales at the previous FTA charge 0 kWh
d. Previous FTA charge 0.000 cents/kWh
e. Billed FTA not accounted for in prior periods $0.00
f. Billed FTA Charges (a x b + c x d + e) $1,549,644.73
g. Collection Curve
Month 1 Estimated Collections 28.7%
Month 2 Estimated Collections 46.9%
Month 3 Estimated Collections 19.4%
Month 4 Estimated Collections 3.0%
Month 5 Estimated Collections 1.6%
Month 6 Estimated Collections 0.0%
h. Total (sum of all d above) 99.6%
i. Estimated FTA Payments (f x h) $1,543,446.15
2. Aggregate Remittance amount for this Collection Period:
<CAPTION>
Collection Period Collection Percent Billed FTA Charges Remittance Amounts
(A) (B) (C) (B x C)
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
a. Month 6 Estimated Collections Jul-97 0.00% 0.00 0.00
b. Month 5 Estimated Collections Aug-97 0.00% 0.00 0.00
c. Month 4 Estimated Collections Sep-97 0.00% 0.00 0.00
d. Month 3 Estimated Collections Oct-97 0.00% 0.00 0.00
e. Month 2 Estimated Collections Nov-97 0.00% 0.00 0.00
f. Month 1 Estimated Collections Dec-97 28.7% 1,549,644.73 444,748.04
--------------
$444,748.04
==============
3. For the June 1997 Collection Period:
a. Estimated FTA Payments $0.00
b. Actual FTA Payments $0.00
c. If (a > b), (a - b) equals Excess Remittance $0.00
d. If (b > a), (b - a) equals Remittance Shortfall $0.00
</TABLE>
