SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 2000.
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
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(Issuer of the Certificates)
SCE Funding LLC
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4640661
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(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
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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
<PAGE>
PART I
Item 1. Financial Statements
SCE FUNDING LLC
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ------------
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash & equivalents $ 1,326 $ 1,318
Restricted funds 39,190 35,946
Current portion of note receivable 247,251 246,300
Interest receivable 935 5
----------------------- -----------------------
Total Current Assets 288,702 283,569
----------------------- -----------------------
Other Assets:
Note receivable - net of discount 1,545,529 1,712,114
Unamortized bond issuance costs 13,225 14,593
----------------------- -----------------------
Total Other Assets 1,558,754 1,726,707
----------------------- -----------------------
Total Assets $ 1,847,456 $ 2,010,276
======================= =======================
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Interest payable $ 2,851 $ 2,220
Current portion of long-term debt 247,251 246,300
Miscellaneous accrued expenses 64 70
----------------------- -----------------------
Total Current Liabilities 250,166 248,590
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Long term debt - net of discount 1,547,664 1,723,552
----------------------- -----------------------
Member's equity 49,626 38,134
----------------------- -----------------------
Total Liabilities and Member's Equity $ 1,847,456 $ 2,010,276
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE>
SCE FUNDING LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
-------------------------------------------------------
2000 1999
------------------------ ----------------------
OPERATING REVENUES:
<S> <C> <C>
Interest Income $ 94,236 $ 104,350
------------------------ ------------------------
Total Operating Revenue 94,236 104,350
------------------------ ------------------------
OPERATING EXPENSES:
Interest Expense 91,905 103,001
Other Expenses 3,686 4,129
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Total Operating Expenses 95,591 107,130
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Net Loss (1,355) (2,780)
Member's Equity, beginning of period 38,134 23,167
Member Contributions- net 12,847 16,993
------------------------ ------------------------
Member's Equity, end of period $ 49,626 $ 37,380
======================== ========================
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
SCE FUNDING LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
---------------------------------------------------
2000 1999
------------------------ ------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Loss $ (1,355) $ (2,780)
Adjustment for non-cash items:
Amortization 1 2
Changes in working capital:
Restricted funds (3,244) (14,878)
Receivables (930) 1,511
Interest payable 631 (33)
Accounts payable and other current liabilities (6) (494)
------------------------ ------------------------
Net Cash Provided by Operating Activities (4,903) (16,672)
------------------------ ------------------------
Cash Flows from Financing Activities:
Payment of principal on rate reduction notes (174,989) (178,280)
Equity contributions from SCE 12,847 16,993
------------------------ ------------------------
Net Cash Used by Financing Activities (162,142) (161,287)
------------------------ ------------------------
Cash Flows from Investing Activities:
Note receivable collections from SCE 167,053 178,280
------------------------ ------------------------
Net Cash Provided by Investing Activities 167,053 178,280
------------------------ ------------------------
Net increase in cash and equivalents 8 321
Cash and equivalents, beginning of period 1,318 183
------------------------ ------------------------
Cash and equivalents, end of period $ 1,326 $ 504
======================== ========================
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
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, 1999, 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 has been in effect since 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.
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<PAGE>
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 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.
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 1999 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 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
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<PAGE>
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,
1999, SCE filed with the CPUC an anniversary true-up mechanism advice letter
filing. The filing, effective October 1, 1999, decreased the FTA Charges by 5%,
from 1.306 cents to 1.235 cents per kilowatt hour for residential customers and
from 1.381 cents to 1.306 cents per kilowatt hour for small commercial
customers. On December 16, 1999, SCE filed with the CPUC a routine annual
true-up mechanism advice letter filing stating that because of the changes in
FTA Charges effective October 1, 1999, no further FTA Charge adjustments were
necessary at such time.
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 nine month period ended September 30, 2000, the income generated from
the Transition Property was $94 million compared to $104 million for the same
period in 1999. The decrease is due to lower FTA Charges per kilowatt hour,
effective October 1999. Interest expense for the nine months ended September 30,
2000 was $92 million compared to $103 million for the same period in 1999, and
includes interest on the Notes and the amortization of debt issuance costs. The
decrease is due to a lower outstanding principal balance on the rate reduction
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 is the Quarterly Servicer's Certificate for the
collection periods: June through August 2000 (dated September 18, 2000),
delivered pursuant to the Note Indenture, which includes information relating to
the collections of the FTA Charges. As noted therein on line 4e, collections of
FTA Charges and interest earnings on FTA collections (the General Subaccount
Balance) totaled $102.2 million and were sufficient to pay 100% of all scheduled
distributions and related expenses on the Notes ($92.7 million) for the
scheduled Note payment
6
<PAGE>
date (September 25, 2000) and provide additional funding of approximately $9.5
million for deposit into various sub-accounts of the Note Issuer.
The FTA Charges will be adjusted at least annually if there is a
material shortfall or overage in collections; however, no further adjustments
are currently planned and the Note Issuer expects future collections of FTA
Charges to be sufficient to cover expenses and to make scheduled distributions
on the Notes on a timely basis.
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.
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 periods: June 2000
through August 2000 (dated September 25, 2000), delivered pursuant to the Note
Indenture, which includes information relating to the collection of the FTA
Charges.
7
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) See the Exhibit Index of this report below.
(b) Reports on Form 8-K filed during the quarter ended September 30, 2000.
The Note Issuer did not file any reports on Form 8-K during
the quarter ended September 30, 2000.
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<PAGE>
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: November 9, 2000 SCE FUNDING LLC
as Registrant
By Mary C. Simpson
-------------------------------------------
Name: Mary C. Simpson
Title: Treasurer (Principal Financial and
Accounting Officer)
<PAGE>
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)*
27 Financial Data Schedule for the nine months ended September 30, 2000
99 Quarterly Servicer's Certificate dated September 18, 2000
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* Incorporated by reference pursuant to Rule 12b-32.
