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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

or

o 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 000-24890

EDISON MISSION ENERGY
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		   95-4031807
(I.R.S. Employer Identification No.)

18101 Von Karman Avenue
Irvine, California
(Address of principal executive offices)
 
92612
(Zip Code)

Registrant's telephone number, including area code: (949) 752-5588

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

        Number of shares outstanding of the registrant's Common Stock as of August 9, 2002: 100 shares (all shares held by an affiliate of the registrant).


TABLE OF CONTENTS

Item
    
   Page
PART I—Financial Information

1.
 
Financial Statements
 
1

2.
 
Management's Discussion and Analysis of Results of Operations and Financial Condition
 
22

3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
64

PART II—Other Information

1.
 
Legal Proceedings
 
65

6.
 
Exhibits and Reports on Form 8-K
 
67

 
 
Signatures
 
69


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)

 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
  
 
   2002
   2001
   2002
   2001
  
 
   (Unaudited)

   (Unaudited)

  
Operating Revenues                          
  Electric revenues   $ 679,122   $ 582,277   $ 1,205,385   $ 1,056,279  
  Equity in income from energy projects     52,604     104,871     97,638     169,061  
  Equity in income from oil and gas investments     3,642     10,063     11,182     30,513  
  Net gains from energy trading and price risk management     3,241     14,705     24,607     32,059  
  Operation and maintenance services     8,247     11,473     17,781     21,778  
   
 
 
 
 
    Total operating revenues     746,856     723,389     1,356,593     1,309,690  
   
 
 
 
 

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
  Fuel     235,193     218,490     448,664     413,681  
  Plant operations     212,463     163,746     399,176     304,943  
  Plant operating leases     51,266     32,410     103,295     67,806  
  Operation and maintenance services     5,913     6,101     13,015     13,542  
  Depreciation and amortization     63,074     64,737     122,823     126,094  
  Long-term incentive compensation     2,042     823     3,712     (2,891 )
  Administrative and general     41,287     36,299     84,689     72,275  
   
 
 
 
 
    Total operating expenses     611,238     522,606     1,175,374     995,450  
   
 
 
 
 
  Operating income     135,618     200,783     181,219     314,240  
   
 
 
 
 

Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest and other income     666     15,003     11,106     26,857  
  Gain on sale of assets     —     3,644     —     3,644  
  Interest expense     (114,571 )   (140,464 )   (228,578 )   (267,016 )
  Dividends on preferred securities     (5,302 )   (6,090 )   (10,438 )   (12,380 )
   
 
 
 
 
    Total other income (expense)     (119,207 )   (127,907 )   (227,910 )   (248,895 )
   
 
 
 
 
  Income (loss) from continuing operations before income taxes and minority interest     16,411     72,876     (46,691 )   65,345  
  Provision (benefit) for income taxes     5,581     24,976     (27,210 )   27,755  
  Minority interest     (10,739 )   (7,009 )   (16,105 )   (7,522 )
   
 
 
 
 

Income (Loss) From Continuing Operations
 
 
91
 
 
40,891
 
 
(35,586
)
 
30,068
 
  Income (loss) from operations of discontinued foreign subsidiary, net of tax (Note 4)     3,143     (40,607 )   2,981     (21,567 )
   
 
 
 
 

Income (Loss) Before Accounting Change
 
 
3,234
 
 
284
 
 
(32,605
)
 
8,501
 
  Cumulative effect of change in accounting, net of tax     —     —     —     250  
   
 
 
 
 

Net Income (Loss)
 
$
3,234
 
$
284
 
$
(32,605
)
$
8,751
 
   
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

1


EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
  
 
   2002
   2001
   2002
   2001
  
 
   (Unaudited)

   (Unaudited)

  
Net Income (Loss)   $ 3,234   $ 284   $ (32,605 ) $ 8,751  

Other comprehensive income (expense), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Foreign currency translation adjustments, net of income tax expense (benefit) of $(2,978) and $316 for the three months and $(2,111) and $2,665 for the six months ended June 30, 2002 and 2001, respectively
 
 
63,396
 
 
(4,644
)
 
79,255
 
 
(101,289
)
 
Unrealized gains (losses) on derivatives qualified as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Cumulative effect of change in accounting for derivatives, net of income tax expense (benefit) of $5,562 for the three and six months ended June 30, 2002 and $(110,900) for the six months ended June 30, 2001
 
 
6,357
 
 
—
 
 
6,357
 
 
(230,239
)
   
Other unrealized holding gains (losses) arising during period, net of income tax expense (benefit) of $(3,472) and $86,200 for the three months and $14,929 and $68,800 for the six months ended June 30, 2002 and 2001, respectively
 
 
(23,004
)
 
120,199
 
 
15,081
 
 
81,488
 
   
Reclassification adjustments included in net income (loss), net of income tax benefit of $1,389 and $2,000 for the three months and $961 and $17,600 for the six months ended June 30, 2002 and 2001, respectively
 
 
2,588
 
 
2,411
 
 
3,294
 
 
30,682
 
   
 
 
 
 

Other comprehensive income (expense)
 
 
49,337
 
 
117,966
 
 
103,987
 
 
(219,358
)
   
 
 
 
 

Comprehensive Income (Loss)
 
$
52,571
 
$
118,250
 
$
71,382
 
$
(210,607
)
   
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

2


EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 
   June 30,
2002
   December 31,
2001
 
   (Unaudited)

    
Assets            
Current Assets            
  Cash and cash equivalents   $ 343,463   $ 372,139
  Accounts receivable—trade, net of allowance of $13,321 and $14,603 in 2002 and 2001, respectively     377,162     312,728
  Accounts receivable—affiliates     20,512     234,203
  Assets under energy trading and price risk management     69,727     64,729
  Inventory     187,311     167,406
  Prepaid expenses and other     71,874     83,085
   
 
    Total current assets     1,070,049     1,234,290
   
 
Investments            
  Energy projects     1,619,927     1,799,242
  Oil and gas     20,262     30,698
   
 
    Total investments     1,640,189     1,829,940
   
 
Property, Plant and Equipment     7,457,608     6,917,980
  Less accumulated depreciation and amortization     845,566     680,417
   
 
    Net property, plant and equipment     6,612,042     6,237,563
   
 
Other Assets            
  Long-term receivables     264,096     264,784
  Goodwill     682,359     631,735
  Deferred financing costs     67,176     84,780
  Long-term assets under energy trading and price risk management     111,490     2,998
  Restricted cash and other     301,696     290,325
   
 
    Total other assets     1,426,817     1,274,622
   
 
Assets of Discontinued Operations     13,483     153,610
   
 
Total Assets   $ 10,762,580   $ 10,730,025
   
 

The accompanying notes are an integral part of these consolidated financial statements.

3


EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 
   June 30,
2002
   December 31,
2001
  
 
   (Unaudited)

    
  
Liabilities and Shareholder's Equity              
Current Liabilities              
  Accounts payable—affiliates   $ 12,639   $ 11,964  
  Accounts payable and accrued liabilities     376,471     423,287  
  Liabilities under energy trading and price risk management     31,462     22,381  
  Interest payable     90,794     87,308  
  Short-term obligations     53,432     168,241  
  Current portion of long-term incentive compensation     4,038     6,170  
  Current maturities of long-term obligations     177,086     190,295  
   
 
 
    Total current liabilities     745,922     909,646  
   
 
 
Long-Term Obligations Net of Current Maturities     5,835,832     5,749,460  
   
 
 
Long-Term Deferred Liabilities              
  Deferred taxes and tax credits     940,277     936,300  
  Deferred revenue     466,142     427,485  
  Long-term incentive compensation     38,094     39,331  
  Long-term liabilities under energy trading and price risk management     154,535     170,506  
  Other     249,171     266,742  
   
 
 
    Total long-term deferred liabilities     1,848,219     1,840,364  
   
 
 
Liabilities of Discontinued Operations     4,069     55,845  
   
 
 
Total Liabilities     8,434,042     8,555,315  
   
 
 
Minority Interest     406,251     344,092  
   
 
 
Preferred Securities of Subsidiaries              
  Company-obligated mandatorily redeemable security of partnership holding solely parent debentures     150,000     150,000  
  Subject to mandatory redemption     122,050     103,950  
   
 
 
    Total preferred securities of subsidiaries     272,050     253,950  
   
 
 
Commitments and Contingencies (Note 6)              
Shareholder's Equity              
  Common stock, no par value; 10,000 shares authorized; 100 shares issued and outstanding     64,130     64,130  
  Additional paid-in capital     2,633,767     2,631,326  
  Retained deficit     (849,827 )   (816,968 )
  Accumulated other comprehensive loss     (197,833 )   (301,820 )
   
 
 
Total Shareholder's Equity     1,650,237     1,576,668  
   
 
 
Total Liabilities and Shareholder's Equity   $ 10,762,580   $ 10,730,025  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

4


EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
   Six Months Ended
June 30,
  
 
   2002
   2001
  
 
   (Unaudited)

  
Cash Flows From Operating Activities              
  Income (loss) from continuing operations, after accounting change, net   $ (35,586 ) $ 30,318  
  Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:              
    Equity in income from energy projects     (97,638 )   (169,061 )
    Equity in income from oil and gas investments     (11,182 )   (30,513 )
    Distributions from energy projects     155,880     18,757  
    Dividends from oil and gas     21,010     40,667  
    Depreciation and amortization     122,823     126,094  
    Amortization of discount on short-term obligations     —     1,106  
    Deferred taxes and tax credits     (51,410 )   3,817  
    Gain on sale of assets     —     (3,644 )
    Cumulative effect of change in accounting, net of tax     —     (250 )
  Changes in operating assets and liabilities:              
    Decrease in accounts receivable     146,542     2,799  
    Increase in inventory     (19,905 )   (51,305 )
    Decrease (increase) in prepaid expenses and other     (14,853 )   22,232  
    Decrease in accounts payable and accrued liabilities     (73,089 )   (348,543 )
    Increase in interest payable     2,517     12,297  
    Increase (decrease) in long-term incentive compensation     2,204     (8,077 )
    Decrease (increase) in assets under risk management, net     (27,755 )   29,362  
  Other operating, net     (75,114 )   (24,603 )
   
 
 
      44,444     (348,547 )
  Operating cash flow from discontinued operations     35,785     (23,585 )
   
 
 
    Net cash provided by (used in) operating activities     80,229     (372,132 )
   
 
 
Cash Flows From Financing Activities              
  Borrowings long-term debt and lease swap agreements     197,076     1,761,342  
  Payments on long-term debt agreements     (322,969 )   (985,361 )
  Short-term financing, net     (29,661 )   (39,629 )
  Cash dividends to parent     —     (65,000 )
  Funds provided to discontinued operations     —     (21,080 )
  Issuance of preferred securities     —     14,161  
   
 
 
      (155,554 )   664,433  
  Financing cash flow from discontinued operations     —     (283,043 )
   
 
 
    Net cash provided by (used in) financing activities     (155,554 )   381,390  
   
 
 
Cash Flows From Investing Activities              
  Investments in and loans to energy projects     (5,358 )   (290,917 )
  Purchase of common stock of acquired companies     —     (83,381 )
  Purchase of power sales agreement     (80,084 )   —  
  Capital expenditures     (176,004 )   (106,224 )
  Proceeds from return of capital and loan repayments     83,754     —  
  Proceeds from sale of interest in projects     —     110,853  
  Proceeds from sale of assets     43,986     —  
  Decrease in restricted cash     109,618     12,879  
  Investments in other assets     2,164     (6,849 )
  Other, net     (14,282 )   23,188  
   
 
 
      (36,206 )   (340,451 )
  Investing cash flow from discontinued operations     —     (7,012 )
   
 
 
    Net cash used in investing activities     (36,206 )   (347,463 )
   
 
 
Effect of exchange rate changes on cash     27,308     (51,217 )
   
 
 
Net decrease in cash and cash equivalents     (84,223 )   (389,422 )
Cash and cash equivalents at beginning of period     434,249     962,865  
   
 
 
Cash and cash equivalents at end of period     350,026     573,443  
Cash and cash equivalents classified as part of discontinued operations     (6,563 )   (39,536 )
   
 
 
Cash and cash equivalents of continuing operations   $ 343,463   $ 533,907  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

5


EDISON MISSION ENERGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

NOTE 1. GENERAL

        All adjustments, including recurring accruals, have been made that are necessary to present fairly the consolidated financial position and results of operations for the periods covered by this report. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the operating results for the full year.

        Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements as of December 31, 2001 and 2000, included in our 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002. We follow the same accounting policies for interim reporting purposes. This quarterly report should be read in connection with such financial statements.

        Certain prior period amounts have been reclassified to conform to the current period financial statement presentation.

Industry Developments

        A number of significant recent developments have adversely affected not only those companies primarily focused on the trading of electricity but also those independent power producers who sell a sizable portion of their generation, not pursuant to long-term contracts, but rather into the wholesale energy market. Often referred to as merchant generators, the financial performance of these companies has been affected by one or more of the following: