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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 September 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   95-4031807
(State or other jurisdiction of
incorporation or organization)		   (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 November 11, 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
 
26

3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
73

4.
 
Controls and Procedures
 
73

PART II—Other Information

1.
 
Legal Proceedings
 
74

6.
 
Exhibits and Reports on Form 8-K
 
76

 
 
Signatures
 
77

 
 
Certifications
 
78


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands)

 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
 
   2002
   2001
   2002
   2001
  
 
   (Unaudited)

   (Unaudited)

  
Operating Revenues                          
  Electric revenues   $ 960,677   $ 920,526   $ 2,166,062   $ 1,976,805  
  Equity in income from energy projects     112,313     119,785     209,951     288,846  
  Equity in income from oil and gas investments     7,351     12,365     18,533     42,878  
  Net gains from price risk management and energy trading     4,676     7,285     29,283     39,344  
  Operation and maintenance services     9,316     13,327     27,097     35,105  
   
 
 
 
 
    Total operating revenues     1,094,333     1,073,288     2,450,926     2,382,978  
   
 
 
 
 

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
  Fuel     302,631     258,711     751,295     660,624  
  Plant operations and transmission costs     173,767     191,399     572,943     508,110  
  Plant operating leases     50,350     30,592     153,645     98,398  
  Operation and maintenance services     6,235     7,085     19,250     20,627  
  Depreciation and amortization     65,911     77,186     188,734     203,280  
  Long-term incentive compensation     (3,291 )   5,609     421     2,718  
  Asset impairment and other charges     85,924     24,485     85,924     24,485  
  Administrative and general     35,055     41,352     119,744     113,627  
   
 
 
 
 
    Total operating expenses     716,582     636,419     1,891,956     1,631,869  
   
 
 
 
 
  Operating income     377,751     436,869     558,970     751,109  
   
 
 
 
 

Other Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest and other income (expense)     (368 )   5,643     10,738     32,499  
  Gain on sale of assets     —     41,886     —     45,530  
  Interest expense     (113,223 )   (153,406 )   (341,801 )   (420,421 )
  Dividends on preferred securities     (5,324 )   (5,041 )   (15,762 )   (17,421 )
   
 
 
 
 
    Total other income (expense)     (118,915 )   (110,918 )   (346,825 )   (359,813 )
   
 
 
 
 
  Income from continuing operations before income taxes and minority interest     258,836     325,951     212,145     391,296  
  Provision for income taxes     88,427     149,428     61,217     177,183  
  Minority interest     (7,550 )   (11,140 )   (23,655 )   (18,662 )
   
 
 
 
 

Income From Continuing Operations
 
 
162,859
 
 
165,383
 
 
127,273
 
 
195,451
 
  Income (loss) from operations of discontinued foreign subsidiary, net of tax (Note 4)     (91 )   (1,206,573 )   2,890     (1,228,140 )
   
 
 
 
 

Income (Loss) Before Accounting Change
 
 
162,768
 
 
(1,041,190
)
 
130,163
 
 
(1,032,689
)
  Cumulative effect of change in accounting for derivatives, net of tax     —     14,896     —     15,146  
  Cumulative effect of change in accounting for goodwill, net of tax     —     —     (13,986 )   —  
   
 
 
 
 
Net Income (Loss)   $ 162,768   $ (1,026,294 ) $ 116,177   $ (1,017,543 )
   
 
 
 
 

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
September 30,
   Nine Months Ended
September 30,
  
 
   2002
   2001
   2002
   2001
  
 
   (Unaudited)

   (Unaudited)

  
Net Income (Loss)   $ 162,768   $ (1,026,294 ) $ 116,177   $ (1,017,543 )

Other comprehensive income (expense), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Foreign currency translation adjustments, net of income tax expense (benefit) of $20 and $1,725 for the three months and $2,131 and $(940) for the nine months ended September 30, 2002 and 2001, respectively
 
 
(8,366
)
 
42,908
 
 
70,889
 
 
(58,381
)
   
Reclassification adjustments for sale of investment in a foreign subsidiary
 
 
—
 
 
64,065
 
 
—
 
 
64,065
 
 
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 $(13,500) for the three months ended September 30, 2001 and $5,562 and $(124,400) for the nine months ended September 30, 2002 and 2001, respectively
 
 
—
 
 
(15,506
)
 
6,357
 
 
(245,745
)
   
Other unrealized holding gains (losses) arising during period, net of income tax expense (benefit) of $(16,087) and $5,500 for the three months and $(1,158) and $74,300 for the nine months ended September 30, 2002 and 2001, respectively
 
 
(67,482
)
 
(17,533
)
 
(52,401
)
 
63,955
 
   
Reclassification adjustments included in net income (loss), net of income tax expense (benefit) of $1,048 and $7,900 for the three months and $87 and $(9,700) for the nine months ended September 30, 2002 and 2001, respectively
 
 
2,201
 
 
(10,565
)
 
5,495
 
 
20,117
 
   
 
 
 
 

Other comprehensive income (expense)
 
 
(73,647
)
 
63,369
 
 
30,340
 
 
(155,989
)
   
 
 
 
 

Comprehensive Income (Loss)
 
$
89,121
 
$
(962,925
)
$
146,517
 
$
(1,173,532
)
   
 
 
 
 

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

2


EDISON MISSION ENERGY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 
   September 30,
2002
   December 31,
2001
 
   (Unaudited)

    
Assets            
Current Assets            
  Cash and cash equivalents   $ 724,543   $ 372,139
  Accounts receivable—trade, net of allowance of $13,174 and $14,603 in 2002 and 2001, respectively     376,752     312,728
  Accounts receivable—affiliates     12,186     234,203
  Assets under price risk management and energy trading     68,519     64,729
  Inventory     163,528     167,406
  Prepaid expenses and other     94,503     83,085
   
 
    Total current assets     1,440,031     1,234,290
   
 

Investments
 
 
 
 
 
 
  Energy projects     1,602,945     1,799,242
  Oil and gas     27,354     30,698
   
 
    Total investments     1,630,299     1,829,940
   
 

Property, Plant and Equipment
 
 
7,635,708
 
 
6,917,980
  Less accumulated depreciation and amortization     903,592     680,417
   
 
    Net property, plant and equipment     6,732,116     6,237,563
   
 

Other Assets
 
 
 
 
 
 
  Long-term receivables     9,096     264,784
  Goodwill     658,137     631,735
  Deferred financing costs     61,812     84,780
  Long-term assets under price risk management and energy trading     111,671     2,998
  Restricted cash and other     306,290     290,325
   
 
    Total other assets     1,147,006     1,274,622
   
 
Assets of Discontinued Operations     9,393     153,610
   
 
Total Assets   $ 10,958,845   $ 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)

 
   September 30,
2002
   December 31,
2001
  
 
   (Unaudited)

    
  
Liabilities and Shareholder's Equity              
Current Liabilities              
  Accounts payable—affiliates   $ 8,764   $ 11,964  
  Accounts payable and accrued liabilities     371,873     423,287  
  Liabilities under price risk management and energy trading     30,484     22,381  
  Interest payable     84,792     87,308  
  Short-term obligations     52,142     168,241  
  Current portion of long-term incentive compensation     5,346     6,170  
  Current maturities of long-term obligations     171,207     190,295  
   
 
 
    Total current liabilities     724,608     909,646  
   
 
 
Long-Term Obligations Net of Current Maturities     5,788,396     5,749,460  
   
 
 
Long-Term Deferred Liabilities              
  Deferred taxes and tax credits     1,147,738     936,300  
  Deferred revenue     450,480     427,485  
  Long-term incentive compensation     28,681     39,331  
  Long-term liabilities under price risk management and energy trading     186,036     170,506  
  Other     240,542     266,742  
   
 
 
    Total long-term deferred liabilities     2,053,477     1,840,364  
   
 
 
Liabilities of Discontinued Operations     3,702     55,845  
   
 
 
Total Liabilities     8,570,183     8,555,315  
   
 
 
Minority Interest     395,663     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     117,400     103,950  
   
 
 
    Total preferred securities of subsidiaries     267,400     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     2,634,025     2,631,326  
  Retained deficit     (701,077 )   (816,968 )
  Accumulated other comprehensive loss     (271,479 )   (301,820 )
   
 
 
Total Shareholder's Equity     1,725,599     1,576,668  
   
 
 
Total Liabilities and Shareholder's Equity   $ 10,958,845   $ 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)

 
   Nine Months Ended
September 30,
  
 
   2002
   2001
  
 
   (Unaudited)

  
Cash Flows From Operating Activities              
  Income from continuing operations, after accounting change, net   $ 113,287   $ 210,597  
  Adjustments to reconcile income to net cash provided by operating activities:              
    Equity in income from energy projects     (209,951 )   (288,846 )
    Equity in income from oil and gas investments     (18,533 )   (42,878 )
    Distributions from energy projects     240,679     159,975  
    Dividends from oil and gas     21,010     56,590  
    Depreciation and amortization     188,734     203,280  
    Amortization of discount on short-term obligations     —     1,106  
    Deferred taxes and tax credits     24,015     93,861  
    Gain on sale of assets     —     (45,530 )
    Asset impairment and other charges     85,924     24,485  
    Cumulative effect of change in accounting, net of tax     13,986     (15,146 )
  Changes in operating assets and liabilities:              
    Decrease in accounts receivable     165,606     148,971  
    Decrease (increase) in inventory     5,266     (25,310 )
    Decrease (increase) in prepaid expenses and other     (8,697 )   25,820  
    Increase (decrease) in accounts payable and accrued liabilities     58,983     (418,549 )
    Increase (decrease) in interest payable     (4,285 )   36,472  
    Decrease in long-term incentive compensation     (757 )   (4,853 )
    Decrease (increase) in assets under risk management, net     (35,768 )   16,856  
  Other operating, net     (71,119 )   (44,827 )
   
 
 
      568,380     92,074  
  Operating cash flow from discontinued operations     35,987     (58,134 )
   
 
 
    Net cash provided by operating activities     604,367     33,940  
   
 
 
Cash Flows From Financing Activities              
  Borrowings on long-term debt and lease swap agreements     351,803     2,290,281  
  Payments on long-term debt agreements     (527,893 )   (1,392,222 )
  Short-term financing, net     (28,983 )   (353,627 )
  Cash dividends to parent     —     (97,500 )
  Funds provided to discontinued operations     —     (48,471 )
  Issuance of preferred securities     —     95,304  
  Redemption of preferred securities     —     (164,560 )
   
 
 
      (205,073 )   329,205  
  Financing cash flow from discontinued operations     —     (201,552 )
   
 
 
    Net cash provided by (used in) financing activities     (205,073 )   127,653  
   
 
 
Cash Flows From Investing Activities              
  Investments in and loans to energy projects     (17,331 )   (251,338 )
  Purchase of common stock of acquired companies     —     (83,381 )
  Purchase of power sales agreement     (80,084 )   —  
  Capital expenditures     (516,499 )   (170,040 )
  Proceeds from return of capital and loan repayments     87,855     —  
  Proceeds from sale of interest in projects     43,986     174,340  
  Decrease in restricted cash     112,234     11,885  
  Investments in other assets     249,206     (24,918 )
  Other, net     —     11,699  
   
 
 
      (120,633 )   (331,753 )
  Investing cash flow from discontinued operations     —     (30,545 )
   
 
 
    Net cash used in investing activities     (120,633 )   (362,298 )
   
 
 
Effect of exchange rate changes on cash     14,766     (26,560 )
   
 
 
Net increase (decrease) in cash and cash equivalents     293,427     (227,265 )
Cash and cash equivalents at beginning of period     434,249     962,865  
   
 
 
Cash and cash equivalents at end of period     727,676     735,600  
Cash and cash equivalents classified as part of discontinued operations     (3,133 )   (49,363 )