John Wilder
Chief Executive Officer
June 16, 2004
Deutsche Bank Annual
Electric Power Conference
This presentation contains forward-looking statements, which are subject to various
risks and uncertainties. Discussion of risks and uncertainties that could cause
actual results to differ materially from management's current projections, forecasts,
estimates and expectations is contained in the company's SEC filings. In addition
to the risks and uncertainties set forth in the company's SEC filings, the forward-
looking statements in this presentation could be affected by the ability of
purchasers to obtain all necessary governmental and other approvals and consents
for the acquisition of TXU Australia and TXU Fuel and the ability of the company to
exit the business of TXU Gas, finalize the energy marketing and trading joint
venture, achieve the cost reductions from the Capgemini Energy partnership and to
implement the other initiatives that are part of the 90-day business review, and the
terms under which the company executes those transaction or initiatives.
Regulation G
This presentation includes certain non-GAAP financial measures. A reconciliation of
these measures to the most directly comparable GAAP measure is included in the
appendix of the printed version of the slides and the version included on the
company’s website at www.txucorp.com under Investor Resources/Presentations.
Safe Harbor Statement & Regulation G
1
TXU Has Four Core Businesses; in Two Sectors…
Assets
Operating
Net Income
1.3
2.2
TXU Power
TXU Energy
TradeCo
TXU Electric Delivery
Achieve top decile
production levels
Redefine cost benchmarks
Deliver superior customer
service
Retain and grow profitable
customers
Build industry leading
trading company
Achieve top decile costs
Invest and improve reliability
to top decile
Achieve industry leading
safety performance
Earn allowable return
Core Businesses
Objectives
OCF
23.2
100%=
57%
75%
66%
25%
43%
34%
Business metrics
05E; $ billions
2
.. That Have Advantaged Scope and Scale…
Generation
TXU Power
Wholesale
TradeCo
Retail
TXU Energy
Competitive Integrated Energy
“High performance industrial company”
Distribution
TXU Electric Delivery
Transmission
TXU Electric Delivery
Regulated Utility
“High performance utility”
Number of Customers
02; Millions
Miles of Distribution Lines
02; Thousands
Deregulated Generation
03; TWh
Deregulated Retail Load
02; TWh
3
…And Are Guided By a Set of Core Principles
Sustained earnings in commodity businesses require
Low cost, efficient operations
Conservative financial strategies
The leverage of an integrated business model
The right to grow is earned through rigorous cash stewardship
and enhanced financial flexibility
Disciplined, execution focused cultures lead to consistent
performance improvement
Superior customer service and reliability drive long-term
success
4
TXU Electric Delivery
TXU Electric Delivery Is Well-Positioned…
Large Territory
03; millions of customers
TXU
U.S. Average
2.9
1.5
High Growth: Market Growth
03; Percent
TXU
2.0
TXU has a strong market position with a regulatory environment
that allows for efficient recovery of capital
U.S. Average
1.1
High Load
03; Cooling Degree Days
TXU
2,648
U.S. Average
1,215
Authorized ROE is solid
03; Percent
TXU
U.S. Average
11.25
11.85
6
…With Cost Performance Evidenced By Its Competitive Rates
T&D O&M Expense / Distribution Customer
03; $/Customer
TXU Current
Performance
Benchmark
Average
Performance
Top Quartile
Performance
Top Decile
Performance
3.97
2.82
2.33
TXU Current
Performance
Benchmark
Average
Performance
Top Quartile
Performance
80
101
84
70
Top Decile
Performance
T&D O&M Expense per MWh Delivered
03; $/MWh Delivered
2.33
$24.01
$24.27
$34.03
$25.89
TXU
Center-
point
AEP
Central
AEP North
TNMP
$27.97
Monthly Wires Charges
Mar 04; Dollars1
1 Assumes 1000 KWH monthly customer; Electric Delivery’s average residential consumption for 2003 was about 1300 kWh. Other non-operating
charges, including system benefit fund, nuclear decommissioning charge, excess mitigation credit, retail clawback credit, transition charge on
securitized regulatory assets and merger savings/rate reduction riders have not been included.
7
TXU Is Investing to Achieve Excellence in Reliability
59%
Vegetation Management Investment
03-06; $ Millions
22
35
35
Incremental T&D Maintenance Investment
03-06; $ Millions
26
33
34
20%
SAIDI Benchmarks (non-storm)
98-06E; Minutes
Industry
Average
Performance
TXU 5-Yr
System
Average
Performance
129
85
81
68
06
Commitment
Top
Quartile
Performance
SAIFI Benchmarks (non-storm)
98-06E; Frequency
1.36
1.08
0.89
18%
0.90
Industry
Average
Performance
06
Commitment
TXU 5-Yr
System
Average
Performance
Top
Quartile
Performance
06E
05E
03
06E
05E
03
31%
8
Storm Restoration: Our Commitment to Customer Service
June 1, 2004 storm
Worst storm in 100 year history of TXU (Category 1 hurricane winds)
500,000 lightning strikes across TXU Electric Delivery system
More than 11,000 device outages affecting approximately 1.3 million customers
90% of customer power restored within 60 hours
9
TXU Energy
and
TradeCo
Largest and Highest Growth Deregulated Market…
Industrial
Commercial
Residential
ERCOT Is Growing Rapidly: ERCOT Demand
99-08; TWh
100% =
256
273
306
99-03
CAGR
1.6%
03-08E
CAGR
2.2%
Source: EIA
Significant electricity demand growth in TXU’s core market
11
…With Expectations For Competitive Margins…
NYMEX 12-month strip
TXU retail headroom
NYMEX Gas
$/MMBtu
Retail Headroom1
Percent
1 Headroom = (PTB – Generation – Wires)/PTB; based on average of forward looking 12 months; forward curve as of June 9, 2004
01
04E
03
05E
02
06E
EOY
Margin History and Outlook
01-06; Mixed Measures
12
…And Profitable Retention Through Customer Service
Improved Call Answer Time: Average Speed of Answer
03-04; Seconds
250
150
01/03
04/04
01/04
04/03
07/03
10/03
Reduced PUC Complaints
03-04; Number
800
400
Stabilizing Residential Market Share
02-04; Millions of Customers
2100
2000
2150
50
600
200
0
200
100
0
2200
2050
04/04
01/04
01/03
10/03
07/03
04/03
01/03
04/04
01/04
04/03
07/03
10/03
13
Partnership with a Global Financial Firm
Distinctive
Physical/
Financial
Merchant
Energy
Business
Strong
physical
capabilities
Strong
merchant
business
ERCOT and
ex-ERCOT
platform
TXU Corp
Capital/
Credit
Structuring
and risk
management
New
deal flow
Credit Suisse
First Boston
TradeCo JV
14
TXU Power
A Solid Advantage: ERCOT Full Load Average Implied Heat Rate
04; MMBtu/MWh
Well Positioned Generation in the ERCOT Market
TXU units
3
6
9
12
15
18
21
24
10
20
30
40
50
60
70
80
Cumulative GWs
Nuclear
(2.3 GW)
Lignite
(5.8 GW)
Gas
(10.9 GW)
Solid fuel capacity
provides low cost
baseload power
Gas fleet provides
necessary shaping
and ancillary services
16
TXU Is a Good Operator and Becoming a Great Operator
Lignite Capacity Factors
02-05; Percent
78
85
Nuclear Capacity Factors2
02-05; Percent
82
88
85
87
89
Top Decile 87
Top Decile 94
93
90
02
03
04E
05E
Aspir-
ation
94
02
03
04E
05E
Aspir-
ation
1 Includes outage costs, O&M projects, and capital expenditures
2 Both nuclear units were refueled in 2002 and are expected to be refueled again in 2005, as opposed to refueling one each year
Lignite Investment1
03-06; $ Million
Nuclear Investment1
03-06; $ Million
04E-06E
Average
03
51
77
51%
04E-06E
Average
03
144
210
46%
17
TXU Will Focus On Achieving Strong Operating Performance
632
155
1,020
03
OBIT3
2,087
783
1,919
03
Contribution Margin1
2,367
1,118
2,238
05E
13%
43%
17%
Change
1,455
628
899
03
Operating Costs2
1,649
505
1,004
05E
13%
20%
12%
Change
718
613
1,234
05E
14%
390%
21%
Change
TXU Power
TXU
Electric
Delivery
TXU
Energy4
TXU
Businesses
1 Contribution margin = Operating revenues less cost of energy sold and delivery fees
2 Operating costs = Operating costs, depreciation and amortization, SG&A, franchise and revenue based taxes, and other income and other deductions
3 OBIT = Operational earnings before gross interest and income tax expense
4 TXU Energy includes TradeCo and excludes hedging losses of $138 million in 2003 and $112 million in 2005
Core Business Financial Profile
03-05; $ Millions
18
Key Questions
Key Questions That Get To The Heart Of Our Core Principles
What is TXU’s natural gas exposure and how
will it manage this risk?
Sustainable Earnings
What is TXU doing to retain customers?
Superior Customer Service
What is the financial vitality of the company?
Right to Grow
Disciplined Execution
Core Principles
Are the cost reductions achievable?
Key Questions
20
Integrated Industrial Companies: Less Volatility…
0.9
1.3
3.2
13.6
16.6
Oil and Gas Industry
94-04; Earnings Volatility1
1 Earnings volatility measured as standard deviation in quarterly earnings from 94-04, indexed to 94 1Q earnings
Royal Dutch/
Shell
BP
Exxon Mobil
Burlington
Anadarko
Apache
1.2
0.4
1.9
3.7
3.7
5.0
Pulp and Paper Industry
94-04; Earnings Volatility1
Weyerhaeuser
Georgia Pacific
International
Paper
Abitibi
Aracruz
Sappi
1.6
Integrated
Integrated
21
…And TXU Sees These Same Benefits of Integration
1 Includes energy and production solid fuel costs, wires costs, marketing and generation G&A and marketing expenses
Economics of Energy and Production
02-05; $/MWh (illustrative)
02
03
04
05E
Wholesale 7X24
power prices
Fixed costs1
Energy
Margin
Production
Margin
Energy gross margins are driven by PTB actions and/or gas prices
and are counter-cyclical to TXU Power margins
Price-to-Beat (PTB)
Supply, trading
& shaping costs
22
Our New View Of Our Underlying Exposure…
New View
Old View
Long-term/value
Short-term earnings/
financial viability
Capture the upside from
commodity moves
Leverage balance sheet and
strong earnings to hedge
downside
Willing to sacrifice the
upside at significant
cost to protect against
lost customers
Sustainable headroom
margins of 20-30%
No view
Retain profitable customers
willing to pay for the risk and
costs to serve
Retain customers at all
costs
Strike PTB
mechanically with gas
prices
Customer
Retention
Sustainable
and adjusted
margins
Risk
Management
Strategy
Risk Horizon
23
…Caused Us to Change Our Risk Management Strategy
Net impact under prior
hedging strategy
Impact backcast with
future strategy
Net impact with hedge
unwind
0
(428)
428
06E
428
(0)
428
06E
316
(112)
428
05E
108
(138)
246
04E
246
(0)
246
04E
428
(0)
428
05E
428
0
0
Net
Hedge
Retail
price
increase
from PTB
(0)
(428)
(246)
428
428
246
06E
05E
04E
The old strategy resulted in a 180 million MMBTU gas short position
Impact of Risk Management Strategy Change
04-06; $ millions1
1 Assumes fuel factor adjustment of $6.52 is approved August 1, 2004
24
We Adapted Our Strategy to Make the Company Neutral to
Downside Gas Price and Long To Upside Gas Price
307
(52)
+359
(100)
+4591
05 at $7.10
Fuel Factor3
+39
Net underlying position
(52)
Fixed price wholesale
contracts
Net position
Retail PTB
Generation
Position
Type
(13)
(420)2
+4591
05 at $6.52
Fuel Factor
Long Term
1 58.8 TWh of solid fuel generation at a marginal heat rate of 7.3 MMBtu/MWh
2 47.3 TWh of retail load at a marginal heat rate of 7.9 MMBtu/MWh and 12.5 adder
3 Position prior to a strike up; assumes strike effective March 1 st 2005
Natural gas equivalent positions
05; Million MMBTU
25
Integrated Position: Gas Upside and Mitigated Gas Downside
5.10
5.60
6.10
6.60
7.102
24
19
14
9
4
PTB full year
volume
churn1
Percent
EPS Change (relative to May 18th)
05E; Dollars per share
$6.52 fuel factor
$7.10
fuel factor
Average 2005 Henry Hub Gas price
$/MMBtu
1SMB churn assumed to be 0.5% higher; assumes SMB margin changes consistent with residential margin changes; Retail position based on a heat rate
of 7.7 MMBTU/MWH, 12.5% adder and fixed adder of $6.6/MWH; Generation heat rate = 7.3 MMBTU/MWH (takes into account coal on the margin)
2 Assumes strike effective March 1 st, 2005
$6.24
fuel factor
-0.34
-0.26
-0.17
-0.09
0.00
-0.29
-0.15
-0.02
0.13
0.25
-0.21
-0.10
0.02
0.13
0.24
-0.13
-0.04
0.05
0.14
0.23
-0.06
0.01
0.08
0.15
0.22
0.32
0.39
0.46
0.52
0.59
5.94
May 18th
view
Upside
Sensitivity
Downside
Sensitivity
06/10/04
curve
26
Our Future Position Will Become Long Due to Retail Churn…
1 58.8 TWh of solid fuel generation at a marginal heat rate of 7.3 MMBtu/MWh
2 Future volumes estimated at 79%-86% of 05 volumes; assumes no PTB fuel factor change
3 LBM position not a short in the long-term scenario since prices are re-adjusted at renewal
4 Position prior to a strike up; assumes strike effective March 1st 2005
307
(52)
+359
(100)
+4591
05 at $7.10
Fuel Factor4
+99-129
+39
Net underlying position
03
(52)
Fixed price wholesale
contracts
Net position
Retail PTB
Generation
Position
Type
(13)
(420)
+4591
05 at $6.52
Fuel Factor
+99-129
(330-360)2
+4591
Long
Term
Natural gas equivalent positions
Million MMBTU
27
…But Our Integrated Business Can Mitigate Exposure
4.50
5.00
5.50
6.00
50
60
70
80
90
Total PTB
load
relative to
05 volumes
Percent
Illustrative EPS1 Change relative to 2005 (May 18th view)
Long-term; Dollars per share
Average Forward Curve
$/MMBTU
1 Matrix represents change in EPS relative to 2005 with similar assumptions with the following exceptions: fixed price wholesale contracts = 0; Retail
SG&A costs ($280 MM) decrease linearly on a percentage basis with retail load
4.00
-1.41
-1.11
-0.82
-0.52
-0.22
-1.16
-0.90
-0.65
-0.39
-0.14
-0.90
-0.69
-0.48
-0.27
-0.05
-0.64
-0.48
-0.31
-0.14
0.03
-0.39
-0.26
-0.14
-0.01
0.11
Management actions
to mitigate exposure:
Tactical marketing
and pricing
New product
offerings
Cost reductions
28
The Best Medicine: Healthier Balance Sheet
03
05
Interest expense
reduction from
debt repurchase
1.9X
.9X
EBIT improvement
from performance
initiatives
EBIT/gross interest distribution frequency
03-05; Percent of trials
EBIT/gross interest; Ratio
29
Key Questions That Get To The Heart Of Our Core Principles
What is TXU’s natural gas exposure and how
will it manage this risk?
Sustainable Earnings
What is TXU doing to retain customers?
Superior Customer Service
What is the financial vitality of the company?
Right to Grow
Disciplined Execution
Core Principles
Are the cost reductions achievable?
Key Questions
30
Significant Improvements in Customer Service…
Call waiting time
03-04; seconds
94%
First call resolution
03-04; percent
Average monthly PUC complaints
03-04; number
Customer satisfaction with agent
03-04; percent
31%
12%
31%
268
15
61
80
51
57
437
300
03
Target
04 YTD
3931
03
Target
04 YTD
65
03
Target
04 YTD
52
03
Target
04 YTD
88
31
…Has Had Positive Impact on Our Churn
Residential2
02-04; Percent1
SMB2
60
100
70
100
80
01/03
01/05
80
90
1 Market share based on customer count
2 Assumed no market size growth between March 2004 and May 2004
4.2
6.6
1.8
7.2
Annualized 04
customer
churn
Percent
Annualized 02-
03 customer
churn
Percent
01/04
01/02
01/02
01/03
01/05
01/04
32
This Is Consistent With Evolution in Other Industries
Incumbent Wireline Market Share
96-02; Percent
96
97
98
99
00
01
02
03
Wireline deregulation is
very analogous to energy
deregulation:
Incumbent with a long
history of operation
Incumbent with infra-
structure assets
controlling access
De-regulation forced
opening access to other
players
Regulated pricing
structure
2.3%
annual
churn
33
Retail Headroom Should Rise Over the Next Two Years…
NYMEX Gas
$/MMBtu
Retail Headroom1
Percent
1 Headroom = (PTB – Generation – Wires)/PTB; based on average of forward looking 12 months; forward curve as of June 9, 2004
NYMEX 12-month strip
TXU retail headroom
02
05E
04E
06E
03
07E
Margin History and Outlook
01-06; Mixed Measures
34
…Staying in Line With Others in The ERCOT Market…
Reliant2
TXU
1 Headroom = PTB – Wholesale price *1.3 – Wire charges
2 Reliant costs assumed to be 102% of TXU costs based on North-Houston zone differentials
Headroom1
03-06; Percent
Actual
Estimate
05/03
05/05
05/06
05/04
Assumes TXU fuel
factor adjustment of
$6.52/MMBTU is
approved in August
35
… and Lower Than Others When Normalized for Volatility
Volatility1 of Gross Margin
99-04 (except TXU=02-04); Percent
Gross Margin Per Volatility
99-04; no units
Gross Margin
99-04 (except TXU=02-04); Percent
Specialty
apparel
Depart-
ment
stores
Grocery
stores
Super-
center
stores
Drug
stores
TXU
retail
55
38
30
28
26
16
Specialty
apparel
Depart-
ment
stores
Grocery
stores
Super-
center
stores
Drug
stores
TXU
retail
8.9
6.0
3.0
3.5
3.7
49.9
Specialty
apparel
Depart-
ment
stores
Grocery
stores
Super-
center
stores
Drug
stores
TXU
retail
6.1
6.3
9.9
8.1
7.0
0.3
1 Defined as standard deviation of quarterly gross margin normalized by initial gross margin
36
Key Questions That Get To The Heart Of Our Core Principles
What is TXU’s natural gas exposure and how
will it manage this risk?
Sustainable Earnings
What is TXU doing to retain customers?
Superior Customer Service
What is the financial vitality of the company?
Right to Grow
Disciplined Execution
Core Principles
Are the cost reductions achievable?
Key Questions
37
05 Cost Focus: Reducing SG&A While Improving Reliability…
2003
O&M
2005
Plan
O&M
Less:
Gas,
Australia
2003
Continuing
Increase
1,665
1,395
270
50
1,445
4%
2003
O&M +
SG&A
2005 Plan
O&M +
SG&A
Less:
TXU Gas,
Australia
2003
Continuing
O&M +
SG&A
Reduction
2,773
2,246
527
71
2,175
2003
SG&A
2005
Plan
SG&A
Less:
Gas,
Australia
2003
Continuing
Decrease
1,108
851
257
121
730
O&M Costs
03-05; $ Millions
SG&A Costs
03-05; $ Millions
O&M and SG&A Costs
03-05; $ Millions
38
… Leaving Room for Significant Cost Savings Opportunities
In the Future
SG&A Continuing Operations
98-05E; $ million
597
647
701
852
1,035
851
730
98
99
00
01
02
03
05E
Achieving 98 SG&A cost
levels would save $130
million
Operating Cost1 Per Dollar of Contribution Margin2
03; Percent
48
40
37
32
42
Utility
Average
Top
Quartile
Top
Decile
Best-in-
Class
TXU
1 Operating cost is the sum of O&M and SG&A costs
2 Contribution Margin: Operating Revenues less Cost of Energy Sold and Delivery Fees
Based on 03 operating
cost, TXU could save $582
million with best-in-class
performance
39
Key Questions That Get To The Heart Of Our Core Principles
What is TXU’s natural gas exposure and how
will it manage this risk?
Sustainable Earnings
What is TXU doing to retain customers?
Superior Customer Service
What is the financial vitality of the company?
Right to Grow
Disciplined Execution
Core Principles
Are the cost reductions achievable?
Key Questions
40
TXU Will Reshape Its Financial Profile by 05
Operational EPS
03-05; $ Per Share
04E
05E
03
2.03
4.00
2.50
97%
ROIC
03-05; Percent
6.7
11.2
7.4
67%
04E
05E
03
Free cash flow
03-05; $ Millions
716
1,200
720
68%
04E
05E
03
Total debt
03-05; $ Billions
13.9
6.6
7.4
04E
05E
03
Gross interest coverage
03-05; Ratio
3.0
6.3
3.3
110%
04E
05E
03
Total debt/total capital
03-05; Percent
70
49
57
04E
05E
03
41
TXU Will Follow a Strict Capital Allocation Philosophy…
Oper/
Divest
cash
flow
Excess
Reinvest
-ment
Yes, If
Investments
have high
returns and
short payback
Yes
“Customer”
capital
Ensure quality
service and
reliability
Debt
holders
Debt
reduction
Yes, until
Financially
flexible and
strong
Excess
Yes
100% TXU
Delivery
payout
Excess
Equity
holders
Dividend
payout
Repurchases
or distributions
Retained for
investment
Excess
20%
80%
42
…Managing Execution Risk of Our Key Value Drivers…
Repurchase
of securities
(16%)
Cumulative Risk of Operational EPS Improvements
03-06
Divested
businesses
net of debt
reduction
(4%)
1st PTB strike
net of share loss
(21%)
Strategic
sourcing
(6%)
Capgemini
Energy
(16%)
Hedge
roll-off
(12%)
2nd PTB
strike net
of share
loss
(12%)
Electric Delivery
improvement
(6%)
Other
(11%)
0%
(~$2.03)
25%
50%
75%
100%
(~$4.50)
Percent of Cumulative 03-06 Operational EPS Improvement
43
Leading
Industrial
Company
…And Creating a Compelling Investment Thesis
Strategy
1.
Focus on four solid
core businesses:
Power, Electric
Delivery, TradeCo, and
Energy
Execution
1.
Aggressive, yet
achievable, phased
approach
2.
Rigorous focus on
customer service,
reliability, value drivers,
and risks
People
1.
Highly visible and
transparent P&L
2.
Performance culture
with alignment of
incentives
Finance
1.
Doubled earnings power
2.
Increased free cash flow
by 70%
3.
Increased returns by 65%
4.
Cut debt in half
5.
Increased interest
coverage by 100%
6.
Positioned 06 for double
digit growth
44
Appendix
45
Description of Special Items
$ Millions after tax
75
Mine and gas plant closures
75
Debt reacquisition costs
90
Software write-offs
360
50
70
04E
0
05E
Total
Inventory write down – spare parts
Severance and other compensation costs
Special Items
46
Financial Measures
Cash provided by operating activities (GAAP) before changes in assets and liabilities
Operating cash flow (OCF)
Operation and maintenance expenses are shown as “operating costs” on TXU Corp and segment income statements.
O&M
Net income before gross interest and income tax expense
EBIT
Operating revenues – cost of energy sold and delivery fees
Contribution margin
Operational earnings before gross interest and income tax expense
OBIT
(Operational earnings + preference stock dividends + after-tax gross interest expense) / average total capitalization
Return on invested capital
(non-GAAP)
Interest and related charges from the income statement
Gross interest
Unusual non-recurring charges or gains, primarily related to implementation of the 4+4 performance improvement program.
Management excludes these in determining operational earnings for budget and performance management purposes
Special items
Income from continuing operations before extraordinary items and cumulative effect of changes in accounting principles from the
income statement
Income from
continuing operations
Shareholders’ equity – preference stock
Common equity
Long-term debt (including current portion) + bank loans and commercial paper + long term debt held by subsidiary trusts + preferred
securities of subsidiaries & exchangeable preferred member interests – securitization bonds
Total debt
(non-GAAP)
Total debt + shareholders’ equity
Total capitalization
(non-GAAP)
From balance sheet
Shareholders’ equity
(Income from continuing operations before gross interest and income tax expense + depreciation and amortization) / Gross Interest
Gross Interest Coverage
Operational earnings / average common equity
Return on equity
(non-GAAP)
Cash provided by operating activities – changes in assets and liabilities – capital expenditures (including nuclear fuel)
Free cash flow
(non-GAAP)
Income from continuing operations less preference share dividends and excluding special items / weighted average diluted common
shares outstanding
Operational earnings per
share (non-GAAP)
Definition
Measure
47
Appendix
Regulation G Reconciliations
TXU management is currently unable to accurately estimate the impact of special
items or changes in accounting principles or policies on free cash flow, return on
invested capital, total debt to total capitalization or gross interest coverage. TXU is
therefore currently unable to provide the most directly comparable GAAP measure to
these items.
Reconciliation 1 - TXU Energy Company LLC
Contribution margin, Operating costs and OBIT
For the year ended December 31, 2003; $ Millions
Operating revenues
7,995
$
Cost of energy sold and delivery fees
(5,124)
Contribution margin
2,871
$
Contribution margin - Power
1,919
$
Contribution margin - Energy
783
Reclassification of trading to net margin in SG&A
307
Hedge loss
(138)
Total Contribution margin
2,871
$
Operating costs
691
$
Depreciation and amortization
409
Selling, general and administrative expense
636
Franchise and revenue-based taxes
124
Other income
(48)
Other deductions
22
Operating costs
1,834
$
Operating costs - Power
899
$
Operating costs - Energy
628
Reclassification of trading to net margin in SG&A
307
Total operating costs
1,834
$
Income from continuing operations before income taxes, extraordinary
loss and cumulative effect of changes in accounting principles
722
$
Interest expense and related charges
323
Interest income
(8)
OBIT
1,037
$
OBIT - Power
1,020
$
OBIT - Energy
155
Hedge loss
(138)
Total operating costs
1,037
$
49
Reconciliation 2 - TXU Energy Delivery
(formerly Oncor Electric Delivery Company)
Contribution margin, Operating costs and OBIT
For the year ended December 31, 2003; $ Millions
Operating revenues
Affiliated
1,489
$
Nonaffiliated
598
Contribution margin
2,087
$
Operation and maintenance
786
$
Depreciation and amortization
297
Taxes other than income
376
Other income
(8)
Other deductions
4
Operating costs
1,455
$
Income before extraordinary loss
258
$
Income taxes
106
Nonoperating income taxes
20
Interest income
(52)
Interest expense and related charges
300
OBIT
632
$
50
Reconciliation 3 - TXU Corp
Operating Cost Per Dollar of Contribution Margin
For the year ended December 31, 2003
$ Millions
Revenue
11,008
$
Cost of Energy
4,947
Contribution Margin
6,061
$
Operating Costs
1,665
SG&A
1,108
Less payroll and property taxes
(257)
Total operating expenses
2,516
$
Operating cost per dollar of contribution margin
42%
51
Reconciliation 4 - TXU Corp
Operational earnings per share (EPS)
For the year ended December 31, 2003
$ Millions except per share amounts
Income from continuing operations before extraordinary loss
and cumulative effect of changes in accounting principles
737
$
Less Preference stock dividends
(22)
Operational earnings
715
After-tax interest on preferred membership interests in TXU Energy
53
Adjusted operational earnings for diluted EPS calculation
768
Average shares of common stock outstanding - diluted (millions)
379
Operational earnings per share - diluted
2.03
$
52
Reconciliation 5 - TXU Corp
Free cash flow
For the year ended December 31, 2003; $ Millions
Cash provided by operating activities
2,798
$
Less changes in operating assets and liabilities:
Accounts receivable - trade
367
Inventories
(67)
Accounts payable - trade
(5)
Commodity contract assets and liabilities
25
Margin deposits
25
Other assets
382
Other liabilities
355
Total changes in operating assets and liabilities
1,082
Less Capital expenditures:
Capital expenditures
956
Nuclear fuel
44
Total capital expenditures
1,000
Free cash flow
716
$
53
Reconciliation 6 - TXU Corp
Return on invested capital (ROIC)
For the year ended December 31, 2003
$ Millions
Operational Earnings
715
Preference dividends
22
After-tax gross interest expense
634
Total Return
1,371
Shareholders' equity
5,919
Total debt
13,903
Securitization bonds
500
Total invested capital
20,322
Return on invested capital
6.7%
54
Reconciliation 7 - TXU Corp
Total debt/total capital calculation at December 31, 2003
$ Millions
Notes Payable
Commercial paper
39
$
Banks
58
Long-term debt due currently
677
Long-term debt held by subsidiary trusts
546
All other long-term debt, less amounts due currently
12,324
Less securitization bonds
(500)
Preferred securities of subsidiaries
759
Total debt
13,903
Shareholders' equity
5,919
Total capital
19,822
$
Total debt/total capital percent
70%
55
Reconciliation 8 - TXU Corp
Gross interest coverage
For the year ended December 31, 2003
$ Millions
Income before income taxes, extraordinary loss and
cumulative effect of change in accounting principles
1,051
$
Interest expense and related charges
975
Depreciation and amortization, other than goodwill
886
Income from continuing operations before interest, tax and D&A
2,912
$
Gross interest
975
Gross interest coverage
3.0
56