Exhibit 99.1
EEI Conference
C. John Wilder
Chief Executive Officer
October 26, 2004
Safe Harbor Statement & Regulation G
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 the company to implement the initiatives that are part of its restructuring, operational improvement and cost reduction program, and the terms under which the company executes those initiatives, the ability of the company to execute the financing necessary to finance its share repurchase plan and the actions of its board of directors with respect to future dividends and other cash distributions to shareholders, which will be based upon a number of factors, including the Company’s profit levels, operating cash flow levels and capital requirements as well as financial and other business conditions existing at the time.
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.
1
Today’s Agenda
ERCOT Overview
ERCOT market framework
Impact of deregulation
TXU Competitive Positioning
Three phase restructuring impact
Capital allocation
Summary
Conclusion
2
ERCOT Was Designed So That End Users Could Capture The Benefits Of Open Markets And Competition…
Wholesale
Retail
Implementation
Established bilateral market between generators and retailers
Expedited permitting and siting for new build
PTB guaranteed sufficient headroom to spur competition
Low barriers for retail certification
Immediate competitive pricing for large business customers
Impact
Large infusion of capital
Investment in state of the art technology (efficient CCGT)
Improved operational performance (8% improvement in utilization)
Superior customer service
Large number of competitors (>80)
New products (automated meter reading, online billing)
Risk management services
Competition has spurred investment, increased efficiency and innovation
3
…Similar To Those Seen In Other Deregulated Markets
Efficiency gains…
Smaller work force:
British Telecom employees 84-04; Thousands
Price decreases…
Airline retail price compression:
Real yield index (1979=100) 79-94; No units
…And innovation
New cable services 96-04; No units
240
58%
100
84 Pre-deregulation 04 Today
120 110 100 90 80 70 60 50 40
79 81 83 85 87 89 91 93
45%
Access to over 300 channels (from 30)
HDTV technology
DSL (Internet broadband)
Pay-per-View
Digital Video Recorder
Parental controls
A competitive market ruthlessly forces competitors to improve
Source: British telecom, O&D survey
4
ERCOT Has Already Seen Similar Improvement; Capital Infusion…
ERCOT supply curve; Implied heat rate 04; MMBtu/MWh
24 21 18 15 12 9 6 3 0
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
Cumulative capacity MW
Nuclear
Coal
CCGT
22 GW
Gas/oil
Internal combustion
Deregulation led to the investment of over $15 billion and and the addition of 22GW of low-cost CCGT capacity
5
…Which Led To A Reduction In Market Heat Rates…
ERCOT heat rate cycle 98-04; MMBtu/MWh
16 14 12 10 8 6 4 2 0
98 99 00 01 02 03 04
CCGT marginal heat rate
CCGT reinvestment economics
If not for the capital infusion wholesale power prices may have been 50% higher
6
…Strong Retail Competition…
Residential customer switching 04 YTD; Percent
20 19 10 7 6 3 2 2 1 1
TX OH DC NY PA MD MA CT ME CA
ERCOT has the most active de-regulated retail market in the US
Source: KEMA
7
…Giving End Use Customers Access To Lower Prices
Competitive residential price1 vs. regulated rate 02-04; Percent savings
Competitive large business price vs. regulated rate 02-04; Percent savings
14%
19%
02E-04E
02E-04E
2
Customers have benefited from access to lower electricity prices than they would have experienced under a regulated rate regime
1 Competitive Residential price based on 15% discount to TXU PTB as currently offered by market competitors, e.g., Utility Choice (14.6%), Cirro (14.6%) and Gexa (16.6%); Regulated world assumes 7.8 GW (versus 22GW actually built) added capacity in the rate base at a cost of $600/kw, O&M costs approximately $20/kw-yr resulting in an average cost of $93/kw-yr average cost in the rate base
2 Based on 04 with the following assumptions: Competitive prices assume $4.07/MMBtu Henry Hub gas price, 24X7 heat rate of 7.3 MWh/MMBtu, and incumbent residential gross margins of 30% and LC&I gross margins of 5%
8
Overall The Market Is Considered A Success
Issues facing the Sunset Commission
Continuing need for the PUC
ERCOT governance
Funding for independent market oversight
Administrative penalties for market rule violations
Top issues facing Texas voters
Taxes
Education
Healthcare
Criminal justice
Insurance reform
There appears to be little impetus to make major changes to the ERCOT framework
Source: Sunset Commission, Texas House of Representatives
9
Today’s Agenda
ERCOT Overview
ERCOT market framework
Impact of deregulation
TXU Competitive Positioning
Three phase restructuring impact
Capital allocation
Summary
Conclusion
10
To Compete In The Deregulated World TXU Is Focused On Three Core Businesses
Size and shape of TXU’s businesses 05E; $ billions and percent
TXU Power
TXU Energy
TXU Electric Delivery
Assets
Operational earnings
OCF
40% 20% 26% 16% 16% 4% 44% 64% 70%
$23.3 $1.4 $1.8
Structural advantages
2nd largest deregulated generation output
Low cost baseload capacity and highly flexible gas fleet
Robust wholesale market and tightening reserve margins
Largest competitive electricity retailer
High growth market (2.5% per year)
Distinctive brand recognition and reputation for reliability
6th largest US transmission and distribution company
High growth market (2.5% per year)
Lowest wires cost in Texas
11
We Are Executing A Three Phase Improvement Program
Phase 1: Rationalize, Restructure & Restore Financial Strength
Phase 2: Strengthen the Core & Drive Performance Improvement
Phase 3: Allocate Capital and Grow
What We Needed To Do
Execute no-regrets transactions
Improve financial flexibility
Capture “quick-hit” profitability improvements
Assess key risks and implement mitigation plans
How We Did It/ How We Are Doing It
Sold TXU Australia, TXU Gas, and TXU Fuel
Deployed proceeds to repair balance sheet
Strengthened contribution margins
Implemented customer service improvements
12
In Phase One We Divested Non-Core Businesses, Deploying Proceeds To Improve Financial Flexibility
Phase 1: Sources of cash 04E; $ billions
Cash Balances Securitization
Borrowings
Cash from Ops Communications TUFCO
Gas
Australia
3.6
1.9
0.5
0.5
1.2
14.2
1.0
0.8
4.7
Phase 1: Uses of cash 04E; $ billions
Investments Disc Ops & Other Dividend
Equity repurchase
Debt repurchase3
14.2
0.9
0.3
0.3
5.12
7.63
1 Includes $1.8B debt assumed by acquirers
2 Includes $1.1B equity portion of Exchangeable Preferred Membership Interest repurchase
3 Includes retirements premiums of $0.5 billion
13
The Second Phase Is Underway And Will Establish A Solid Foundation For Growth
Phase 3: Allocate Capital and Grow
Phase 2: Strengthen the Core & Drive Performance Improvement
Phase 1: Rationalize, Restructure & Restore Financial Strength
What We Needed To Do
Undertake comprehensive review of business performance
Identify profitability improvements based on detailed assessments
Embed profitability improvement targets in business plan
How We Did It/ How We Are Doing It
Launched > 25 teams to develop improvement plans
Link initiative targets to the financial plan and incentive compensation
14
Looking At Other Deregulated Industries We Have Observed Five Critical Performance Levers For the Winners
TXU
1 Commercial Excellence
Asset optimization
Commodity risk management
2 Cost Leadership
World class industrial production costs
Lean SG&A
3 Operational Excellence
Top decile reliability
Capacity factors
4 Market Leadership
Superior customer service/brand management
Value based pricing
5
Performance Management
High performance culture
Balanced cascading scorecards
Incentives linked to key value drivers
15
We Leveraged These Performance Levers To Design Improvement Programs For Each Business
TXU Power
TXU Energy
TXU Electric Delivery
Strategy
Cost leadership
Operational excellence
Objectives
Top decile cost performance
Top decile production performance
Implementation
TXU operating system (lean)
Strategic sourcing
Market leadership
Commercial excellence
Excellent customer service
Retain and grow profitable customer base
Top decile purchased power performance
Customer experience
Customer segmentation
Operational excellence
Cost leadership
Achieve industry leading safety performance
Top decile reliability
Top decile cost performance
Earn allowable return
TXU operating system(lean)
Strategic sourcing
Technological innovation
16
TXU Power Is Focused On Cost Leadership And Operational Excellence
EBIT improvement vs 04E 05-07; $ millions
Performance Lever 05E 06E 07E Examples of Initiatives
Commercial Excellence—- -
Cost Leadership 70 115 150
Strategic sourcing
Operating system
Benefit expense reduction
Operational excellence (40)1 80 152
Improved capacity factor
Plant outage avoidance
Market effects 505 130 (95)
Market price impacts
Improvement Plan Total 520-550 310-340 60-80
1 Impacts from Dual Outage
2 Impact of nuclear steam generator replacement
17
We Leveraged These Performance Levers To Design Improvement Programs For Each Business
TXU Power
Strategy
Cost leadership
Operational excellence
Objectives
Top decile cost performance
Top decile production performance
Implementation
TXU operating system(lean)
Strategic sourcing
TXU Energy
Commercial excellence
Cost leadership
Market leadership
Excellent customer service
Retain and grow profitable customer base
Top decile purchased power performance
Customer experience
Customer segmentation
TXU Electric Delivery
Cost leadership
Operational excellence
Achieve industry leading safety performance
Top decile reliability
Top decile cost performance
Earn allowable return
TXU operating system(lean)
Strategic sourcing
Technological innovation
18
TXU Energy Is Focused On Commercial Excellence, Cost Leadership And Market Leadership
EBIT improvement vs 04E 05-07; $ millions
Performance Lever 05E 06E 07E Examples of Initiatives
Commercial Excellence 150 325 395
Optimization of gas plant and purchased power
Improved large business margins and volumes
Hedge roll off
Cost Leadership 185 215 240
SG&A reductions
Back-office joint venture
Improved Bad debt
Gas plant O&M reductions
Operational excellence—- -
Market Leadership (120) 125 260
Increased revenue from fuel factor adjustment and out of territory growth
Decreased customer churn rates due to improved customer service
Improvement Plan Total 200-230 650-680 875-925
19
Similar To Other Commodities Electricity Is Volatile…
Commodity prices
94-04; No units (normalized to 1 Jan 04)
Standard deviation
600% 500% 400% 300% 200% 100% 0%
Jan 94
Sept 04
Crude oil 43%
Natural gas 49%
ERCOT power 29% Pork bellies 28%
Cotton 26%
Power prices are less volatile than both crude oil and natural gas
20
…But Unlike Other Commodities, Its Cost Is Not Directly Passed Through To The Consumer…
Historical Gas Prices vs. Forward Curve 04-05; $/MMBtu
8.00 7.50 7.00 6.50 6.00 5.50 5.00
Jan-04 Apr-04 Jul-04 Oct-04 Jan-05
Daily NYMEX gas prices
20 day rolling average of 12 month forward curve1
Current fuel factor adjustment threshold(+5%) = $6.85 Current fuel factor adjustment = $ 6.52
Based on the PTB framework, retail price can only be adjusted after large shifts in the forward gas curve
1 Assumes all future prices are equal to forward curve as of October 22, 2004
21
…Making Retail Economics Unsustainable Without Further Price Adjustments
ESTIMATES
North Texas TXU 10 13 19 residential gross margin Attacker1 (5) (2) 3 05E; $/MMBtu
North Texas TXU 3 4 7 residential net margin2
Attacker (7) (5) (2)
05E; $/MMBtu
No fuel factor adjustment
Modeled fuel factor adjustment in current plan
Potential fuel factor adjustment
Cal 05 gas, $/MMBtu 7.63 7.63 7.63 PTB Strike, $/MMBtu 6.52 6.92 7.63
1 Includes acquisition costs of $150/MWh amortized over 24 months
2 Includes impact of SG&A, bad debt, income taxes and revenue taxes; Attacker economics based on 10% discount from PTB, SG&A of $2.5/MWh, bad debt equals 1.3% of revenues, income taxes at 35% rate, revenue taxes equals 1.8% of revenues; forward curve as of October 21, 2004
22
A Potential Strike Has Significant Upside For TXU…
Operational EPS impact of potential fuel factor increase 05E; $ per share
1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
6.50 6.70 6.90 7.10 7.30 7.50 7.70 7.90 $6.52 Current fuel factor $6.84 Fuel factor increase threshold $7.78
Cal 05 strip (10/22/04) $6.92
Fuel factor in forward plan (50% weighted)
Potential fuel factor adjustment $/MMBtu
23
…And Based On Historical Trends Is Likely To Occur
Frequency distribution of potential 05 gas prices1 05E; $/MMBtu $6.92
Fuel factor in model (<1.5%) $6.84 Fuel factor increase threshold (<.5%)
6.25 6.45 6.65 6.85 7.05 7.25 7.45 7.65 7.85 8.05 8.25 8.45 8.65
Gas price $/MMBtu
Based on historical price movements there is less than 0.5% chance that TXU would not be eligible for a fuel factor adjustment in 05
1 Curve based on volatility of forward curve from Nov 1 to Dec 31 of entire year from 90-03
24
We Leveraged These Performance Levers To Design Improvement Programs For Each Business
Strategy
Objectives
Implementation
TXU Power
TXU Energy
TXU Electric Delivery
Cost leadership Operational excellence
Top decile cost performance Top decile production performance
TXU operating system(lean) Strategic sourcing
Commercial excellence Cost leadership Market leadership
Excellent customer service Retain and grow profitable customer base Top decile purchased power performance
Customer experience Customer segmentation
Cost leadership Operational excellence
Achieve industry leading safety performance Top decile reliability Top decile cost performance Earn allowable return
TXU operating system(lean) Strategic sourcing Technological innovation
25
TXU Electric Delivery Is Focused On Cost Leadership…
EBIT improvement vs 04E 05-07; $ millions
Theme 05E 06E 07E Examples of Initiatives
Commercial Excellence Cost Leadership
Operational excellence Market Leadership
Improvement Plan Total
- - -
0 10 15
- - -
95 140 210
90-100 140-160 210-240
Improved focus on O&M cost management Strategic sourcing
Market growth Transmission investment
26
These Improvement Programs For Each Business Will Drive Overall Performance For TXU
TXU Power
TXU Energy
TXU Electric Delivery
Strategy Objectives Implementation
Cost leadership Operational excellence
Commercial excellence Cost leadership Market leadership
Cost leadership Operational excellence
Top decile cost performance Top decile production performance
Excellent customer service Retain and grow profitable customer base Top decile purchased power performance Achieve leading safety performance Top decile reliability Top decile cost performance Earn allowable return
TXU operating system (lean) Strategic sourcing
Customer experience Customer segmentation
TXU operating system (lean) Strategic sourcing Technological innovation
27
TXU Is Driving Performance Improvement Across All Four Performance Levers…
EBIT improvement vs 04E 05-07; $ millions
Theme 05E 06E 07E Examples of Initiatives
Commercial Excellence
Cost Leadership
Operational excellence Market Leadership
Improvement Plan Total
150 325 395
285 410 480
(40) 80 15
485 400 380
850-910 1,180-1,250 1,240-1,300
Optimization of gas plant and purchased power
Improved large business margins and volumes SG&A reductions CG Energy joint venture Improved focus on O&M cost management Improved capacity factor Plant outage avoidance Increased revenue from PTB strikes and out of territory price increases Decreased customer churn rates due to improved customer service
The “$600 million over 5 years” 1 is now “$750 million over 3 years”
1 Improvement program discussed at Lehman Brothers and Merrill Lynch Power Conferences
28
Improving EPS…
EBIT 03-05; $ millions
81%
1,566
1,958
2,840
03 04E 05E
-
Interest
03-05; $ millions
4%
748 671 720
03 04E 05E
-
Taxes
03-05; $ millions
185%
252
438
717
03 04E 05E
Operational earnings 1 03-05; $ millions
154%
544
861
1,381
03 04E 05E
÷
Shares outstanding 03-05; millions
37%
379
319
240
03 04E 05E
Operational EPS 03-05; $ per share
264%
1.58
2.65-2.70
5.65-5.85
03 04E 05E
1 Includes impact from preferred dividends and excludes extraordinary items, changes in accounting principles and special items
29
…The Majority Of Which Is Already In The 04 Run Rate
04-05; $/share EPS
1 Q3 and Q4 04E earnings 1.63
Q3 weather adjustment 0.11
Full Q3 impact of July 04 fuel factor increase 0.07
Share count adjustment (319 to 240) 0.59
2 Run rate 2.40
Adjustment for historical average contribution 58%
3 Annualized run rate 4.14
05E impact of CapGemini Energy contract 0.22
Impact of fuel factor improvement in Feb 05E 0.16
Impact of hedge roll-off 0.11
4 Total before improvements 4.63
Performance improvements 1.02—1.12
5 05E earnings 5.65-5.85
70%—80% of earnings are already captured in the 2nd half 04 run rate
30
TXU’s Financial Profile Is Significantly Improved…
Operational EPS 03-05; $ Per Share
1.58
2.65-2.70
5.65-5.85
264%
03 04E 05E
Free cash flow1 03-05; $ Millions
836
90
1,600
03 04E 05E
91%
ROIC1 03-05; Percent
5.0
10.2
13.8
176%
03 04E 05E
Total debt1 03-05; $ Billions
12.1 11.6 11.6
03 04E 05E
4%
Total debt/EBITDA1 03-05; Percent
5.3 4.3 3.2
03 04E 05E
40%
EBITDA/Interest1 03-05; Ratio
3.0
4.1
4.8
60%
03 04E 05E
1 Adjusted for unusual tax of approximately $600 million in 03 (one time refund associated with Europe) and estimated one time tax expense of up to $500-$600 million in 05 (associated with portfolio restructuring transactions) 31
…Resulting In Top Quartile Financial Flexibility…
Financial Metrics for SPELEC1 (n=20) 03-052; various measures
Top 1st Quartile Median 3rd Quartile 4th Quartile
TXU 05E TXU 03
4.8 #5
3.0 #16
EBITDA/Interest (X)
6.7 4.7 4.3 3.3 0.5
Total debt/EBITDA (X)
3.2 #4
4.8 #18
2.1 3.3 3.6 4.1 6.9
Total debt/ enterprise value (%)
42.8 #8
64.4 #19
29.3 41.3 46.0 50.2 73.1
1 S&P Electric Utility Index
2 Quartile based on LTM as of June 04 performance; TXU 05 performance based on current outlook; updated for balance sheet restructuring through Sep 04; TXU 03 includes discontinued operations; 32
…And Strong Performance Under A Wide Range Of Scenarios
Operational EPS 05E; $ per share
6.63 5.66 5.75
Low Gas / Double churn Base Case High Gas / Half churn1
Gas price $3.50 $6.92 $8.00
Heat rate 7.8 7.8 7.8
Market growth 2.0% 2.0% 2.0%
Annual customer churn:
Residential 10.0% 5.0% 2.5%
Small Business 5.4% 2.7% 1.3%
Medium Business 13.8% 6.9% 3.5%
The combination of TXU’s integrated business model and estimated performance improvements drive earnings growth under all scenarios
1 Assumes PTB fuel factor increase to $8.00/MMBtu 33
Our Plan Will Result In Solid Earnings Growth Both In The Short Term…
Operational EPS growth 05E-06E; percent
6.50-6.80 0.25 TBD
0.30 0.18 0.17 5.65-5.85
13%-18%
05E operational EPS
Avoided dual nuclear outage
Hedge roll off
Contribution margin
Customer churn
Delivery market growth Capacity factor improvement
Productivity improvements
SG&A O&M
Cash deployment1
06E operational EPS
1 Includes share buyback, investment, debt pay down
34
…As Well As In The Long Term
Operational EPS growth 07+; Percent
0.5
2 1.5
2 2
5-8 1-2 3-5
Share repurchases
Growth capital
Market growth
Productivity gains
Heat rate recovery
Gas price declines
Retail churn
Annual EPS growth
Assumptions:
$500-$750 million annually
$300-$400 million annually 10% return
2% annual Delivery revenue growth
2% annual improvement in O&M and SG&A
200 Btu/KWh annual heat rate improvement
$0.40/MMBtu decline
4% churn 25% gross margin
35
The Third Phase Will Establish TXU’s Capital Allocation And Growth Strategy
Phase 1: Rationalize,
Restructure & Restore Financial Strength
Phase 2:
Strengthen the Core & Drive Performance Improvement
Phase 3: Allocate Capital and Grow
What We Needed To Do
Develop rigorous cash stewardship and capital allocation philosophy Leverage distinctive capabilities to grow
How We Did It/ How We Are Doing It
Implement capital allocation philosophy Pursue value-creating growth opportunities
36
…With Our Capital Allocation Following A Rigorous And Disciplined Process
Retained For Investment
TXU Business Units
Oper/Divest Cash Flow
Excess “Customer” Capital
Reinvestment
Excess
Debt Reduction
Excess
Dividend Payout
Excess
Yes Yes, if Yes, until Yes
Quality service Production reliability
50% of cash returned within 3 years Minimum ROI of 15%
Top Quartile Metrics
Debt/EV Coverage ratio Debt/EBITDA
Payout of 30-40%
Repurchases or Distributions
75% Total Payout Cap
Debt Holders
Equity Holders
37
…We Have Decided To Increase Our Dividend…
Dividend declared 00-05; $ per share
2.40 2.40
1.93
0.50
2.25
0.94
00 01 02 03 04E 05E
38
…Which Is Conservative On An Absolute Basis…
Dividend payout (TTM)
03-04; Percent of operational earnings
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
105
87 81 79 76
71 70 62 59
56 55 51
45 43
39 39 35 27
19 19
TXU TXU 05E LTM
39
…With A High Performance Growth Rate…
Dividend growth rate 94-03; Percent
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
16
9
5
3
3
2
1
1
0
0
(1)
(3)
(5)
(10)
(13)
(13)
(14)
(20)
TXU TXU
05E-07E 94-03
40
…Combined With Repurchasing Shares, Our Capital Allocation Plan Will Deliver A First Quartile Payout In 06
Total Payout Ratio
03; % of operational net income
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
105
87
81
79
76
75
71
70
62
59
56
55
51
45
43
39
39
35
27
19
-
TXU TXU
06E 05E
41
The Decision Is Supported By A Strong Credit Profile…
Dividend Payout Ratio vs Credit Quality
TXU (Average 05E-07E)
EBITDA / Interest
Dividend payout ratio
8
7
6
5
4
3
2
1
0
100 80 60 40 20
Total Payout Ratio vs Credit Quality
TXU (Average 05E-07E)
EBITDA / Interest
Total payout ratio
8
7
6
5
4
3
2
1
0
100 80 60 40 20
Dividend Payout Ratio vs Credit Quality
TXU (Average 05E-07E)
Total Debt / EBITDA
Dividend payout ratio
0
1
2
3
4
5
6
7
8
100 80 60 40 20
Total Payout Ratio vs Credit Quality
TXU (Average 05E-07E)
Total Debt / EBITDA
Total payout ratio
0
1
2
3
4
5
6
7
8
100 80 60 40 20
Source : Deutsche Bank, June 30 2004
42
…And Is Sustainable Under Multiple Stress Scenarios
Total payout ratio
04-06; % of operational net income
60% threshold
Stress Case:
Low Gas ($4.50)
High Churn (10%)
Extended baseload plant shutdown
Plan
29 40 43
39 35
04E 05E 06E
43
Today’s Agenda
ERCOT Overview
ERCOT market framework Impact of deregulation
TXU Competitive Positioning
Three phase restructuring impact Capital allocation
Summary
Conclusion
44
TXU: Transformation In Progress
1. Competitive position—Structurally advantaged core businesses in high growth markets with rejuvenated financial profile
2X earnings power
91% increase in cash flow
Double digit ROIC
Top quartile financial flexibility
2. Large upside—$1.2-1.3 billion potential EBIT improvement over the next 3 years relative to 04E
3. Integrated business model—Strong performance under wide range of commodity scenarios
Hedged to gas downside
Ability to capture gas upside
Disciplined capital allocation – Focus on maximizing returns to shareholders
Increased dividend to $2.25 per share
High performance total payout
45
Regulation G Reconciliations
For future periods, TXU is currently unable to estimate the impact of special items or changes in accounting principles or policies on free cash flow, return on invested capital, total debt to capitalization or interest coverage. TXU is therefore currently unable to reconcile the most directly comparable GAAP measure to these items for forecasted periods.
Certain amounts previously reported for the year ended December 31, 2003 have been restated to reflect reporting of TXU Gas and TXU Australia and TXU Energy Company LLC’s cogeneration and wholesale energy sales business in New Jersey as discontinued operations.
Definitions
Measure Definition
Income from continuing operations
Income from continuing operations before extraordinary items and cumulative effect of changes in accounting principles from the income statement.
Special items
Unusual charges related to the implementation of the performance improvement program and other charges, credits or gains that are unusual or nonrecurring. The performance improvement program is being implemented in phases, and the charges are expected to occur largely within a one-year period. Special items are included in reported GAAP earnings, but are excluded from operational earnings. Special items associated with the performance improvement program will include costs related to severance programs, asset impairments and facility closures.
Operational earnings per share (non-GAAP)
Income from continuing operations less preference share dividends and excluding special items / weighted average diluted common shares outstanding.
EBITDA (non-GAAP)
Income from continuing operations before interest income, interest expense and related charges and income tax plus depreciation and amortization and special items. EBITDA is a measure used by TXU to assess credit quality.
EBITDA/Interest (non-GAAP)
Interest expense and related charges less amortization of discount and reacquired debt plus capitalized interest. Cash interest expense is a measure used by TXU to assess credit quality.
EBITDA/Interest (non-GAAP)
EBITDA divided by cash interest expense is a measure used by TXU to assess credit quality.
Total debt (non-GAAP)
Long-term debt (including current portion), plus bank loans and commercial paper, plus long-term debt held by subsidiary trusts, plus preferred securities of subsidiaries (including exchangeable preferred membership interest).
Total debt/EBITDA (non-GAAP)
Total debt less transition bonds divided by EBITDA is used by TXU to assess credit quality. Transition, or securitization, bonds are serviced by a regulatory transition charge on wires rates and are therefore excluded from debt in credit reviews.
EBIT
Net income before gross interest and income tax expense.
Return on invested capital (ROIC) (non-GAAP)
Operational earnings plus preference stock dividends plus after-tax interest expense / average total capitalization.
47
Definitions – cont.
Measure Definition
Free cash flow
Operating cash less capital expenditures
Market capitalization
Total number of shares of common stock outstanding multiplied by the price per share of common stock.
Enterprise value
Total debt plus preference stock plus market capitalization
Total Debt/Enterprise value
Total debt plus preference stock
48
Table 1: TXU Corp. Operational EPS
Year Ended December 31, 2003; $ and shares in Millions
Income from continuing operations before extraordinary loss and cumulative effect of changes in accounting principles as reported $737
Operations discontinued (171)
Less Preference stock dividends (22)
Operational earnings 544
After-tax interest on preferred membership interests in TXU Energy 53
Adjusted operational earnings for diluted EPS calculation $597
Average shares of common stock outstanding—diluted (millions) 379
Operational earnings per share—diluted $1.58
49
Table 2: TXU Corp. Free Cash Flow
Year ended December 31, 2003; $ Millions
As Reported
Operations Discontinued
Continuing Operations
Cash provided by operating activities 2,798 389 2,409
Less Capital expenditures:
Capital expenditures 956
Acquisitions of business 150
Nuclear fuel 44
Total capital expenditures 1,150 193 957
Less income tax refund associated with Europe 616
Free cash flow 836
50
Table 3: TXU Corp. Return on Invested Capital (ROIC)
Year ended December 31, 2003; $ Millions
Operational earnings $544
Preference stock dividends 22
Interest expense and related charges * 784
Taxes at 35% 341
After-tax interest expense and related charges 443
Total return $1,009
Average invested capital $20,322
Return on invested capital 5.0%
* Excludes $192M interest for operations discontinued
51
Table 4: TXU Corp. EBITDA/Interest
Year Ended December 31, 2003; $ Millions
As
Reported
Operations
Discontinued
Ongoing
Operations
Income before income taxes, extraordinary loss and cumulative effect of change in accounting principles $1,051 $233 $818
Interest expense and related charges 975 191 784
Interest income (44) (8) (36)
EBIT 1,982 416 1,566
Depreciation and amortization 886 163 723
EBITDA $2,868 $ 579 $ 2,289
Interest expense and related charges $784
Amortization of discount and reacquired debt expense (31)
Capitalized interest 12
Cash interest expense $765
EBITDA/Interest 3.0
52
Table 5: Energy EBITDA
Year Ended December 31, 2003; $ in Millions
As Reported
Operations Discontinued
Continuing Operations
Income before income taxes, extraordinary loss and cumulative effect of change in accounting principles $722 $6 $728
Interest expense and related charges 323—323
Interest income (8)—(8)
Depreciation and amortization 409 (2) 407
EBITDA $1,446 $4 $1,450
Energy segment EBITDA $95
Power segment EBITDA 1,360
Rounding and other (5)
Total $1,450
53
Table 6: Electric Delivery Operational EPS
Year Ended December 31, 2003; $ in and shares Millions
Net income $258
Average shares of TXU Corp. common stock outstanding—diluted 379
Operational earnings per share $0.68
54
Table 7: Electric Delivery EBITDA
Year Ended December 31, 2003; $ in Millions
Income before income taxes, extraordinary loss and cumulative effect of change in accounting principles $385
Interest expense and related charges 300
Interest income (52)
Depreciation and amortization 297
EBITDA $930
55
Table 8: TXU Corp. Total debt/EBITDA
Year Ended December 31, 2003; $ Millions
Total debt 12,090
EBITDA 2,289
Total debt/EBITDA 5.3
56
Table 9: TXU Corp Total Debt to Enterprise Value Ratio
December 31, 2003; $ Millions
As Reported
Operations Discontinued
Continuing Operations
Debt
Notes Payable:
Commercial Paper 39 39 -
Banks 58 58 -
Long-term Debt due Currently 677—677
LT Debt held by sub Trusts 546—546
All other LT debt, less due current 12,324 1,716 10,608
Securitization Debt (500)—(500)
Preferred securities of subs 759—759
Total debt 13,903 12,090
Preference stock 300—300
Total debt and preference stock 14,203 12,390
Market Capitalization
Shares Outstanding 324 324
Price per Share 23.72 23.72
Total Market Capitalization 7,685 7,685
Enterprise Value 21,888 20,075
Debt to Enterprise Value 64.9% 61.7%
57