Txu Us 10-K/A 2004 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

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

For the fiscal year ended December 31, 2004

— OR —

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

Commission File Number 1-11668

TXU US Holdings Company

(Exact Name of Registrant as Specified in its Charter)

Texas	75-1837355
(State of Incorporation)	(I.R.S. Employer Identification No.)
1601 Bryan Street, Dallas TX        75201-3411	(214) 812-4600
(Address of Principal Executive Offices)        (Zip Code)	(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Preferred Stock, without par value

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Aggregate market value of TXU US Holdings Company Common Stock held by non-affiliates: None

Common Stock outstanding at March 29, 2005: 2,062,768 Class A shares, without par value and 39,192,594 Class B shares, without par value.

DOCUMENTS INCORPORATED BY REFERENCE- None

Explanatory Note

This Form 10-K/A is being filed to revise the presentation of cash flows from discontinued operations in the Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 2004. This revision does not impact operating, financing and investing cash flows related to continuing operations or the net change in cash and cash equivalents as originally presented in the Statements of Consolidated Cash Flows, but provides additional details of cash flows from discontinued operations.

In connection with the preparation of the report on Form 10-Q for the quarter ended March 31, 2005, TXU US Holdings Company management reviewed its method of presenting discontinued operations in its Statements of Condensed Consolidated Cash Flows and concluded it should revise the presentation to provide more information in accordance with the provisions of FASB Statement No. 95 “Statement of Cash Flows.” Accordingly, beginning with the quarter ended March 31, 2005, TXU US Holdings Company began presenting cash flows from discontinued operations in the categories of operating, investing and financing activities instead of a single line presentation.

This Form 10-K/A for 2004, 2003 and 2002 includes these revisions and hereby amends:

• Part II, Item 8, Financial Statements. Revisions have been made to the Statements of Consolidated Cash Flows for 2004, 2003 and 2002, Note 20 has been added to “Notes to Financial Statements” and the Report of Independent Registered Public Accounting Firm has been updated.

• Part II, Item 9A, Controls and Procedures. Added management’s conclusion that revisions to the Statements of Consolidated Cash Flows did not result from material weaknesses in internal controls over financial reporting.

• Part IV, Item 15, Exhibits. Amended to file herewith, Exhibit 23, Consent of Independent Registered Public Accounting Firm, and Exhibits 31(a), 31(b), 32(a) and 32(b), Certifications of the Chief Executive Officer and the Chief Financial Officer of TXU US Holdings Company required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

i

GLOSSARY

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.

1999 Restructuring Legislation	legislation that restructured the electric utility industry in Texas to provide for retail competition
2002 Form 8-K	US Holdings’ Current Report on Form 8-K filed on February 26, 2003 for TXU Energy Holdings with respect to its financial information for the year ended December 31, 2002, and Form 8-K filed September 16, 2003 to reflect the impact of adopting SFAS 145 on the financial information reported in the Form 8-K filed on February 26, 2003
2002 Form 10-K	US Holdings’ Annual Report on Form 10-K for the year ended December 31, 2002
2003 Form 10-K	US Holdings’ Annual Report on Form 10-K for the year ended December 31, 2003
APB 25	Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
APB 30	Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”
Bcf	billion cubic feet
Capgemini	Capgemini Energy LP, a new company providing business process support services to TXU Corp. and a subsidiary of Cap Gemini North America Inc.
Commission	Public Utility Commission of Texas
EITF	Emerging Issues Task Force
EITF 98-10	EITF Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities”
EITF 02-3	EITF Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities”
EPA	Environmental Protection Agency
ERCOT	Electric Reliability Council of Texas, the Independent System Operator and the regional reliability coordinator of various electricity systems within Texas
ERISA	Employee Retirement Income Security Act
FASB	Financial Accounting Standards Board, the designated organization in the private sector for establishing standards for financial accounting and reporting.
FERC	Federal Energy Regulatory Commission
FIN	Financial Accounting Standards Board Interpretation
FIN 46	FIN No. 46, “Consolidation of Variable Interest Entities”
FIN 46R	FIN No. 46 (Revised 2003), “Consolidation of Variable Interest Entities”
Fitch	Fitch Ratings, Ltd.
FSP	FASB Staff Position (interpretations of standards issued by the staff of the FASB)

ii

FSP 106-1	FSP 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
FSP 106-2	FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
GW	gigawatts
GWh	gigawatt-hours
historical service territory	the territory, largely in North Texas, being served by US Holdings as a regulated utility at the time of entering retail competition on January 1, 2002
IRS	Internal Revenue Service
kV	kilovolts
kWh	kilowatt-hours
Moody’s	Moody’s Investors Services, Inc.
MW	megawatts
MWh	megawatt-hours
NRC	United States Nuclear Regulatory Commission
POLR	provider of last resort of electricity to certain customers under the Commission rules interpreting the 1999 Restructuring Legislation
price-to-beat rate	residential and small business customer electricity rates established by the Commission that (i) were required to be charged in a REP’s historical service territories until the earlier of January 1, 2005 or the date when 40% of the electricity consumed by such customer classes is supplied by competing REPs, adjusted periodically for changes in fuel costs, and (ii) are required to be made available to those customers until January 1, 2007
REP	retail electric provider
S&P	Standard & Poor’s, a division of the McGraw Hill Companies
Sarbanes-Oxley	Sarbanes –Oxley Act of 2002
SEC	United States Securities and Exchange Commission
Settlement Plan	regulatory settlement plan that received final approval by the Commission in January 2003
SFAS	Statement of Financial Accounting Standards issued by the FASB
SFAS 4	SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”
SFAS 34	SFAS No. 34, “Capitalization of Interest Cost”
SFAS 71	SFAS No. 71, “Accounting for the Effect of Certain Types of Regulation”
SFAS 87	SFAS No. 87, “Employers’ Accounting for Pensions”
SFAS 106	SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”
SFAS 109	SFAS No. 109, “Accounting for Income Taxes”
SFAS 123	SFAS No. 123, “Accounting for Stock-Based Compensation”
SFAS 123R	SFAS No. 123 (revised 2004), “Share-Based Payment”
SFAS 133	SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”

iii

SFAS 140	SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement 125”
SFAS 142	SFAS No. 142, “Goodwill and Other Intangible Assets”
SFAS 143	SFAS No. 143, “Accounting for Asset Retirement Obligations”
SFAS 144	SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
SFAS 145	SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement 13, and Technical Corrections”
SG&A	selling, general and administrative
TCEQ	Texas Commission on Environmental Quality
TXU Corp.	refers to TXU Corp., a holding company, and/or its consolidated subsidiaries, depending on context
TXU Electric Delivery	refers to TXU Electric Delivery Company (formerly Oncor Electric Delivery Company), a subsidiary of US Holdings, and/or its consolidated bankruptcy remote financing subsidiary, TXU Electric Delivery Transition Bond Company LLC (formerly Oncor Electric Delivery Transition Bond Company LLC), depending on context
TXU Energy Holdings	refers to TXU Energy Company LLC, a subsidiary of US Holdings, and/or its consolidated subsidiaries, depending on context
TXU Fuel	TXU Fuel Company, a former subsidiary of TXU Energy Holdings
TXU Gas	TXU Gas Company, a former subsidiary of TXU Corp.
TXU Mining	TXU Mining Company LP, a subsidiary of TXU Energy Holdings
TXU Portfolio Management	TXU Portfolio Management Company LP, a subsidiary of TXU Energy Holdings
US	United States of America
US GAAP	accounting principles generally accepted in the US
US Holdings	TXU US Holdings Company, a subsidiary of TXU Corp. and parent of the TXU Energy Holdings and TXU Electric Delivery businesses

iv

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required hereunder is set forth under Statement of Responsibility, Report of Independent Registered Public Accounting Firm, Statements of Consolidated Income, Statements of Consolidated Comprehensive Income, Statements of Consolidated Cash Flows, Consolidated Balance Sheets, Statements of Consolidated Shareholders’ Equity and Notes to Financial Statements included in Appendix A to this report.

Item 9A. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of US Holdings’ management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect as of December 31, 2004. This evaluation took into consideration the strategic initiatives described in Note 1 to Financial Statements. Based on the evaluation performed, US Holdings’ management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective.

There have been no changes in US Holdings’ internal controls over financial reporting for its operations that have occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, US Holdings’ internal controls over financial reporting.

As discussed in Note 20 to Financial Statements, US Holdings has revised the Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2004. Management concluded the revision did not result from a material weakness in internal controls over financial reporting. Consequently, no additional changes in the design and operation of internal controls over financial reporting in effect at December 31, 2004 have been implemented.

1

Appendix A

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

December 31, 2004

	Page
Statement of Responsibility	A-2
Report of Independent Registered Public Accounting Firm	A-3
Financial Statements:
Statements of Consolidated Income and Comprehensive Income	A-4
Statements of Consolidated Cash Flows	A-5
Consolidated Balance Sheets	A-7
Statements of Consolidated Shareholders’ Equity	A-8
Notes to Financial Statements	A-9

A-1

TXU US HOLDINGS COMPANY

STATEMENT OF RESPONSIBILITY

The management of TXU US Holdings Company is responsible for the preparation, integrity and objectivity of the consolidated financial statements of TXU US Holdings Company and other information included in this report. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. As appropriate, the statements include amounts based on informed estimates and judgments of management.

The management of TXU US Holdings Company is responsible for establishing and maintaining a system of internal control, which includes the internal controls and procedures for financial reporting, that is designed to provide reasonable assurance, on a cost-effective basis, that assets are safeguarded, transactions are executed in accordance with management’s authorization and financial records are reliable for preparing consolidated financial statements. Management believes that the system of control provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or would be detected within a timely period. Key elements in this system include the effective communication of established written policies and procedures, selection and training of qualified personnel and organizational arrangements that provide an appropriate division of responsibility. This system of control is augmented by an ongoing internal audit program designed to evaluate its adequacy and effectiveness. Management considers the recommendations of the internal auditors and independent auditors concerning TXU US Holdings Company’s system of internal control and takes appropriate actions which are cost-effective in the circumstances. Management believes that, as of December 31, 2004, TXU US Holdings Company’s system of internal control was adequate to accomplish the objectives discussed herein.

The independent registered public accounting firm of Deloitte & Touche LLP is engaged to audit, in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements of TXU US Holdings Company and its subsidiaries and to issue their report thereon.

/s/ T.L. Baker	/s/ KIRK R. OLIVER
T.L. Baker, Chairman of the Board, President and Chief Executive	Kirk R. Oliver, Executive Vice President and Chief Financial Officer

A-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

TXU US Holdings Company:

We have audited the accompanying consolidated balance sheets of TXU US Holdings Company and subsidiaries (US Holdings) as of December 31, 2004 and 2003, and the related consolidated statements of income, comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of US Holdings’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. US Holdings is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of US Holdings’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates and assumptions made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of US Holdings and subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the Notes to Financial Statements, US Holdings changed its method of accounting for stock based compensation with the election to early adopt Statement of Financial Accounting Standards No. 123 (revised 2004)Share-Based Payment.

As discussed in Note 3 to the Notes to Financial Statements, US Holdings changed its method of accounting for certain contracts with the rescission of Emerging Issues Task Force Issue No. 98-10,Accounting for Contracts Involved in Energy Trading and Risk Management Activities.

As discussed in Note 20 to the Notes to Financial Statements, the statements of consolidated cash flows for each of the three years in the period ended December 31, 2004 have been restated to present cash flows from discontinued operations in the categories of operating, investing and financing activities.

DELOITTE & TOUCHE LLP

Dallas, Texas

March 28, 2005 (June 8, 2005 as to Note 20)

A-3

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

	Year Ended December 31,
	2004			2003			2002
	(millions of dollars)
Operating revenues	$	9,294		$	8,573		$	8,080
Costs and expenses:
Cost of energy sold and delivery fees		3,836			3,620			3,181
Operating costs		1,433			1,391			1,372
Depreciation and amortization		739			704			714
Selling, general and administrative expenses		886			844			986
Franchise and revenue-based taxes		366			375			410
Other income		(142	)		(52	)		(38	)
Other deductions		665			21			250
Interest income		(38	)		(19	)		(6	)
Interest expense and related charges		595			605			440
Total costs and expenses		8,340			7,489			7,309
Income from continuing operations before income taxes, extraordinary items and cumulative effect of changes in accounting principles		954			1,084			771
Income tax expense		282			348			224
Income from continuing operations before extraordinary items and cumulative effect of changes in accounting principles		672			736			547
Discontinued operations, net of tax effect		(34	)		(18	)		(52	)
Extraordinary gain (loss), net of tax effect		16			—			(134	)
Cumulative effect of changes in accounting principles, net of tax effect		6			(58	)		—
Net income		660			660			361
Preferred stock dividends		2			5			9
Net income available for common stock	$	658		$	655		$	352

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

	Year Ended December 31,
	2004			2003			2002
	(millions of dollars)
Income from continuing operations before extraordinary gain (loss) and cumulative effect of changes in accounting principles	$	672		$	736		$	547
Other comprehensive income (loss), net of tax effects —
Minimum pension liability adjustments (net of tax (expense) benefit of $(2), $(12) and $20)		3			23			(37	)
Cash flow hedges:
Net change in fair value of derivatives (net of tax benefit of $46, $74 and $99)		(86	)		(138	)		(184	)
Amounts realized in earnings during the year (net of tax expense of $21, $90 and $10)		40			168			18
Total		(43	)		53			(203	)
Comprehensive income related to continuing operations		629			789			344
Comprehensive loss related to discontinued operations		(34	)		(18	)		(52	)
Extraordinary gain (loss), net of tax effect		16			—			(134	)
Cumulative effect of changes in accounting principles, net of tax effect		6			(58	)		—
Comprehensive income	$	617		$	713		$	158

See Notes to Financial Statements.

A-4

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

	Year Ended December 31,
	2004			2003			2002
	(millions of dollars) (as restated, see Note 20)
Cash flows — operating activities
Income from continuing operations before extraordinary gain (loss) and cumulative effect of changes in accounting principles	$	672		$	736		$	547
Adjustments to reconcile income from continuing operations before extraordinary gain (loss) and cumulative effect of changes in accounting principles to cash provided by operating activities:
Depreciation and amortization		804			773			783
Deferred income taxes and investment tax credits — net		(127	)		119			58
Losses on early extinguishment of debt		1			—			—
Asset writedowns and lease related charges		373			—			237
Net gain from sales of assets		(135	)		(45	)		(32	)
Net effect of unrealized mark-to-market valuations of commodity contracts		109			100			113
Change in regulatory-related liability		(70	)		(144	)		34
Net equity loss from unconsolidated affiliates		7			—			—
Stock-based compensation expense		33			13			(1	)
Bad debt expense		90			119			160
Changes in operating assets and liabilities:
Accounts receivable — trade (including affiliates)		(229	)		108			(561	)
Impact of accounts receivable sales program		(73	)		100			(15	)
Inventories		16			(46	)		(44	)
Accounts payable — trade (including affiliates)		153			20			57
Commodity contract assets and liabilities		(5	)		24			(45	)
Margin deposits		34			25			(6	)
Other net assets		(33	)		(283	)		(43	)
Other net liabilities		218			340			49
Cash provided by operating activities		1,838			1,959			1,291
Cash flows — financing activities
Issuances of securities:
Exchangeable subordinated notes		—			—			750
Other long-term debt		1,590			2,320			3,111
Retirements/repurchases of securities:
Long-term debt		(1,280	)		(1,391	)		(2,772	)
Preferred securities		—			(98	)		—
Common stock		—			(463	)		—
Increase (decrease) in notes payable to bank		210			(1,804	)		1,804
Net change in advances from affiliates		(1,755	)		(59	)		(799	)
Dividends paid to parent		(775	)		(588	)		(927	)
Preferred stock dividends paid		(2	)		(5	)		(9	)
Restricted cash activity related to debt		—			210			(210	)
Debt premium, discount, financing and reacquisition expenses		(37	)		(66	)		(174	)
Cash provided by (used in) financing activities		(2,049	)		(1,944	)		774
Cash flows — investing activities
Capital expenditures		(881	)		(706	)		(797	)
Dispositions of businesses		500			14			—
Proceeds from sale of assets		30			10			447
Nuclear fuel		(87	)		(44	)		(51	)
Other		(61	)		14			(171	)
Cash used in investing activities		(499	)		(712	)		(572	)

A-5

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS (CONT.)

	Year Ended December 31,
	2004			2003			2002
	(millions of dollars) (as restated, see Note 20)
Discontinued operations
Cash used in operating activities		(28	)		(3	)		(12	)
Cash used in financing activities		—			(2	)		—
Cash provided by (used in) investing activities		2			—			(28	)
Cash used in discontinued operations		(26	)		(5	)		(40	)
Net change in cash and cash equivalents		(736	)		(702	)		1,453
Cash and cash equivalents — beginning balance		806			1,508			55
Cash and cash equivalents — ending balance	$	70		$	806		$	1,508

See Notes to Financial Statements.

A-6

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2004		2003
	(millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents	$	70	$	806
Restricted cash		49		12
Accounts receivable:
Affiliates		2		—
Trade		1,212		1,001
Advances to affiliates		1,277		—
Inventories		317		415
Commodity contract assets		546		548
Other current assets		282		258
Total current assets		3,755		3,040
Investments:
Restricted cash		28		13
Other investments		588		510
Property, plant and equipment — net		16,529		16,677
Goodwill		542		558
Regulatory assets — net		1,891		1,872
Commodity contract assets		315		109
Cash flow hedges and other derivative assets		8		88
Assets held for sale		17		60
Other noncurrent assets		290		143
Total assets	$	23,963	$	23,070
LIABILITIES, PREFERRED INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Advances from affiliates	$	—	$	691
Notes payable — banks		210		—
Long-term debt due currently		218		249
Accounts payable — trade		919		775
Commodity contract liabilities		491		502
Accrued taxes		581		435
Other current liabilities		958		864
Total current liabilities		3,377		3,516
Accumulated deferred income taxes		3,309		3,382
Investment tax credits		405		428
Commodity contract liabilities		347		47
Cash flow hedges and other derivative liabilities		178		140
Liabilities held for sale		6		11
Other noncurrent liabilities and deferred credits		1,848		1,512
Long-term debt, less amounts due currently		7,571		7,217
Exchangeable preferred membership interests of TXU Energy Holdings, net of discount of $239 and $253 (Note 8)		511		497
Total liabilities		17,552		16,750
Contingencies (Note 17)
Shareholders’ equity and preferred interests (Notes 9 and 10)		6,411		6,320
Total liabilities, preferred interests and shareholders’ equity	$	23,963	$	23,070

See Notes to Financial Statements.

A-7

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

	Year Ended December 31,
	2004			2003			2002
	(millions of dollars)
Preferred stock — not subject to mandatory redemption:
Balance at beginning of year	$	38		$	115		$	115
Preferred stock repurchased and retired (2003 — 789,830 shares)		—			(77	)		—
Balance at end of year (2004 and 2003 — 379,231 shares and 2002 — 1,169,061 shares)		38			38			115
Common stock without par value — authorized shares — 180,000,000:
Balance at beginning of year		—			2,514			2,248
Common stock repurchased and retired (2003 — 11,562,500 shares)		—			(463	)		—
Noncash capital contribution related to issuance of exchangeable subordinated debt		—			—			266
Transfer of equity to new classes of common stock – 41,255,362 shares		—			(2,051	)		—
Balance at end of year (2002 — 52,817,862 shares)		—			—			2,514
Class A common stock without par value — authorized shares — 9,000,000
Balance at beginning of year		102			—			—
Transfer of equity from old class of common stock- 2,062,768 shares		—			102			—
Noncash contributions related to share-based compensation		38			—			—
Balance at end of year (2004 and 2003 — 2,062,768 shares)		140			102			—
Class B common stock without par value — authorized shares — 171,000,000
Balance at beginning of year		1,949			—			—
Transfer of equity from old class of common stock—39,192,594 shares		—			1,949			—
Balance at end of year (2004 and 2003 — 39,192,594 shares)		1,949			1,949			—
Retained earnings:
Balance at beginning of year		4,366			4,261			5,086
Net income		660			660			361
Common stock dividends declared		(562	)		(550	)		(1,177	)
Dividends declared on preferred stock		(2	)		(5	)		(9	)
Balance at end of year		4,462			4,366			4,261
Accumulated other comprehensive income (loss), net of tax effects:
Minimum pension liability adjustment:
Balance at beginning of year		(15	)		(38	)		(1	)
Change during the year		3			23			(37	)
Balance at end of year		(12	)		(15	)		(38	)
Cash flow hedges (SFAS 133):
Balance at beginning of year		(120	)		(150	)		16
Change during the year		(46	)		30			(166	)
Balance at end of year		(166	)		(120	)		(150	)
Total accumulated other comprehensive loss		(178	)		(135	)		(188	)
Total common stock equity		6,373			6,282			6,587
Shareholders’ equity	$	6,411		$	6,320		$	6,702

See Notes to Financial Statements.

A-8

TXU US HOLDINGS COMPANY AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

1. TXU CORP. BUSINESS RESTRUCTURING AND OTHER ACTIONS

US Holdings is a subsidiary of TXU Corp. and is a holding company conducting its operations principally through its TXU Energy Holdings and TXU Electric Delivery subsidiaries. TXU Energy Holdings is engaged in electricity generation and retail and wholesale energy sales. TXU Electric Delivery engages in regulated electricity transmission and distribution operations.

US Holdings has two reportable segments: TXU Energy Holdings and TXU Electric Delivery. (See Note 18 for further information concerning reportable business segments.)

Mr. C. John Wilder, who was named president and chief executive of TXU Corp. in February 2004, and senior management reviewed TXU Corp.’s operations during 2004 to identify and implement strategic initiatives designed to improve operational and financial performance. Areas reviewed included:

• Noncore business activities;

• Cost effectiveness of generation operations;

• Administrative cost structure, including organizational alignments and headcount; and

• Opportunities to improve retail customer service.

Management believes that its actions in 2004 have resulted in sustainable profitability improvements, principally through streamlining of the organization, optimization of energy supply costs and improved customer retention. In addition, increased focus on contingencies has resulted in significant progress in resolving certain regulatory matters. Certain of the actions have resulted in unusual charges and credits impacting 2004 net income, summarized as follows and discussed below in more detail:

	Income Statement Classification	Charge/(Credit) to Earnings
		Pretax			After-tax
TXU Energy Holdings segment:
Charges related to leased equipment	Other deductions	$	180		$	117
Software write-off	Other deductions		107			70
Employee severance costs	Other deductions		107			69
Power purchase contract termination	Other deductions		101			66
Spare parts inventory write-down	Other deductions		79			51
Outsourcing transition costs	Other deductions		10			6
Other asset impairments	Other deductions		6			4
Other charges	Operating costs/SG&A		8			6
Recognition of deferred gain on plant sales	Other income		(58	)		(38	)
Gain on sale of undeveloped properties	Other income		(19	)		(12	)
TXU Electric Delivery segment:
Employee severance costs	Other deductions		20			13
Rate case settlement reserve	Other deductions		21			14
Outsourcing transition costs	Other deductions		4			3
Software write-off and asset impairment	Other deductions		4			2
Other charges	Operating costs/SG&A		2			1
Total		$	572		$	372

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Following is a discussion of the major activities associated with the restructuring plan:

Sale of TXU Fuel

In April 2004, TXU Energy Holdings distributed the assets of TXU Fuel, its gas transportation subsidiary, to US Holdings at book value, including $16 million of allocated goodwill. In June 2004, US Holdings’ completed the sale of the assets of TXU Fuel to Energy Transfer Partners, L.P. for $500 million in cash. TXU Fuel had 2003 revenues of approximately $65 million, the majority of which represented gas transportation fees from TXU Energy Holdings. As part of the transaction, TXU Energy Holdings entered into a transportation agreement, intended to be market-price based, with the new owner to transport gas to TXU Energy Holdings’ generation plants. Because of the continuing involvement in the business through the transportation agreement, the pretax gain related to the sale of $375 million will be recognized over the eight-year life of the transportation agreement, and the sale of TXU Fuel assets has not been accounted for as a discontinued operation. The pretax gain is net of $16 million of TXU Energy Holdings’ goodwill allocated to TXU Fuel.

Capgemini Energy Outsourcing Agreement

In May 2004, as part of an overall arrangement initiated by TXU Corp., TXU Energy Holdings and TXU Electric Delivery entered into services agreements with Capgemini Energy LP (Capgemini), a new company initially providing business process support services to TXU Corp. only, but immediately implementing a plan to offer similar services to other utility companies. Under the ten-year agreement, over 2,500 employees (including approximately 1,300 from US Holdings) transferred from subsidiaries of TXU Corp. to Capgemini effective July 1, 2004. Outsourced base support services performed by Capgemini for a fixed fee, subject to adjustment for volumes or other factors, include information technology, customer call center, billing, human resources, supply chain and certain accounting activities.

As part of the agreement, Capgemini was provided a royalty-free right, under an asset license arrangement, to use TXU Corp.’s information technology assets, consisting primarily of capitalized software. A portion of the software was in development and had not yet been placed in service. As a result of outsourcing its information technology activities, TXU Corp. no longer intends to develop the software and from TXU Corp.’s perspective the software is abandoned. The agreement with Capgemini does not require that any software in development be completed and placed in service. Consequently, the carrying value of these software projects was written off, resulting in a charge of $109 million ($71 million after-tax), reported in other deductions. The remaining assets were transferred to a subsidiary of TXU Corp. at book value in exchange for an interest in that subsidiary. Such interest is accounted for by US Holdings on the equity method, and US Holdings recorded equity losses (representing depreciation expense) of $7 million, reported in other deductions.

TXU Corp. (through the subsidiary) obtained a 2.9% limited partnership interest in Capgemini in exchange for the asset license described above. TXU Corp. has the right to sell (the “put option”) its interest and the licensed software to Cap Gemini North America Inc. for $200 million, plus its share of Capgemini’s undistributed earnings, upon expiration of the services agreement or earlier upon the occurrence of certain unexpected events. Cap Gemini North America Inc. has the right to purchase these interests under the same terms and conditions. The partnership interest has been recorded at an initial value of $2.9 million and is being accounted for on the cost method.

US Holdings has recorded its share of the fair value of the put option, estimated at $154 million, as a noncurrent asset. Of this amount, $147 million was recorded as a reduction to the carrying value of the investment. This accounting is in accordance with guidance related to sales and licensing of internally developed software described in AICPA Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The difference of $7 million, which represented the fair value of the assumed cash distributions and gains while holding the partnership interest for the period prior to exercise of the put, was recorded as a noncurrent deferred credit. The remaining balance of the software is being amortized over the estimated remaining useful lives.

Also as part of the agreement, TXU Corp. agreed to indemnify Capgemini for severance costs incurred by Capgemini for former TXU Corp. employees terminated within 18 months of their transfer to Capgemini. Accordingly, in the second quarter of 2004, US Holdings recorded a $38 million ($25 million after-tax) charge

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for its share of severance liabilities. In addition, TXU Corp. committed to pay up to $25 million for costs associated with transitioning the outsourced activities to Capgemini. During 2004, US Holdings recorded transition expenses of $14 million ($9 million after-tax), and the remainder are expected to be expensed as incurred in 2005.

Generation Facility Closures and Sales

In December 2004, TXU Energy Holdings committed to immediately cease operating for its own benefit nine leased gas-fired combustion turbines, and recorded a charge of $157 million ($102 million after-tax). The charge represents the present value of the future lease payments related to the turbines, net of estimated sublease proceeds. The leases expire in 2017 and 2018. US Holdings is currently evaluating opportunities with respect to the turbines, including subleasing the turbines to third parties or decommissioning the turbines. During this evaluation period, the turbines will be available to ERCOT only for system reliability purposes.

In November 2004, US Holdings announced plans to deactivate, or mothball, eight gas-fired operating units due to electric industry market conditions in Texas. The units were more than 30 years old and had operated only sparingly during the last two years. The facility closures resulted in employee severance costs of $7 million ($5 million after-tax).

In the second quarter of 2004, US Holdings initiated a plan to sell the Pedricktown, New Jersey 122 MW power production facility and exit the related power supply and gas transportation agreements. Accordingly, US Holdings recorded an impairment charge of $26 million ($17 million after-tax) to write down the facility to estimated fair market value. The results of the business and the impairment charge are reported in discontinued operations, as discussed in Note 4 to Financial Statements.

In March 2004, US Holdings announced the planned permanent retirement, completed in the second quarter of 2004, of eight gas-fired operating units. US Holdings also temporarily closed four other gas-fired units and placed them under evaluation for retirement. A majority of the 12 units were designated as “peaking units” and operated only during the summer for many years and had operated only sparingly during the last two years. US Holdings also closed its Winfield North Monticello lignite mine in Texas, as it was no longer economical to operate when compared to the cost of purchasing coal to fuel the adjacent generation facility. A total charge of $8 million ($5 million after-tax) was recorded for employee severance costs and impairments related to the various facility closures.

As a result of the various actions in 2004, US Holdings will permanently or temporarily deactivate over 40% of its gas-fired generating capacity in Texas, representing 4,572 MW of capacity.

Other Actions Related to Generation Operations

In December 2004, US Holdings executed an agreement to terminate, for a payment of $172 million, an existing power purchase and tolling agreement that would have expired in 2006. The agreement was entered into in connection with the sale of two generation plants to the counterparty in 2001. As a result of the transaction, US Holdings recorded a charge of $101 million ($66 million after-tax). The charge represents the payment amount less the remaining out-of-the-money liability related to the agreement originally recorded at its inception. US Holdings also recorded a gain of $58 million ($38 million after-tax), representing the remaining deferred gains from the sale of the two plants.

In October 2004, US Holdings entered into an agreement to terminate the operating lease for certain mining equipment for approximately $28 million in cash, effective November 1, 2004. The lease termination resulted in a charge of $21 million ($14 million after-tax). US Holdings entered into a short-term lease with an unrelated third party for the equipment, which is expected to be taken out of service at the expiration of the lease.

As part of a review of its generation asset portfolio in the second quarter of 2004, US Holdings completed a review of its spare parts and equipment inventory to determine the appropriate level of such inventory. The review included nuclear, coal and gas-fired generation-related facilities. As a result of this review, US Holdings recorded a charge of $79 million ($51 million after-tax), to reflect excess inventory on hand and to write down carrying values to scrap values.

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Organizational Realignment and Headcount Reductions

During 2004, management completed a comprehensive organizational review, including an analysis of staffing requirements. As a result, US Holdings completed a self-nomination severance program and other involuntary severance actions, and recorded severance charges totaling $74 million ($47 million after-tax). This amount includes $33 million in allocated TXU Corp. severance charges.

Rate Case Settlement

In the fourth quarter of 2004, TXU Electric Delivery recorded a $21 million ($14 million after-tax) charge for estimated settlement payments. The settlement, which was finalized February 22, 2005, is the result of a number of municipalities initiating an inquiry regarding distribution rates. The agreement avoids any immediate rate actions, but would require TXU Electric Delivery to file a rate case in 2006, based on a 2005 test year, unless the municipalities and TXU Electric Delivery mutually agree that such a filing is unnecessary. The final settlement amounts are being determined; however, TXU Electric Delivery believes the total will closely approximate the amount accrued.

Discontinued Businesses — Note 4 presents detailed information regarding the discontinued New Jersey generation operations and the strategic retail services business. The consolidated financial statements for all periods presented reflect the reclassification of the results of these businesses as discontinued operations.

2. SIGNIFICANT ACCOUNTING POLICIES AND CHANGES IN ACCOUNTING STANDARDS

Basis of Presentation — The consolidated financial statements of US Holdings have been prepared in accordance with US GAAP and on the same basis as the audited financial statements included in its 2003 Form 10-K, except for the change in estimates of depreciable lives of assets, the presentation of certain operations as discontinued and the adoption of SFAS 123R as discussed below. In the opinion of management, all other adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been included therein. All intercompany items and transactions have been eliminated in consolidation.

Certain reclassifications have been made to conform prior period data to the current period presentation. All dollar amounts in the financial statements and tables in the notes are states in millions of dollars unless otherwise indicated.

Use of Estimates — The preparation of US Holdings’ financial statements requires management to make estimates and assumptions about future events that affect the reporting of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense, including mark-to-market valuation adjustments. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. No material adjustments, other than those disclosed elsewhere herein, were made to previous estimates or assumptions during the current year.

Financial Instruments and Mark-to-Market Accounting — US Holdings enters into financial instruments, including options, swaps, futures, forwards and other contractual commitments primarily to manage commodity price and interest rate risks. In accordance with SFAS 133, the fair value of each derivative is recognized on the balance sheet and changes in the fair value recognized in earnings. This recognition is referred to as “mark-to-market” accounting. However, if certain criteria are met, US Holdings may elect the normal purchase and sale exception or may designate the derivative as a cash flow or fair value hedge. As these elections can reduce the volatility in earnings resulting from fluctuations in fair value, results of operations could be materially affected by such elections. A cash flow hedge mitigates the risk associated with variable future cash flows (e.g., a future sale at market prices), while a fair value hedge mitigates risk associated with fixed future cash flows (e.g., debt with fixed interest rate payments).

In accounting for cash flow hedges, derivative assets and liabilities are recorded on the balance sheet at fair value with an offset in other comprehensive income. Amounts remain in other comprehensive income, provided the underlying transactions remain probable of occurring, and are reclassified into earnings as the underlying

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transactions occur. Fair value hedges are recorded as derivative assets or liabilities with an offset to the carrying value of the related asset or liability. Any ineffectiveness associated with the hedges is recorded in earnings. US Holdings did not recognize any ineffectiveness related to fair value hedges in 2004.

Revenue Recognition — US Holdings records revenue from electricity sales and delivery service under the accrual method. Revenues are recognized when power or delivery is provided to customers on the basis of periodic cycle meter readings and include an estimated accrual for the value provided from the meter reading date to the end of the period. The unbilled revenue is calculated at the end of the period based on estimated daily consumption after the meter read date to the end of the period. For retail electric sales, estimated daily consumption is derived using historical customer profiles adjusted for weather and other measurable factors affecting consumption.

Realized and unrealized gains and losses from transacting in energy-related contracts, principally for the purpose of hedging margins on sales of energy, are reported as a component of revenues.

Accounting for Contingencies —The financial results of US Holdings may be affected by judgments and estimates related to loss contingencies. Accruals for loss contingencies are recorded when management determines that it is probable that an asset has been impaired or a liability has been incurred and that such economic loss can be reasonably estimated. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events and estimates of the financial impacts of such events.

Regulatory Assets and Liabilities —The financial statements of US Holdings’ regulated electricity delivery operations reflect regulatory assets and liabilities under cost-based rate regulation in accordance with SFAS 71. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered by rates. (See discussion in Note 19).

See Note 5 for a discussion of the extraordinary gain recorded in 2004 and the extraordinary loss recorded in 2002 related to the adjustments in the carrying value of US Holdings’ regulatory asset subject to securitization.

Investments — Deposits in a nuclear decommissioning trust fund are accounted for as trading securities and are therefore carried at fair value in the balance sheet. Investments in unconsolidated business entities over which US Holdings has significant influence but does not maintain effective control, generally representing ownership of at least 20% and not more than 50% of common equity, are accounted for under the equity method. Assets related to employee benefit plans are held to satisfy deferred compensation liabilities and are recorded at market value. (See Note 6 –Investments).

Property, Plant and Equipment— Properties are stated at original cost. The cost of property additions includes direct labor and materials and applicable overhead, including payroll-related costs.

Depreciation of US Holdings’ property, plant and equipment is calculated on a straight-line basis over the estimated service lives of the properties. Depreciation includes the effect of asset retirement obligations as prescribed by SFAS 143 (see Note 3). As is common in the industry, US Holdings records depreciation expense using composite depreciation rates that reflect blended estimates of the lives of major asset components as compared to depreciation expense calculated on an asset-by-asset basis. Consolidated depreciation expense as a percent of average depreciable property approximated 2.3% in 2004, 2.5% in 2003 and 2.8% in 2002.

Effective January 1, 2004, the estimates of depreciable lives of lignite-fired generation facilities were extended an average of nine years to better reflect the useful lives of the assets, and depreciation rates for the Comanche Peak nuclear generating plant were decreased as a result of an increase in the estimated lives of boiler and turbine generator components of the plant by an average of five years. The net impact of these changes was a reduction in depreciation expense of $44 million ($29 million after-tax) in 2004.

Effective April 1, 2003, the estimates of the depreciable lives of the Comanche Peak nuclear generating plant and several gas generation plants were extended to better reflect the useful lives of the assets. At the same time, depreciation rates were increased on lignite and gas generation facilities to reflect investments in emissions control equipment. The net impact of these changes was a reduction in depreciation expense of an additional $12 million ($8 million after-tax) in 2004 and $37 million ($24 million after-tax) in 2003.

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Allowance For Funds Used During Construction (AFUDC) and Interest Capitalized — AFUDC is a regulatory cost accounting procedure whereby amounts based upon interest charges on borrowed funds and a return on equity capital used to finance construction are added to utility plant and equipment being constructed. As a result of the 1999 Restructuring Legislation, only interest has been capitalized related to generation construction since 1999. AFUDC for the regulated business is capitalized as a component of projects under construction. Interest on qualifying projects for businesses that are not regulated is capitalized in accordance with SFAS 34. The equity portion of capitalized AFUDC is accounted for as other income. See Note 19 for details of amounts.

Impairment of Long-Lived Assets — US Holdings evaluates long-lived assets for impairment whenever indications of impairment exist, in accordance with the requirement of SFAS 144. The determination of the existence of indications of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows related to an asset or group of assets.

In 2002, US Holdings recorded an impairment charge of $237 million ($154 million after-tax), reported in other deductions, for the write-down of two generation plant construction projects as a result of weaker wholesale electricity market conditions and reduced planned developmental capital spending. Fair value was determined based on appraisals of property and equipment.

Major Maintenance— Major maintenance outage costs related to nuclear fuel reloads, as well as the costs of other major maintenance programs, are charged to expense as incurred.

Amortization of Nuclear Fuel— The amortization of nuclear fuel in the reactors is calculated on the units-of-production method and is included in cost of energy sold.

Pension and Other Postretirement Benefit Plans— US Holdings is a participating employer in the defined benefit and cash balance pension plan sponsored by TXU Corp. US Holdings also participates with TXU Corp. to offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. Reported costs of providing pension and other postretirement benefits are dependent upon numerous factors, assumptions and estimates. (See Note 13 for information regarding pension and other postretirement benefit plans).

Franchise and Revenue-Based Taxes— Franchise and revenue-based taxes such as gross receipt taxes are not a “pass through” item such as sales and excise taxes. Gross receipts taxes are assessed to US Holdings by state and local governmental bodies, primarily based on revenues, as a cost of doing business. US Holdings records gross receipts tax as an expense. Rates charged to customers by US Holdings are intended to recover the taxes, but US Holdings is not acting as an agent to collect the taxes from customers.

Income Taxes— TXU Corp. files a consolidated federal income tax return, and federal income taxes are allocated to subsidiaries based upon their respective taxable income or loss. Investment tax credits are amortized to income over the estimated service lives of properties. Deferred income taxes are provided for temporary differences between the book and tax basis of assets and liabilities. Certain provisions of SFAS 109 provide that regulated enterprises are permitted to recognize deferred taxes as regulatory tax assets or tax liabilities if it is probable that such amounts will be recovered from, or returned to, customers in future rates.

Cash Equivalents — For purposes of reporting cash and cash equivalents, temporary cash investments purchased with a remaining maturity of three months or less are considered to be cash equivalents.

Changes in Accounting Standards —SFAS 123R was issued in December 2004. SFAS 123R is a revision of SFAS 123 and supersedes APB 25. US Holdings participates in TXU Corp.’s Long-Term Incentive Compensation Plan. Under this plan, TXU Corp. grants awards of restricted stock and performance units paid in stock and early adopted SFAS 123R in determining reported expenses for these awards in 2004. See Note 11 for additional discussion.

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FIN 46R was issued in December 2003 and was effective January 1, 2004, and replaced FIN 46, which was issued in January 2003. FIN 46R expands and clarifies the guidance originally contained in FIN 46, regarding consolidation of variable interest entities. FIN 46R did not impact results of operations or financial position for 2004.

In October 2002, the EITF, through EITF 02-3, rescinded EITF 98-10, which required mark-to-market accounting for all trading activities. SFAS 143, regarding asset retirement obligations, became effective on January 1, 2003. As a result of the implementation of these two accounting standards, US Holdings recorded a cumulative effect of changes in accounting principles as of January 1, 2003. See Note 3 for additional discussion.

As a result of guidance provided in EITF 02-3, in 2003 US Holdings discontinued recognizing origination gains on energy contracts. For 2002, US Holdings recognized $40 million in origination gains on retail sales contracts. Because of the short-term nature of these contracts, a portion of these gains would have been recognized on a settlement basis in 2002.

3. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

SFAS 123R was issued in December 2004. TXU Corp. early adopted SFAS 123R effective October 1, 2004 in determining reported expenses for these awards in 2004. US Holdings recorded a cumulative effect of change in accounting principle of a $6 million after-tax credit. See Note 11 for additional discussion.

The following summarizes the effect on results for 2003 for changes in accounting principles effective January 1, 2003:

Charge from rescission of EITF 98-10, net of tax effect of $34 million	$	(63	)
Credit from adoption of SFAS 143, net of tax effect of $3 million		5
Total net charge	$	(58	)

On October 25, 2002, the EITF, through EITF 02-3, rescinded EITF 98-10, which required mark-to-market accounting for all trading activities. Pursuant to this rescission, only financial instruments that are derivatives under SFAS 133 are subject to mark-to-market accounting. Financial instruments that may not be derivatives under SFAS 133, but were marked-to-market under EITF 98-10, consist primarily of gas transportation and storage agreements, power tolling, full requirements and capacity contracts. This new accounting rule was effective for new contracts entered into after October 25, 2002. Nonderivative contracts entered into prior to October 26, 2002, continued to be accounted for at fair value through December 31, 2002; however, effective January 1, 2003, such contracts were required to be accounted for on a settlement basis. Accordingly, a charge of $97 million ($63 million after-tax) was reported as a cumulative effect of a change in accounting principles in the first quarter of 2003. Of the total, $75 million reduced net commodity contract assets and liabilities and $22 million reduced inventory that had previously been marked-to-market as a trading position. The cumulative effect adjustment represents the net gains previously recognized for these contracts under mark-to-market accounting.

SFAS 143 became effective on January 1, 2003. SFAS 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period of its inception. For US Holdings, such liabilities primarily relate to nuclear generation plant decommissioning, land reclamation related to lignite mining and removal of lignite plant ash treatment facilities. The liability is recorded at its net present value with a corresponding increase in the carrying value of the related long-lived asset. The liability is accreted each period, representing the time value of money, and the capitalized cost is depreciated over the remaining useful life of the related asset.

As the new accounting rule required retrospective application to the inception of the liability, the effects of the adoption reflect the accretion and depreciation from the liability inception date through December 31, 2002. Further, the effects of adoption take into consideration liabilities of $215 million (previously reflected in accumulated depreciation) US Holdings had previously recorded as depreciation expense and $26 million (reflected in other noncurrent liabilities) of unrealized net gains associated with the decommissioning trusts.

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The following table summarizes the impact as of January 1, 2003 of adopting SFAS 143:

Increase in property, plant and equipment – net	$	488
Increase in other noncurrent liabilities and deferred credits		(528	)
Increase in accumulated deferred income taxes		(3	)
Increase in regulatory assets - net		48
Cumulative effect of change in accounting principles	$	5

The asset retirement liability at December 31, 2004 was $631 million, comprised of a $599 million liability as of December 31, 2003, $39 million of accretion during the twelve months of 2004, reduced by $26 million in reclamation payments. The asset retirement obligations were adjusted upward by $19 million due to revisions in estimated cash flows.

With respect to nuclear decommissioning costs, US Holdings believes that the adoption of SFAS 143 results primarily in timing differences in the recognition of asset retirement costs that US Holdings is currently recovering through the regulatory process.

On a pro forma basis, assuming SFAS 143 had been adopted at the beginning of the year, earnings for 2002 would have increased by $6.5 million after-tax, and the liability for asset retirement obligations as of December 31, 2002 would have been $554 million.

4. DISCONTINUED OPERATIONS

The following summarizes the historical consolidated financial information of the businesses reported as discontinued operations:

	Strategic Retail Services			Pedricktown			Total
2004
Operating revenues	$	17		$	32		$	49
Operating costs and expenses		20			37			57
Other deductions (income) – net		10			—			10
Interest income		(1	)		—			(1	)
Operating loss before income taxes		(12	)		(5	)		(17	)
Income tax expense (benefit)		(4	)		(2	)		(6	)
Charges related to exit (after-tax)		6			17			23
Loss from discontinued operations	$	(14	)	$	(20	)	$	(34	)
2003
Operating revenues	$	60		$	22		$	82
Operating costs and expenses		60			28			88
Other deductions (income) – net		11			—			11
Interest income		(1	)		—			(1	)
Interest expenses and related charges		1			—			1
Operating loss before income taxes		(11	)		(6	)		(17	)
Income tax expense (benefit)		(4	)		(2	)		(6	)
Charges related to exit (after-tax)		7			—			7
Loss from discontinued operations	$	(14	)	$	(4	)	$	(18	)
2002
Operating revenues	$	47		$	18		$	65
Operating costs and expenses		122			22			144
Interest expenses and related charges		1			—			1
Operating loss before income taxes		(76	)		(4	)		(80	)
Income tax expense (benefit)		(27	)		(1	)		(28	)
Loss from discontinued operations	$	(49	)	$	(3	)	$	(52	)

Pedricktown — In the second quarter of 2004, TXU Energy Holdings finalized a plan to sell the Pedricktown, New Jersey 122 MW power production facility and exit the related power supply and gas transportation agreements. Accordingly, results for the second quarter of 2004 included a $17 million after-tax charge to write down the facility to estimated fair market value.

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Strategic Retail Services— In December 2003, TXU Energy Holdings finalized a plan to sell its strategic retail services business, which was engaged principally in providing energy management services. Results in 2004 reflect a $6 million after-tax charge recorded in the second quarter to settle a contract dispute. Substantially all disposition activities have been completed.

Balance sheet - The following details the assets and liabilities of the Pedricktown operations held for sale:

	December 31, 2004
Current assets	$	2
Property, plant and equipment		15
Total	$	17
Current liabilities	$	3
Noncurrent liabilities		3
Total	$	6

5. EXTRAORDINARY ITEMS

The Settlement Plan addressed the issuance of securitization bonds to recover regulatory asset stranded costs and other qualified costs. A financing order finalized in January 2003 authorized the issuance of securitization bonds by TXU Electric Delivery with a principal amount of $1.3 billion. An extraordinary gain of $16 million (net of tax of $9 million) recorded by TXU Electric Delivery in the second quarter of 2004 represents an increase in the carrying value of the regulatory asset subject to securitization. The second and final tranche of the securitization bonds was issued in June 2004. The increase in the related regulatory asset is due to the effect of higher interest rates than previously estimated on the bonds and therefore increased amounts to be recovered from REPs through revenues as a transition charge to service the principal and interest on the bonds. In the fourth quarter of 2002, US Holdings recorded an extraordinary loss of $134 million (net of income tax benefit of $72 million) principally to write-down the regulatory assets to reflect lower interest rates than originally assumed. The balance of the regulatory asset was $1.6 billion at December 31, 2004.

6. INVESTMENTS

The following information is a summary of the investment balance as of December 31, 2004 and 2003:

	December 31,
	2004		2003
Nuclear decommissioning trust	$	361	$	323
Investment in affiliate holding Capgemini-related assets		42		—
Land		84		89
Assets related to employee benefit plans		77		69
Miscellaneous other		24		29
Total investments	$	588	$	510

Nuclear Decommissioning Trust — Deposits in a trust fund for costs to decommission the Comanche Peak nuclear-powered generation plant are carried at fair value. (Also see Note 17 – underNuclear Decommissioning). Decommissioning costs are being recovered from TXU Electric Delivery’s customers as a transmission and distribution charge over the life of the plant and deposited in the trust fund. Gains and losses on investments in the trust fund are offset by corresponding adjustments to regulatory assets or liabilities. A summary of investments in the fund as of December 31, 2004 and 2003 follows:

	December 31, 2004
	Cost		Unrealized gain		Unrealized (loss)			Fair market value
Debt securities	$	142	$	7	$	(1	)	$	148
Equity securities		143		82		(12	)		213
	$	285	$	89	$	(13	)	$	361

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	December 31, 2003
	Cost		Unrealized gain		Unrealized (loss)			Fair market value
Debt securities	$	139	$	6	$	(2	)	$	143
Equity securities		126		66		(12	)		180
	$	265	$	72	$	(14	)	$	323

Debt securities held at December 31, 2004 mature as follows: $62 million in one to five years, $52 million in five to ten years and $34 million after ten years.

7. SHORT-TERM FINANCING

Short-term Borrowings —At December 31, 2004, US Holdings had outstanding short-term borrowings consisting of bank borrowings of $210 million at a weighted average interest rate of 5.25%.At December 31, 2003, US Holdings had outstanding short-term advances from affiliates of $691 million at a weighted average interest rate of 2.92%.

Credit Facilities — At December 31, 2004, TXU Corp. had access to credit facilities (some of which provide for long-term borrowings) as follows:

Facility	Maturity Date	Authorized Borrowers	At December 31, 2004
			Facility Limit		Letters of Credit		Cash Borrowings		Availability
364-day Credit Facility	June 2005	TXU Energy Holdings, TXU Electric Delivery	$	600	$	75	$	—	$	525
Three-Year Revolving Credit Facility	June 2007	TXU Energy Holdings, TXU Electric Delivery		1,400		18		210		1,172
Five-Year Revolving Credit Facility	December 2005	TXU Corp.		425		419		—		6
Five-Year Revolving Credit Facility	June 2009	TXU Energy Holdings, TXU Electric Delivery		500		—		—		500
Five-Year Revolving Credit Facility	December 2009	TXU Energy Holdings		500		—		—		500
Total			$	3,425	$	512	$	210	$	2,703

TXU Corp.’s $500 million five-year revolving credit facility that provided for up to $500 million in letters of credit and/or up to $250 million of loans ($500 million in the aggregate) was amended to reduce the credit facility to $425 million in December 2004. To the extent capacity was available under this facility, it was made available to US Holdings, TXU Energy Holdings and TXU Electric Delivery.

In November 2004, TXU Energy Holdings entered into a five-year revolving credit facility that allows for revolving loans and letters of credit. Letters of credit may total up to $500 million. Revolving loans may total up to $250 million. The aggregate amount of borrowings outstanding at any one time may not exceed $500 million. TXU Energy Holdings intends to use this facility for general and corporate purposes, including, in the case of letters of credit, support for pollution control revenue bonds.

In June 2004, US Holdings, TXU Energy Holdings and TXU Electric Delivery replaced $2.25 billion of credit facilities scheduled to mature in 2005 with $2.5 billion of credit facilities for TXU Energy Holdings and TXU Electric Delivery maturing in June 2005, 2007 and 2009. These facilities are used for working capital and general corporate purposes and provide back-up for any future issuances of commercial paper by TXU Energy Holdings or TXU Electric Delivery. At December 31, 2004, there was no such commercial paper outstanding.

Sale of Receivables — TXU Corp. has established an accounts receivable securitization program. The activity under this program is accounted for as a sale of accounts receivable in accordance with SFAS 140. Under the program, subsidiaries of TXU Corp. (originators) sell trade accounts receivable to TXU Receivables Company, a consolidated wholly-owned bankruptcy remote direct subsidiary of TXU Corp., which sells

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undivided interests in the purchased accounts receivable for cash to special purpose entities established by financial institutions (the funding entities). Funding under the program as of December 31, 2004 was $474 million.

Effective June 30, 2004, the program was extended through June 28, 2005. As part of the extension, the maximum amount available to TXU Corp. under the program was increased from $600 million to $700 million in recognition of seasonal power sales. Additionally, the extension allows for increased availability of funding through a credit ratings-based reduction (based on each originator’s credit rating) of customer deposits previously used to reduce the amount of undivided interests that could be sold. Undivided interests will now be reduced by 100% of the customer deposits for a Baa3/BBB- rating; 50% for a Baa2/BBB rating; and zero % for a Baa1/BBB+ and above rating.

All new trade receivables under the program generated by the originators are continuously purchased by TXU Receivables Company with the proceeds from collections of receivables previously purchased. Changes in the amount of funding under the program, through changes in the amount of undivided interests sold by TXU Receivables Company, are generally due to seasonal variations in the level of accounts receivable and changes in collection trends. TXU Receivables Company has issued subordinated notes payable to the originators for the difference between the face amount of the uncollected accounts receivable purchased, less a discount, and cash paid to the originators that was funded by the sale of the undivided interests. The balance of the subordinated notes receivable, which is reported in accounts receivable, was $338 million at December 31, 2004 and $467 million at December 31, 2003.

The discount from face amount on the purchase of receivables principally funds program fees paid by TXU Receivables Company to the funding entities, as well as a servicing fee paid by TXU Receivables Company to TXU Business Services, a direct subsidiary of TXU Corp. The program fees (losses on sale), which consist primarily of interest costs on the underlying financing, were approximately $12 million, $11 million and $21 million in 2004, 2003 and 2002, respectively, and approximated 2.1%, 2.4% and 3.7% for 2004, 2003 and 2002, respectively, of the average funding under the program on an annualized basis; these fees represent the net incremental costs of the program to US Holdings and are reported in SG&A expenses. The servicing fee, which totaled approximately $6 million in 2004 and 2003 and $8 million in 2002, compensates TXU Business Services for its services as collection agent, including maintaining the detailed accounts receivable collection records.

The December 31, 2004 balance sheet reflects $811 million face amount of trade accounts receivable of TXU Energy Holdings and TXU Electric Delivery, reduced by $474 million of undivided interests sold by TXU Receivables Company. Funding under the program decreased $73 million in 2004, increased $100 million in 2003 and decreased $15 million in 2002. Funding increases or decreases under the program are reflected as operating cash flow activity in the statement of cash flows. The carrying amount of the retained interests in the accounts receivable approximated fair value due to the short-term nature of the collection period.

Activities of TXU Receivables Company related to US Holdings for 2004, 2003 and 2002 were as follows:

	Year Ended December 31,
	2004			2003			2002
Cash collections on accounts receivable	$	7,420		$	7,194		$	5,836
Face amount of new receivables purchased		(7,217	)		(6,777	)		(6,534	)
Discount from face amount of purchased receivables		17			17			29
Program fees paid		(12	)		(11	)		(21	)
Servicing fees paid		(5	)		(6	)		(8	)
Increase (decrease) in subordinated notes payable		(130	)		(517	)		713
Operating cash flows used by (provided to) US Holdings under the program	$	73		$	(100	)	$	15

Upon termination of the program, cash flows to US Holdings would be delayed as collections of sold receivables would be used by TXU Receivables Company to repurchase the undivided interests sold instead of purchasing new receivables. The level of cash flows would normalize in approximately 16 to 31 days.

Contingencies Related to Sale of Receivables Program— Although TXU Receivables Company expects to be able to pay its subordinated notes from the collections of purchased receivables, these notes are

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subordinated to the undivided interests of the financial institutions in those receivables, and collections might not be sufficient to pay the subordinated notes. The program may be terminated if either of the following events occurs:

1) all of the originators cease to maintain their required fixed charge coverage ratio and debt to capital (leverage) ratio;

2) the delinquency ratio (delinquent for 31 days) for the sold receivables, the default ratio (delinquent for 91 days or deemed uncollectible), the dilution ratio (reductions for discounts, disputes and other allowances) or the days collection outstanding ratio exceed stated thresholds and the financial institutions do not waive such event of termination. The thresholds apply to the entire portfolio of sold receivables, not separately to the receivables of each originator.

The delinquency and dilution ratios exceeded the relevant thresholds during the first four months of 2003, but waivers were granted. These ratios were affected by issues related to the transition to competition. Certain billing and collection delays arose due to implementation of new systems and processes within TXU Corp. and ERCOT for clearing customers’ switching and billing data. Also, strengthened credit and collection policies and practices have brought the ratios into consistent compliance with the program requirements.

Under terms of the receivables sale program, all the originators are required to maintain specified fixed charge coverage and leverage ratios (or supply a parent guarantor that meets the ratio requirements). The failure, by an originator or its parent guarantor, if any, to maintain the specified financial ratios would prevent that originator from selling its accounts receivable under the program. If all the originators and the parent guarantor, if any, fail to maintain the specified financial ratios so that there are no eligible originators, the facility would terminate.

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8. LONG-TERM DEBT

	December 31, 2004			December 31, 2003
TXU Energy Holdings
Pollution Control Revenue Bonds:
Brazos River Authority
3.000% Fixed Series 1994A due May 1, 2029, remarketing date May 1, 2005(a)	$	39		$	39
5.400% Fixed Series 1994B due May 1, 2029, remarketing date May 1, 2006(a)		39			39
5.400% Fixed Series 1995A due April 1, 2030, remarketing date May 1, 2006(a)		50			50
5.050% Fixed Series 1995B due June 1, 2030, remarketing date June 19, 2006(a)		114			118
7.700% Fixed Series 1999A due April 1, 2033		111			111
6.750% Fixed Series 1999B due September 1, 2034, remarketing date April 1, 2013(a)		16			16
7.700% Fixed Series 1999C due March 1, 2032		50			50
4.950% Fixed Series 2001A due October 1, 2030, remarketing date April 1, 2004(a)		—			121
4.750% Fixed Series 2001B due May 1, 2029, remarketing date November 1, 2006(a)		19			19
5.750% Fixed Series 2001C due May 1, 2036, remarketing date November 1, 2011(a)		217			274
2.030% Floating Series 2001D due May 1, 2033(b)		268			271
2.450% Floating Taxable Series 2001I due December 1, 2036(b)		62			63
2.030% Floating Series 2002A due May 1, 2037(b)		45			61
6.750% Fixed Series 2003A due April 1, 2038, remarketing date April 1, 2013(a)		44			44
6.300% Fixed Series 2003B due July 1, 2032		39			39
6.750% Fixed Series 2003C due October 1, 2038		52			72
5.400% Fixed Series 2003D due October 1, 2029, remarketing date October 1, 2014(a)		31			31
Sabine River Authority of Texas:
6.450% Fixed Series 2000A due June 1, 2021		51			51
5.500% Fixed Series 2001A due May 1, 2022, remarketing date November 1, 2011(a)		91			91
5.750% Fixed Series 2001B due May 1, 2030, remarketing date November 1, 2011(a)		107			107
5.800% Fixed Series 2003A due July 1, 2022		12			12
6.150% Fixed Series 2003B due August 1, 2022		45			45
Trinity River Authority of Texas:
6.250% Fixed Series 2000A due May 1, 2028		14			14
5.000% Fixed Series 2001A due May 1, 2027, remarketing date November 1, 2006(a)		37			37
Other:
6.875% TXU Mining Fixed Senior Notes due August 1, 2005		30			30
6.125% Fixed Senior Notes due March 15, 2008(c)		250			250
7.000% Fixed Senior Notes due March 15, 2013		1,000			1,000
2.838% Floating Rate Senior Notes due January 17, 2006 (d)		400			—
Capital lease obligations		9			13
Other		—			8
Fair value adjustments related to interest rate swaps		15			11
Unamortized discount		—			(2	)
Total TXU Energy Holdings		3,257			3,085
TXU Electric Delivery
8.250% Fixed First Mortgage Bonds due April 1, 2004		—			100
6.250% Fixed First Mortgage Bonds due October 1, 2004		—			121
6.750% Fixed First Mortgage Bonds due July 1, 2005		92			92
7.625% Fixed First Mortgage Bonds due July 1, 2025		—			215
7.375% Fixed First Mortgage Bonds due October 1, 2025		—			178
6.375% Fixed Senior Secured Notes due May 1, 2012		700			700
7.000% Fixed Senior Secured Notes due May 1, 2032		500			500
6.375% Fixed Senior Secured Notes due January 15, 2015		500			500
7.250% Fixed Senior Secured Notes due January 15, 2033		350			350
5.000% Fixed Debentures due September 1, 2007		200			200
7.000% Fixed Debentures due September 1, 2022		800			800
Unamortized discount		(19	)		(30	)
Sub-total		3,123			3,726
TXU Electric Delivery Transition Bond Company LLC (e)
2.260% Fixed Series 2003 Bonds due in semi-annual installments through February 15, 2007		80			103
4.030% Fixed Series 2003 Bonds due in semi-annual installments through February 15, 2010		122			122
4.950% Fixed Series 2003 Bonds due in semi-annual installments through February 15, 2013		130			130
5.420% Fixed Series 2003 Bonds due in semi-annual installments through August 15, 2015		145			145
3.520% Fixed Series 2004 Bonds due in semi-annual installments through November 15, 2009		270			—
4.810% Fixed Series 2004 Bonds due in semi-annual installments through November 15, 2012		221			—
5.290% Fixed Series 2004 Bonds due in semi-annual installments through May 15, 2016		290			—
Total TXU Electric Delivery Transition Bond Company LLC		1,258			500
Total TXU Electric Delivery		4,381			4,226

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	December 31, 2004		December 31, 2003
US Holdings
7.170% Fixed Senior Debentures due August 1, 2007		10		10
9.580% Fixed Notes due in semi-annual installments through December 4, 2019		68		70
8.254% Fixed Notes due in quarterly installments through December 31, 2021		64		66
2.494% Floating Rate Junior Subordinated Debentures, Series D due January 30, 2037(d)		1		1
8.175% Fixed Junior Subordinated Debentures, Series E due January 30, 2037		8		8
Total US Holdings		151		155
Total US Holdings consolidated		7,789		7,466
Less amount due currently		218		249
Total long-term debt	$	7,571	$	7,217

(a) These series are in the multiannual mode and are subject to mandatory tender prior to maturity on the mandatory remarketing date. On such date, the interest rate and interest rate period will be reset for the bonds.

(b) Interest rates in effect at December 31, 2004. These series are in a flexible or weekly rate mode and are classified as long-term as they are supported by long-term irrevocable letters of credit. Series in the flexible mode will be remarketed for periods of less than 270 days.

(c) Interest rates swapped to floating on an aggregate $250 million principal amount.

(d) Interest rates in effect at December 31, 2004.

(e) These bonds are nonrecourse to TXU Electric Delivery.

Debt Issuances and Retirement in 2004

In December 2004, TXU Energy Holdings repurchased $400 million of its floating rate senior notes at par value. TXU Energy Holdings originally issued $800 million of the senior notes in a private placement offering with registration rights in July 2004. The notes bear interest at an annual rate equal to 3-month LIBOR, reset quarterly, plus 0.78% and will mature on January 17, 2006.

On September 28, 2004, portions of the Brazos River Authority Pollution Control Revenue Refunding Bonds were redeemed at par as follows: $57 million of Series 2001C; $20 million of Series 2003C; $16 million of Series 2002A; $4 million of series 1995B; and $3 million of Series 2001D.

In June 2004, TXU Electric Delivery’s wholly-owned, special purpose bankruptcy-remote subsidiary, TXU Electric Delivery Transition Bond Company LLC, issued $790 million aggregate principal amount of transition (securitization) bonds in accordance with the Settlement Plan and a financing order related to the transition to competition. The bonds were issued in three classes that require semi-annual interest and principal installment payments beginning in November 2004 through specified dates in 2009 through 2016. The transition bonds bear interest at fixed annual rates ranging from 3.52% to 5.29%. TXU Electric Delivery used the proceeds to retire two series of mortgage bonds with an aggregate principal amount of $393 million due in 2025 and repurchase shares of common stock from US Holdings for $375 million. US Holdings used the proceeds it received to repay short-term borrowings. As a result of the retirement of these two series of mortgage bonds, TXU Electric Delivery has the ability to release the liens on its outstanding senior secured notes, making them rank equally with TXU Electric Delivery’s other senior unsecured debt. No decision has been made regarding the release of liens.

In April 2004, the Brazos River Authority Series 2001A pollution control revenue bonds, with an aggregate principal amount of $121 million, were purchased upon mandatory tender. TXU Energy Holdings intends to remarket these bonds at a later date.

Other retirements of long-term debt in 2004 totaling $261 million represent payments at scheduled maturity dates.

US Holdings uses fair value hedging strategies to manage its exposure to fixed interest rates on long-term debt. At December 31, 2004, $250 million of fixed rate debt had been effectively converted to variable rates through interest rate swap transactions, expiring through 2008. These swaps qualified for and have been designated as fair value hedges using the short-cut method of hedge accounting provided by SFAS 133. As such, US Holdings assumes that changes in the value of the derivative are exactly offset by changes in the value of the debt; therefore, there is no hedge ineffectiveness recognized.

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In 2004, fixed-to-variable swaps related to $1 billion debt were settled for a gain of $22 million, which will be amortized to offset interest expense over the remaining life of the related debt.

Maturities — Sinking fund and maturity requirements for all long-term debt instruments, excluding capital lease obligations, in effect at December 31, 2004, were as follows:

Year
2005	$	217
2006		499
2007		313
2008		356
2009		111
Thereafter		6,288
Unamortized premium and discount and fair value adjustments		(4	)
Capital lease obligations		9
Total	$	7,789

Debt Issuances and Retirements in 2003

In 2003, US Holdings and its consolidated subsidiaries issued $1.3 billion of fixed rate senior notes, 567 million of pollution control revenue bonds, and $500 million of transition (securitization) bonds and redeemed $663 of first mortgage bonds, $637 of pollution control bonds, and $72 million of fixed rate senior notes.

Preferred Membership Interests — In July 2003, TXU Energy Holdings exercised its right to exchange its $750 million 9% Exchangeable Subordinated Notes issued in November 2002 and due November 2012 for exchangeable preferred membership interests with identical economic and other terms. The preferred membership interests bear distributions at the annual rate of 9% and permit the deferral of such distributions. The holders of the preferred membership interests had the option to exchange these interests at any time, subject to certain restrictions, for up to approximately 57 million shares of TXU Corp. common stock at an exchange price of $13.1242 per share. At issuance of the notes that were subsequently exchanged for the preferred membership interests, TXU Energy Holdings recognized a capital contribution from TXU Corp. and a corresponding discount on the securities of $266 million, which represented the value of the exchange right as TXU Corp. granted an irrevocable right to exchange the securities for TXU Corp. common stock. This discount is being amortized to interest expense and related charges over the term of the securities. As a result, the effective distribution rate on the preferred membership interests is 16.2%. In April 2004, TXU Corp. purchased these mandatorily redeemable securities from the holders, and as a result the securities effectively represent TXU Energy Holdings debt held by TXU Corp.

9. PREFERRED SECURITIES

Preferred Stock of US Holdings — At December 31, 2004, US Holdings had 379,231 shares of cumulative, preferred stock without par value outstanding with a total stated value of $38 million. Dividend rates range from $4.00 to $5.08 per share. The preferred stock can be redeemed at prices ranging from $101.79 per share to $112.00 per share.

The holders of preferred stock of US Holdings have no voting rights except for changes to the articles of incorporation that would change the rights or preferences of such stock, authorize additional shares of stock or create an equal or superior class of stock. They have the right to vote for the election of directors only if certain dividend arrearages exist.

10. SHAREHOLDERS’ EQUITY

For the 2004 reporting period, TXU Corp. early adopted SFAS 123R. Under SFAS 123R, compensation expense related to share-based awards to US Holdings’ employees is accounted for as a noncash capital contribution from the parent. Accordingly, US Holdings recorded a $38 million credit to its common stock account in 2004. See Note 11.

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US Holdings paid cash dividends to TXU Corp. of $775 million in 2004, $588 million in 2003 and $927 million in 2002. In February 2005, US Holdings declared a dividend of $175 million payable on April 1, 2005.

The legal form of cash distributions to TXU Corp. has been both common stock repurchases and the payment of dividends. For accounting purposes, the cash distributions in the form of share repurchases are recorded as a return of capital.

Certain debt instruments and preferred securities of US Holdings and its subsidiaries contain provisions that restrict payment of dividends during any interest or distribution payment deferral period or while any payment default exists. The TXU Electric Delivery mortgage restricts the payment of dividends to the amount of TXU Electric Delivery’s retained earnings. At December 31, 2004, US Holdings and its subsidiaries were in compliance with these provisions.

11. STOCK BASED COMPENSATION PLANS

US Holdings participates in TXU Corp.’s Long-Term Incentive Compensation Plan (LTIP). LTIP is a stock-based compensation plan providing discretionary awards (LTIP awards) of restricted stock and performance units payable in TXU Corp. common stock for qualified management employees. During 2004, 2003, and 2002, the Board of Directors granted LTIP awards that were issued subject to share price performance and vesting requirements over two and three year periods. The number of common shares to be ultimately distributed varies from 0% to 200% of the initial number of LTIP awards, based on TXU Corp.’s total return to shareholders over the applicable period compared to the total returns provided by the companies comprising the Standard & Poor’s 500 Electric Utilities Index. TXU Corp. has established restrictions that limit employees’ opportunities to liquidate vested stock awards. For both restricted stock and performance unit awards, dividends over the vesting period are converted to equivalent shares of TXU Corp. common stock to be distributed upon vesting.

Historically, US Holdings has accounted for stock-based compensation plans using the intrinsic value method under APB 25. Compensation expense over the vesting period was remeasured each reporting period based on the market price of the stock and the assumed number of shares distributable given the share price performance to date. Reported compensation expense related to LTIP awards totaled $13 million in 2003 and a credit of $1 million in 2002.

For the 2004 reporting period, TXU Corp early adopted SFAS 123R, which eliminates the alternative of applying the intrinsic value measurement provisions of APB 25 to stock compensation awards and requires the measurement of the cost of such awards over the vesting period based on the grant-date fair value of the award. US Holdings adopted SFAS 123R using the modified retrospective method, which allows for application to only prior interim periods in the year of initial adoption and resulted in the recognition of a $9 million ($6 million after-tax) cumulative effect of a change in accounting principle. For a portion of the 2004 period, the performance unit awards were payable in cash, but the awards were modified in December of 2004 and will be payable in stock.

TXU Corp. determined the fair value of its LTIP awards utilizing a valuation model that takes into account three principal factors: the probability weighted expected number of shares to be distributed upon vesting, the risk of uncertainty during the vesting period, and the restrictions limiting liquidation of vested stock awards. Based on the fair values determined under this model, US Holdings’ reported expense in 2004 related to LTIP awards totaled $33 million ($21 million after-tax). As of December 31, 2004, unrecognized expense related to nonvested LTIP awards totaled $26 million, which is expected to be recognized over a weighted average period of two years.

Had compensation expense for LTIP awards been determined based upon the fair value methodology prescribed under SFAS 123, US Holdings’ net income would not have been materially different for the years ended December 31, 2003 and 2002.

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12. INCOME TAXES

The components of US Holdings’ provision for income taxes for continuing operations are as follows:

	Year Ended December 31,
	2004			2003			2002
Current:
US Federal	$	384		$	220		$	184
State		25			9			3
Non-US		—			—			1
Total		409			229			188
Deferred:
US Federal		(86	)		141			58
State		(18	)		—			4
Non-US		—			—			—
Total		(104	)		141			62
Investment tax credits		(23	)		(22	)		(26	)
Total	$	282		$	348		$	224

Reconciliation of income taxes computed at the US federal statutory rate to provision for income taxes:

	Year Ended December 31,
	2004			2003			2002
Income from continuing operations before income taxes, extraordinary items and cumulative effect of changes in accounting principles	$	954		$	1,084		$	771
Income taxes at the federal statutory rate of 35%	$	334		$	379		$	270
Depletion allowance		(25	)		(25	)		(25	)
Amortization of investment tax credits		(23	)		(22	)		(26	)
Medicare subsidy		(8	)		—			—
Amortization (under regulatory accounting) of statutory rate changes		(8	)		(8	)		(8	)
Investment tax credits, deferred tax		6			6			7
Preferred securities costs		6			6			—
State income taxes, net of federal tax benefit		5			6			5
Other		(5	)		6			1
Provision for income taxes	$	282		$	348		$	224
Effective tax rate (on income before preferred stock dividends)		29.6	%		32.1	%		29.1	%

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Deferred income taxes for significant temporary differences based on tax laws in effect at December 31, 2004 and 2003 balance sheet dates are as follows:

	December 31,
	2004							2003
	Total		Current			Noncurrent		Total		Current			Noncurrent
Deferred Tax Assets
Unamortized investment tax credits	$	154	$	—		$	154	$	163	$	—		$	163
Impairment of assets		68		—			68		168		—			168
Nuclear asset retirement obligation		151		—			151		150		—			150
Retail clawback liability		33		—			33		61		—			61
Alternative minimum tax		447		—			447		452		—			452
Net operating loss (NOL) carryforwards		12		—			12		24		—			24
Employee benefit liabilities		219		—			219		182		—			182
State income taxes		7		—			7		4		—			4
Combustion turbine leases		69		—			69		13		—			13
Other		358		122			236		266		91			175
Total		1,518		122			1,396		1,483		91			1,392
Deferred Tax Liabilities
Depreciation differences and capitalized construction costs		3,919		—			3,919		3,947		—			3,947
Regulatory assets		606		—			606		623		—			623
State income taxes		48		—			48		43		—			43
Other		147		15			132		179		18			161
Total		4,720		15			4,705		4,792		18			4,774
Net Deferred Tax (Asset) Liability	$	3,202	$	(107	)	$	3,309	$	3,309	$	(73	)	$	3,382

At December 31, 2004, US Holdings had approximately $447 million of alternative minimum tax credit carryforwards available to offset future tax payments. These tax credit carryforwards do not have expiration dates. At December 31, 2004, US Holdings had net operating loss (NOL) carryforwards for federal income tax purposes of $33 million that expire as follows: $17 million in 2022, $7 million in 2023 and $9 million in 2024. The NOL carryforwards can be used to offset future taxable income and it is expected that all NOL carryforwards will be utilized prior to their expiration dates. US Holdings utilized $38 million of NOL carryforwards in 2004.

US Holdings’ income tax returns are subject to examination by applicable tax authorities. The IRS is currently examining the returns of TXU Corp. and its subsidiaries for the tax years ended 1993 through 2002. In management’s opinion, an adequate provision has been made for any future taxes that may be owed as a result of any examination.

13. PENSION AND OTHER POSTRETIREMENT BENEFITS PLANS

TXU Energy Holdings and TXU Electric Delivery are participating employers in the TXU Retirement Plan (Retirement Plan), a defined benefit pension plan sponsored by TXU Corp. The Retirement Plan is a qualified pension plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (Code) and is subject to the provisions of ERISA. Employees are eligible to participate in the Retirement Plan upon their completion of one year of service and the attainment of age 21. All benefits are funded by the participating employers. The Retirement Plan provides benefits to participants under one of two formulas: (i) a cash balance formula under which participants earn monthly contribution credits based on their compensation and a combination of their age and years of service, plus monthly interest credits, or (ii) a traditional defined benefit formula based on years of service and the average earnings of the three years of highest earnings. The cash balance interest component of the cash balance plan is variable and is determined using the yield on 30-year Treasury bonds.

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All eligible employees hired after January 1, 2001 participate under the cash balance formula. Certain employees who, prior to January 1, 2002, participated under the traditional defined benefit formula, continue their participation under that formula. Under the cash balance formula, future increases in earnings will not apply to prior service costs. It is TXU Corp.’s policy to fund the plans on a current basis to the extent deductible under existing federal tax regulations. Such contributions, when made, are intended to provide not only for benefits attributed to service to date, but also those expected to be earned in the future.

TXU Corp. also has supplemental retirement plans for management employees, the information for which is included in the data below.

Pension cost (benefit) applicable to TXU Energy Holdings and TXU Electric Delivery was $44 million in 2004, $29 million in 2003 and ($4) million in 2002. Cash contributions were $27 million, $17 million and $9 million in 2004, 2003 and 2002, respectively.

TXU Energy Holdings and TXU Electric Delivery also participate with TXU Corp. and certain other affiliated subsidiaries of TXU Corp. to offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. For employees retiring on or after January 1, 2002, the retiree contributions required for such coverage vary based on a formula depending on the retiree’s age and years of service. Postretirement benefits cost other than pensions applicable to US Holdings was $63 million in 2004, $77 million in 2003, and $62 million in 2002. Cash contributions were $40 million, $41 million and $39 million in 2004, 2003 and 2002, respectively.

The pension and other postretirement benefits amounts provided represent allocations of amounts related to TXU Corp.’s plans to TXU Energy Holdings and TXU Electric Delivery.

In addition, TXU Energy Holdings and TXU Electric Delivery employees are eligible to participate in a qualified savings plan, the TXU Thrift Plan (Thrift Plan). This plan is a participant-directed defined contribution profit sharing plan qualified under Section 401(a) of the Code, and is subject to the provisions of ERISA. The Thrift Plan includes an employee stock ownership component. Under the terms of the Thrift Plan, as amended effective in 2002, employees who do not earn more than the IRS threshold compensation limit used to determine highly compensated employees may contribute, through pretax salary deferrals and/or after-tax payroll, deductions, the maximum amount of their regular salary or wages permitted under law. Employees who earn more than such threshold may contribute from 1% to 16% of their regular salary or wages. Employee matching contributions are also made in an amount equal to 100% of the first 6% of employee contributions for employees who are covered under the cash balance formula of the Retirement Plan, and 75% of the first 6% of employee contributions for employees who are covered under the traditional defined benefit formula of the Retirement Plan. Employer matching contributions are invested in TXU Corp. common stock. TXU Energy Holdings’ and TXU Electric Delivery’s contributions to the Thrift Plan, aggregated $20 million in 2004, $21 million in 2003, and $22 million in 2002.

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14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and related estimated fair values of US Holdings’ significant financial instruments were as follows:

	December 31, 2004				December 31, 2003
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
On balance sheet liabilities:
Long-term debt (including current maturities) (a)	$	7,780	$	8,356	$	7,453	$	8,122
Exchangeable preferred membership interests of subsidiary, net of discount (b)		511		750		497		1,580
Financial guarantees		—		—		2		1
Off balance sheet liabilities:
Financial guarantees	$	—	$	8	$	—	$	13

(a) Excludes capital leases.

(b) Exchanged for preferred membership interests (from subordinated notes) in 2003 and purchased by TXU Corp. in April 2004. Carrying amount is net of discount. Fair value is assumed to be principal amount on the preferred membership interests.

In accordance with SFAS 133, financial instruments that are derivatives are recorded on the balance sheet at fair value.

The fair values of on balance sheet instruments are estimated at the lesser of either the call price or the market value as determined by quoted market prices, where available, or, where not available, at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risk.

The fair value of each financial guarantee is based on the difference between the credit spread of the entity responsible for the underlying obligation and a financial counterparty applied, on a net present value basis, to the notional amount of the guarantee.

The carrying amounts for financial assets classified as current assets and the carrying amounts for financial liabilities classified as current liabilities approximate fair value due to the short maturity of such instruments. The fair values of other financial instruments, including the Capgemini put option, for which carrying amounts and fair values have not been presented are not materially different than their related carrying amounts.

15. DERIVATIVE FINANCIAL INSTRUMENTS

For derivative instruments designated as cash flow hedges, US Holdings recognized a net unrealized ineffectiveness loss of $21 million ($14 million after-tax) in 2004, a net gain of $6 million ($4 million after-tax) in 2003 and a net loss of $41 million ($27 million after-tax) in 2002. The ineffectiveness gains and losses related to commodity hedges and were reported as a component of revenues.

The net effect of unrealized mark-to-market ineffectiveness accounting, which includes the above amounts as well as the effect of reversing unrealized gains and losses recorded in previous periods to offset realized gains and losses in the current period, totaled $19 million in net losses in 2004, $36 million in net gains in 2003 and $41 million in net losses in 2002.

The maximum length of time US Holdings hedges its exposure to the variability of future cash flows for forecasted energy-related transactions is approximately four years.

In 2002, US Holdings entered into certain cash flow hedges related to future forecasted interest payments. These hedges were terminated later in 2002, and $133 million ($86 million after-tax) was recorded as a charge to other comprehensive income. These losses are being amortized to earnings over a period of up to thirty years, as the forecasted transactions remain probable of occurring.

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Cash flow hedge amounts reported in accumulated other comprehensive income will be recognized in earnings as the related forecasted transactions are settled or are deemed to be no longer probable of occurring. No amounts were reclassified into earnings in 2004, 2003, or 2002 as a result of the discontinuance of cash flow hedges because of the probability a hedged forecasted transaction would not occur.

As of December 31, 2004, US Holdings expects that $109 million ($71 million after-tax) in accumulated other comprehensive loss will be recognized in earnings over the next twelve months. This amount primarily represents amortization of dedesignated hedge losses as the related hedged transactions are settled. The following table summarized balances currently recognized in accumulated other comprehensive income:

	Accumulated Other Comprehensive Loss at December 31, 2004
	Treasury Related		Commodity Related		Total
Dedesignated hedges (amounts fixed)	$	72	$	90	$	162
Hedges subject to market price fluctuations		—		4		4
Total	$	72	$	94	$	166

16. RATES AND REGULATION

Restructuring Legislation

As a result of the 1999 Restructuring Legislation, on January 1, 2002, TXU Corp. disaggregated (unbundled) its Texas electric utility business into a power generation company, a retail electric provider and an electricity transmission and distribution (delivery) utility. Unbundled electricity delivery utilities within ERCOT, such as TXU Electric Delivery, remain regulated by the Public Utility Commission of Texas (the Commission).

Effective January 1, 2002, REPs affiliated with electricity delivery utilities were required to charge price-to-beat rates, established by the Commission, to residential and small business customers located in their historical service territories. TXU Energy Holdings, whose REP is affiliated with an electricity delivery utility, was required to charge the price-to-beat rate, adjusted for fuel factor changes, to such classes of customers until the earlier of January 1, 2005 or the date on which 40% of the electricity consumed by customers in that class is supplied by competing REPs. Currently, TXU Energy Holdings may offer rates different from the price-to-beat rate to customers in that class, but it must also continue to make the price-to-beat rate available for residential and small business customers until January 1, 2007. In December 2003, the Commission found that TXU Energy Holdings had met the 40% requirement to be allowed to offer alternatives to the price-to-beat rate for small business customers in its historical service territory.

Under amended Commission rules, effective in April 2003, affiliated REPs of utilities are allowed to petition the Commission twice a year for a change in the fuel factor component of their price-to-beat rates if the average price of natural gas futures increases or decreases more than 5% (10% if the petition is filed after November 15 of any year) from the level used to set the existing price-to-beat fuel factor rate. TXU Energy Holdings implemented two price-to-beat increases in both 2003 and 2004.

Also, effective January 1, 2002, power generation companies affiliated with electricity delivery utilities may charge unregulated prices in connection with ERCOT wholesale power transactions. Estimated costs associated with TXU Energy Holdings’ nuclear power plant decommissioning obligations continue to be recovered by TXU Electric Delivery as an electricity distribution fee surcharge over the life of the plant.

Regulatory Settlement Plan

On December 31, 2001, US Holdings filed a Settlement Plan with the Commission. It resolved all major pending issues related to US Holdings’ transition to competition pursuant to the 1999 Restructuring Legislation. The Settlement Plan, which became final and nonappealable in January 2003, does not remove regulatory oversight of TXU Electric Delivery’s business nor does it eliminate TXU Energy Holdings’ price-to-beat rates and related fuel adjustments.

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The major elements of the Settlement Plan are:

Excess Mitigation Credit— Over the two-year period ended December 31, 2003, TXU Electric Delivery implemented a stranded cost excess mitigation credit in the amount of $389 million (originally estimated to be $350 million), plus $26 million in interest, applied as a reduction to distribution fees charged to all REPs, including TXU Energy Holdings. The credit was funded through payments on a note receivable from TXU Energy Holdings.

Regulatory Asset Securitization — US Holdings received a financing order authorizing the issuance of securitization (transition) bonds in the aggregate principal amount of up to $1.3 billion to recover regulatory asset stranded costs and other qualified costs. Accordingly, TXU Electric Delivery Transition Bond Company LLC, a bankruptcy remote financing subsidiary of TXU Electric Delivery, issued an initial $500 million of securitization bonds in 2003 and the remaining $790 million in the first half of 2004. The principal and interest on the bonds are recoverable through revenues as a transition charge to all REPs, including TXU Energy Holdings. There is no remaining issuance authorization under the financing order.

Retail Clawback Credit — The Settlement Plan provides that a retail clawback credit will be implemented unless 40% of the electricity consumed by residential and small business customers in a REP’s historical service territory is supplied by competing REPs after the first two years of competition. This threshold was reached for small business customers, as discussed above, but not for residential customers. The amount of the credit is equal to the number of residential customers retained by TXU Energy Holdings in the historical service territory as of January 1, 2004, less the number of new customers TXU Energy Holdings had added outside of the historical service territory as of January 1, 2004, multiplied by $90. The credit, which is being funded by TXU Energy Holdings, is being applied to delivery fees charged by TXU Electric Delivery to REPs, including TXU Energy Holdings, over a two-year period beginning January 1, 2004. In 2002, TXU Energy Holdings recorded a charge to cost of energy sold of $185 million ($120 million after-tax) to accrue an estimated retail clawback liability. In 2003, TXU Energy Holdings reduced the liability to $173 million, with an offsetting credit to earnings of $12 million ($8 million after-tax) to reflect the calculation of the estimated liability applicable only to residential customers in accordance with the Settlement Plan. In 2004, TXU Energy Holdings further reduced the estimated liability by $12 million ($8 million after-tax) to reflect revised estimates of customer counts, with an offsetting credit to earnings. As of December 31, 2004, the balance of the retail clawback liability accrual was $82 million. As the amount of the credit is based on numbers of customers over the related two-year period, the liability is subject to further adjustments.

Stranded Costs and Fuel Cost Recovery— TXU Energy Holdings’ stranded costs, not including regulatory assets, are fixed at zero. US Holdings will not seek to recover its unrecovered fuel costs which existed at December 31, 2001. Also, it will not conduct a final fuel cost reconciliation, which would have covered the period from July 1998 until the beginning of competition in January 2002.

See Note 5 for a discussion of extraordinary items recorded in 2004 and 2002 in connection with the Settlement Plan.

Summary — Although US Holdings cannot predict future regulatory or legislative actions or any changes in economic and securities market conditions, no changes are expected in trends or commitments, other than those discussed in this report, which might significantly alter its basic financial position, results of operations or cash flows.

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17. COMMITMENTS AND CONTINGENCIES

Clean Air Act — The federal Clean Air Act, as amended (Clean Air Act) includes provisions which, among other things, place limits on SO₂ and NO_x emissions produced by electricity generation plants. TXU Energy Holdings’ capital requirements have not been significantly affected by the requirements of the Clean Air Act. In addition, all permits required for the air pollution control provisions of the 1999 Restructuring Legislation have been applied for and TXU Energy Holdings has initiated a construction program to install control equipment to achieve the required reductions.

Power Purchase Contracts — Certain contracts to purchase electricity provide for capacity payments to ensure availability and provide for adjustments based on the actual power taken under the contracts. Capacity payments under these contracts totaled $230 million in both 2004 and 2003 and $296 million in 2002.

Expected future capacity payments under existing agreements are estimated as follows:

2005	$	108
2006		56
2007		18
2008		—
2009		—
Thereafter		—
Total capacity payments	$	182

At December 31, 2004, US Holdings had commitments for pipeline transportation and storage reservation fees as follows:

2005	$	74
2006		45
2007		44
2008		41
2009		43
Thereafter		107
Total pipeline transportation and storage reservation fees	$	354

On the basis of US Holdings’ current expectations of demand from its electricity customers as compared with its capacity and take-or-pay payments, management does not consider it likely that any material payments will become due for electricity not taken beyond capacity payments.

Coal Contracts — US Holdings has commitments under coal purchase agreements and coal transportation agreements as follows:

2005	$	96
2006		109
2007		95
2008		98
2009		102
Thereafter		—
Total	$	500

Leases — TXU Energy Holdings and TXU Electric Delivery have entered into operating leases covering various facilities and properties including generation plant facilities, combustion turbines, transportation equipment, mining equipment, data processing equipment and office space. Certain of these leases contain renewal and purchase options and residual value guarantees. Lease costs charged to operating expense totaled $147 million, $143 million and $152 million for 2004, 2003 and 2002, respectively.

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As of December 31, 2004, future minimum lease payments under both capital leases and operating leases (with initial or remaining noncancelable lease terms in excess of one year) were as follows:

Year	Capital Lease		Operating Lease
2005	$	2	$	77
2006		2		77
2007		2		80
2008		2		76
2009		1		73
Thereafter		2		408
Total future minimum lease payments		11	$	791
Less amounts representing interest		2
Present value of future minimum lease payments		9
Less current portion		1
Long-term capital lease obligations	$	8

Guarantees — US Holdings has entered into contracts that contain guarantees to outside parties that could require performance or payment under certain conditions. These guarantees have been grouped based on similar characteristics and are described in detail below.

Project development guarantees— In 1990, US Holdings repurchased an electric co-op’s minority ownership interest in the Comanche Peak nuclear generation plant and assumed the co-op’s indebtedness to the US government for the facilities. US Holdings is making principal and interest payments to the co-op in an amount sufficient for the co-op to make payments on its indebtedness. US Holdings guaranteed the co-op’s payments, and in the event that the co-op fails to make its payments on the indebtedness, the US government would assume the co-op’s rights under the agreement, and such payments would then be owed directly by US Holdings. At December 31, 2004, the balance of the indebtedness was $131 million with maturities of principal and interest extending to December 2021. The indebtedness is secured by a lien on the purchased facilities.

Residual value guarantees in operating leases— US Holdings is the lessee under various operating leases that obligate it to guarantee the residual values of the leased facilities. Accounting rules require the recording of a liability for all guarantees entered into subsequent to December 31, 2002. At December 31, 2004, the aggregate maximum amount of residual values guaranteed was approximately $192 million with an estimated residual recovery of approximately $129 million. The substantial majority of the maximum guarantee amount relates to leases entered into prior to December 31, 2002. The average life of the lease portfolio is approximately six years.

Debt obligations of the parent —TXU Energy Holdings has provided a guarantee of the obligations under TXU Corp.’s financing lease (approximately $120 million at December 31, 2004) for its headquarters building.

Letters of credit—TXU Energy Holdings has entered into various agreements that require letters of credit for financial assurance purposes. Approximately $383 million of letters of credit were outstanding at December 31, 2004 to support existing floating rate pollution control revenue bond debt of approximately $375 million. The letters of credit are available to fund the payment of such debt obligations. These letters of credit have expiration dates in 2008.

TXU Energy Holdings has outstanding letters of credit in the amount of $9 million for miscellaneous credit support requirements. Although the average life of the letters of credit is approximately one year, the obligation to provide guarantees is ongoing.

TXU Energy Holdings has outstanding letters of credit in the amount of $99 million to support hedging and risk management margin requirements in the normal course of business. As of December 31, 2004, approximately 27% of the obligations supported by these letters of credit mature within one year, and substantially all of the remainder mature in the next three years.

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Surety bonds— US Holdings has outstanding surety bonds of approximately $30 million to support performance under various subsidiary contracts and legal obligations in the normal course of business. The term of the surety bond obligations is approximately one year.

Other— US Holdings has entered into contracts with public agencies to purchase cooling water for use in the generation of electric energy and has agreed, in effect, to guarantee the principal, $6 million at December 31, 2004, and interest on bonds issued by the agencies to finance the reservoirs from which the water is supplied. The bonds mature in 2011 and have an interest rate of 5.50%. US Holdings is required to make periodic payments equal to such principal and interest, including amounts assumed by a third party and reimbursed to US Holdings. In addition, US Holdings is obligated to pay certain variable costs of operating and maintaining the reservoirs. US Holdings has assigned to a municipality all its contract rights and obligations in connection with $1 million remaining principal amount of bonds at December 31, 2004, issued for similar purposes, which had previously been guaranteed by US Holdings. US Holdings is, however, contingently liable in the event of default by the municipality.

Labor Contracts — Approximately 1,750 TXU Energy Holdings employees and 175 TXU Electric Delivery employees are represented by labor unions and covered by collective bargaining agreements with varying expiration dates. These agreements generally cover two to three year periods; however, as is normal practice in the industry, wages and benefits are established annually. Negotiations are currently underway with respect to the collective bargaining agreement covering employees at the Comanche Peak plant and discussions are expected to begin in the fall of 2005 regarding the agreements with employees in TXU Energy Holdings’ other power production and mining operations. The TXU Electric Delivery bargaining agreement will expire in 2007 and wages and benefits will be negotiated in the fall of 2005. Management does not anticipate that any changes in collective bargaining agreements will have a material affect on TXU Corp.’s financial position, results of operations or cash flows; however, TXU Corp. is unable to predict the ultimate outcome of these labor negotiations.

Nuclear Insurance — With regard to liability coverage, the Price-Anderson Act (Act) provides financial protection for the public in the event of a significant nuclear power plant incident. The Act sets the statutory limit of public liability for a single nuclear incident at $10.8 billion currently and requires nuclear power plant operators to provide financial protection for this amount. The Act is being considered by the United States Congress for modification and extension. The terms of a modification, if any, are not presently known and therefore TXU Corp. is unable, at this time, to determine any impact it may have on nuclear liability coverage. As required, TXU Corp. provides this financial protection for a nuclear incident at Comanche Peak resulting in public bodily injury and property damage through a combination of private insurance and industry-wide retrospective payment plans. As the first layer of financial protection, TXU Corp. has $300 million of liability insurance from American Nuclear Insurers (ANI), which provides such insurance on behalf of a major stock insurance company pool, Nuclear Energy Liability Insurance Association. The second layer of financial protection is provided under an industry-wide retrospective payment program called Secondary Financial Protection (SFP).

Under the SFP, each operating licensed reactor in the US is subject to an assessment of up to $100.6 million, subject to increases for inflation every five years, in the event of a nuclear incident at any nuclear plant in the US. Assessments are limited to $10 million per operating licensed reactor per year per incident. All assessments under the SFP are subject to a 3% insurance premium tax, which is not included in the above amounts.

With respect to nuclear decontamination and property damage insurance, NRC regulations require that nuclear plant license-holders maintain not less than $1.1 billion of such insurance and require the proceeds thereof to be used to place a plant in a safe and stable condition, to decontaminate it pursuant to a plan submitted to and approved by the NRC before the proceeds can be used for plant repair or restoration or to provide for premature decommissioning. TXU Corp. maintains nuclear decontamination and property damage insurance for Comanche Peak in the amount of $3.4 billion, above which TXU Corp. is self-insured. The primary layer of coverage of $500 million is provided by Nuclear Electric Insurance Limited (NEIL), a nuclear electric utility industry mutual insurance company. The remaining coverage includes premature decommissioning coverage provided by NEIL in the amount of $2.25 billion and $661 million from other insurance markets and foreign nuclear insurance pools. TXU Corp. is subject to a maximum annual assessment from NEIL of $31.5 million.

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TXU Corp. maintains Accidental Outage Insurance through NEIL to cover the additional costs of obtaining replacement power from another source if one or both of the units at Comanche Peak are out of service for more than twelve weeks as a result of covered direct physical damage. The coverage provides for weekly payments of $3.5 million for the first fifty-two weeks and $2.8 million for the next 110 weeks for each outage, respectively, after the initial twelve-week period. The total maximum coverage is $490 million per unit. The coverage amounts applicable to each unit will be reduced to 80% if both units are out of service at the same time as a result of the same accident. Under this coverage, TXU Corp. is subject to a maximum annual assessment of $8.8 million.

There have been some revisions made to the nuclear property and nuclear liability insurance policies regarding the maximum recoveries available for multiple terrorism occurrences. Under the NEIL policies, if there were multiple terrorism losses occurring within a one-year time frame, NEIL would make available one industry aggregate limit of $3.24 billion plus any amounts it recovers from other sources up to the limits for each claimant. If terrorism losses occurred beyond the one-year period, a new set of limits and resources would apply. Under the ANI liability policy, the liability arising out of terrorist acts will be subject to one industry aggregate limit of $300 million that could be reinstated at ANI’s option depending on prevailing risk circumstances and the balance in the Industry Credit Rating Plan reserve fund. Under the US Terrorism Risk Insurance Act of 2002, the US government provides reinsurance with respect to acts of terrorism in the US for losses caused by an individual or individuals acting on behalf of foreign parties. In such circumstances, the NEIL and ANI terrorism aggregates would not apply.

Nuclear Decommissioning — Through December 31, 2001, decommissioning costs were recovered from consumers based upon a 1992 site-specific study through rates placed in effect under US Holdings’ January 1993 rate increase request. Effective January 1, 2002, decommissioning costs are recovered through a tariff charged to REPs by TXU Electric Delivery based upon a 1997 site-specific study, adjusted for trust fund assets, as a component of delivery fees effective under TXU Corp.’s 2001 Unbundled Cost of Service filing. Amounts recovered through regulated rates are deposited in external trust funds (see Note 6 underInvestments). An updated decommissioning study is in the process of being completed. It is anticipated that no material change in the decommissioning funding will be required.

See Note 3 for a discussion of the impact of SFAS 143 on accounting for nuclear decommissioning costs.

Legal Proceedings — On February 18, 2005, a lawsuit was filed by Utility Choice, L.P. and Cirro Group, Inc. in the United States District Court for the Southern District of Texas, Houston Division, against TXU Corp. and certain of its subsidiaries, as well as various other wholesale market participants doing business in ERCOT, claiming generally that defendants engaged in a variety of anticompetitive conduct, including market manipulation in violation of antitrust and other laws. TXU Corp. believes that claims against it and its subsidiary companies are without merit, and TXU Corp. and its subsidiaries intend to vigorously defend the lawsuit. TXU Corp. is, however, unable to estimate any possible loss or predict the outcome of this action.

Between October 19 and December 30, 2004, ten lawsuits were filed by purported customers in various California superior courts against TXU Corp., TXU Energy Trading Co. and TXU Energy Services and other marketers, traders, transporters and sellers of natural gas. Plaintiffs allege that beginning at least by the summer of 2000, defendants manipulated and fixed at artificially high levels natural gas prices in California in violation of the Cartwright Act and other California state laws. These lawsuits have been coordinated in the San Diego Superior Court with numerous other natural gas actions as “In re Natural Gas Anti-Trust Cases I, II, III, IV and V.” TXU Corp. believes the claims against TXU Corp. and its subsidiaries are without merit, and intends to vigorously defend the lawsuits. TXU Corp. is, however, unable to estimate any possible loss or predict the outcome of these actions.

On July 7, 2003, a lawsuit was filed by Texas Commercial Energy (TCE) in the United States District Court for the Southern District of Texas, Corpus Christi Division, against TXU Energy Holdings and certain of its subsidiaries, as well as various other wholesale market participants doing business in ERCOT, claiming generally that defendants engaged in market manipulation, in violation of antitrust and other laws, primarily during the period of extreme weather conditions in late February 2003. An amended complaint was filed in February 2004 that joined additional, unaffiliated defendants. Three retail electric providers filed motions for

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leave to intervene in the action alleging claims substantially identical to TCE’s. In addition, approximately 25 purported former customers of TCE filed a motion to intervene in the action alleging claims substantially identical to TCE’s, both on their own behalf and on behalf of a putative class of all former customers of TCE. An order granting TXU Energy Holdings’ Motion to Dismiss based on the filed rate doctrine was entered on June 24, 2004. TCE has appealed the dismissal; however, US Holdings believes the dismissal of the antitrust claims was proper and that it has not committed any violation of the antitrust laws. The appeal remains pending before the Fifth Circuit Court of Appeals. Further, the Commission’s investigation of the market conditions in late February 2003 has not resulted in any finding adverse to US Holdings. Accordingly, US Holdings believes that TCE’s and the intervenors’ claims are without merit, and intends to vigorously defend the lawsuit on appeal. US Holdings is, however, unable to estimate any possible loss or predict the outcome of this action.

On April 28, 2003, a lawsuit was filed by a former employee of TXU Portfolio Management in the United States District Court for the Northern District of Texas, Dallas Division, against TXU Corp., TXU Energy Holdings and TXU Portfolio Management. The case is set for trial on June 6, 2005 and discovery in the case is substantially complete. In the case, the plaintiff asserts claims under Section 806 of Sarbanes-Oxley arising from the termination of plaintiff’s employment and claims for breach of contract relating to payment of certain bonuses. Plaintiff seeks back pay, payment of bonuses and alternatively, reinstatement or future compensation, including bonuses. US Holdings believes the plaintiff’s claims are without merit. The plaintiff was terminated as the result of a reduction in force, not as a reaction to any concerns the plaintiff had expressed, and plaintiff was not in a position to evaluate TXU Corp.’s financial statements or assess the adequacy of TXU Corp.’s financial disclosures. Thus, US Holdings does not believe that there is any merit to the plaintiff’s claims under Sarbanes-Oxley. TXU Corp. disputes the plaintiff’s claims and intends to vigorously defend the litigation. US Holdings is, however, unable to estimate any possible loss or predict the outcome of this action.

On March 10, 2003, a lawsuit was filed by Kimberly P. Killebrew in the United States District Court for the Eastern District of Texas, Lufkin Division, against TXU Corp. and TXU Portfolio Management, asserting generally that defendants engaged in manipulation of the wholesale electric market, in violation of antitrust and other laws. This case was transferred to the Beaumont Division of the Eastern District of Texas and on March 24, 2004 was transferred to the Northern District of Texas, Dallas Division. This action is brought by an individual, alleging to be a retail consumer of electricity, on behalf of herself and as a proposed representative of a putative class of retail purchasers of electricity that are similarly situated. Defendants have filed a motion to dismiss the lawsuit which is pending before the court; however, as a result of the dismissal of the antitrust claims in the litigation described above brought by TCE, the parties have agreed to stay this litigation until the appeal in the TCE case has been decided. US Holdings believes that the plaintiff lacks standing to assert any antitrust claims and that defendants have not violated antitrust laws or other laws as claimed by plaintiff. Therefore, US Holdings believes that plaintiff’s claims are without merit and plans to vigorously defend the lawsuit. US Holdings is however, unable to estimate any possible loss or predict the outcome of this action.

On March 18, 2005, TXU Corp. received a subpoena from the SEC. The subpoena requires TXU Corp. to produce documents and other information for the period from January 1, 2001 to March 31, 2003 relating to, among other things, the financial distress at TXU Europe during 2002 and the resulting financial condition of TXU Corp., TXU Corp.’s reduction of its quarterly dividend in October 2002, and the following two previously disclosed claims against TXU Corp. and certain other persons named in such claims: (i) a lawsuit brought in April 2003 by a former employee of TXU Portfolio Management, William J. Murray (Murray Litigation) and (ii) various consolidated lawsuits brought by various shareholders of TXU Corp. during late 2002 and January 2003 (Shareholders’ Litigation). The documents accompanying the subpoena state that (i) the SEC is conducting a fact-finding inquiry for purposes of allowing it to determine whether there have been any violations of the federal securities laws and (ii) the request does not mean the SEC has concluded that TXU Corp. or any other person has violated the law.

Although TXU Corp. cannot predict the outcome of the SEC inquiry, as previously disclosed, TXU Corp. does not believe that there is any merit to the claims made in the Murray Litigation and it intends to vigorously defend such litigation. In addition, TXU Corp. has executed a memorandum of understanding regarding the settlement of the Shareholders’ Litigation. TXU Corp. expects to execute a final agreement containing the terms of such settlement during the second quarter of 2005.

TXU Corp. intends to cooperate with the SEC and is in the process of responding to the subpoena.

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General— In addition to the above, US Holdings is involved in various other legal and administrative proceedings in the normal course of business the ultimate resolution of which, in the opinion of management, should not have a material effect upon its financial position, results of operations or cash flows.

18. SEGMENT INFORMATION

US Holdings has two reportable business segments: TXU Energy Holdings and TXU Electric Delivery. The segments are managed separately because they are strategic business units that offer different products or services and involve different risks.

TXU Energy Holdings– consists of operations, principally in the competitive Texas market, involving power production (electricity generation) and retail and wholesale energy. The chief executive officer of TXU Corp. manages these operations as an integrated business, principally because of natural gas price and other risks associated with balancing owned generation supply with sales demand.

TXU Electric Delivery– consists of regulated operations involving the transmission and distribution of electricity in Texas.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. US Holdings evaluates performance based on income from continuing operations before extraordinary items and cumulative effect of changes in accounting principles. US Holdings accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.

No customer provided more than 10% of consolidated revenues.

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	TXU Energy Holdings		TXU Electric Delivery		Other		Eliminations		Consolidated
Operating Revenues
2004	8,495		2,226		5		(1,432	)	9,294
2003	7,986		2,087		—		(1,500	)	8,573
2002	7,678		1,994		—		(1,592	)	8,080
Regulated Revenues – Included in Operating Revenues
2004	—		2,226		—		(1,420	)	806
2003	—		2,087		—		(1,488	)	599
2002	—		1,994		—		(1,582	)	412
Affiliated Revenues – Included in Operating Revenues
2004	10		1,420		2		(1,432	)	—
2003	11		1,489		—		(1,500	)	—
2002	6		1,586		—		(1,592	)	—
Depreciation and Amortization
2004	350		389		—		—		739
2003	407		297		—		—		704
2002	450		264		—		—	��	714
Equity in Earnings (Losses) of Subsidiaries - Unconsolidated Subsidiaries
2004	(5	)	(2	)	—		—		(7	)
2003	(1	)	—		—		—		(1	)
2002	(2	)	—		—		—		(2	)
Interest Income
2004	31		56		36		(85	)	38
2003	8		52		20		(61	)	19
2002	10		49		44		(97	)	6
Interest Expense and Related Charges
2004	353		280		47		(85	)	595
2003	323		300		43		(61	)	605
2002	215		265		57		(97	)	440
Income Tax Expense (Benefit)
2004	162		116		4		—		282
2003	231		126		(9	)	—		348
2002	117		117		(11	)	1		224
Income from continuing operations before extraordinary items and cumulative effect of changes in accounting principles
2004	408		255		9		—		672
2003	497		258		(19	)	—		736
2002	322		245		(20	)	—		547
Investment in Equity Investees
2004	31		11		—		—		42
2003	1		—		—		—		1
2002	3		—		—		—		3
Total Assets
2004	14,515		9,493		1,357		(1,402	)	23,963	*
2003	14,148		9,316		593		(987	)	23,070	*
2002	15,789		9,015		967		(894	)	24,877	*
Capital Expenditures
2004	281		600		—		—		881
2003	163		543		—		—		706
2002	284		513		—		—		797

* Assets by segment exclude investments in affiliates.

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19. SUPPLEMENTARY FINANCIAL INFORMATION

Regulated Versus Unregulated Operations —

	Year Ended December 31,
	2004			2003			2002
Operating revenues
Regulated	$	2,226		$	2,087		$	1,994
Unregulated		8,500			7,986			7,678
Intercompany sales eliminations – regulated		(1,420	)		(1,488	)		(1,582	)
Intercompany sales eliminations – unregulated		(12	)		(12	)		(10	)
Total operating revenues		9,294			8,573			8,080
Costs and operating expenses
Cost of energy sold and delivery fees – unregulated*		3,836			3,620			3,181
Operating costs – regulated		730			709			676
Operating costs – unregulated		703			682			696
Depreciation and amortization– regulated		389			297			264
Depreciation and amortization– unregulated		350			407			450
Selling, general and administrative expenses – regulated		219			207			213
Selling, general and administrative expenses – unregulated		667			637			773
Franchise and revenue-based taxes – regulated		248			250			272
Franchise and revenue-based taxes – unregulated		118			125			138
Other income		(142	)		(52	)		(38	)
Other deductions		665			21			250
Interest income		(38	)		(19	)		(6	)
Interest expense and other charges		595			605			440
Total costs and expenses		8,340			7,489			7,309
Income from continuing operations before income taxes, extraordinary (gain) / loss and cumulative effect of changes in accounting principles	$	954		$	1,084		$	771

* Includes unregulated cost of fuel consumed of $971 million in 2004, $1,467 million in 2003 and $1,325 million 2002. The balance represents energy purchased for resale and delivery fees.

The operations of the TXU Energy Holdings segment are included above as unregulated, as the Texas market is now open to competition. However, retail pricing to residential customers in the historical service territory continues to be subject to certain price controls as discussed in Note 16.

A-38

Other Income and Deductions —

	Year Ended December 31,
	2004		2003		2002
Other income:
Net gain on sale of properties and businesses	$	135	$	45	$	32
Equity portion of allowance for funds used during construction		4		4		3
Other		3		3		3
Total other income	$	142	$	52	$	38
Other deductions:
Asset write-down and lease termination charges	$	375	$	2	$	237
Employee severance charges		127		—		—
Power purchase contract settlement		101		—		—
Rate case settlement		21		—		—
Capgemini transition costs		14		—		—
Equity losses of unconsolidated entities		7		—		—
Expenses related to cancelled construction projects		6		6		7
Debt extinguishment losses		1		3		—
Premium on redemption of preferred stock		—		3		—
Loss on sale of properties		—		—		2
Transaction-related fees		2		—		—
Other		11		7		4
Total interest expense and related charges	$	665	$	21	$	250

Severance Liability Related to Restructuring Activities —

	TXU Electric Delivery			TXU Energy Holdings			Total
Liability for severance costs as of December 31, 2003	$	—		$	2		$	2
Additions to liability		14			81			95
Payments charged against liability		(2	)		(37	)		(39	)
Other adjustments to the liability		—			(4	)		(4	)
Liability for severance costs as of December 31, 2004	$	12		$	42		$	54

The above table excludes severance capitalized as a regulatory asset, included in discontinued operations and allocations from TXU Corp.

A-39

Interest Expense and Related Charges —

	Year Ended December 31,
	2004			2003			2002
Interest (a)	$	504		$	551		$	434
Distributions on preferred membership interests (b)		68			34			—
Amortization of debt discounts and issuance costs		35			31			17
Capitalized interest, including debt portion of allowance for borrowed funds used during construction		(12	)		(11	)		(11	)
Total interest expense and related charges	$	595		$	605		$	440

(a) Included in interest for the period ended December 31, 2003 is $34 million related to the exchangeable subordinated notes that were exchanged for preferred membership interest in July 2003.

(b) In April 2004, TXU Corp. purchased from the holders TXU Energy Holdings’ preferred membership interest, and subsequent to this purchase, TXU Energy Holdings has paid distributions on the preferred membership interests to TXU Corp.

FIN 46 and SFAS 150 have affected the balance sheet presentation of mandatorily redeemable securities. However, there has been no effect on the presentation of related interest charges on the income statement.

Regulatory Assets and Liabilities —

	December 31,
	2004		2003
Regulatory Assets
Generation-related regulatory assets securitized by transition bonds	$	1,607	$	1,654
Securities reacquisition costs		125		121
Recoverable deferred income taxes — net		109		96
Other regulatory assets		153		95
Total regulatory assets		1,994		1,966
Regulatory Liabilities
Investment tax credit and protected excess deferred taxes		79		88
Over-collection of transition bond (securitization) revenues		23		6
Other regulatory liabilities		1		—
Total regulatory liabilities		103		94
Net regulatory assets	$	1,891	$	1,872

Included in net regulatory assets are assets of $121 million at both December 31, 2004 and 2003 that are earning a return. The regulatory assets, other than those subject to securitization, have a remaining recovery period of 15 to 46 years.

Included in other regulatory assets as of December 31, 2004 was $30 million related to nuclear decommissioning liabilities.

A-40

Restricted Cash —

	Balance Sheet Classification at December 31, 2004
	Current Assets		Investments
Customer collections related to securitization bonds used only to service debt and pay expenses	$	43	$	—
Payment of fees associated with securitization bonds		—		10
Reserve for shortfalls of transition charges		—		3
Demolition and relocation work to be performed by US Holdings related to the sale of land		6		15
Total	$	49	$	28

Affiliate Transactions — The following represent significant affiliate transactions of US Holdings:

• The average daily balance of short-term advances to affiliates during the year ended December 31, 2004 was $900 million and the average daily balance of short-term advances from affiliates during the years ended December 31, 2003 and 2002 were $658 million and $821 million, respectively. Interest income earned on the advances for the year ended December 31, 2004 was $26 million and the interest expense incurred on the advances for the years ended
December 31, 2003 and 2002 were $18 million and $23 million, respectively. The weighted average interest rate was 2.9%, 2.8% and 2.6% for the years ended December 31, 2004, 2003 and 2002, respectively.

• TXU Corp. charges US Holdings for certain financial, accounting, information technology, environmental, procurement and personnel services and other administrative services at cost. For the years ended December 31, 2004, 2003 and 2002, these costs totaled $286 million, $331 million and $428 million, respectively, and are primarily included in SG&A expenses. Effective July 1, 2004, under the ten year service agreement with Capgemini, several of the functions previously performed by TXU Corp. are now provided by Capgemini. (see Note 1 for further discussion).

• US Holdings charged TXU Gas for meter reading and certain customer and administrative support services. For the years ended December 31, 2004, 2003, and 2002, these charges totaled $29 million, $56 million and $57 million, respectively, and are largely reported as a reduction in operation and maintenance expenses. On October 1, 2004, TXU Gas and Atmos Energy Corporation completed a merger by division in which Atmos Energy Corporation acquired TXU Gas’ operations. US Holdings will continue to provide meter reading services and shared facility services to Atmos Energy Corporation under a transition service agreement, but customer and administrative support services are now provided by Capgemini.

• In April 2004, TXU Corp. purchased from holders TXU Energy Holdings’ exchangeable preferred membership interest, and as a result TXU Energy Holdings has paid distributions to TXU Corp. on these securities, which remain outstanding, since the purchase. Interest expense and related charges associated with these securities, including amortization of the related discount, totaled $57 million for the year ended December 31, 2004 since the date of TXU Corp.’s purchase of the securities.

Accounts Receivable — At December 31, 2004 and 2003, accounts receivable of $1.2 billion and $1.0 billion are stated net of allowance for uncollectible accounts of $16 million and $53 million, respectively. During 2004, bad debt expense was $90 million, account write-offs were $121 million and other activity decreased the allowance for uncollectible accounts by $6 million. During 2003, bad debt expense was $119 million, account write-offs were $125 million and other activity decreased the allowance for uncollectible accounts by $13 million. Allowances related to receivables sold are reported in current liabilities and totaled $47 million and $40 million at December 31, 2004 and 2003, respectively.

Accounts receivable included $422 million and $411 million of unbilled revenues at December 31, 2003 and 2002, respectively.

A-41

Intangible Assets —SFAS 142 became effective on January 1, 2002. SFAS 142 requires, among other things, the allocation of goodwill to reporting units based upon current fair value of the reporting units, and the discontinuance of goodwill amortization. SFAS 142 also requires the following disclosure regarding intangible assets (other than goodwill) that are amortized or not amortized:

	As of December 31, 2004						As of December 31, 2003
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Intangible assets subject to amortization (included in property, plant and equipment):
Capitalized software	$	61	$	28	$	33	$	400	$	184	$	216
Land easements		173		61		112		176		66		110
Mineral rights and other		31		23		8		31		22		9
Total	$	265	$	112	$	153	$	607	$	272	$	335

Aggregate amortization expense for intangible assets for the years ended December 31, 2004, 2003 and 2002 was $31 million, $55 million and $53 million, respectively. At December 31, 2004, the weighted average useful lives of capitalized software, land easements and mineral rights noted above were 9 years, 69 years and 40 years, respectively. Estimated amounts for the next five years are as follows:

Year	Amortization Expense
2005	$	7
2006		7
2007		7
2008		6
2009		4

Changes in the carrying amount of goodwill (net of accumulated depreciation) for the year ended December 31, 2004, are as follows:

	TXU Energy Holdings			TXU Electric Delivery		Total
Balance at December 31, 2003	$	533		$	25	$	558
Disposal of TXU Fuel		(16	)		—		(16	)
Balance at December 31, 2004	$	517		$	25	$	542

US Holdings evaluates goodwill for impairment at least annually (as of October 1) in accordance with SFAS 142. The impairment tests performed are based on discounted cash flow analyses. No goodwill impairment has been recognized for consolidated reporting units reflected in results from continuing operations.

Commodity Contract Assets and Liabilities — At December 31, 2004 and 2003, current and noncurrent commodity contract assets totaling $861 million and $657 million, respectively are stated net of applicable credit (collection) and performance reserves totaling $15 million and $18 million, respectively. Performance reserves are provided for direct, incremental costs to settle the contracts. Current and non-current contract liabilities totaled $838 million and $549 million at December 31, 2004 and 2003, respectively.

A-42

Inventories by Major Category —

	December 31,
	2004		2003
Materials and supplies	$	166	$	254
Fuel stock		79		79
Gas stored underground		72		83
Total inventories	$	317	$	416

Inventories are carried at average cost and at December 31, 2003, reflect a $22 million reduction as a result of the rescission of EITF 98-10 as discussed in Note 3.

Property, Plant and Equipment —

	December 31,
	2004		2003
In service
Generation	$	15,590	$	15,861
Transmission		2,544		2,349
Distribution		6,945		6,676
Other assets		840		1,194
Total		25,919		26,080
Less accumulated depreciation		9,929		9,935
Net of accumulated depreciation		15,990		16,145
Construction work in progress		397		379
Nuclear fuel (net of accumulated amortization of: 2004 — $998 and 2003 — $934)		118		131
Held for future use		24		22
Net property, plant and equipment	$	16,529	$	16,677

Assets related to capitalized leases included above totaled $8 million at December 31, 2004 and $9 million at December 31, 2003, net of accumulated depreciation.

As of December 31, 2004, substantially all of TXU Electric Delivery’s electric utility property, plant and equipment (with a net book value of $6.6 billion) is pledged as collateral on TXU Electric Delivery’s first mortgage bonds and senior secured notes.

Supplemental Cash Flow Information —

	Year Ended December 31,
	2004			2003			2002
Cash payments related to continuing operations:
Interest	$	586		$	523		$	401
Income taxes	$	230		$	114		$	127
Cash payments related to discontinued operations:
Income taxes	$	(7	)	$	(14	)	$	—
Noncash investing and financing activities:
Discount related to exchangeable subordinated preferred membership interests recorded to paid-in-capital	$	—		$	—		$	266

See Note 3 for the affects of adopting SFAS 143, which were noncash in nature.

See Note 8 for discussion for the 2003 exchange of TXU Energy Holdings subordinated notes for preferred membership interests, which was noncash in nature.

A-43

Quarterly Information (unaudited) — The results of operations by quarter are summarized below.

In the opinion of US Holdings, all other adjustments (consisting of normal recurring accruals) necessary for a fair statement of such amounts have been made. Quarterly results are not necessarily indicative of a full year’s operations because of seasonal and other factors.

	Quarter Ended
	March 31			June 30			Sept. 30			Dec. 31
2004:
Operating revenues	$	2,128		$	2,297		$	2,746		$	2,123
Income from continuing operations before extraordinary gain and cumulative effect of change in accounting principle	$	176		$	32		$	423		$	41
Discontinued operations, net of tax effect	$	(3	)	$	(27	)	$	(3	)	$	(1	)
Extraordinary gain, net of tax effect	$	—		$	16		$	—		$	—
Cumulative effect of change in accounting principles, net of tax benefit	$	—		$	—		$	—		$	6
Net income	$	173		$	21		$	420		$	46
Net income available for common stock	$	173		$	21		$	420		$	44
2003:
Operating revenues	$	1,916		$	2,151		$	2,606		$	1,900
Income from continuing operations before cumulative changes in accounting principles	$	90		$	201		$	372		$	73
Discontinued operations, net of tax effect	$	(1	)	$	—		$	(1	)	$	(16	)
Cumulative effect of change in accounting principles, net of tax benefit	$	(58	)	$	—		$	—		$	—
Net income	$	31		$	201		$	371		$	57
Net income available for common stock	$	29		$	199		$	370		$	57

Included in fourth quarter 2004 income from continuing operations were lease termination costs of $180 million ($117 million after-tax) and a net charge related to the termination of power purchase contracts of $43 million ($28 million after-tax).

Included in fourth quarter 2003 income from discontinued operations were impairment and other exit charges totaling $10.3 million ($6.7 million after-tax).

Reconciliation of Previously Reported Quarterly Information — The following table presents the changes to previously reported quarterly amounts to reflect discontinued operations and the adoption of SFAS 123R.

	Quarter Ended
	March 31			June 30		Sept. 30		Dec. 31
	Increase (Decrease) from Previously Reported
2004:
Revenues — from discontinued operations	$	(7	)	$	—	$	—	$	—
Income from continuing operations before extraordinary gain and cumulative effect of changes in accounting principles	$	(2	)	$	2	$	1	$	—
Discontinued operations, net of tax effect	$	(1	)	$	—	$	—	$	—
Net income	$	(3	)	$	1	$	1	$	—
Net income available for common stock	$	(3	)	$	1	$	1	$	—
2003:
Revenues — from discontinued operations	$	(1	)	$	—	$	—	$	(2	)
Income from continuing operations before extraordinary loss and cumulative effect of changes in accounting principles	$	2		$	—	$	—	$	1
Discontinued operations, net of tax effect	$	(2	)	$	—	$	—	$	(1	)

A-44

20. RESTATEMENT OF STATEMENT OF CONSOLIDATED CASH FLOWS

This Form 10-K/A is being filed to revise the presentation of cash flows from discontinued operations in the Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 2004. This revision does not impact operating, financing and investing cash flows related to continuing operations or the net change in cash and cash equivalents as originally presented in the Statements of Consolidated Cash Flows, but provides additional details of cash flows from discontinued operations.

In connection with the preparation of the report on Form 10-Q for the quarter ended March 31, 2005, US Holdings’ management reviewed its method of presenting discontinued operations in its Statements of Condensed Consolidated Cash Flows and concluded it should revise the presentation to provide more information in accordance with the provisions of FASB Statement No. 95 “Statement of Cash Flows.” Accordingly, beginning with the quarter ended March 31, 2005, US Holdings began presenting cash flows from discontinued operations in the categories of operating, investing and financing activities instead of a single line presentation.

A-45

TXU US HOLDINGS COMPANY EXHIBITS FOR 2004 FORM 10-K/A

APPENDIX B

Exhibits	Previously Filed* With File Number	As Exhibit
(2)	Plans of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
2(a)	1-12833 Form 8-K (filed January 16, 2002)	2	—	Master Separation Agreement by and among TXU Electric Delivery, TXU Generation Holdings Company LLC, TXU Merger Energy Trading Company LP, TXU SESCO Company, TXU SESCO Energy Services Company, TXU Energy Retail Company LP and TXU US Holdings, dated as of December 14, 2001.
3(i)	Articles of Incorporation.
3(a)	1-11668 Form 10-Q (Quarter ended September 30, 2003) (filed November 13, 2003)	3(i)	—	Amended and Restated Articles of Incorporation of TXU US Holdings Company effective as of August 31, 2003.
3(ii)	By-laws
3(b)	1-11668 Form 10-Q (Quarter ended March 31, 2002) (filed May 15, 2002)	3(b)	—	Restated By-laws of TXU US Holdings Company, dated January 1, 2002.
(4)	Instruments Defining the Rights of Security Holders, Including Indentures.**
	TXU US Holdings
4(a)	33-55408	99(a)	—	Agreement, dated as of January 30, 1990, between TXU US Holdings Company and Tex-La Electric Cooperative of Texas, Inc.
4(b)	0-11442 Form 10-K (1995) (filed March 5, 1996)	4(f)	—	Indenture (for Unsecured Subordinated Debt Securities relating to Trust Securities), dated as of December 1, 1995, between TU Electric and the Bank of New York, as Trustee.
4(c)	1-03591 Form 10-K (1996) (filed March 13, 1997)	4(v)	—	Officer’s Certificate, dated as of January 30, 1997, establishing the terms of the Floating Rate Junior Subordinated Debentures, Series D.
4(d)	1-03591 Form 10-K (1996) (filed March 13, 1997)	4(z)	—	Officer’s Certificate, dated as of January 30, 1997, establishing the terms of the 8.175% Junior Subordinated Debentures, Series E.
4(e)	0-11442 Form 10-Q (Quarter ended Sept. 30, 1997) (filed November 14, 1997)	4(a)	—	Indenture (For Unsecured Debt Securities), dated as of August 1, 1997, between TXU US Holdings and The Bank of New York, Trustee.

B-1

Exhibits	Previously Filed* With File Number	As Exhibit
4(f)	0-11442 Form 10-Q (Quarter ended Sept. 30, 1997) (filed November 14, 1997)	4(b)	—	Officers’ Certificate, dated August 18, 1997, establishing terms of TXU US Holdings 7.17% Debentures due August 1, 2007.
	TXU Electric Delivery Company
4(g)	2-90185 Form S-3 (filed March 27, 1984)	4(a)	—	Mortgage and Deed of Trust, dated as of December 1, 1983, between TXU Electric Delivery and The Bank of New York, as Trustee.
4(g)(1)			—	Supplemental Indentures to Mortgage and Deed of Trust:
				Number	Dated as of
	2-90185 Form S-3 (filed March 27, 1984)	4(b)		First	April 1, 1984
	33-24089 Form S-3 (filed August 30, 1988)	4(a)-1		Fifteenth	July 1, 1987
	33-30141 Form S-3 (filed July 26, 1989)	4(a)-3		Twenty-second	January 1, 1989
	33-39493 Form S-3 (filed March 19, 1991)	4(a)-2		Twenty-eighth	October 1, 1990
	33-57576 Form S-3 (filed January 29, 1993)	4(a)-3		Fortieth	November 1, 1992
	33-60528 Form S-3 (filed April 2, 1993)	4(a)-1		Forty-second	March 1, 1993
	1-12833 Form 10-K (2001) (filed March 14, 2002)	4(2)(1)		Sixty-third	January 1, 2002
	1-12833 Form 10-Q (Quarter ended March 31, 2002) (filed May 15, 2002)	4		Sixty-fourth	May 1, 2002
	333-100240 Form S-4 (filed January 6, 2003)	4(f)(2)		Sixty-fifth	December 1, 2002

B-2

Exhibits	Previously Filed* With File Number	As Exhibit
4(h)	333-100240 Form S-4 (filed October 2, 2002)	4(a)	—	Indenture and Deed of Trust, dated as of May 1, 2002, between TXU Electric Delivery and The Bank of New York, as Trustee.
4(i)	333-100240 Form S-4 (filed October 2, 2002)	4(b)	—	Officer’s Certificate, dated May 6, 2002, establishing the terms of TXU Electric Delivery Company’s 6.375% Senior Secured Notes due 2012 and 7.000% Senior Secured Notes due 2032.
4(j)	333-106894 Form S-4 (filed July 9, 2003)	4(c)	—	Officer’s Certificate, dated December 20, 2002, establishing the terms of TXU Electric Delivery Company’s 6.375% Senior Secured Notes due 2015 and 7.250% Senior Secured Notes due 2033.
4(k)	333-100242 Form S-4 (filed October 2, 2002)	4(a)	—	Indenture (for Unsecured Debt Securities), dated as of August 1, 2002, between TXU Electric Delivery Company and The Bank of New York, as Trustee.
4(l)	333-100242 Form S-4 (filed October 2, 2002)	4(b)	—	Officer’s Certificate, dated August 30, 2002, establishing the terms of TXU Electric Delivery Company’s 5% Debentures due 2007 and 7% Debentures due 2022.
	TXU Energy Company LLC
4(m)	333-108876 Form S-4 (filed September 17, 2003)	4(a)	—	Indenture (for Unsecured Debt Securities), dated as of March 1, 2003, between TXU Energy Company LLC and The Bank of New York.
4(n)	333-108876 Form S-4 (filed September 17, 2003)	4(b)	—	Officer’s Certificate, dated March 11, 2003, establishing the terms of TXU Energy Company’s 6.125% Senior Notes due 2008 and 7.000% Senior Notes due 2013.
4(o)	333-122980 Form S-4 (filed February 24, 2004)	4(a)	—	Officer’s Certificate, dated July 14, 2004, establishing the terms of TXU Energy Company’s Floating Rate Senior Notes.
(10)	Material Contracts.
	Credit Agreements.
10(a)	1-2833 Form 8-K (filed July 1, 2004)	10(a)	—	$2,500,000,000 Revolving Credit Agreement dated as of June 24, 2004, among TXU Energy Company LLC and TXU Electric Delivery Company, the Lenders listed in Schedule 2.01 therto, JPMorgan Chase Bank as Administrative Agent and the other parties named therein.
10(b)	1-12833 Form 10-Q (filed November 5, 2004)	10(c)	—	Credit agreement dated as November 4, 2004, by and between TXU Energy Company LLC and Wachovia Bank, National Association.
	Other Material Contracts.

B-3

Exhibits	Previously Filed* With File Number	As Exhibit
10(c)	333-100240 Form S-4 (filed October 2, 2002)	10(c)	—	Generation Interconnection Agreement, dated December 14, 2001, between TXU Electric Delivery Company and TXU Generation Company LP.
10(d)	333-100240 Form S-4 (filed October 2, 2002)	10(d)	—	Generation Interconnection Agreement, dated December 14, 2001, between TXU Electric Delivery and TXU Generation Company LP, for itself and as Agent for TXU Big Brown Company LP, TXU Mountain Creek Company LP, TXU Handley Company LP, TXU Tradinghouse Company LP and TXU DeCordova Company LP (Interconnection Agreement).
10(e)	333-100240 Form S-4 (filed October 2, 2002)	10(e)	—	Amendment No. 1 to Interconnection Agreement, dated May 31, 2002.
10(f)	1-2833 Form 10-Q (filed August 12, 2004)	10(j)	—	Purchase and Sale Agreement between TXU Fuel Company and Energy Transfer Partners, L.P. dated April 25, 2004.
10(g)	1-2833 Form 10-Q (filed August 12, 2004)	10(l)	—	Master Framework Agreement dated May 17, 2004 by and between Oncor Electric Delivery Company (now TXU Electric Delivery Company) and CapGemini Energy LP.
10(h)	1-2833 Form 10-Q (filed August 12, 2004)	10(m)	—	Master Framework Agreement dated May 17, 2004 by and between TXU Energy Company LLC and CapGemini Energy LP.
10(i)	333-100240 Form S-4 (filed October 2, 2002)	10(f)	—	Standard Form Agreement between TXU Electric Delivery Company and Competitive Retailer Regarding Terms and Conditions of Delivery of Electric Power and Energy.
10(j)	1-12833 Form 10-K (2002) (filed March 12, 2003)	10(w)	—	Stipulation and Joint Application for Approval of Settlement as approved by the PUC in Docket Nos. 21527 and 24892.
10(k)	1-12833 Form 10-K (2003) (filed March 15, 2004)	10(ss)	—	Additional Guaranty Agreement dated November 19, 2002 by TXU Energy Company LLC in favor of State Street Bank and Trust Company of Connecticut, National Association, as owner trustee of ZSF/Dallas Tower Trust, a Delaware grantor trust, as Lessor.
(12)	Statement Regarding Computation of Ratios.
12	1-11668 Form 10-K (2004) (filed March 31, 2005)	12	—	Computation of Ratio of Earnings to Fixed Charges, and Ratio of Earnings to Combined Fixed Charges and Preference Dividends.

B-4

Exhibits	Previously Filed* With File Number	As Exhibit
(21)	Subsidiaries of the Registrant.
21	1-11668 Form 10-K (2004) (filed March 31, 2005)	21	—	Subsidiaries of TXU US Holdings Company.
(23)	Consents of Experts and Counsel.
23			—	Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm for TXU US Holdings Company.
(31)	Rule 13a - 14(a)/15d - 14(a) Certifications.
31(a)			—	Certification of T.L. Baker, principal executive officer of TXU US Holdings Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)			—	Certification of Kirk R. Oliver, principal financial officer of TXU US Holdings Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)	Section 1350 Certifications.
32(a)			—	Certification of T.L. Baker, principal executive officer of TXU US Holdings Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)			—	Certification of Kirk R. Oliver, principal financial officer of TXU US Holdings Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99)	Additional Exhibits.
99(a)	33-55408	99(a)	—	Agreement, dated as of January 30, 1990, between TXU US Holdings Company and Tex-La Electric Cooperative of Texas, Inc.

* Incorporated herein by reference.

** Certain instruments defining the rights of holders of long-term debt of the registrant’s subsidiaries included in the financial statements filed herewith have been omitted because the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. Registrant hereby agrees, upon request of the Securities and Exchange Commission, to furnish a copy of any such omitted instrument.

B-5