SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
-- OR --
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Texas Utilities Company
(doing business as TXU Corp)
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-12833 No. 75-2669310
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
TXU Electric Company
(formerly known as Texas Utilities Electric Company)
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-11668 No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes__(x)__ No______
Common Stock outstanding at August 11, 1999:
TXU Corp: 276,404,019 shares, without par value.
TXU Electric Company: 113,767,000 shares, without par value.
This combined Form 10-Q is filed separately by TXU Corp and TXU Electric
Company. Information contained herein relating to an individual registrant is
filed by that registrant on its own behalf except that the information with
respect to TXU Electric Company, other than the condensed consolidated
financial statements of TXU Electric Company, is filed by each of TXU Corp and
TXU Electric Company. Each registrant makes no representation as to
information filed by the other registrant.
TABLE OF CONTENTS
Part I. Financial information Page
----
Item 1. Financial Statements
Texas Utilities Company (doing business as TXU Corp) and
Subsidiaries
Condensed Statements of Consolidated Income -
Three, Six and Twelve Months Ended June 30, 1999 and
1998 3
Condensed Statements of Consolidated Comprehensive Income -
Three, Six and Twelve Months Ended June 30, 1999 and
1998 4
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1999 and 1998 5
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 6
TXU Electric Company and Subsidiaries
Condensed Statements of Consolidated Income -
Three, Six and Twelve Months Ended June 30, 1999 and
1998 8
Condensed Statements of Consolidated Comprehensive Income -
Three, Six and Twelve Months Ended June 30, 1999 and
1998 8
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1999 and 1998 9
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 10
Notes to Condensed Consolidated Financial Statements 12
Independent Accountants' Reports 24
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 39
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 40
Item 6. Exhibits and Reports on Form 8-K 40
Signatures 41
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ---------------- -------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Millions of Dollars
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . $3,729 $3,236 $8,197 $5,736 $17,197 $10,600
------ ------ ------ ------ ------- -------
OPERATING EXPENSES
Fuel and purchased power. . . . . . . . . . . . . . . 1,101 859 2,387 1,313 4,873 2,535
Gas and electricity purchased for resale. . . . . . . 882 874 2,274 1,718 4,671 2,781
Operation and maintenance . . . . . . . . . . . . . . 712 618 1,440 1,046 2,964 1,914
Depreciation and other amortization . . . . . . . . . 309 233 555 409 1,170 744
Goodwill amortization . . . . . . . . . . . . . . . . 46 28 90 37 176 51
Taxes other than income . . . . . . . . . . . . . . . 158 150 317 313 646 610
------ ------ ------ ------ ------- -------
Total operating expenses. . . . . . . . . . . . . . 3,208 2,762 7,063 4,836 14,500 8,635
------ ------ ------ ------ ------- -------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . 521 474 1,134 900 2,697 1,965
OTHER INCOME (DEDUCTIONS) - NET . . . . . . . . . . . . (22) (22) (28) (32) 49 (57)
------ ------ ------ ------ ------- -------
INCOME BEFORE INTEREST, OTHER
CHARGES AND INCOME TAXES. . . . . . . . . . . . . . . 499 452 1,106 868 2,746 1,908
------ ------ ------ ------ ------- -------
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . 30 26 62 34 167 51
INTEREST EXPENSE AND OTHER CHARGES
Interest. . . . . . . . . . . . . . . . . . . . . . . 361 300 714 504 1,510 903
Distributions on TXU or subsidiary obligated,
mandatorily redeemable, preferred securities
of subsidiary trusts, each holding solely junior
subordinated debentures of TXU or
related subsidiary. . . . . . . . . . . . . . . . . 23 17 47 34 87 71
Preferred stock dividends of subsidiaries . . . . . . 3 4 7 9 14 21
Allowance for borrowed funds used during
construction. . . . . . . . . . . . . . . . . . . . (3) (2) (6) (5) (10) (9)
------ ------ ------ ------ ------- -------
Total interest expense and other charges. . . . . . 384 319 762 542 1,601 986
------ ------ ------ ------ ------- -------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . 145 159 406 360 1,312 973
INCOME TAX EXPENSE. . . . . . . . . . . . . . . . . . . 46 76 125 150 501 378
------ ------ ------ ------ ------- -------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 99 $ 83 $ 281 $ 210 $ 811 $ 595
====== ====== ====== ====== ======= =======
Average shares of common stock outstanding
(millions). . . . . . . . . . . . . . . . . . . . . . 280 251 281 248 281 243
Per share of common stock:
Basic earnings. . . . . . . . . . . . . . . . . . . . $0.35 $0.33 $1.00 $0.84 $2.88 $2.45
Diluted earnings. . . . . . . . . . . . . . . . . . . $0.35 $0.33 $1.00 $0.84 $2.88 $2.44
Dividends declared. . . . . . . . . . . . . . . . . . $0.575 $0.55 $1.15 $1.10 $2.275 $2.175
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
3
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ---------------- --------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Millions of Dollars
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99 $ 83 $ 281 $ 210 $ 811 $ 595
------ ------ ------ ------ ------ ------
OTHER COMPREHENSIVE INCOME (LOSS) -
Net change during period:
Foreign currency translation adjustments. . . . . . . . . . . . (27) (20) (117) 7 (163) (86)
Unrealized holding gains (losses) on investments. . . . . . . . 3 - 3 - (10) -
Minimum pension liability adjustments . . . . . . . . . . . . . - - 1 - (5) -
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (20) (113) 7 (178) (86)
------ ------ ------ ------ ------ ------
Deferred income tax effects . . . . . . . . . . . . . . . . . . (5) (25) - (28) - -
------ ------ ------ ------ ------ ------
COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 70 $ 38 $ 168 $ 189 $ 633 $ 509
====== ====== ====== ====== ====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
4
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------
1999 1998
---- ----
Millions of Dollars
CASH FLOWS - OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 281 $ 210
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel). . . . . . . . . . . . . . . . . . . . 741 523
Deferred income taxes - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 148
Investment tax credits - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (12)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (14)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 743 246
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 12
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (534) (138)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (37)
Other working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 (18)
Over/(under)-recovered fuel revenue - net of deferred taxes. . . . . . . . . . . . . . . . . . . . . . (38) (10)
Energy marketing risk management assets and liabilities - net. . . . . . . . . . . . . . . . . . . . . (69) (25)
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50) 20
------- -------
Cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299 905
------- -------
CASH FLOWS - FINANCING ACTIVITIES
Issuances of securities:
Acquisition and interim facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926 2,837
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,158 879
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1
Retirements/repurchases of securities:
Acquisition facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,225) -
Other long-term debt/obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (954) (673)
Preferred stock of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (114)
TXU or subsidiary obligated, mandatorily redeemable, preferred securities of subsidiary trusts,
each holding solely junior subordinated debentures of TXU or related subsidiary. . . . . . . . . . . - (47)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) -
Change in notes payable:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,094) 2,530
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) 15
Common stock dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (316) (271)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . . . . . . . . . . . . (55) (170)
------- -------
Cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976 4,987
------- -------
CASH FLOWS - INVESTING ACTIVITIES
Acquisitions of businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,051) (2,168)
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (718) (362)
Nuclear fuel (excluding allowance for equity funds used during construction). . . . . . . . . . . . . . . (45) (15)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (246) (61)
------- -------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,060) (2,606)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . (63) 86
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 3,372
CASH AND CASH EQUIVALENTS - BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 44
------- -------
CASH AND CASH EQUIVALENTS - ENDING BALANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 948 $ 3,416
======= =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
5
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1999 December 31,
(Unaudited) 1998
---------- ------------
Millions of Dollars
PROPERTY, PLANT AND EQUIPMENT
United States (US):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,332 $23,131
Gas distribution and pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,284 1,212
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919 844
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,535 25,187
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,798 7,426
------- -------
Net of accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,737 17,761
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403 346
Nuclear fuel (net of accumulated amortization: 1999 - $593; 1998 - $549) . . . . . . . . . . 204 201
Held for future use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24
Reserve for regulatory disallowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . (836) (836)
------- -------
Net US property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,532 17,496
UK/Europe - Electric and other (net of accumulated depreciation: 1999 - $258;
1998 - $147) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,038 4,428
Australia - Electric and gas distribution (net of accumulated depreciation:
1999 - $161; 1998 - $121). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,637 943
------- -------
Net property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,207 22,867
------- -------
INVESTMENTS
Goodwill (net of accumulated amortization: 1999 - $245; 1998 - $154) . . . . . . . . . . . . . . 7,494 6,830
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,534 2,482
------- -------
Total investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,028 9,312
------- -------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948 796
Accounts receivable (net of allowance for uncollectible accounts:
1999 - $36; 1998 - $50). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133 1,887
Inventories - at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 267
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 276
Gas stored underground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 133
Energy marketing risk management assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844 832
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 88
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 308
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,904 4,587
------- -------
DEFERRED DEBITS
Unamortized regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,766 1,805
Long-term prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567 527
Other deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 416
------- -------
Total deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,873 2,748
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,012 $39,514
======= =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
6
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
June 30,
1999 December 31,
(Unaudited) 1998
----------- -----------
Millions of Dollars
CAPITALIZATION
Common stock without par value:
Authorized shares - 1,000,000,000
Outstanding shares - 1999 - 280,875,819 and 1998 - 282,332,819 . . . . . . . . . . . . $6,904 $6,940
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,384 1,448
Accumulated other comprehensive loss:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . (240) (123)
Unrealized holding losses on investments . . . . . . . . . . . . . . . . . . . . . . . (10) (13)
Minimum pension liability adjustments. . . . . . . . . . . . . . . . . . . . . . . . . (5) (6)
------- -------
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,033 8,246
Preferred stock of subsidiaries:
Not subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . 190 190
Subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21
TXU or subsidiary obligated, mandatorily redeemable, preferred securities of
subsidiary trusts, each holding solely junior subordinated debentures of TXU
or related subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193 1,192
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . . . . . . . . . 17,022 15,134
------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,459 24,783
------- -------
CURRENT LIABILITIES
Notes payable:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,777 2,055
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 896
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280 1,071
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,214 1,747
Energy marketing risk management liabilities . . . . . . . . . . . . . . . . . . . . . . 772 838
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 164
Taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 490
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 310
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890 705
------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,278 8,276
------- -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,762 3,718
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 548
Other deferred credits and noncurrent liabilities. . . . . . . . . . . . . . . . . . . . 1,977 2,189
------- -------
Total deferred credits and other noncurrent liabilities. . . . . . . . . . . . . . . 6,275 6,455
------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,012 $39,514
======= =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
7
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ---------------- -------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Millions of Dollars
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . . $1,503 $1,665 $2,788 $2,997 $6,278 $6,316
------ ------ ------ ------ ------ ------
OPERATING EXPENSES
Fuel and purchased power. . . . . . . . . . . . . . . . . . 513 558 926 988 2,040 2,148
Operation and maintenance . . . . . . . . . . . . . . . . . 301 334 616 616 1,281 1,239
Depreciation and amortization . . . . . . . . . . . . . . . 207 184 354 328 775 614
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 64 123 109 198 401 442
Taxes other than income . . . . . . . . . . . . . . . . . . 128 123 260 253 540 513
------ ------ ------ ------ ------ ------
Total operating expenses . . . . . . . . . . . . . . . . 1,213 1,322 2,265 2,383 5,037 4,956
------ ------ ------ ------ ------ ------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 290 343 523 614 1,241 1,360
------ ------ ------ ------ ------ ------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . . 1 1 2 3 5 7
Other income (deductions) - net . . . . . . . . . . . . . . (6) (3) (10) 2 (24) (2)
Income tax benefit (expense). . . . . . . . . . . . . . . . 9 1 10 (1) 16 (5)
------ ------- ------ ------ ------ ------
Total other income (deductions). . . . . . . . . . . . . 4 (1) 2 4 (3) -
------ ------- ------ ------ ------ ------
INCOME BEFORE INTEREST AND
OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . 294 342 525 618 1,238 1,360
------ ------- ------ ------ ------ ------
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . 1 1 2 1 3 4
INTEREST EXPENSE AND OTHER CHARGES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 118 124 230 248 459 513
Distributions on TXU Electric obligated, mandatorily
redeemable, preferred securities of subsidiary trusts
holding solely junior subordinated debentures of
TXU Electric . . . . . . . . . . . . . . . . . . . . . . . 17 17 34 34 68 71
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . (2) (2) (5) (4) (9) (8)
------ ------- ------ ------ ------ ------
Total interest expense and other charges. . . . . . . . . 133 139 259 278 518 576
------ ------- ------ ------ ------ ------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 162 204 268 341 723 788
PREFERRED STOCK DIVIDENDS. . . . . . . . . . . . . . . . . . . 2 3 5 6 11 14
------ ------- ------ ------ ------ ------
NET INCOME AVAILABLE FOR
COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . $ 160 $ 201 $ 263 $ 335 $ 712 $ 774
====== ======= ====== ====== ====== ======
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ---------------- -------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Millions of Dollars
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 162 $ 204 $ 268 $ 341 $ 723 $ 788
------ ------- ------ ------ ------ ------
OTHER COMPREHENSIVE LOSS -
Net change during period in minimum pension
liability adjustment . . . . . . . . . . . . . . . . . . . - - - - (1) -
------ ------- ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . - - - - (1) -
------ ------- ------ ------ ------ ------
COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . . $ 162 $ 204 $ 268 $ 341 $ 722 $ 788
====== ======= ====== ====== ======= ======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
8
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------
1999 1998
---- ----
Millions of Dollars
CASH FLOWS - OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 268 $ 341
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel). . . . . . . . . . . . . . . . . . . 430 399
Deferred income taxes - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 70
Investment tax credits - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (11)
Allowance for equity funds used during construction. . . . . . . . . . . . . . . . . . . . . . . . . . (2) (3)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) 21
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (5)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 12
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) 6
Other working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 18
Over/(under) - recovered fuel revenue - net of deferred taxes. . . . . . . . . . . . . . . . . . . . (38) (10)
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 55
------ ------
Cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 893
------ ------
CASH FLOWS - FINANCING ACTIVITIES
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 429
Retirements/repurchases of securities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (341) (565)
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (14)
TXU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts holding
solely junior subordinated debentures of TXU Electric . . . . . . . . . . . . . . . . . . . . . . . . - (47)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (297) (286)
Change in notes payable - affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 (81)
Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (7)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . . . . . . . . . . . . (23) (50)
------ ------
Cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (460) (621)
------ ------
CASH FLOWS - INVESTING ACTIVITIES
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (276) (240)
Allowance for equity funds used during construction (excluding amount for nuclear fuel). . . . . . . . . 1 2
Nuclear fuel (excluding allowance for equity funds used during construction) . . . . . . . . . . . . . . (45) (15)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (22)
------ ------
Cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (333) (275)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (3)
CASH AND CASH EQUIVALENTS - BEGINNING BALANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12
------ ------
CASH AND CASH EQUIVALENTS - ENDING BALANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8 $ 9
====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
9
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1999 December 31,
(Unaudited) 1998
----------- -----------
Million of Dollars
ELECTRIC PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,521 $15,469
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,626 1,621
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,190 5,046
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437 447
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,774 22,583
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,104 6,789
------- -------
Electric plant in service, less accumulated depreciation . . . . . . . . . . . . 15,670 15,794
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . 262 226
Nuclear fuel (net of accumulated amortization: 1999 - $593;
1998 - $549) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 201
Held for future use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24
------- -------
Electric plant, less accumulated depreciation and amortization . . . . . . . . . 16,160 16,245
Reserve for regulatory disallowances . . . . . . . . . . . . . . . . . . . . . . . (836) (836)
------- -------
Net electric plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,324 15,409
------- -------
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 588
------- -------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5
Accounts receivable (net of allowance for uncollectible accounts: 1999 - $3;
1998 - $7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 205
Inventories - at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 181
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 84
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 73
Prepayments and other current assets . . . . . . . . . . . . . . . . . . . . . . . . 61 36
------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556 584
------- -------
DEFERRED DEBITS
Unamortized regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712 1,750
Under-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 -
Other deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 74
------- -------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780 1,824
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,273 $18,405
======= =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
10
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
Millions of Dollars
CAPITALIZATION
Common stock without par value:
Authorized shares - 180,000,000
Outstanding shares - 1999 - 113,767,700 and 1998 - 123,660,700 . . . . . . . . . . . . . . . $3,441 $3,738
Stock of parent held for long-term incentive plan trust. . . . . . . . . . . . . . . . . . . . (10) (9)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,030 2,767
Accumulated other comprehensive loss -
Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1)
------ ------
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,460 6,495
Preferred stock:
Not subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 115
Subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21
TXU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely junior subordinated debentures of TXU Electric. . . . . . . . . . . . . . . . 824 823
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . . . . . . . . . . . . 4,780 5,208
------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,200 12,662
------- -------
CURRENT LIABILITIES
Notes payable - affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 163
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 533
Accounts payable:
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 115
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 157
Customers' deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 76
Taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 169
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 133
Over-recovered fuel revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 113
------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,812 1,511
------- -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,281 3,307
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525 536
Other deferred credits and noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . 455 389
-------- -------
Total deferred credits and other noncurrent liabilities. . . . . . . . . . . . . . . . . . 4,261 4,232
-------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
-------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,273 $18,405
======== =======
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
11
TEXAS UTILITIES COMPANY (doing business as TXU CORP) AND SUBSIDIARIES
TXU ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.BUSINESS, MERGERS AND ACQUISITIONS
TXU
In May 1999, Texas Utilities Company (TXU) adopted TXU Corp as its
assumed name and began conducting business as TXU Corp. In June 1999, several
of TXU's subsidiaries changed their corporate names in connection with the new
TXU corporate identity program. TXU, a Texas corporation, is a holding
company whose principal United States (US) operations are conducted through
TXU Electric Company, formerly Texas Utilities Electric Company (TXU
Electric), TXU Gas Company, formerly ENSERCH Corporation (TXU Gas), and TXU
Energy Industries Company, formerly Texas Energy Industries, Inc. (TEI).
TXU's principal international operations are conducted through TXU
International Holdings Limited (TXU International Holdings), which in turn
indirectly owns TXU Eastern Holdings Limited (TXU Eastern) and TXU Australia
Holdings Limited Partnership (TXU Australia Holdings). TXU Eastern's
operations in the United Kingdom (UK) and Europe are conducted through
subsidiaries of Eastern Group plc (Eastern Group), primarily Eastern
Electricity plc (Eastern Electricity). TXU Australia Holdings' principal
operating subsidiaries include Eastern Energy Limited (Eastern Energy) and the
gas operations of Westar/Kinetik Energy described below.
On May 19, 1998, TXU acquired The Energy Group PLC (TEG), the former
holding company of Eastern Group. TXU recorded its approximate 22% equity
interest in the net income of TEG for the period March 1998 to May 19, 1998
and has accounted for TEG and Eastern Group as consolidated subsidiaries since
May 19, 1998. The excess of the purchase consideration plus acquisition costs
over the net fair value of tangible and identifiable intangible assets
acquired and liabilities assumed, reflecting final purchase adjustments,
resulted in goodwill of $5.6 billion, which is being amortized over 40 years.
In February 1999, TXU Australia Holdings acquired from the Government of
Victoria, Australia, the gas retail business of Kinetik Energy Pty. Ltd. and
the gas distribution operations of Westar Pty. Ltd. (together, Westar/Kinetik
Energy). The purchase price was A$1.6 billion ($1.0 billion) which has been
financed principally through bank borrowings by TXU Australia Holdings. The
process of determining the fair value of assets acquired and liabilities
assumed of Westar/Kinetik Energy has not been completed; however, the excess
of the purchase consideration plus acquisition costs over a preliminary
estimate of net fair value of tangible and identifiable intangible assets
acquired and liabilities assumed resulted in goodwill of $560 million, which
is being amortized over 40 years. This amount is subject to revision as
additional information about the fair value of Westar/Kinetik Energy's assets
acquired, liabilities assumed and contingencies existing at the acquisition
date becomes known.
Since the acquisition of Westar/Kinetik Energy was treated for accounting
purposes as a purchase business combination, no financial or other information
is presented for periods prior to the date of acquisition. Consolidated pro
forma income and earnings per share for the periods ended June 30, 1999 and
1998, assuming the acquisition of Westar/Kinetik Energy had occurred at the
beginning of the periods, would not have differed significantly from reported
results.
Throughout this document, references to TEG shall mean the consolidated
UK entity acquired in May 1998, and references to Eastern Group or TXU
Eastern shall mean TXU's primary operations in the UK and other parts of
Europe. References to TXU Australia Holdings shall mean TXU's primary
operations in Australia, including Eastern Energy and results for
Westar/Kinetik Energy from date of acquisition.
12
The following exchange rates have been used to convert foreign currency
denominated amounts into US dollars:
Income Statement
(Average Rates)
Balance Sheet ------------------------------------------------
----------------------- Three Months Six Months Twelve Months
June 30, December 31, Ended June 30, Ended June 30, Ended June 30,
--------- ------------ -------------- -------------- --------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
UK pounds sterling $1.578 $1.655 $1.607 $1.652 $1.620 $1.652 $1.642 $1.652
Australian dollars (A$) $0.656 $0.612 $0.653 $0.636 $0.640 $0.655 $0.624 $0.685
2. SIGNIFICANT ACCOUNTING POLICIES
TXU and TXU Electric
Basis of Presentation -- The condensed consolidated financial statements
of TXU and its subsidiaries and TXU Electric and its subsidiaries have been
prepared on the same basis as those in their respective 1998 Annual Reports on
Form 10-K (1998 Form 10-K) and, in the opinion of management, all adjustments
(constituting only normal recurring accruals) necessary for a fair
presentation of the results of operations and financial position have been
included therein. Certain information and footnote disclosures normally
included in annual consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
previously reported amounts have been reclassified to conform to current
classifications.
All dollar amounts in the condensed consolidated financial statements and
tables in the notes, except per share amounts, are stated in millions of US
dollars unless otherwise indicated.
TXU
Earnings Per Share --Basic earnings per share applicable to common stock
are based on the weighted average number of common shares outstanding during
the period reported. The following table details the adjustments to calculate
diluted earnings per share. After-tax interest expense for the convertible
subordinated debentures prior to their conversion in 1998 are added to
earnings applicable to common stock, and the number of shares from the assumed
conversion of the convertible subordinated debentures and the assumed exercise
of all outstanding stock options are added to average shares outstanding.
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
---------------- --------------- ---------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
After-tax interest expense $ -- $ -- $ -- $ 0.9 $ -- $ 2.4
Shares of common stock
(in thousands) 94 122 96 2,372 106 1,617
13
3. ACCOUNTING IMPACT OF THE RESTRUCTURING OF THE ELECTRIC UTILITY INDUSTRY
IN TEXAS
TXU and TXU Electric
Deregulation -- Legislation was passed during the 1999 session of the
Texas legislature that will restructure the electric utility industry in Texas
and, among other matters, authorizes competition in the retail and generation
markets for electricity beginning January 1, 2002; provides for the recovery
of stranded costs; requires reductions in nitrogen oxide and sulfur dioxide
emissions; requires a rate freeze for all customers until January 1, 2002, and
certain rate reductions for residential and small commercial customers for up
to five years thereafter; and sets certain limits on capacity owned and
controlled by power generation companies.
Accounting Impact of the Restructuring-- Regulatory Assets and
Liabilities - As discussed in TXU's and TXU Electric's 1998 Form 10-K, the
financial statements of TXU and TXU Electric reflect regulatory assets and
liabilities under cost-based rate regulation in accordance with Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effect of
Certain Types of Regulation". Rate-regulated companies are required to write
off regulatory assets and liabilities against current earnings whenever
changes in facts and circumstances cause those companies to no longer satisfy
the criteria for application of SFAS No. 71. As a result of the 1999 Texas
legislation, the electricity generation portion of TXU Electric's business no
longer meets the criteria to apply SFAS No. 71. Accordingly, application of
SFAS No. 71 to the generation portion of TXU Electric's business was
discontinued as of June 30, 1999, and the principles of SFAS No. 101,
"Regulated Enterprises - Accounting for the Discontinuation of Application of
FASB Statement No. 71," as interpreted by Emerging Issues Task Force Issue
(EITF) No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related
to the Application of FASB Statement Nos. 71 and 101", have been applied. TXU
Electric's transmission and distribution (T&D) operations continue to meet the
criteria for recognition of regulatory assets and liabilities as defined by
SFAS No. 71. In addition, fuel costs will be fully recoverable during the
transition period that extends to January 1, 2002.
SFAS No. 101 requires that all regulatory assets and liabilities be
eliminated from an entity's financial statements when SFAS No. 71 no longer
applies. EITF No. 97-4 provides guidance for situations in which the
regulatory body specifically provides for recovery of such assets through a
portion of the business which continues to be subject to regulation. The
provisions of the 1999 Texas legislation provide for the recovery of net
generation-related regulatory assets existing at December 31, 1998. Under the
provisions of EITF No. 97-4, such generation-related regulatory assets will be
transferred to the T&D portion of the business. These assets will be
amortized as they are recovered. As a result, management believes all net
regulatory assets related to the generation business will be recovered. Net
generation-related regulatory assets at June 30, 1999 were approximately $1.5
billion.
Generation Production Assets -- TXU Electric anticipates that a portion
of the cost of its generation production assets and power purchase contracts
may be identified as stranded costs under the legislation and become subject
to a future quantification of the economic value of such assets. The Texas
legislation provides that 100% of such stranded costs will be recovered from
regulated operations. At June 30, 1999, TXU Electric performed an impairment
analysis of generation assets under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS No. 121 requires a company to forecast future net
cash flows from operating the asset, on an undiscounted basis excluding
carrying costs, and to compare the sum of those cash flows with the net
carrying value of the asset. Under this test, if the net cash flows exceed
the net carrying value, no impairment exists for accounting purposes. TXU
Electric has forecasted the net cash flows of its generating assets at June
30, 1999, and determined that the undiscounted net cash flows exceed the net
carrying value of those plants; accordingly, for accounting purposes, there is
no impairment. Generation-related plant assets at June 30, 1999 were
approximately $10.1 billion, net of accumulated depreciation.
14
Investment Tax Credits -- TXU Electric has deferred investment tax
credits (ITCs) of approximately $436 million applicable to its generation
business. The unamortized ITCs are temporary differences under generally
accepted accounting principles for which a deferred income tax asset has been
recorded. Under regulatory accounting, a regulatory liability also has been
recorded. Under the requirements of SFAS No. 101, the ITC-related regulatory
liability would be written off as an extraordinary item when the criteria of
SFAS No. 71 are no longer met. However, it is uncertain under applicable
regulations whether, and to what extent, the customers will ultimately benefit
from the unamortized ITCs and/or the related regulatory liability. Upon final
determination by the Public Utility Commission of Texas (PUC), it is expected
that the amount of unamortized ITCs not applicable to customers will be
amortized over the remaining life of the generation plants. Also, upon final
determination by the PUC, it is expected that the regulatory liability related
to the ITCs not applicable to customers will be written off as an
extraordinary credit to income.
4. LINES OF CREDIT
TXU and TXU Electric
At June 30, 1999, TXU, TXU Electric and TXU Gas had amended joint US
dollar-denominated lines of credit under revolving credit facility agreements
(US Credit Agreements) with a group of banking institutions amounting to $2.5
billion. The US Credit Agreements have two facilities. Facility A provides
for short-term borrowings aggregating up to $1.1 billion outstanding at any
one time at variable interest rates and terminates February 25, 2000. Of
this, $800 million can be used for working capital and other general corporate
purposes. Facility B provides for borrowings aggregating up to $1.4 billion
outstanding at any one time at variable interest rates and terminates March 2,
2003. Borrowings under this facility can be used for working capital and
other general corporate purposes. The combined borrowings of TXU, TXU
Electric and TXU Gas under both facilities, excluding borrowings that were
permitted only to finance the acquisition of TEG, are limited to an aggregate
of $2.2 billion outstanding at any one time. TXU Electric's and TXU Gas'
borrowings under both facilities are limited to an aggregate of $1.25 billion
and $650 million outstanding at any one time, respectively. At June 30,
1999, TXU Electric had no borrowings outstanding under these lines. The
facilities primarily support commercial paper borrowings. At June 30, 1999,
outstanding commercial paper borrowings supported by both facilities totaled
$1.8 billion.
TXU
An Eastern Electricity Revolving Credit Facility provides for short-term
borrowings for general corporate purposes of up to 250 million pounds
(approximately $395 million) outstanding at any one time and terminates March
2, 2003. No borrowings were outstanding at June 30, 1999 under this facility.
In addition, certain other non-US subsidiaries have revolving credit
agreements (denominated in both foreign currencies and US dollars)
aggregating approximately $171 million, of which $144 million was outstanding
at June 30, 1999. These revolving credit agreements expire at various dates
through 2001.
On June 11, 1999, TXU Finance (No. 2) Limited and Eastern Electricity
entered into arrangements whereby Eastern Electricity agreed to sell up to
300 million pounds of its electricity receivables to a third party and TXU
Finance (No. 2) Limited is entitled to borrow up to an aggregate of 275
million pounds through a note issue agreement, subject to an overall program
limit of 550 million pounds. As of June 30, 1999, TXU Finance (No. 2) Limited
had borrowed 150 million pounds ($237 million) pursuant to that agreement.
15
5. CAPITALIZATION
TXU
Common Stock -- In April 1999, TXU repurchased approximately 1.7 million
shares of its outstanding common stock at a total cost of approximately $64
million. In May 1999, the Board of Directors approved an increase in the
stock repurchase program to $600 million. In July 1999, TXU repurchased an
additional 4.4 million shares for a total cost of approximately $186 million.
TXU has approximately $125 million of additional purchases authorized.
TXU Electric
During the six months ended June 30, 1999, TXU Electric purchased and
retired a total of 9.9 million shares of its common stock from TXU at a cost
of approximately $297 million.
TXU and TXU Electric
TXU or Subsidiary Obligated, Mandatorily Redeemable, Preferred Securities
of Subsidiary Trusts, Each Holding Solely Junior Subordinated Debentures of
TXU or Related Subsidiary (Trust Securities) -- At June 30, 1999 and December
31, 1998, the statutory business trust subsidiaries had trust securities
outstanding, as follows:
Trust Securities Trust Assets (a) Maturity
--------
Units (000's) Amount Amount
-------------------- ---------------------- ----------------------
June 30, December 31, June 30, December 31, June 30, December 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
TXU
TXU Capital I (7.25% Series) 9,200 9,200 $ 223 $ 223 $ 237 $ 237 2029
TXU Electric
TXU Electric Capital I (8.25% Series) 5,871 5,871 141 141 155 155 2030
TXU Electric Capital III (8.00% Series) 8,000 8,000 194 194 206 206 2035
TXU Electric Capital IV (Floating Rate
Trust Securities)(b) 100 100 97 96 103 103 2037
TXU Electric Capital V (8.175% Trust
Securities) 400 400 392 392 412 412 2037
------ ------ ----- ----- ----- -----
Total TXU Electric 14,371 14,371 824 823 876 876
------ ------ ----- ----- ----- -----
TXU Gas
TXU Gas Capital I (Floating Rate Trust
Securities)(c) 150 150 146 146 155 155 2028
------ ------ ----- ----- ----- -----
Total 23,721 23,721 $1,193 $1,192 $1,268 $1,268
====== ====== ====== ====== ====== ======
<FN>
(a)Interest rates on the trusts' sole assets, Junior Subordinated Debentures
of the parent, correspond in each case to the rate indicated for the
corresponding series of Trust Securities.
(b)Floating rate is determined quarterly based on LIBOR. A related interest
rate swap, expiring 2002, effectively fixes the rate at 7.183%.
(c)Floating rate is determined quarterly based on LIBOR. Related interest
rate swaps effectively fix the rates through July 1, 2003 at 6.629% on
$100 million and at 6.444% on $50 million.
</FN>
16
Each parent company owns common securities issued by its subsidiary
trust and has effectively issued a full and unconditional guarantee of such
trust's securities.
TXU Electric
Long-Term Debt -- In March 1999, the Brazos River Authority issued
$111 million aggregate principal amount of Collateralized Pollution Control
Revenue Refunding Bonds, Series 1999A, due April 1, 2033. The 1999A Bonds
bear interest at a rate of 3.70% per annum until the mandatory tender date of
April 1, 2000. Upon mandatory tender, the 1999A Bonds will be remarketed by a
remarketing agent appointed by TXU Electric. Proceeds were used to refund the
8.25% Brazos River Authority Series 1989A Bonds and a portion of the Brazos
River Authority Taxable Series 1991D Bonds. TXU Electric is obligated to make
payments of principal and interest on the 1999A Bonds. This obligation is
secured by TXU Electric First Mortgage Bonds.
On June 19, 1999, the $118 million of Brazos River Authority
Pollution Control Revenue Refunding Bonds, Series 1995B, due June 1, 2030 were
remarketed, resulting in an interest rate of 4.15% per annum to the mandatory
tender date of June 19, 2000. TXU Electric is obligated to make payments of
principal and interest on the 1995B Bonds.
TXU
On June 23, 1999, TXU sold $500 million principal amount of floating
rate Senior Notes due June 25, 2001. The initial interest rate, based on
three-month LIBOR plus a margin, was 5.73% at June 30, 1999. The interest
rate will be reset quarterly. Net proceeds were used to repay commercial
paper issued by TXU.
United Kingdom -- At June 30, 1999, TXU Eastern and TXU Finance (No.
2) Limited had a joint sterling-denominated line of credit with a group of
banking institutions under a credit facilities agreement (Sterling Credit
Agreement). The Sterling Credit Agreement, as amended in March 1999, provides
for borrowings of up to 1.275 billion pounds and has two facilities: a
750 million pounds term facility which will terminate on March 2, 2003 and a
525 million pounds revolving credit facility which has a 200 million pounds
364-day tranche (Tranche A) and a 325 million pounds tranche which terminates
March 2, 2003 (Tranche B). TXU Eastern and TXU Finance (No. 2) Limited
currently are the only permitted borrowers under the amended Sterling Credit
Agreement. The amended Sterling Credit Agreement allows for borrowings in
various currencies with interest rates based on the prevailing rates in effect
in the countries in which the borrowings originate. As of June 30, 1999,
750 million pounds ($1,183 million) of borrowings were outstanding under the
term facility, and approximately 178 million pounds ($281 million) were
outstanding under Tranche B.
In May 1999, a subsidiary of TXU Eastern issued $1.5 billion of
Senior Notes in three series: $350 million at 6.15% due May 15, 2002, $650
million at 6.45% due May 15, 2005, and $500 million at 6.75% due May 15,
2009. The proceeds of this issuance were used to reduce indebtedness incurred
in connection with the acquisition of TEG, to reduce borrowings under the
Sterling Credit Agreement and for other corporate purposes. Shortly
thereafter, TXU Eastern entered into various interest rate and currency swaps
that in effect changed the interest rate on the borrowings from fixed to
variable based on LIBOR and fixed the principal amount to be repaid in
sterling.
Australia -- At June 30, 1999, TXU Australia Holdings had a A$1.1
billion Senior Acquisition Facility with a group of banking institutions, and
TXU Australia Holdings and Eastern Energy had a A$413 million Subordinated
Acquisition Facility with a banking institution to fund the acquisition of the
assets of Westar/Kinetik Energy. The Senior Acquisition Facility is composed
of: a A$275 million term facility due February 24, 2000 (Tranche A); a A$220
million revolving cash advance facility due February 24, 2002 (Tranche B); and
a A$605 million term facility
17
due February 24, 2002 (Tranche C). The Subordinated Acquisition
Facility expires August 24, 1999. As of June 30, 1999, there was
A$1.5 billion ($993 million) outstanding under these facilities.
In April 1999, a subsidiary of TXU Australia Holdings entered into
a credit facility with a financial institution, expiring December 30, 1999.
The amount borrowed, A$200 million ($131 million), was used to prepay on a
20-year agreement that serves as a hedge of Eastern Energy's future
electricity purchases for resale to its retail customers. This borrowing has
been classified as a long-term liability since TXU intends to refinance
this facility on a long-term basis.
6. DERIVATIVE INSTRUMENTS
TXU
TXU enters into derivative instruments, including options, swaps,
futures and other contractual commitments to manage market risks related to
changes in interest rates, foreign currency exchange rates and commodity
prices. TXU's participation in derivative transactions, except for the energy
marketing activities of TXU Energy Trading Company, formerly Enserch Energy
Services, Inc., have been designated for hedging purposes and are not held or
issued for trading purposes.
Interest Rate Risk Management --At June 30, 1999, TXU, TXU Electric
and TXU Gas had various interest rate swaps in effect, the terms and notional
amounts of which had not significantly changed from December 31, 1998.
At June 30, 1999, Eastern Energy and Westar/Kinetik Energy had
interest rate swaps and forward rate agreements outstanding, denominated in
Australian dollars and/or US dollars, with an aggregate notional amount of
$1.5 billion. These agreements establish a mix of fixed and variable interest
rates on outstanding debt and have remaining terms up to 17 years.
In May 1999, TXU Eastern entered into various interest rates swaps
with an aggregate notional amount of $1.5 billion that convert the new fixed
rate Senior Notes to floating rate based on LIBOR. These swaps mature on the
dates of the underlying notes, had a weighted average pay rate of 5.61% and
had a fair value of ($33) million at June 30, 1999. TXU Eastern had
additional interest rate swaps outstanding with an aggregate notional amount
of 100 million pounds ($158 million) that convert fixed interest rates to
floating rates expiring in 2004. At June 30, 1999, TXU Eastern had various
other interest rate swaps as required by the Sterling Credit Agreement and to
hedge certain of its borrowings from a variable to a fixed rate. The
aggregate notional amount of these interest rate swaps was 848 million pounds
($1.3 billion) with an average maturity of six years and an average fixed rate
of 6.69%. Forward rate agreements totaling 285 million pounds ($450 million)
for a maximum duration of less than one year to swap floating rate deposits
into fixed rates were outstanding at June 30, 1999.
Foreign Currency Risk Management -- At June 30, 1999, TXU and
Eastern Energy had various foreign currency swaps, options and exchange
contracts in effect, the terms and amounts of which had not significantly
changed from December 31, 1998. In connection with the May 1999 issuance of
$1.5 billion of Senior Notes, TXU Eastern entered into currency swaps which
effectively fixed the principal amount to be repaid in sterling. The fair
value of these cross currency swaps was $24 million at June 30, 1999.
18
7. REGULATION AND RATES
TXU and TXU Electric
Docket 18490 -- The PUC approved the non-unanimous stipulation filed
on December 17, 1997, by TXU Electric, together with the General Counsel of
the PUC, the Office of Public Utility Counsel (OPC) and various other parties
interested in TXU Electric's rates and services. The stipulation, modified to
incorporate changes made by the PUC, resulted in base rate credits beginning
January 1, 1998, of 4% for residential customers, 2% for general service
secondary customers and 1% for all other retail customers and additional base
rate credits for residential customers of 1.4% beginning January 1, 1999.
Certain parties that did not sign the stipulation have appealed the PUC's
approval by filing suit in state district court. TXU and TXU Electric cannot
predict the outcome of these appeals.
In accordance with the stipulation, for the six months ended June
30, 1999 and 1998, TXU Electric recorded $61 million and $39 million,
respectively, as additional depreciation of nuclear production assets
representing earnings in excess of the stipulated earnings cap, including the
estimated effects of the Texas legislation described in Note 3. In addition,
for the six months ended June 30, 1999 and 1998, TXU Electric recorded $95
million and $90 million, respectively, of depreciation expense reclassified
from transmission and distribution to nuclear production assets. For the
twelve months ended June 30, 1999, TXU Electric recorded additional
depreciation of $379 million on its nuclear production assets representing
$187 million of depreciation expense reclassified from transmission and
distribution and $192 million of additional depreciation representing earnings
in excess of the stipulated earnings cap. Including deferred income tax
effects, the net effect was a $142 million reduction in net income for the
twelve months ended June 30, 1999 compared with a reduction of $37 million for
the same period of 1998.
Docket 20896 -- In March 1999, TXU Electric filed with the PUC its
first report, as required in Docket 18490, concerning the earnings cap
calculation for 1998. General Counsel of the PUC filed a notice of contest in
June 1999, which challenged the inclusion of $19 million of affiliate expenses
in the return cap calculation. In July 1999, General Counsel withdrew this
challenge. The PUC has not taken formal action in this docket and TXU and TXU
Electric are unable to predict the outcome thereof.
Docket 20666 -- Fuel Refund -- TXU Electric filed a petition with
the PUC in March 1999 to refund to customers approximately $115 million,
including interest, in over-collected fuel costs for the period June 1997
through February 1999. In April 1999, parties to this docket, TXU Electric,
General Counsel of the PUC, Texas Industrial Energy Consumers (TIEC) and OPC,
filed a unanimous stipulation resolving all issues in this docket. The PUC
approved the stipulation at the May 20, 1999 Open Meeting, and the refund was
made to customers through a one-time credit in June 1999. This
over-collection was the result of milder than expected weather and declining
natural gas prices.
Docket 20285 -- Fuel Reconciliation -- In December 1998, in
accordance with PUC rules, TXU Electric filed a petition with the PUC seeking
final reconciliation of all eligible fuel and purchased power expenses
incurred during the reconciliation period of July 1, 1995 through June 30,
1998, amounting to a total of $5.04 billion. In addition, and as permitted by
the PUC rules, TXU Electric also requested an accounting order that would
allow certain costs incurred to facilitate the use of coal as a supplemental
fuel at its Monticello plant to be treated as eligible fuel costs and billed
pursuant to TXU Electric's fuel costs factor. By incurring these expenses, TXU
and TXU Electric believe they have significantly improved the reliability of
the supply of fuel to Monticello and have, at the same time, lowered the fuel
expense that would otherwise be incurred in the absence of these investments.
19
Parties to this docket (Cities of Arlington, et al., OPC, TIEC, NUCOR Steel,
Texas-New Mexico Power Company, and General Counsel of the PUC) filed a
unanimous stipulation, which represents a compromise among the signatories,
providing for, among other things, a disallowance and refund to consumers in
the amount of $52 million, which was recorded in June 1999. The
administrative law judge assigned to the proceeding has released a Proposal
for Decision recommending approval of the stipulation. On August 5, 1999, the
PUC voted to approve the stipulation. The refund, which will appear as a
one-time credit on customer bills during the September billing cycle, is
approximately 1% of the $5.04 billion spent by TXU Electric during the
reconciliation period.
Flexible Rate Initiatives -- TXU Electric also offers optional
time-of-use rates to residential, commercial and industrial customers under
rates approved by the PUC in April 1999 in areas where the PUC retains sole
regulatory jurisdiction. These time-of-use rate options allow participating
customers to plan and manage their electrical energy usage to shift their
loads from the TXU Electric on-peak periods to off-peak periods. This
activity reduces TXU Electric's requirements for capacity resources to
meet the peak electrical load of all of its customers. On January 15, 1999,
TXU Electric applied for approval of these rates with municipal regulatory
authorities in 173 cities. Ultimately, 172 of the municipal regulatory
authorities approved these rates and one municipality denied them. TXU
Electric estimates that any decrease in revenue resulting from the
implementation of these rates will be offset by reductions in the peak load
and associated costs. On June 11, 1999, an interested party filed an appeal
of the PUC's approval of these rates in state district court in Travis County,
Texas. The PUC and TXU Electric have both filed answers; however, no schedule
for resolution of the appeal has been established by the district court. TXU
and TXU Electric are unable to predict the outcome of the appeal.
8. COMMITMENTS AND CONTINGENCIES
TXU
Legal Proceedings -- In February 1997, the official government
representative of pensioners in the UK (Pensions Ombudsman) made final
determinations against The National Grid Company plc (National Grid) and its
group trustees with respect to complaints by two pensioners in National Grid's
section of the Electricity Supply Pension Scheme (ESPS) relating to the use of
the pension fund surplus resulting from the March 1992 actuarial valuation of
the National Grid section to meet certain costs arising from the payment of
pensions on early retirement upon reorganization or downsizing. These
determinations were set aside by the High Court in June 1997, and the
arrangements made by National Grid and its group trustees in dealing with the
surplus were confirmed. The two pensioners appealed this decision, and
judgment on the appeal has now been received although a final order is
awaited. The judgment endorsed the Pensions Ombudsman's determination that
National Grid was not entitled to deal unilaterally with any surplus. If a
similar action were to be made against Eastern Group in relation to its use of
actuarial surplus in its section of the ESPS, it would vigorously defend the
action, ultimately through the courts. However, if a determination were
finally to be made against it and upheld in the courts, Eastern Group could
have a potential liability to repay to its section of the ESPS an amount
estimated by TXU to be up to $71 million (exclusive of any applicable interest
charges).
In August 1998, the Gracy Fund, L.P. (Gracy Fund) filed suit in the
United States District Court for the Northern District of Texas against EEX
Corporation, formerly Enserch Exploration, Inc. (EEX), TXU, David W. Biegler,
Gary J. Junco, Erle Nye, Thomas Hamilton and J. Phillip McCormick. The Gracy
Fund sought to represent a class of certain purchasers of the common stock of
ENSERCH Corporation (now TXU Gas) and EEX based upon claims of various
violations of the Securities Act of 1933 and the Securities Exchange Act of
1934 (Exchange Act). Also in August 1998, Stan C. Thorne (Thorne) filed suit
in the United States District Court for the Southern District of Texas against
EEX, TXU Gas, DeGolyer & Naughton, David W. Biegler, Gary J. Junco, Fredrick
20
S. Addy and B.K. Irani and sought to represent a certain class of purchasers
of common stock of EEX. In December 1998, the United States District Court
for the Northern District of Texas issued an Order in Cause No. 3-98-CV-1808-G
consolidating the Gracy Fund and the Thorne suits (the Consolidated Action).
In January 1999, the Gracy Fund et al. filed an amended class action complaint
in the Consolidated Action against EEX, TXU Gas, David W. Biegler, Gary J.
Junco, Thomas Hamilton, J. Philip McCormick, Fredrick S. Addy and B.K. Irani.
TXU and Erle Nye were omitted as defendants pursuant to a tolling agreement.
The individual named defendants are current or former officers and/or
directors of EEX, and Mr. Biegler has been an officer and director of TXU
Gas. The amended complaint alleges violations of provisions of the Securities
Act of 1933 and the Exchange Act. The plaintiff in the Consolidated Action
represents a class of persons acquiring stock of ENSERCH Corporation and/or
EEX between August 3, 1995 and August 5, 1997, inclusive. No amount of
damages has been specified in the Consolidated Action. Defendants filed a
joint motion to dismiss in March 1999, and discovery has been stayed pending a
ruling on the motion to dismiss. TXU Gas is continuing to evaluate the claims
and is unable at this time to predict the outcome of this proceeding, but
intends to vigorously defend this suit.
TXU and TXU Electric
General -- TXU and TXU Electric are each involved in various legal
and administrative proceedings and have other contingencies, that, in the
opinion of the management of each, should not have a material effect upon
their financial positions, results of operations or cash flows.
21
9.SEGMENT INFORMATION
TXU
Three Months Ended Six Months Ended Twelve MonthsEnded
June 30, June 30, June 30,
----------------- ----------------- ------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Trade Revenues -
US Electric $1,519 $1,679 $2,815 $3,023 $ 6,333 $ 6,363
US Gas 146 153 440 486 776 895
US Energy Marketing 542 715 1,342 1,399 3,141 2,258
UK/Europe 1,307 546 3,223 546 6,278 546
Australia 164 112 284 221 502 463
All Other 51 31 93 61 167 75
------ ------ ------ ------ ------- -------
Consolidated $3,729 $3,236 $8,197 $5,736 $17,197 $10,600
====== ====== ====== ====== ======= =======
Affiliated Revenues -
US Electric $ -- $ -- $ -- $ -- $ -- $ --
US Gas 8 11 15 21 36 39
US Energy Marketing -- -- -- -- 1 --
UK/Europe -- -- -- -- -- --
Australia -- -- -- -- -- --
All Other 81 89 160 162 335 163
Eliminations (89) (100) (175) (183) (372) (202)
------ ------ ------ ------ ------- -------
Consolidated $ -- $ -- $ -- $ -- $ -- $ --
====== ====== ====== ====== ======= =======
Net Income (Loss) -
US Electric $ 162 $ 203 $ 264 $ 337 $ 715 $ 778
US Gas (26) (23) (8) (6) (34) (8)
US Energy Marketing (8) -- (15) (1) (8) (13)
UK/Europe 29 (43) 140 (35) 315 (35)
Australia (10) 5 (5) 15 11 22
All Other (48) (59) (95) (100) (188) (149)
------ ------ ------ ------ ------- -------
Consolidated $ 99 $ 83 $ 281 $ 210 $ 811 $ 595
====== ====== ====== ====== ======= =======
22
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company (doing business as TXU Corp):
We have reviewed the accompanying condensed consolidated balance sheet of
Texas Utilities Company (doing business as TXU Corp) and subsidiaries (TXU) as
of June 30, 1999, and the related condensed statements of consolidated income
and of comprehensive income for the three-month, six-month and twelve-month
periods ended June 30, 1999 and 1998, and of consolidated cash flows for the
six-month periods ended June 30, 1999 and 1998. These financial statements
are the responsibility of TXU's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TXU as of December 31, 1998, and
the related statements of consolidated income, comprehensive income, cash
flows and common stock equity for the year then ended (not presented herein);
and in our report, based on our audit and the report of other auditors, dated
March 5, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP Dallas, Texas
August 12, 1999
23
INDEPENDENT ACCOUNTANTS' REPORT
TXU Electric Company:
We have reviewed the accompanying condensed consolidated balance sheet of TXU
Electric Company (formerly Texas Utilities Electric Company) and subsidiaries
(TXU Electric) as of June 30, 1999, and the related condensed statements of
consolidated income and of comprehensive income for the three-month, six-month
and twelve-month periods ended June 30, 1999 and 1998, and of consolidated
cash flows for the six-month periods ended June 30, 1999 and 1998. These
financial statements are the responsibility of TXU Electric's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TXU Electric as of December 31,
1998, and the related statements of consolidated income, comprehensive income,
cash flows and common stock equity for the year then ended (not presented
herein); and in our report dated March 5, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1998, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP Dallas, Texas
August 12, 1999
24
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERGERS AND ACQUISITIONS
TXU
Certain comparisons in this report have been affected by acquisitions by
Texas Utilities Company (doing business as TXU Corp) (TXU) or its subsidiaries
of Westar/Kinetik Energy in Australia (as described below) in February 1999,
The Energy Group PLC (TEG) in May 1998, TXU Communications Company, (formerly
Lufkin-Conroe Communications Co.), in November 1997 and TXU Gas Company,
formerly ENSERCH Corporation (TXU Gas) in August 1997. These acquisitions
have been accounted for as purchase business combinations. Results of
operations of these companies have been included only from their dates of
acquisition. TXU's principal international operations are conducted through
TXU International Holdings Limited, formerly TU International Holdings, (TXU
International Holdings) which in turn owns TXU Eastern Holdings Limited (TXU
Eastern) and TXU Australia Holdings Limited Partnership (TXU Australia
Holdings). TXU Eastern's operations in the United Kingdom (UK) and Europe are
conducted through subsidiaries of Eastern Group plc (Eastern Group), primarily
Eastern Electricity plc (Eastern Electricity). TXU Australia Holdings'
principal operating subsidiaries include Eastern Energy Limited (Eastern
Energy) and gas operations in Australia as described below.
In February 1999, TXU Australia Holdings acquired from the Government of
Victoria, Australia, the gas retail business of Kinetik Energy Pty. Ltd. and
the gas distribution operations of Westar Pty. Ltd. (together, Westar/Kinetik
Energy). The purchase price was A$1.6 billion ($1.0 billion) which has been
financed principally through bank borrowings by TXU Australia Holdings. The
process of determining the fair value of assets acquired and liabilities
assumed of Westar/Kinetik Energy has not been completed; however, the excess
of the purchase consideration plus acquisition costs over a preliminary
estimate of net fair value of tangible and identifiable intangible assets
acquired and liabilities assumed resulted in goodwill of $560 million),
which is being amortized over 40 years. This amount is subject to
revision as additional information about the fair value of Westar/Kinetik
Energy's assets acquired, liabilities assumed and contingencies existing at
the acquisition date becomes known.
TXU will pursue potential investment opportunities from time to time when
it concludes that such investments are consistent with its business strategies
and are likely to enhance the long-term return to its shareholders.
RESULTS OF OPERATIONS
TXU Electric
Net income for TXU Electric Company, formerly Texas Utilities Electric
Company (TXU Electric), for the three-, six- and twelve-month periods ended
June 30, 1999, was lower than the same periods of 1998. More normal
temperatures in the second quarter of 1999 compared to record-setting heat in
the second quarter of 1998, a 1999 fuel reconciliation settlement, and a
reduction in rates effective January 1, 1999 due to the 1998 rate settlement
agreement resulted in lower revenues compared with the same periods in the
previous year. The decline in revenues was partially offset by decreases in
fuel and purchase power costs largely due to lower electricity generation.
Energy sales and base rate revenues for the second quarter and first six
months of 1999 were lower than the comparable 1998 periods, primarily due to
more normal weather conditions. Electric energy sales in gigawatt hours for
the three and six months of 1999 were 4.6% and 3.6% lower, respectively, than
the same periods of 1998. Fuel revenues for the three- and six-month periods
ended June 30, 1999 decreased compared with the 1998 periods due to lower
natural gas usage and more coal usage for generation in 1999. For the twelve
months ended June 30, 1999, energy sales and base rate revenues increased
slightly from the comparable 1998 period, a result of hotter-than-normal
weather in the summer of 1998 but were more than offset by decreased fuel
revenues resulting from lower natural gas prices. Electric energy sales
volumes for the twelve-month period of 1999 were up 0.4% from the 1998
twelve-month period.
25
In June 1999, TXU Electric reached an agreement with all intervening
parties to refund $52 million ($31 million after tax) to consumers as part of
the fuel reconciliation proceeding with the Public Utility Commission of Texas
(PUC). The refund is approximately 1% of the $5.04 billion spent by TXU
Electric during the period from July 1, 1995 through June 30, 1998 for fuel to
generate electricity and will appear as a one-time credit on customer bills
during the September billing cycle.
The rate settlement agreement, which became effective in January 1998,
reduced customer rates, increased depreciation expense of nuclear production
assets as a result of earnings in excess of a stipulated earnings cap and
reclassified depreciation from transmission and distribution to nuclear
production assets commencing in 1998. Increased nuclear depreciation reduced
net income by $33 million, $37 million and $142 million, respectively, for
the three-, six- and twelve-month periods of 1999 compared with reductions of
$33 million, $37 million and $37 million in the comparable 1998 periods.
Results for the 1998 twelve months were affected by the recognition of an
$81 million fuel disallowance (including interest) and a $10 million charge
related to the sale of sulfur dioxide allowances, which reduced net income by
$55 million. Excluding these items, net income for the twelve months ended
June 30, 1998 was $843 million.
Fuel and purchased power expenses for the three months and six months of
1999 reflect lower natural gas prices and natural gas usage from the comparable
1998 periods. The decrease in fuel and purchased power for the twelve-month
period ended June 30, 1999 results from decreased natural gas prices,
partially offset by increased usage for natural gas and nuclear generation,
and purchased power capacity payments to meet demand during the
hotter-than-normal summer in 1998.
Operation and maintenance (O&M) expenses for the three-month period ended
June 30, 1999 decreased 10% from the corresponding 1998 quarter, while the
six-month period was unchanged from 1998 levels. O&M expenses for the
twelve-month period ended June 30, 1999 increased 3% in comparison to the same
period in 1998. The change in the three-month period is primarily due to
timing of generation maintenance expenses, lower provision for uncollectible
accounts and continued efforts to reduce expenses. The increase in O&M
expenses for the 1999 twelve-month period is primarily a result of increased
maintenance due to the hotter-than-normal summer of 1998.
Depreciation and amortization expense was higher for all periods of 1999
compared with the comparable 1998 periods, due to increased depreciation
resulting from in the 1998 rate settlement agreement. For the twelve months
ended June 30, 1999, depreciation and amortization expense was 26% higher than
the same period in 1998. TXU Electric's rate settlement agreement resulted in
an increase of $379 million in depreciation on its Comanche Peak nuclear
powered generating station for the twelve-months ended June 30, 1999. Of the
$379 million, $187 million is the result of the transfer of transmission and
distribution depreciation, and $192 million is the result of TXU Electric's
earnings in excess of its earnings cap. Total nuclear depreciation since
January 1, 1998 exceeds $940 million.
Net decreases in interest expense for the three-, six- and twelve-months
ended June 30, 1999, compared to similar periods in 1998 are primarily due to
the reacquisition of long-term debt late in 1998 and remarketing of certain
debt to lower interest rates.
The 1999 second quarter and year-to-date effective income tax rate for
TXU Electric was lower than the same period for 1998 due primarily to the
reversal of amortization of prior period flow-through amounts and other
tax-related regulatory assets and liabilities resulting from the impact of the
Texas deregulation legislation. The effective tax rate for the twelve months
ended June 30, 1999 was slightly lower than the same period in 1998 due
primarily to the reasons previously mentioned and by a favorable adjustment to
prior years' tax accruals.
26
TXU
Earnings for the three months ended June 30, 1999 were $99 million ($.35
per share, basic and diluted) compared with $83 million ($.33 per share, basic
and diluted) for the second quarter of 1998, or a 19% earnings improvement.
Earnings for the six months ended June 30, 1999 were $281 million ($1.00 per
share, basic and diluted) compared with $210 million ($.84 per share, basic
and diluted) for the six months ended June 30, 1998, or a 34% earnings
improvement. Earnings for the twelve months ended June 30, 1999 were $811
million ($2.88 per share, basic and diluted) compared with $595 million ($2.45
per share basic, $2.44 per share diluted) for the prior twelve-month period,
or a 36% increase in earnings. For all periods presented, the factors
affecting the results of TXU Electric, as discussed above, are also major
factors affecting the results of TXU. The 1999 results also reflect a full
period of operations of Eastern Group, non-recurring acquisition costs in
Australia and a write-off of uncollectible revenues by TXU's operations in
Australia, while the 1998 periods include results from the date of acquisition
of TEG (including certain one-time acquisition transaction-related costs which
totaled $31 million after-tax). Earnings per share comparisons for the three,
six and twelve months ended June 30, 1999 were affected by the issuance of
additional shares of common stock for the acquisition of TEG.
The 1999 second-quarter results reflect operating revenues of $3.7
billion, a 15% increase over the same period in 1998. Substantially all of the
increase is due to recording a full quarter's results of Eastern Group in the
UK. Partially offsetting were lower revenues from TXU's US Electric
operations due to closer to normal temperatures in Texas during the second
quarter and the $52 million fuel ($31 million after tax) reconciliation
settlement.
Results for the six months ended June 30, 1999 reflect revenues of $8.2
billion, a 43% increase over the six months of 1998. Eastern Group
contributed $3.2 billion of the total for the six months ended June 30, 1999,
compared with $0.5 billion for the comparable 1998 period.
The 1999 twelve-month period reflects record revenues of $17 billion,
approximately 62% higher than the same period a year ago. Results for the
twelve months ended June 30, 1999 reflect the addition of the Eastern Group
for the full 1999 period, along with weather-driven US Electric sales
experienced during the hotter-than-normal summer of 1998. These improvements
were partially offset by TXU Electric's 1998 rate settlement that reduced
revenues and increased depreciation, by the $52 million ($31 million after
tax) impact of the 1999 fuel reconciliation settlement and by the effect of
milder weather in the fourth quarter of 1998 and first six months of 1999.
Earnings for the twelve months ended June 30, 1999 include a
non-recurring gain from Eastern Group's renegotiation of a long-term gas
contract, the fuel reconciliation settlement discussed above, non-recurring
acquisition costs in Australia and a write-off of uncollectible revenues by
TXU's operations in Australia. Earnings for the prior twelve-month period
ended June 30, 1998 were reduced by the non-recurring costs related to the
acquisition of TEG, the fuel disallowance (including interest) and the charge
related to the sale of sulfur dioxide allowances by TXU Electric. Excluding
these non-recurring items, operating earnings for the twelve months ended June
30, 1999 were $2.92 per share (basic and diluted) compared with $2.81 per
share ($2.80 per share diluted) for the prior twelve-month period.
Total operating expenses for the three-, six-, and twelve-month periods
ended June 30, 1999 increased 16%, 46% and 68%, respectively, over the same
periods in 1998. The increase is primarily due to the inclusion of a full
period of operations for the Eastern Group and the inclusion of operations for
Westar/Kinetic Energy for the period following acquisition.
Year-to-year comparisons of consolidated interest expense and
distributions on trust securities and preferred stock of subsidiaries have
been affected by TXU's capital restructuring and debt reduction programs and
by the debt assumed and incurred in connection with the acquisitions of TEG
and Westar/Kinetik Energy.
The effective income tax rate for TXU for the second quarter,
year-to-date and twelve months ended June 30, 1999 was lower than the rates
for the same periods in 1998 due primarily to TXU Electric's operations. In
27
1998, TXU Electric recorded amortization of prior period flow-through amounts
and other tax-related regulatory assets and liabilities; no such amounts were
amortized in 1999 as a result of the impact of deregulation legislation.
Partially offsetting the lower tax rate is the annualized effect of Eastern
Group's goodwill amortization in the current periods.
For certain financial data by segment, see Note 9 to Condensed
Consolidated Financial Statements.
US Electric -- Net income for the US Electric segment for the three
months and six months ended June 30, 1999 decreased 20% and 22%,
respectively, from the same periods in 1998, reflecting a 10% and 7%
reduction in operating revenues, respectively, as a result of milder weather
conditions and the 1999 fuel reconciliation settlement. Increased
depreciation on nuclear production assets resulting from the 1998 rate
settlement also reduced net income.
US Gas -- The US Gas segment reported a net loss of $26 million for the
three months ended June 30, 1999 compared with a net loss of $23 million
in the second quarter of 1998. The net loss for the six months ended June 30,
1999 was $8 million versus $6 million for the same period in 1998. Operating
revenues declined 6% and 10% for the three months and six months,
respectively, from the prior year periods due to milder weather and lower
natural gas prices.
US Energy Marketing -- For the quarter ended June 30, 1999, there was a
net loss of $8 million compared with breakeven net income in the second
quarter of 1998. While settled volumes for the six months ended June 30, 1999
were up approximately 20% compared with the same period in 1998, net results
were down $14 million compared with the prior year, primarily due to increased
market competition and the continued maturation of the wholesale gas industry
that has reduced trading margins, the mild winter weather in the first quarter
of 1999 and higher operating expenses due to increased infrastructure costs as
a result of business growth.
UK/Europe -- The UK/Europe operations contributed net income of $29
million in the second quarter this year versus a loss of $43 million in the
second quarter last year. For the year-to-date period, the UK/Europe segment
had net income of $140 million compared with a loss of $35 million in the same
period of 1998. The results of operations for the three-month and
year-to-date periods ended June 30, 1998 reflect operations from the date of
acquisition of TEG on May 19, 1998 and have been reduced by non-recurring
after-tax acquisition costs of $31 million. The 1998 three-month and
six-month periods also reflect 22% equity in the net income of TEG for the
periods April to May 19, 1998 and March to May 19, 1998, respectively.
Operating revenues were $1.3 billion for the second quarter of 1999 and $3.2
billion for the six months ended June 30, 1999.
Australia -- The net loss for the three months and six months ended June
30, 1999 was $10 million and $5 million, respectively, compared with net
income of $5 million and $15 million for the year-ago periods. Results for
this segment include Westar/Kinetik Energy since acquisition on February 24,
1999. Increased operating revenues for the second quarter were more than
offset by higher operating expenses and increased interest costs, principally
related to the acquisition of Westar/Kinetik Energy. Year-to-date results for
1999 were impacted by lower average foreign currency exchange rates compared
to the 1998 periods, the write-off of uncollectible revenues and acquisition
related costs.
Comprehensive Income -- The loss from currency translation adjustments in
all periods principally reflects the strengthening of the US dollar against
the British pound sterling.
28
FINANCIAL CONDITION
Liquidity and Capital Resources
TXU and TXU Electric
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU's and TXU Electric's 1998 Form 10-K. Results for the three-
and six-month periods presented herein are not necessarily indicative of
expectations for a full year's operations because of seasonal and other
factors, including variations in maintenance and other operating expense
patterns. No significant changes or events which might affect the financial
condition of TXU or TXU Electric have occurred subsequent to year-end other
than as disclosed in other reports of TXU or TXU Electric or included herein.
Cash flows provided from operating activities for TXU before changes in
operating assets and liabilities for the six months ended June 30, 1999 were
$1.2 billion compared with $855 million for the comparable period in 1998
($756 million versus $796 million for TXU Electric ). The inclusion of the
winter heating results for Eastern Group more than offset a reduction in net
income for TXU Electric. Changes in operating assets and liabilities for TXU
for the six months ended June 30, 1999 provided cash flows of $140 million
versus $50 million in the comparable six-month period of 1998. The
year-to-year comparison reflects cash provided of $486 million from the sale
of receivables by the Eastern Group, which was partially offset by working
capital requirements for Eastern Group operations. Additionally, the first
six months of last year included a federal income tax refund with no like
amount in the 1999 first six months. Changes in operating assets and
liabilities for TXU Electric provided cash flows of $40 million for the first
six months of 1999 compared with $97 million for the comparable 1998 period.
Cash flows used for investing activities for the six months ended June
30, 1999 were $2.1 billion compared with $2.6 billion for the same period of
1998 ($333 million versus $275 million for TXU Electric). The February 1999
acquisition of Westar/Kinetik Energy in Australia used approximately $1.0
billion, while the purchase of the shares of TEG during the six months ended
June 30, 1998 required $2.2 billion. Construction expenditures used $718
million for the current six-month period compared with $362 million for the
comparable six-month period in 1998 ($276 million versus $240 million for TXU
Electric), primarily resulting from expenditures for Eastern Group.
External funds of a permanent or long-term nature are obtained through
the issuance of common stock, preferred stock, trust securities and long-term
debt by TXU and subsidiaries. The capitalization ratios of TXU at June 30,
1999 consisted of approximately 64% long-term debt, 5% TXU or subsidiary
obligated, mandatorily redeemable, preferred securities of subsidiary trusts,
each holding solely junior subordinated debentures of TXU or related
subsidiary (trust securities), 1% preferred stock and 30% common stock
equity. Restricted cash of $1.2 billion that collateralizes Eastern Group
lease obligations is included in other investments. Applying the cash
collateral against related lease obligations, the capitalization ratios would
consist of 63% long term debt, 5% trust securities, 1% preferred stock and 31%
common stock equity. The capitalization ratios of TXU Electric at June 30,
1999 consisted of approximately 39% long-term debt, 7% trust securities, 1%
preferred stock and 53% common stock equity.
29
During the six-month period ended June 30, 1999, TXU (including TXU
Electric) issued, redeemed, reacquired or made scheduled principal payments on
long-term debt for cash, as follows (in millions of dollars):
Issuances Retirements
--------- -----------
TXU Electric:
Brazos River Authority Pollution Control Bonds $ 111 $ 111
First Mortgage Bonds -- 230
------ ------
Total TXU Electric 111 341
TXU Eastern:
Senior Notes 1,500 --
Term Facility 1,225 --
Acquisition Facilities -- 1,225
Revolving Credit Facility (Tranche B) 378 93
Other 169 516
TXU Australia Holdings:
Acquisition Facilities 926 --
Other 134 --
TXU Corp:
Senior Notes 500 --
All Other Subsidiaries 141 4
------ ------
Total $5,084 $2,179
====== ======
See Note 5 to Condensed Consolidated Financial Statements for additional
information on new issuances of long term debt.
In May 1999, a subsidiary of TXU Eastern issued $1.5 billion of Senior
Notes in three series: $350 million at 6.15% due May 15, 2002, $650 million at
6.45% due May 15, 2005, and $500 million at 6.75% due May 15, 2009. The
proceeds of this issuance were used to reduce indebtedness incurred in
connection with the acquisition of TEG, to reduce borrowings under the
Sterling Credit Agreement and for other corporate purposes. Shortly
thereafter, TXU Eastern entered into various interest rate and currency swaps
that in effect changed the interest rate on the borrowings from fixed to
variable based on LIBOR and fixed the principal amount to be repaid in
sterling.
On June 23, 1999, TXU sold $500 million principal amount of floating rate
Senior Notes due June 25, 2001. The initial interest rate is based on
three-month LIBOR, which was 5.73% at June 30, 1999. The interest rate will
be reset quarterly. Net proceeds were used to repay commercial paper issued
by TXU.
On June 11, 1999, TXU Finance (No. 2) Limited and Eastern Electricity
entered into arrangements whereby Eastern Electricity agreed to sell up to
300 million pounds of its electricity receivables to a third party and TXU
Finance (No. 2) Limited is entitled to borrow up to an aggregate of 275
million pounds through a note issue agreement. These arrangements are
subject to an overall program limit of 550 million pounds. As of June 30,
1999, TXU Finance (No. 2) Limited had borrowed 150 million pounds ($237
million) pursuant to that agreement.
In July 1999, TXU Electric increased the amount that can be sold under
its receivables financing program to $500 million.
At June 30, 1999, TXU, TXU Electric and TXU Gas had amended joint US
dollar-denominated lines of credit under revolving credit facility agreements
(US Credit Agreements) with a group of banking institutions amounting to $2.5
billion. The US Credit Agreements have two facilities. Facility A provides
for short-term borrowings aggregating up to $1.1 billion outstanding at any
one time at variable interest rates and terminates February 25, 2000. Of
this, $800 million can be used for working capital and other general corporate
purposes. Facility B provides for borrowings aggregating up to $1.4 billion
outstanding at any one time at variable interest rates and terminates March 2,
2003. Borrowings under this facility can be used for working capital and
other general corporate purposes. The combined borrowings of TXU, TXU
30
Electric and TXU Gas under both facilities, excluding amounts restricted to
finance the acquisition of TEG, are limited to an aggregate of $2.2 billion
outstanding at any one time. TXU Electric's and TXU Gas's borrowings under
both facilities are limited to an aggregate of $1.25 billion and $650 million
outstanding at any one time, respectively. The facilities primarily
support commercial paper borrowings. At June 30, 1999, outstanding commercial
paper borrowings supported by both facilities totaled $1.8 billion.
An Eastern Electricity Revolving Credit Facility provides for short-term
borrowings for general corporate purposes of up to 250 million pounds
(approximately $395 million) outstanding at any one time and terminates March
2, 2003. No borrowings were outstanding at June 30, 1999 under this facility.
In addition, certain other non-US subsidiaries have revolving credit
agreements (denominated in both foreign currencies and US dollars)
aggregating approximately $171 million, of which $144 million was outstanding
at June 30, 1999. These revolving credit agreements expire at various dates
through 2001.
In April 1999, a subsidiary of TXU Australia Holdings entered into a
credit facility with a financial institution, expiring December 30, 1999. The
amount borrowed, A$200 million ($131 million), was used to prepay on a 20-year
agreement that serves as a hedge of Eastern Energy's future electricity
purchases for resale to its retail customers. This transaction has been
classified as a long-term liability since TXU intends to refinance this
facility on a long-term basis.
In April 1999, TXU repurchased approximately 1.7 million
shares of its outstanding common stock at a total cost of approximately $64
million. In May 1999, the Board of Directors approved an increase in the
stock repurchase program to $600 million. In July 1999, TXU repurchased an
additional 4.4 million shares at a total cost of approximately $186 million.
Currently, TXU has approximately $125 million of additional purchases
authorized.
During the six months ended June 30, 1999, TXU Electric purchased and
retired a total of 9.9 million shares of its common stock from TXU at a cost
of approximately $297 million.
United Kingdom -- At June 30, 1999, TXU Eastern and TXU Finance (No. 2)
Limited, had a joint sterling-denominated line of credit with a group of
banking institutions under a credit facilities agreement (Sterling Credit
Agreement). The Sterling Credit Agreement, as amended in March 1999, provides
for borrowings of up to 1.275 billion pounds and has two facilities: a
750 million pounds term facility which will terminate on March 2, 2003 and a
525 million pounds revolving credit facility which has a 200 million pounds
364-day tranche (Tranche A) and a 325 million pounds tranche which terminates
March 2, 2003 (Tranche B). TXU Eastern and TXU Finance (No. 2) Limited
currently are the only permitted borrowers under the amended Sterling Credit
Agreement. The amended Sterling Credit Agreement allows for borrowings at
various interest rates based on the prevailing rates in effect in the
countries in which the borrowings originate. As of June 30, 1999, 750 million
pounds ($1,183 million) of borrowings were outstanding under the term
facility, and approximately 178 million pounds ($281 million) were outstanding
under Tranche B.
Australia -- At June 30, 1999, TXU Australia Holdings had a A$1.1 billion
Senior Acquisition Facility with a group of banking institutions and TXU
Australia Holdings and Eastern Energy had a A$413 million Subordinated
Acquisition Facility with a banking institution to fund the acquisition of the
assets of Westar/Kinetik Energy. The Senior Acquisition Facility is composed
of: a A$275 million term facility due February 24, 2000 (Tranche A); a A$220
million revolving cash advance facility due February 24, 2002 (Tranche B); and
a A$605 million term facility due February 24, 2002 (Tranche C). The
Subordinated Acquisition Facility expires August 24, 1999. As of June 30,
1999, there was A$1.5 billion ($993 million) outstanding under these
facilities.
31
TXU, TXU Electric, TXU Gas and other subsidiaries of TXU may issue
additional debt and equity securities as needed, including the possible future
sale: (i) by TXU Electric of up to $499 million principal amount of debt
securities and up to $25 million of Cumulative Preferred Stock, and (ii) by
TXU Gas of up to $100 million aggregate principal amount of securities, all of
which are currently registered with the Securities and Exchange Commission
(SEC) for offering pursuant to Rule 415 under the Securities Act of 1933. In
addition, TXU may issue up to $340 million of debt securities and up to an
aggregate of $510 million of (i) debt securities, (ii) shares of its
preference stock, or (iii) preferred securities of subsidiary trusts.
Risk Management -- TXU's and TXU Electric's operations involve managing
market risks related to changes in interest rates and, for TXU, foreign
exchange and commodity price exposures. Derivative instruments including
swaps, options, futures and forward contracts are used to reduce exposure and
manage those risks. With the exception of the energy marketing activities of
a subsidiary, TXU Energy Trading Company, which uses the mark-to-market method
of accounting, TXU's and TXU Electric's participation in derivative
transactions are designated for hedging purposes and are not held or issued
for trading purposes.
No material substantive changes in the exposure to, or management of,
interest rate, foreign currency and electricity or gas price risk have
occurred subsequent to December 31, 1998 for TXU's US operations. For
information regarding certain changes in non-US derivative instruments, see
Note 6 to Condensed Consolidated Financial Statements.
Regulation, Rates and Competition
TXU and TXU Electric
Deregulation -- Legislation was passed during the 1999 session of the
Texas legislature that will restructure the electric utility industry in Texas
to, among other matters, authorize competition in the retail and generation
markets for electricity beginning January 1, 2002; provide for the recovery of
stranded costs; require reductions in nitrogen oxide and sulfur dioxide
emissions; require a rate freeze for all customers until January 1, 2002, and
certain rate reductions for residential and small commercial customers for up
to five years thereafter; and set certain limits on capacity owned and
controlled by power generation companies.
As discussed in Note 3 to Condensed Consolidated Financial Statements,
there will not be a loss upon initiating the transitional phase of
deregulation. TXU and TXU Electric are analyzing how the long-range
implications of the deregulation legislation will affect their respective
financial positions, results of operations and cash flows. For further
discussion of the accounting impact of the restructuring of the electric
utility industry in Texas, see Note 3 to the Condensed Consolidated Financial
Statements.
Other -- TXU Electric has reached an agreement in principle with all
intervening parties to refund $52 million to consumers, as part of the fuel
reconciliation proceeding currently in progress at the PUC. The refund, which
will appear as a one-time credit on customer bills during the September
billing cycle, is approximately 1% of the $5.04 billion spent by TXU Electric
for fuel to generate electricity from July 1, 1995 to June 30, 1998.
TXU Electric and certain other regulated subsidiaries of TXU have several
rate requests or refunds pending or on appeal. (See Note 7 to Condensed
Consolidated Financial Statements for a discussion of the impact of these
various issues.) With regard to Eastern Group, the regulation of distribution
and supply charges is currently subject to review by the Office of Gas and
Electricity Markets covering England, Wales and Scotland (OFGEM). On August
12, 1999, OFGEM issued a draft report proposing a range of net revenue
reductions for the distribution businesses of all Regional Electric Companies
in the UK. In September 1999, OFGEM is expected to issue proposed price
adjustments for the electric supply businesses. The final OFGEM report is
expected at the end of November 1999 and both distribution and supply price
adjustments are expected to become effective April 1, 2000. TXU is analyzing
the draft proposal and cannot predict at this time either the final price
adjustments that will be applicable to Eastern Group or the ultimate impact of
such adjustments on TXU's financial position, results of operations or cash
flows.
32
CHANGE IN ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", will be effective for TXU and TXU Electric beginning January 1,
2001. This standard requires that all derivative financial instruments be
recognized as either assets or liabilities on the balance sheet at their fair
values and that accounting for the changes in their fair values be recorded in
earnings or common stock equity as part of comprehensive income depending upon
the intended use of the derivatives and their resulting designations. Many
existing contracts relating to electric and gas purchases and sales may be
classified as derivatives under the definition of derivatives in the new
standard. The new standard will supersede or amend existing standards that
deal with hedge accounting and derivatives. TXU and TXU Electric have not yet
determined the effect adopting this standard will have on their financial
statements.
YEAR 2000 ISSUES
TXU and TXU Electric
Overview
Many existing computer programs use only the last two digits to identify
a year in the date field. Thus, they would not recognize a year that begins
with 20 instead of 19. If not corrected, many computer applications could
fail or produce erroneous data on or about the year 2000.
TXU began its US efforts to address Year 2000 (Y2K) issues in 1996 by
focusing on information technology mainframe-based application systems (IT
Corporate Applications). In early 1997, an infrastructure project to address
TXU's information technology (IT) related hardware, operating systems and
desktop software was begun (IT Infrastructure). In late 1997, a project was
begun to address Y2K issues throughout TXU related to embedded systems, such
as process controls for energy production and delivery, and
business-unit-owned applications (Non-IT Equipment and Applications).
Applications and equipment in each of these three major initiatives have
been inventoried and categorized based on their criticality to TXU's business
operations. Assessments of the potential impact due to Y2K issues are
essentially complete. This process includes the solicitation of vendor
feedback, comparing information with other energy companies, and in many cases
internal verification by testing. The remediation and testing work on IT
Corporate Applications currently stands at approximately 95% complete. The IT
Infrastructure project is currently 90% complete. Remediation work on
embedded systems is currently 94% complete.
Readiness
TXU reported its readiness to the North American Electric Reliability
Counsel (NERC) and the Nuclear Regulatory Commission (NRC) on June 30, 1999.
In the NERC report, all mission critical work was confirmed as complete with
three exceptions: Tradinghouse Unit 2; a 900 megahertz radio system and
Comanche Peak Unit 1. Work on Tradinghouse Unit 2 has been completed as
indicated in a follow-up report to NERC on July 20, 1999.
The IT Corporate Applications remediation and testing activities are
approximately 95% complete. Certification for the Y2K compliance on all
mission critical business applications was completed as scheduled.
Certification of remaining applications is scheduled for the third quarter of
1999.
The IT Infrastructure project involves assessing the compliance of
standard computer hardware, network systems including gateways, hubs and
routers, telecommunications equipment, operating systems and IT standard
software products. Equipment is being individually tested using software
products and applicable test procedures. Network system tests have been
performed. Ninety percent of the IT Infrastructure is Y2K ready. All mission
critical equipment is ready with one exception, TXU's 900 megahertz radio
system which is being upgraded and is scheduled to be completed in September
33
1999. Mainframe computers and support equipment within the data center have
received all necessary upgrades. Other remediation schedules on non-critical
equipment was adjusted during the first quarter to improve the cost
effectiveness of the work. Non critical equipment in remote sites will be
remediated throughout the third quarter.
Non-IT Equipment and Applications involve the hardware and software
products that reside in individual business units. These items include the
embedded systems that are used in the production, energy delivery, and other
processes of TXU. Overall this project is at 94% completion, with Comanche
Peak Unit 1 as the one mission critical item remaining, which TXU plans to
complete in November during its fall refueling outage. TXU has implemented a
specific Y2K program at Comanche Peak. Inventories were completed by mid-1998
and detailed assessments were made by December 1998. Comanche Peak generating
station Unit 2 is Y2K ready. A plant training simulator is also being
upgraded with a scheduled completion date in October 1999.
TXU is analyzing the potential impact of Y2K compliance efforts of third
parties. Over 2000 suppliers and service providers have been contacted to
determine the status of their Y2K efforts. Ninety-nine percent of the top 500
key suppliers have responded. Fifty-six of the key suppliers have been audited
by TXU's procurement services organization. Each supplier has reported it
will be ready for Y2K. The more significant interdependencies relate to
telecommunications and gas suppliers. On site audits of a limited number of
these significant third parties have been performed and readiness verified.
Additional reviews will be conducted throughout the third quarter.
Costs
The costs associated with TXU's Y2K efforts for its US energy businesses
are currently estimated to be approximately $40 million. These costs reflect
new, incremental costs and the reallocation of resources in pre-existing
maintenance budgets. New costs added to the estimate during the second quarter
include the cost to upgrade the 900 megahertz radio system, the cost of a
third party assessment of the Y2K program, additional cost associated with the
remediation of business personal computers (PC's), and additional projected
cost in the event that further effort is required during the year 2000. The
costs related to the three major initiatives are estimated to be as follows:
IT Corporate Applications - $15 million; IT Infrastructure - $10 million; and
Non IT-Equipment and Applications - $15 million. These costs are being
expensed as incurred over the period 1996 to 2000; and a total of
approximately $30 million has been expended through June 30, 1999. There can
be no assurance that these estimated costs will not change as TXU's Y2K
program continues.
Strategic initiatives were begun in two areas prior to beginning work on
the Y2K issue, and the costs for these initiatives are not included in the
estimate above. The energy management system for TXU's transmission grid is
being replaced. TXU's principal financial and accounting system has been
replaced. Each of these projects will eliminate potential Y2K deficiencies;
however, that was not a significant consideration at the time replacement
decisions were made.
TXU Communications Company (formerly reported as LCC) is entering the
final phase of work on its Y2K project. Only a small number of issues remain
outstanding as of June 30, 1999. IT applications affected by Y2K issues are
being replaced by systems with dramatically increased functionality. The
total cost of the effort is estimated to be $5 million, which is being
expended through 1999. As of June 30, 1999, estimated costs expended were
approximately $3 million. Remediation of IT applications is scheduled to be
complete in August 1999. Remediation of embedded systems is scheduled to be
complete in the third quarter of 1999. Testing is continuing for both IT
applications and embedded systems, and most of these testing activities are
complete. Mission-critical issues still outstanding include the remediation of
the customer billing system, scheduled for completion in August 1999, and
remediation and testing of certain components of the long distance
infrastructure, scheduled for completion in the third quarter of 1999. TXU
Communications filed its Y2K Contingency Plan with the PUC on June 30, 1999.
34
Risk Issues
With respect to internal risks, TXU's current assessment of the most
reasonably likely worst case scenario is that impacts on either service or
financial performance will not be materially adverse. TXU believes, based on
the results of testing that has already occurred on a large portion of its
production equipment with embedded systems, that if any disruption to service
occurs, it will be isolated and of short-term duration. TXU continues to
collaborate with other major energy suppliers through the joint Electric Power
Research Institute's embedded systems project.
NERC is continuing to evaluate the status of the electric infrastructure
throughout North America. TXU is a participant in this process. The fourth
NERC status report, issued on August 3, 1999, indicated that the transition
through critical Y2K dates was expected to have minimal impact on electrical
systems in North America. With continued work and coordinated contingency
planning, operating risks can be effectively mitigated. Results from TXU's
testing program compare favorably with the results on which the NERC
conclusions have been based. NERC will perform scenario analyses of potential
risks to the electric infrastructure during the third quarter. Joint industry
testing between the electric industry and the telecommunications industry was
performed during the second quarter of 1999.
As TXU's Y2K program proceeds, TXU will continue to assess its internal
and external risks, not all of which are within its control; and it will
continue to consider the most reasonably likely worst case scenario. There
can be no assurance that all material Y2K risks within TXU's control will have
been adequately identified and corrected before the end of 1999. In addition,
TXU can make no assurances regarding the Y2K readiness of systems and parties
outside its control or the effect on TXU if those parties are not Y2K
compliant.
Contingency Plans
TXU has in place detailed emergency response and disaster recovery plans
designed to ensure high reliability of service to customers. These plans are
utilized routinely for abnormal service conditions. These plans have been
reviewed to identify required actions specific to the Y2K issue. Y2K
contingency plans were developed and filed with the PUC on June 30, 1999.
These Y2K contingency plans address both TXU activities and actions necessary
to mitigate the impact of third party disruptions. These contingency plans
have been coordinated with those of the Electric Reliability Council of Texas
(ERCOT) and NERC. TXU will continue to refine and test these plans throughout
the remainder of 1999.
International Operations - Y2K Programs
TXU
Australia
Overview
TXU Australia Holdings initiated a Y2K Program in the third quarter of
1997 with the compilation of a Y2K inventory of supported IT assets and
systems. An IT Project Manager was appointed and a consultant engaged to
develop a Y2K remediation plan for items in the inventory assessed as having
Y2K risk. A consulting firm was engaged in early 1998 to provide a methodology
for addressing the Y2K risks of all other assets and systems. The consulting
firm was subsequently retained to establish a Y2K Program Office and complete
a non-IT inventory. A Y2K structure was also established in 1998 and a full
time Program Director appointed to bring all activities together into a single
TXU Australia Holdings Y2K Program. A gas distribution business and a gas
retail business were purchased in early 1999, and the Y2K Programs of these
businesses were incorporated into TXU Australia Holdings Y2K Program in April
1999. This increased the number of individual Y2K projects within TXU
Australia Holdings to 79.
35
Readiness
Y2K testing has been completed for 78 of the projects and remediation
activities have been completed for 75 of the projects. The outstanding Y2K
testing is associated with TXU Australia Holdings' System Control and Data
Acquisitions (SCADA) system and is scheduled for completion in third quarter
of 1999. SCADA is considered a mission critical system and therefore,
contingency plans have been established that include alternative methods for
all untested and known non-compliant assets associated with the SCADA project
so that it could be declared "Y2K Ready". All outstanding remediation
activities are considered to be minor and are scheduled for completion by the
end of August 1999.
Costs
As a result of lower than anticipated remediation efforts, the estimated
costs associated with the TXU Australia Holdings Y2K Program have been lowered
to approximately $1.9 million from $2.3 million . Some additional costs
included in capital budgets for new IT systems are not reflected in these Y2K
costs. Approximately $1.6 million was spent through the end of June 1999, with
an additional $0.3 million expected to be spent throughout the remainder of
1999. There can be no assurance that these estimates will not change as a
result of the discovery of unexpected additional remediation work identified
during Y2K testing.
Risk Issues
With respect to internal risks, TXU Australia Holdings' current
assessment of the most reasonably likely worst case scenario is that impacts
on either service or financial performance will not be materially adverse. TXU
Australia Holdings believes, based on the results of testing that has already
occurred on a large portion of operating equipment, that if any disruption to
service occurs, it will be isolated and of short-term duration.
The completion of Y2K testing has not revealed any significant Y2K
related failures. Any discovered Y2K related failures have been remediated to
mitigate the impact of failure on TXU Australia Holdings. No Y2K related
failures have been identified that have the potential to interrupt energy
delivery to customers. Though some residual energy supply risk will always
remain, joint activities undertaken with upstream energy suppliers has given
TXU Australia Holdings an appropriate level of confidence in this area.
Internal audits have been conducted on TXU Australia Holdings' Y2K
Program by consulting firms on four separate occasions and a detailed external
audit has recently been completed by the Victorian Office of the Regulator
General (ORG). The ORG audit report is due for publication during the third
quarter of 1999.
Contingency Plans
Y2K contingency plans have been completed at the asset level and are
approximately 75% complete at the project level. Work has commenced on the
development of a business wide Y2K contingency program that brings together
all of the lower level Y2K contingency plans and disaster recovery plans. It
is expected that this work will be complete by the end of August 1999.
Testing and refinement of Y2K contingency plans will continue for the
remainder of 1999. Y2K contingency planning will also be conducted on a state
level with the rest of the Victorian Electricity Supply Industry and
on a national level through the National Electricity Market Management Company.
36
UK/Europe
Overview
In the UK, Eastern Group established a program of projects in August 1996
designed to ensure that all its systems are Y2K compliant. In testing for
conformity, the Eastern Group uses the revised version of the British
Standards Institute's definition of Y2K conformity. Eastern Group's Y2K
Program is sponsored by the Chief Executive and managed by a board consisting
of Eastern Directors and Senior Managers. Each project has six phases:
inventory, risk assessment, analysis, remediation, testing and contingency
planning.
Readiness
During the second quarter of 1999, the focus has moved to contingency
planning and completing formal certification of remediated systems, both IT
and embedded. The overall percentage completion was 93% at June 30, 1999, and
the plan is to have all existing systems certified by September 1999.
Eastern Energy -- The inventory, risk assessment and analysis of the
Eastern Electricity mainframe systems were completed in June 1997. All the
COBOL code was fixed by November 1998. The remediation work for the mainframe
operating system was completed in March 1999 and the plan, which is on
schedule, is to complete the testing work by the third quarter of 1999. The
Eastern Electricity IT systems project has inventoried and assessed all of the
systems and the plan, which is on schedule, is to test all remaining systems
for compliance by September 1999.
Eastern Power and Energy Trading (EPET) -- The EPET IT project has
inventoried and assessed all of the systems and the schedule is to test the
existing systems for compliance in August 1999.
Metering -- The Metering IT project has inventoried and assessed all of
the systems, and all tests are to be completed in August 1999. Lengthy
negotiations with the suppliers of the two makes of electricity meters that
are not fully Y2K compliant are largely concluded. The remediation for these
electricity meters (which does not affect the security of supply, but only the
ability to charge tariffs) is planned for completion by September 1999.
Generation -- Remediation products for three of the eight power station
turbine control systems were not available from the affected suppliers in time
for the planned summer shutdowns in 1998; remediation for some power station
control systems will not be completed until September 1999. The Generation IT
project has inventoried and assessed all of the systems. All existing systems
are to be tested for compliance by September 1999.
Networks Distribution -- All the electricity distribution embedded
systems have been checked, and testing was completed on all but one of the
systems by December 31, 1998. The Networks IT project has inventoried and
assessed all of the systems and the plan, which is on schedule, is to test all
existing systems for compliance by September 1999.
IT -- The infrastructures PABX system has been upgraded to be Y2K
compliant. The IT infrastructure is currently based on a mixture of hardware
and operating systems connected by local and wider area networks (LAN/WAN).
The remediation of all servers is complete. The network infrastructure is
being upgraded to ensure the existing LAN/WAN is Y2K compliant in August 1999.
Overall Eastern Group Program -- Since October 1996, a Y2K compliance
requirement has been included in Eastern Group's purchasing standard terms and
conditions for its purchasing contracts. New projects and systems during 1999
should not affect the scope and objectives of the above projects and the
Program. Eastern Group's operations are also exposed, to an unquantifiable
degree, to the failure of third parties to deal with their Y2K exposure.
Assurances about Y2K compliance have been received from most suppliers with
whom the Eastern Group does not have contracts for existing IT and embedded
systems that must be Y2K compliant.
37
Costs
As a result of lower than anticipated remediation efforts, the estimated
costs associated with Eastern Groups Y2K program have been lowered to
approximately $23 million from $33 million. These costs include all Y2K
related activities. They do not include the cost of achieving Y2K compliance
for new IT systems installed in connection with the opening up of the domestic
UK electricity retail market to competition, new systems installed to meet
other business needs, or the cost of developing contingency plans for the
energy management business.
Costs of addressing the Y2K issue are being expensed as incurred.
Amounts expended through June 30, 1999 totaled $11 million. Cost expenditures
for the remainder of 1999 are estimated at $9 million and an additional $4
million for 2000.
Risk Issues and Contingency Plans
With respect to internal risks, Eastern Group's current assessment of the
most reasonably likely worst case scenario is that impacts on either service
or financial performance will not be materially adverse. The Eastern Group
believes, based on the results of testing that has already occurred on a large
portion of production equipment with embedded systems, that if any disruption
to service occurs, it will be isolated and of short-term duration.
All Eastern Group's operations are dependent on both IT and embedded
systems. Eastern Group already has contingency plans for all business
critical operations, except the trading business for which contingency plans
now have been developed. The existing contingency plans cover realistic
failure scenarios and are regularly tested.
The review of all contingency plans to cover realistic scenarios
involving failures resulting from Y2K issues was completed by some businesses
and is 80% complete for the rest. A Millennium Operating Regime (MOR) has
been agreed upon with the various businesses to provide additional staff
during the weekend of December 31, 1999 to January 1, 2000. The MOR will be
completed in October 1999.
Two internal audits of the Y2K Program were completed in April 1998 and
August 1998. The Office of Electric Regulation covering England, Wales and
Scotland audited the Y2K Program in January 1999, and the Office of Gas Supply
audited the Y2K Program in May 1999.
Eastern Group is working with its equipment and service suppliers to
ensure their products and services are Y2K compliant. Reviews were completed
by December 1998. Eastern Group believes that any failure of such suppliers
to be compliant is unlikely to have a material effect on Eastern Group or its
operations. Eastern Group's operations are heavily dependent upon the
reliability of the high voltage transmission system in England and Wales and
on the operations of the wholesale trading market for electricity in England
and Wales. The owners and operators of those systems have taken the position
that they anticipate no material disruptions of service.
FORWARD - LOOKING STATEMENTS
TXU and TXU Electric
This report and other presentations made by TXU or TXU Electric contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU and TXU Electric each believe
that in making any such statement its expectations are based on reasonable
assumptions, any such statement involves uncertainties and is qualified in its
entirety by reference to factors contained in the Forward-Looking Statements
section of Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations in TXU's and TXU Electric's Annual Reports
on Form 10-K for the year 1998 (1998 Form 10-K), as well as, general industry
trends; implementation of the Texas electricity deregulation legislation;
power costs and availability; changes in business strategy, development plans
or vendor relationships; availability of qualified personnel; changes in, or
38
the failure or inability to comply with, governmental regulations, including,
without limitation, environmental regulations; changes in tax laws; and access
to adequate transmission facilities to meet changing demands, among others,
that could cause the actual results of TXU or TXU Electric to differ
materially from those projected in such forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and neither TXU nor TXU Electric undertakes any obligation
to update any forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for TXU or TXU Electric to predict all of such factors, nor can they
assess the impact of each such factor or the extent to which any factor, or
combination of factors, may cause results to differ materially from those
contained in any forward-looking statement.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for TXU and TXU Electric is not
significantly different from the information set forth in Item 7A.
Quantitative and Qualitative Disclosures About Market Risk are included in the
1998 Form 10-K and are therefore not presented herein, except for certain
changes in non-US derivatives as discussed in Note 6 to Condensed Consolidated
Financial Statements. Similar information for recently acquired Westar/Kinetik
Energy in Australia is not presently available without undue cost and effort
and is, therefore, not presented herein.
39
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
TXU
Texas Utilities Company held its Annual Meeting of Shareholders on May
14, 1999. The following items were presented to the shareholders with the
following results:
Votes
Withheld or
Election of Directors Votes for Against Abstentions
-------------------------- ----------- --------- -----------
Derek C. Bonham 242,651,144 2,001,360 None
J. S. Farrington 241,339,897 3,312,607 None
William M. Griffin 242,623,209 2,029,295 None
Kerney Laday 242,732,647 1,919,857 None
Margaret N. Maxey 242,624,503 2,028,001 None
James A. Middleton 242,799,699 1,852,805 None
Erle Nye 242,759,715 1,892,789 None
J. E. Oesterreicher 242,784,578 1,867,926 None
Charles R. Perry 242,703,887 1,948,617 None
Herbert H. Richardson 242,722,663 1,929,841 None
Selection of Deloitte & Touche LLP
as Independent Accountants 242,897,361 474,889 1,280,251
Stock Split 240,767,949 2,503,150 1,381,403
Increase in Authorized Shares 217,575,533 24,771,161 2,305,807
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
TXU and TXU Electric
(a) Exhibits filed as a part of Part II are:
3(a) Articles of Amendment, effective June 14, 1999 to The Articles of
Incorporation of Texas Utilities Electric Company.
3(b) Bylaws of TXU Electric, as restated August 1, 1999.
15 Letters from independent accountants as to unaudited interim
financial information
15(a) - Deloitte & Touche LLP -Texas Utilities Company
15(b) - Deloitte & Touche LLP -TXU Electric Company
27 Financial Data Schedules
27(a) -Texas Utilities Company
27(b) -TXU Electric Company
(b) Reports on Form 8-K filed since March 31, 1999:
TXU
Date of Report Item Reported
-------------- -------------
June 18, 1999 Item 5. Other Events
August 6, 1999 Item 4. Change in Certifying Accountant of
TXU Eastern Holdings Limited
TXU Electric
Date of Report Item Reported
-------------- -------------
June 18, 1999 Item 5. Other Events
40
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXAS UTILITIES COMPANY
(doing business as TXU Corp)
By /s/ Jerry W. Pinkerton
------------------------------
Jerry W. Pinkerton
Controller and Principal
Accounting Officer
Date: August 13, 1999
- -----------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TXU ELECTRIC COMPANY
(formerly Texas Utilities Electric Company)
By /s/ Jerry W. Pinkerton
-----------------------------
Jerry W. Pinkerton
Controller and Principal
Accounting Officer
Date: August 13, 1999