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News [TXU LOGO OMITTED]
Release
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1601 Bryan Street
Dallas, Texas 75201-3411
FOR IMMEDIATE RELEASE
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TXU REPORTS STRONG FOURTH QUARTER AND FULL YEAR RESULTS; AFFIRMS OUTLOOK
`YEAR OF TRANSITION' SUCCESSFUL
`
DALLAS - FEBRUARY 2, 2005 - TXU Corp. (NYSE: TXU) today reported consolidated
results for the fourth quarter and full year ended December 31, 2004.
o For the fourth quarter of 2004, TXU reported a net loss available for
common stock of $626 million, $2.32 per share, compared to net income of
$23 million, $0.07 per share for 2003.
o Operational earnings(1), which exclude special items, for the fourth
quarter of 2004 were $183 million, $0.67 per share of common stock,
compared to $34 million, $0.11 per share for 2003, a 509 percent increase
in per share earnings.
o For the full year 2004, TXU reported a net loss available for common
stock of $386 million, $1.29 per share, compared to net income of $560
million, $1.62 per share for 2003.
o Operational earnings for the full year were $887 million, $2.82 per
share, compared to $544 million, $1.58 per share for 2003, a 78 percent
increase in per share earnings.
REPORTED EARNINGS
For the fourth quarter, TXU reported a net loss available for common stock of
$626 million, $2.32 per share, as compared to net income available for common
stock of $23 million, $0.07 per share for 2003. For the fourth quarter of 2004,
reported earnings include a loss from discontinued operations(2) of $288
million, $1.07 per share, and a benefit from cumulative effect of change in
accounting principle of $10 million, $0.04 per share. Results from continuing
operations before cumulative effect of change in accounting principle were a
loss of $341 million, $1.27 per share, for the fourth quarter 2004 compared to
income of $39 million, $0.12 per share for 2003. The loss from continuing
operations for the fourth quarter of 2004 includes special items, primarily
associated with the company's restructuring and performance improvement program,
totaling $531 million, $1.94 per share, in net charges (after tax).
For the full year 2004, TXU reported a net loss available for common stock of
$386 million, $1.29 per share, compared to income of $560 million, $1.62 per
share for 2003. Income from continuing operations before extraordinary gain and
cumulative effect of changes in accounting principles was $81 million, $0.27 per
share as compared to $566 million, $1.63 per share for 2003. Income from
continuing operations for 2004 includes special items totaling $828 million,
$2.58 per share, in net charges (after tax).
The cumulative effect of change in accounting principle for 2004, a credit of
$10 million, $0.04 per share for the quarter and $0.03 per share for the year,
resulted from the adoption, effective October 1, 2004, of Statement of Financial
Accounting Standards No. 123, "Share-Based Payment" as revised (SFAS 123R).
Reported and operational earnings per share are diluted. For periods when common
stock equivalents are not dilutive, diluted shares are equal to basic shares
outstanding.
OPERATIONAL EARNINGS
Operational earnings, which exclude special items, for the fourth quarter of
2004 were $183 million, $0.67 per share, compared to $34 million, $0.11 per
share for 2003, a 509 percent increase in per share earnings. TXU's Energy and
Electric Delivery segments' significantly improved operational performance,
reduced corporate expenses, and fewer average common shares contributed to the
improved results.
- ----------------------------
(1) Operational earnings is a non-GAAP measure that adjusts net income for
special items. See attachment 1: Financial Definitions for a detailed
definition of operational earnings and other GAAP and Non-GAAP financial
measures used in this release.
(2) See Table 20 for details of discontinued operations.
1
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Operational earnings for the full year were $887 million, $2.82 per share,
compared to $544 million, $1.58 per share for 2003, a 78 percent increase in per
share earnings. TXU's Energy and Electric Delivery segments' improved
operational performance, reduced corporate expenses, and fewer average common
shares contributed to the improved results.
OUTLOOK AFFIRMED(3)
TXU Corp. affirmed its outlook for 2005 operational earnings of $5.65 to $5.85
per share of common stock. Additionally, the company affirmed its preliminary
outlook for 2006 operational earnings in a range of 16 to 20 percent improvement
relative to the $5.75 midpoint of the 2005 outlook. Additional details regarding
expectations for 2005 are provided on page 16.
"We had a very strong quarter both financially and operationally. For the full
year, our restructuring program is working as evidenced by our nearly 80 percent
improvement in operational earnings," said C. John Wilder, chief executive
officer, TXU Corp. "We have substantially improved customer service, restored
financial flexibility, improved credit metrics and lifted the earning and cash
power of the company. In 2005, we will continue the transformation of TXU into a
high-performance industrial company through a focus on operational excellence,
market leadership, and performance management in our three core businesses,
while at the same time evaluating potential growth opportunities."
EARNINGS TELECONFERENCE TODAY
TXU will host a teleconference with financial analysts to discuss 2004 results
at 10:00 a.m. Central (11:00 a.m. Eastern) today. The telephone numbers are
800-309-0343 in the United States and Canada and 706-634-7057 internationally,
with confirmation code 3138891. THE TELECONFERENCE WILL BE WEB CAST LIVE ON TXU
CORP.'S WEB SITE AT WWW.TXUCORP.COM FOR ALL INTERESTED PARTIES.
Table 1 provides a recap of operational highlights for 2004 and January 2005.
- ------------------------
(3) TXU Corp. does not provide net income outlook because it cannot reliably
predict future special items or extraordinary events.
2
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TABLE 1: 2004 HIGHLIGHTS
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HIGHLIGHT
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MANAGEMENT: Named C. John Wilder as chief executive officer in February 2004 and
in May named the senior leadership team of Tom Baker, chairman and chief
executive of TXU Electric Delivery; Mike Greene, chairman and chief executive of
TXU Power; Paul O'Malley, chairman and chief executive of TXU Energy; Kirk
Oliver, executive vice president and chief financial officer; Eric Peterson,
executive vice president and general counsel; and David Campbell, executive vice
president of corporate planning, strategy and risk.
.................................................................................
STRATEGY: Implemented a three-phase restructuring and operational improvement
program to restore financial strength, drive performance improvement with a
competitive industrialized company perspective, and allocate capital in a
disciplined and efficient manner.
.................................................................................
PORTFOLIO RESTRUCTURING: Completed the sale of non-core businesses, TXU
Communications, TXU Fuel Company, TXU Australia, and TXU Gas Company, for cash
proceeds and assumed debt of $6.5 billion.
.................................................................................
LIABILITY MANAGEMENT: Used proceeds from sales, cash balances and borrowings to
improve financial strength, redeploying over $14 billion to purchase, repay or
defease $7.2 billion of debt and preferred securities, reduce diluted shares
outstanding by 141 million, avoid issuance of as many as 36 million shares of
common stock, and invest in core businesses. Overall, total debt (excluding
off-credit transition bonds) was reduced from approximately $13.9 billion at the
end of 2003 to $11.6 billion in 2004. Credit metrics, including EBITDA to
interest and debt to EBITDA, are expected to improve from third and
fourth-quartile industry levels in 2003 to at or near top-quartile levels by the
end of 2005.
.................................................................................
PERFORMANCE IMPROVEMENTS: Began phase two of the restructuring and operational
improvement program with the implementation of the TXU Operating System,
strategic sourcing, and other initiatives to achieve operational excellence and
cost leadership, commercial excellence and customer service leadership and human
performance leadership all focused on driving and rewarding high performance.
Also began implementation of performance initiatives on continued investment in
transmission and distribution infrastructure to reduce congestion, improve
reliability and serve native load growth; continued improvement of customer
service and customer retention through streamlined voice response systems,
improved first call resolution and customer satisfaction rates, loyalty reward
programs and other initiatives; continued improvement in optimization of
purchased power versus higher heat rate gas generation to reduce fixed costs and
costs of electricity sold; and continued investment in the communities served
through financial aid to assist with electric bills and other programs. Launched
a partnership with Capgemini Energy, a joint-venture providing business support
services to TXU, transferring approximately 3,000 full-time and contracted TXU
employees to the new company, enabling improved customer service and providing
estimated cost savings of approximately $175 million by 2005.
.................................................................................
CAPITAL ALLOCATION: Began phase three of the restructuring and operational
improvement program by refining the capital allocation strategy to adhere to a
disciplined and dynamic capital allocation approach, rebasing the dividend from
an annual rate of $0.50 to $2.25 per share of common stock (a 350 percent
increase) and establishing a framework for future growth. Refinement of this
framework and evaluation of attractive opportunities will be a management
priority in 2005.
.................................................................................
RISK REDUCTION: Settled a consolidated shareholder class action suit and
potential claims from TXU Europe Ltd. and its major creditors, significantly
eliminating legal proceeding exposure.
.................................................................................
GOVERNANCE REFORM: Initiated a program to achieve corporate governance best
practices, which included hiring a chief governance officer; conducting an
intensive governance workshop; implementing age and membership requirements for
board members, and selecting Dr. Jack Little as Lead Independent Director.
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CONSOLIDATED RESULTS
Tables 2a and 2b reconcile operational earnings to reported net income available
for common stock and show the shares and adjustments included in the calculation
of diluted earnings per share.
TABLE 2A: RECONCILIATION OF OPERATIONAL EARNINGS TO REPORTED NET INCOME
Q4 04 VS. Q4 03, YTD 04 VS. YTD 03; $ PER SHARE AFTER TAX
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FACTOR Q4 04 Q4 03 YTD 04 YTD 03
============================================================== ============== =============== =============== ==============
NET INCOME (LOSS) TO COMMON (2.32) 0.07 (1.29) 1.62
............................................................... .............. ............... ............... ..............
Discontinued operations 1.07 0.03 (1.26) (0.20)
............................................................... .............. ............... ............... ..............
Extraordinary gain - - (0.05) -
............................................................... .............. ............... ............... ..............
Cum. effect of changes in accounting principles (0.04) - (0.03) 0.15
............................................................... .............. ............... ............... ..............
Premium on EPMIs - - 2.83 -
............................................................... .............. ............... ............... ..............
Preference stock dividends 0.02 0.02 0.07 0.06
............................................................... .............. ............... ............... ..............
INCOME (LOSS) FROM CONTINUING OPERATIONS (1.27) 0.12 0.27 1.63
............................................................... .............. ............... ............... ..............
Preference stock dividends (0.02) (0.02) (0.07) (0.06)
............................................................... .............. ............... ............... ..............
Effect of diluted shares calculation 0.02 0.01 0.04 0.01
............................................................... .............. ............... ............... ..............
Special items 1.94 - 2.58 -
............................................................... .............. ............... ............... ..............
OPERATIONAL EARNINGS 0.67 0.11 2.82 1.58
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3
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Table 2b demonstrates the dilution calculation for reported and operational
earnings per share for fourth quarter and full year 2004.
TABLE 2B: CALCULATION OF EARNINGS PER SHARE(4)
Q4 04 AND YTD 04; $MILLIONS, MILLION SHARES, $ PER SHARE
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Q4 04 Q4 04 YTD 04 YTD 04
FACTOR REPORTED OPERATIONAL REPORTED OPERATIONAL
============================================================== ============== =============== =============== ==============
NET LOSS TO COMMON (626) (386)
............................................................... .............. ............... ............... ..............
OPERATIONAL EARNINGS 183 887
............................................................... .............. ............... ............... ..............
Interest on EPMIs, convertible senior notes - - - 18
............................................................... .............. ............... ............... ..............
DILUTED EARNINGS
............................................................... .............. ............... ............... ..............
Basic shares 270 300
............................................................... .............. ............... ............... ..............
Diluted shares 274 321
............................................................... .............. ............... ............... ..............
DILUTED EARNINGS PER SHARE (2.32) 0.67 (1.29) 2.82
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Special items in the fourth quarter and year-to-date 2004 periods primarily
relate to TXU Corp.'s major restructuring and operational improvement program.
Because of the nature and significance of these items, presentation of results
after adjustment for the items allows for a more meaningful analysis of the
underlying performance of the business. Special items in the fourth quarter
relate primarily to debt retirement expenses associated with the company's
liability management program, lease termination and impairment expenses related
principally to gas-fired combustion turbines and certain mining equipment,
expenses associated with the termination of a power purchase and tolling
agreement and realization of the deferred gain on the sale of the related power
plants, accrual of a reserve for a potential rate case settlement in the
Electric Delivery segment and severance and certain other expenses related to
the company's operational improvement program, somewhat offset by the adjustment
to a litigation settlement reserve as a result of settlement of a class action
suit. Special items for the year-to-date period also include software project
write-offs related to the business services outsourcing partnership, Capgemini
Energy, other severance-related charges arising from organizational
realignments, a write-down of spare parts inventories for excess items on hand,
impairments of generation-related assets due to closures, one-time compensation
expenses and the expense for settlement of a class action lawsuit, somewhat
offset by the benefit of a reduction in tax reserves associated with the 2002
write-off of the TXU Europe investment. Special items are described in Table 3.
- -----------------------------
(4) For the fourth quarter 2004, the dilution calculation for operational
earnings reflects the addition to net income of interest on the
convertible senior notes of $0.2 million after tax and addition of 4.2
million shares related primarily to the effect of share-based
compensation (3.4 million), the convertible senior notes (0.7 million)
and the equity-linked securities (0.1 million). For the year 2004
operational earnings dilution calculation, the $17.2 million after-tax
interest expense on the TXU Energy Co. exchangeable preferred membership
interests (EPMIs), which were repurchased by TXU Corp. on April 26, 2004,
and the $0.6 million after-tax interest on the senior convertible notes
are added to net income and 20.3 million shares are added to the share
average share count, related primarily to the effect of the EPMIs (18.3
million), share-based compensation (1.3 million), and the convertible
senior notes (0.7 million) . The diluted earnings per share calculation
for the year 2003 adds the $53 million of interest expense on the EPMIs
to net income and divides by the 379 million average diluted shares.
4
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TABLE 3: DESCRIPTION OF SPECIAL ITEMS
Q4 04 AND YTD 04; $MILLIONS AND $ PER SHARE AFTER TAX
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MAIN EARNINGS YTD YTD YTD 04 YTD 04
SPECIAL ITEM CATEGORY Q4 04 Q4 04 04 04 CASH NON-CASH(5)
======================================= =================== ======== ========= ========= ========= =========== ===============
Energy segment:
........................................ ................... ........ ......... ......... ......... ........... .............
Software projects write-off Other deductions - - 69 0.22 - 69
........................................ ................... ........ ......... ......... ......... ........... .............
Severance and related expenses Other deductions 11 0.04 72 0.22 45 27
........................................ ................... ........ ......... ......... ......... ........... .............
Inventory/gas plant write-downs Other deductions - - 55 0.17 55
........................................ ................... ........ ......... ......... ......... ........... .............
Lease termination expense Other deductions 117 0.43 117 0.37 15 102
........................................ ................... ........ ......... ......... ......... ........... .............
Power contract settlement expense Other deductions 66 0.24 66 0.20 112 (46)
........................................ ................... ........ ......... ......... ......... ........... .............
Disposition of property Other income (38) (0.14) (50) (0.15) (12) (38)
........................................ ................... ........ ......... ......... ......... ........... .............
Other charges Other deductions 9 0.03 10 0.03 10
........................................ ................... ........ ......... ......... ......... ........... .............
Electric Delivery segment:
........................................ ................... ........ ......... ......... ......... ........... .............
Rate case settlement reserve Other deductions 14 0.05 14 0.04 - 14
........................................ ................... ........ ......... ......... ......... ........... .............
Severance/other expenses Other deductions 6 0.02 19 0.06 11 8
........................................ ................... ........ ......... ......... ......... ........... .............
Corporate and Other:
........................................ ................... ........ ......... ......... ......... ........... .............
One-time compensation expense SG&A - - 51 0.16 51 -
........................................ ................... ........ ......... ......... ......... ........... .............
Transaction professional fees SG&A 15 0.06 35 0.11 35 -
........................................ ................... ........ ......... ......... ......... ........... .............
Litigation settlement expense Other deductions (9) (0.03) 56 0.17 - 56
........................................ ................... ........ ......... ......... ......... ........... .............
Liability management expense Other deductions 339 1.24 384 1.20 382 2
........................................ ................... ........ ......... ......... ......... ........... .............
Severance charges and other Other deductions 1 - 5 0.02 5 -
........................................ ................... ........ ......... ......... ......... ........... .............
Income tax benefit Income tax expense - - (75) (0.24) - (75)
........................................ ................... ........ ......... ......... ......... ........... .............
TOTAL 531 1.94 828 2.58 654 174
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CONSOLIDATED OPERATIONAL EARNINGS SUMMARY
Table 4 provides a consolidated summary of major drivers of operational earnings
per share. A more detailed discussion of contributions and drivers by segment is
provided in Business Segment Results.
TABLE 4: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
Q4 04 VS. Q4 03 AND YTD 04 VS. YTD 03; $ PER SHARE
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EARNINGS FACTOR QTR YTD
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03 OPERATIONAL EARNINGS 0.11 1.58
........................................... .............. ..............
Contribution margin:
........................................... .............. ..............
Energy segment 0.41 0.95
........................................... .............. ..............
Electric Delivery segment 0.17 0.37
........................................... .............. ..............
Operating costs (0.01) (0.09)
........................................... .............. ..............
Depreciation and amortization 0.02 (0.10)
........................................... .............. ..............
SG&A (0.01) (0.20)
........................................... .............. ..............
Franchise and revenue based taxes 0.02 0.06
........................................... .............. ..............
Other income and deductions 0.03 0.10
........................................... .............. ..............
Net interest 0.02 0.21
........................................... .............. ..............
Income taxes (0.20) (0.40)
........................................... .............. ..............
Effect of reduced shares 0.11 0.34
........................................... .............. ..............
04 OPERATIONAL EARNINGS 0.67 2.82
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Operational earnings were $0.67 per share of common stock, up 509 percent from
$0.11 per share in the fourth quarter of 2003. The increase was driven by a
reduction in the average shares outstanding, a $0.34 per share improvement in
operational earnings from the Energy segment, an $0.11 per share improvement in
operational earnings from the Electric Delivery segment and a $0.01 per share
reduction in corporate expenses. All segments were affected by the adoption of
SFAS 123R. Under this standard the long-term incentive compensation expense is
based upon the fair value of stock-based awards at the date of grant and fixes
the expense over the vesting period. This standard resulted in lower long-term
incentive compensation expense than would have been accrued under the prior
methodology given the increases in TXU's stock price. The decrease in average
shares of common stock was primarily due to repurchase of TXU Energy Company's
exchangeable preferred membership interests in April, and approximately 84
million shares of common stock between May and November, inclusive. Stock
repurchases in the fourth quarter totaled approximately 53.7 million shares,
concluding with a 52.5 million share stock repurchase agreement that closed on
November 26. Full year operational earnings rose by $1.24 per share over the
prior year as a result of increased contributions from each segment. This
consisted of a $0.66 per share increase in operational earnings from the Energy
segment, a $0.08 per share increase from the Electric Delivery segment, a $0.16
per share reduction in Corporate expenses, and the reduction in average shares.
A more detailed review of variances by segment is provided below.
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(5) While these items are reflected in earnings for the current period, the
cash impact, if any, will be realized in future periods. These items are
considered non-cash for the current period.
5
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CASH FLOW AND FINANCIAL FLEXIBILITY
For the year ended December 31, 2004, cash provided by operating activities was
$1.8 billion compared to $2.4 billion for 2003. The decrease primarily reflects
the receipt of a $601 million tax refund in 2003. The prior year period also
includes approximately $337 million of collections of 2002 receivables primarily
due to the billing and collections issues that resulted from opening of the
retail electricity market to competition in 2002, somewhat offset by a
counterparty settlement payment of $102 million. In 2004, cash provided by
operating activities before changes in operating assets and liabilities
increased by $974 million over the prior year period, reflecting the increased
performance. The $974 million increase is net of $284 million in cash
expenditures related to special items detailed in Table 3.
In 2003, cash provided by operating activities was $2.4 billion. This included a
$601 million tax refund associated with Europe, and a net $335 million cash
inflow from the sale of receivables, a counterparty settlement, and the
collection in 2003 of late-billed 2002 receivables. In 2004, cash provided by
operating activities was $1.8 billion. This included $284 million in cash
special charges and a $185 million use of cash associated with the receivable
sales program and storm reserves. Excluding these items from both years,
operating cash flow increased 51% from 2003 to 2004.
Total debt plus preferred securities was reduced by $1.5 billion in 2004.
Excluding securitization bonds, which is consistent with credit reviews
treatment, total debt decreased $2.3 billion. The reduction includes $1.7
billion of debt assumed by the purchaser of TXU Australia. In addition, TXU
repaid the $560 million principal amount of bonds associated with its
telecommunications business that was sold in 2004. The bonds were classified as
liabilities of the telecommunications holding company at December 31, 2003.
Outstanding shares of common stock were also reduced by approximately 84 million
in 2004. The repurchase of the TXU Energy Company exchangeable preferred
membership interests and equity-linked and convertible debt securities resulted
in the elimination of an additional 57 million of diluted shares and avoided
issuance of as many as 36 million shares.
Table 5 provides a summary of consolidated common stock and return measures.
TABLE 5: CONSOLIDATED - RETURN STATISTICS
PERIODS ENDED 12/31/04 AND 12/31/03; MIXED MEASURES
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STATISTIC 12/31/04 12/31/03 % CHANGE
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Common stock data:
...................................................................................... ............ ........... .............
Basic shares outstanding-end of period (millions) 240 324 (25.9)
...................................................................................... ............ ........... .............
Return on average common stock equity - based on net income (%) (13.0) 10.8 -
...................................................................................... ............ ........... .............
Return on average common stock equity - based on operational earnings (%) 30.0 10.5 -
...................................................................................... ............ ........... .............
Return on average invested capital - based on adjusted net income (%) 5.7 5.7 -
...................................................................................... ............ ........... .............
Return on average invested capital - based on adjusted operational earnings (%) 8.4 5.6 50.0
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Table 6 represents available liquidity (cash and available credit facility
capacity) as of January 28, 2004 and December 31, 2003. TXU plans to maintain
minimum available liquidity of $1.5 billion.
TABLE 6: CONSOLIDATED - LIQUIDITY
AVAILABLE AMOUNTS AS OF 1/28/05 AND 12/31/03; $MILLIONS
============================================================================================================================
LIQUIDITY COMPONENT BORROWER MATURITY 1/28/05 12/31/03
=================================================================================== =============== ============ ===========
Cash and cash equivalents 237 829
................................... ................................................ ............... ............ ...........
$1.4 billion credit facility TXU Energy Co./TXU Electric Delivery Co. June 07 1,076 -
................................... ................................................ ............... ............ ...........
$600 million credit facility TXU Energy Co./TXU Electric Delivery Co. June 05 525 -
................................... ................................................ ............... ............ ...........
$500 million credit facility TXU Energy Co./TXU Electric Delivery Co. June 09 500 -
................................... ................................................ ............... ............ ...........
$500 million credit facility TXU Energy Co. December 09 - -
................................... ................................................ ............... ............ ...........
Terminated facilities - 2,284
................................... ................................................ ............... ............ ...........
Total liquidity 2,338 3,113
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TXU Corp. has made substantial progress in improving its financial flexibility
as demonstrated on Table 7, which shows TXU Corp.'s credit ratio metrics.
6
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TABLE 7: CONSOLIDATED - FINANCIAL FLEXIBILITY MEASURES
YTD 04 AND YTD 03; MIXED MEASURES
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FINANCIAL FLEXIBILITY MEASURE YTD 04 YTD 03 CHANGE % CHANGE
======================================================================== =========== ============= ============= =============
EBITDA/Interest 4.0 3.0 1.0 33.3
......................................................................... ........... ............. ............. .............
Debt/EBITDA 4.2 5.1 (0.9) (17.6)
==============================================================================================================================
BUSINESS SEGMENT RESULTS
The following is a discussion of operational earnings by business segment.
ENERGY SEGMENT
TXU's Energy segment consists of the electricity generation and consumer,
business and wholesale markets activities of TXU Energy Company LLC, principally
in the competitive Texas market. TXU Corp. expects to split the Energy segment
into TXU Power (electricity generation operations) and TXU Energy (consumer,
business, and wholesale markets) for reporting purposes in 2005.
ENERGY SEGMENT: FULL YEAR OPERATIONAL PERFORMANCE
TXU Energy (consumer, business, and wholesale markets) made significant progress
in operational excellence and market leadership in 2004.
The segment continued to deliver on its strategy to improve the overall customer
experience and be the best in the industry at customer service. Average speed to
answer customer calls at the end of the year was 10 seconds compared to over 125
seconds at the end of 2003 and over 300 seconds at one point in 2003. Customer
time in the integrated voice recognition system (IVR) was reduced via the
rollout of a shorter, more easily navigable IVR. Early results have delivered a
33 percent more effective completion rate which should also result in improved
customer satisfaction. Loyalty rewards programs and additional initiatives are
expected to further improve the customer experience in 2005. In its first six
months of operations, the Capgemini Energy partnership has assisted in
delivering these service improvements and is on course to deliver an estimated
$115 million of SG&A expense savings in 2005. TXU Energy also made substantial
progress in reduction of bad debt expense. Through strengthened payment and
collections policies, new market rules, more targeted marketing and other
initiatives, total bad debt expense was reduced by $24 million to $91 million in
2004. Retail bad debt was $95 million or 1.5 percent of revenues, down 21
percent from $121 million or 1.8 percent of revenues in 2003.
The business markets group improved its contracting activity through more
effective sales coverage, cost reductions and a more customer-focused hedging
strategy that protects against volatility in energy prices.
The wholesale markets group made good progress in reducing fuel and purchased
power expense. As a result of buying cheaper power in the market, high-heat rate
gas plant usage declined by 64 percent from 13 TWh in 2003 to 5 TWh in 2004,
delivering effective expense reductions. As part of the ongoing performance
improvement program, eight gas-fired units (653 MW) were retired, eight units
(2,244 MW) were or are being mothballed, and nine combustion turbines (CTs) (585
MW) are no longer used for TXU's economic benefit. By mothballing generation
units and changing the status of the CTs TXU will save an estimated $34 million
pre tax in operating costs in 2005, and the termination of an uneconomic power
purchase and tolling agreement will save an estimated $22 million in cost of
energy sold in both 2005 and 2006. In addition, the company has offered the nine
CTs and 5.6 GW of additional gas fired generation to the market for sale or
tolling arrangement.
TXU Power's focus on operational excellence led to very strong 2004 performance.
TXU Power's nuclear plant produced at a capacity factor of 94.3 percent for 2004
compared to 88.1 percent in 2003. This was achieved while continuing to focus on
safety. The lignite plants also operated at record levels, reflecting the early
benefits of the TXU Operating System, which is TXU's unique application of lean
operating techniques to its power generation plants. Lignite fleet capacity
factors exceeded 86 percent during 2004, delivering 42 TWh of electricity. The
implementation of the TXU Operating System is well underway at the Martin Lake
and Monticello plants and mines with both progressing well. Implementation teams
are preparing to continue the rollout at other TXU Power lignite plant and mine
locations and at the nuclear plant site during 2005. This progress on the TXU
Operating System is a major portion of TXU Power's planned delivery of
sustainable operational and earnings improvements in its goal to establish a new
benchmark in the generation industry.
ENERGY SEGMENT: FINANCIAL PERFORMANCE
In the fourth quarter of 2004, the Energy segment reported income from
continuing operations of $0.01 per share as compared to income from continuing
operations of $0.18 per share in the fourth quarter of 2003. Subtracting special
items of $0.60 per share, as detailed in Table 3, operational earnings in the
fourth quarter of 2004 were $0.61 per share as compared to $0.18 per share in
the prior year period, a 239 percent increase. Excluding the effect of lower
average shares, the Energy segment operational earnings improved by $0.34 per
share, or 189 percent.
7
================================================================================
================================================================================
For the full year 2004, the Energy segment reported income from continuing
operations of $1.36 per share compared to income from continuing operations of
$1.31 per share for 2003. Subtracting special items of $1.06 per share and the
effect of using diluted shares, operational earnings for 2004 were $2.33 per
share compared to $1.31 per share in 2003, a 78 percent increase. Excluding the
effect of lower average shares, the Energy segment results improved by $0.66 per
share, or 50 percent.
Table 8 reconciles the change in operational earnings from 2003 to 2004 for the
fourth quarter and full year periods.
TABLE 8: ENERGY SEGMENT - OPERATIONAL EARNINGS RECONCILIATION
Q4 04 VS. Q4 03; YTD 04 VS. YTD 03; $ PER SHARE
======================================================================
EARNINGS FACTOR QTR YTD
========================================= ============== =============
03 OPERATIONAL EARNINGS 0.18 1.31
.......................................... .............. .............
Contribution margin 0.41 0.95
.......................................... .............. .............
Operating costs (0.02) (0.04)
.......................................... .............. .............
Depreciation and amortization 0.06 0.15
.......................................... .............. .............
SG&A 0.02 (0.07)
.......................................... .............. .............
Franchise and revenue based taxes 0.01 0.02
.......................................... .............. .............
Other income and deductions 0.03 (0.03)
.......................................... .............. .............
Net interest (0.03) (0.02)
.......................................... .............. .............
Income taxes (0.14) (0.30)
.......................................... .............. .............
Effect of reduced shares 0.09 0.36
.......................................... .............. .............
04 OPERATIONAL EARNINGS 0.61 2.33
======================================================================
The increase in contribution margin for the quarter reflects higher retail and
wholesale prices, increased nuclear generation plant production, improved
results from hedging and risk management activities and more effective sourcing
of purchased power versus higher heat rate gas-fired generation. These were
partially offset by decreased retail sales volumes due to competition and a
change in the strategy for large commercial and industrial retail business. The
increase in operating costs of $7 million was primarily due to higher production
levels and increased incentive compensation expense as a result of TXU's overall
strong operational results. The reduction in depreciation and amortization
expense was primarily the result of extensions at the beginning of the year of
estimated average depreciable lives of nuclear and lignite generation facilities
assets and amortization expense on assets transferred to the Capgemini Energy
partnership in July 2004. A decrease in SG&A expenses of $6 million was
primarily due to decreased bad debt expenses of $31 million as a result of
stricter disconnect policies, more focused collection activities, targeted
customer marketing and lower accounts receivable balances. The decrease in bad
debt expense was substantially offset by increases in other SG&A expenses,
primarily increased incentive compensation expenses. Other deductions decreased
primarily due to several individually insignificant items in 2003.
The major drivers of improvement in operational earnings for the Energy segment
for the full year are similar to those for the quarter. The increase in
contribution margin for the year reflects higher retail and wholesale prices,
increased output from the nuclear and lignite/coal generation plants, and more
effective sourcing of purchased power versus higher heat rate gas-fired
generation. These were partially offset by decreased retail sales volumes due to
competition and milder summer weather (representing approximately $180 million
of decreased revenue), and results from hedging and risk management activities.
The increase in operating costs of $14 million was primarily due to the
increased refueling and other performance improvement activities at the nuclear
plant and increased incentive compensation accruals for the reasons addressed
above. The increase in SG&A expenses of $27 million was driven by increased
incentive compensation expenses exceeding $24 million of decreased bad debt
expenses. Other income decreased primarily due to the sale of the retail gas
business and land in 2003. Net interest expense increased due to the benefit in
2003 of interest rate swaps, somewhat offset by lower net borrowings.
Table 9 provides details of operating revenues for the Energy segment for the
fourth quarter of 2004 as compared to 2003 and year-to-date 2004 as compared to
2003, respectively.
Hedging and risk management revenues improved $67 million and decreased $133
million for the quarter and year ended December 31, 2004, respectively, versus
comparable 2003 periods. The quarter-to-quarter variance reflects lower
mark-to-market gain reversals realized in revenues and costs of sales due to
lower mark to market activity. The year-to-date period includes $22 million in
day one losses associated with required annual capacity auction sales, which are
now recorded in hedging and risk management revenues to better match the
obligations against the transactions used to hedge them. The full year variance
also includes $19 million in increased reserves primarily as a result of the
effect of market movements, and $26 million of increased cash flow accounting
hedge ineffectiveness. Included in the 2003 full year period is $34 million of
additional gas storage and retail gas business margin, primarily due to margins
on gas storage activity and retail gas businesses sold in 2003. The 2003
year-to-date period also included an $18 million favorable settlement with a
counterparty. Because hedging activities are intended to mitigate the risk of
commodity price movements on revenues and cost of energy sold, the changes in
such results should not be viewed in isolation, but rather taken together with
the effects of price and cost changes on margins.
8
================================================================================
================================================================================
For other revenues and other cost of energy sold, the majority of the period to
period increase, $126 million for the year-to-date period is due to a change in
accounting rules, whereby revenues and cost of sales of natural gas to business
customers have been reported on a gross basis since October 1, 2003 (previously,
they were netted). Other cost of energy sold is shown in Table 10.
TABLE 9: ENERGY SEGMENT - OPERATING REVENUES
Q4 04 AND Q4 03; YTD 04 AND YTD 03; $MILLIONS
============================================================================================================================
OPERATING REVENUE COMPONENT Q4 04 Q4 03 % CHANGE YTD 04 YTD 03 % CHANGE
============================================================ =========== ============= =========== ========== ==============
Retail electricity revenues(6):
.................................................. .......... ........... ............. ........... .......... ..............
Native market:
.................................................. .......... ........... ............. ........... .......... ..............
Residential 692 646 7.1 3,164 3,152 0.4
.................................................. .......... ........... ............. ........... .......... ..............
Small business 237 292 (18.8) 1,103 1,213 (9.1)
.................................................. .......... ........... ............. ........... .......... ..............
Total native market 929 938 (1.0) 4,267 4,365 (2.2)
.................................................. .......... ........... ............. ........... .......... ..............
Other markets:
.................................................. .......... ........... ............. ........... .......... ..............
Residential 70 33 112.1 298 159 87.4
.................................................. .......... ........... ............. ........... .......... ..............
Small business 8 8 - 34 25 36.0
.................................................. .......... ........... ............. ........... .......... ..............
Total other markets 78 41 90.2 332 184 80.4
.................................................. .......... ........... ............. ........... .......... ..............
Large business 405 447 (9.4) 1,771 1,935 (8.5)
.................................................. .......... ........... ............. ........... .......... ..............
Total retail electricity revenues 1,412 1,426 (1.0) 6,370 6,484 (1.8)
.................................................. .......... ........... ............. ........... .......... ..............
Wholesale electricity revenues 456 344 32.6 1,886 1,258 49.9
.................................................. .......... ........... ............. ........... .......... ..............
Hedging and risk management activities:
.................................................. .......... ........... ............. ........... .......... ..............
Net unrealized MtM gains/(losses)(7) (63) (157) (59.9) (109) (99) 10.1
.................................................. .......... ........... ............. ........... .......... ..............
Realized gains/(losses) 21 48 (56.3) 6 129 (95.3)
.................................................. .......... ........... ............. ........... .......... ..............
Total (42) (109) 61.5 (103) 30 -
.................................................. .......... ........... ............. ........... .......... ..............
Other revenues 80 82 (2.4) 342 214 59.8
.................................................. .......... ........... ............. ........... .......... ..............
Total operating revenues 1,906 1,743 9.4 8,495 7,986 6.4
============================================================================================================================
Tables 10 provides details of the Energy segment cost of energy sold and
delivery fees for the fourth quarter of 2004 as compared to the fourth quarter
of 2003, and year-to-date 2004 as compared to year-to-date 2003, respectively.
TABLE 10: ENERGY SEGMENT - COST OF ENERGY SOLD AND DELIVERY FEES
Q4 04 AND Q4 03; YTD 04 AND YTD 03; $MILLIONS
==============================================================================================================================
COST COMPONENT Q4 04 Q4 03 %CHANGE YTD 04 YTD 03 %CHANGE
============================================= ============= ============ ============ ============= ============ =============
Nuclear fuel (base load) 22 19 15.8 82 80 2.5
.............................................. ............. ............ ............ ............. ............ .............
Lignite/coal (base load) 134 130 3.1 506 491 3.1
.............................................. ............. ............ ............ ............. ............ .............
Gas/oil fuel and purchased power 548 519 5.6 2,912 2,913 -
.............................................. ............. ............ ............ ............. ............ .............
Other cost of energy sold 72 54 33.3 221 81 -
.............................................. ............. ............ ............ ............. ............ .............
Cost of energy sold 776 722 7.5 3,721 3,565 4.4
.............................................. ............. ............ ............ ............. ............ .............
Delivery fees 332 358 (7.3) 1,544 1,552 (0.5)
.............................................. ............. ............ ............ ............. ............ .............
Cost of energy sold and delivery fees 1,108 1,080 2.6 5,265 5,117 2.9
==============================================================================================================================
- --------------------------
(6) Breakout of native and other markets are estimates and provided for
reference only.
(7) Net unrealized mark-to-market gains/(losses): Q4 04 and YTD 04 include
zero and $20 million, respectively, of ineffectiveness losses related to
cash flow hedges as compared to $4 million and $6 million of
ineffectiveness gains, respectively, for the comparable periods in 2003.
9
================================================================================
================================================================================
Table 11 provides quarter-to-quarter and year-to-year summaries of the Energy
segment generation and supply operating statistics. Statistics for both periods
depict the benefit of increased generation from the nuclear plant and more
effective sourcing of purchased power versus higher heat rate gas-fired
generation. Gas and purchased power prices increased for both the quarter and
year-to-date, reflecting higher gas prices. For the quarter, the decline in
lignite production was primarily due to timing of maintenance outages and an
extended maintenance outage at one unit. For the year-to-date period baseload
production increased by 2,290 GWh, reflecting the benefits of the company's
performance improvement initiatives. The lignite plants achieved record
production levels in 2004, while the nuclear plant also substantially improved
production relative to 2003, in which there were three unplanned outages.
Average fuel and purchased power costs increased by one percent as compared to
an increase in market power prices of over 20 percent. The one percent increase
was driven by higher natural gas and purchased power prices and an increase in
use of western coal versus lignite. In 2004, TXU Power used 30 percent western
coal as compared to 25 percent in 2003. This was somewhat offset by decreased
average nuclear fuel costs, increased output from the base load plants and more
effective sourcing of purchased power versus higher heat rate gas-fired
generation.
TABLE 11: ENERGY SEGMENT - GENERATION AND SUPPLY STATISTICS
Q4 04 AND Q4 03; YTD 04 AND YTD 03; MIXED MEASURES
==============================================================================================================================
GENERATION AND SUPPLY STATISTIC Q4 04 Q4 03 %CHANGE YTD 04 YTD 03 %CHANGE
================================================== ========== ========== ============ ============ ============= =============
Production and purchased power (GWh):
................................................... .......... .......... ............ ............ ............. .............
Nuclear (base load) 5,097 4,109 24.0 18,979 17,717 7.1
................................................... .......... .......... ............ ............ ............. .............
Lignite/coal (base load) 10,476 11,040 (5.1) 42,339 41,311 2.5
................................................... .......... .......... ............ ............ ............. .............
Gas/oil 426 1,380 (69.1) 4,726 13,250 (64.3)
................................................... .......... .......... ............ ............ ............. .............
Purchased power 11,342 12,378 (8.4) 56,007 49,915 12.2
................................................... .......... .......... ............ ............ ............. .............
Total energy supply 27,341 28,907 (5.4) 122,051 122,193 (0.1)
................................................... .......... .......... ............ ............ ............. .............
Less line loss and other 488 972 (49.8) 3,451 5,462 (36.8)
................................................... .......... .......... ............ ............ ............. .............
Net energy supply 26,853 27,935 (3.9) 118,600 116,731 1.6
................................................... .......... .......... ............ ............ ............. .............
Base load capacity factors (%):
................................................... .......... .......... ............ ............ ............. .............
Nuclear 100.7 81.2 24.0 94.3 88.1 7.0
................................................... .......... .......... ............ ............ ............. .............
Lignite/coal 84.4 89.5 5.7 86.2 84.7 1.8
................................................... .......... .......... ............ ............ ............. .............
Fuel and Purchased Power Costs ($/MWh):
................................................... .......... .......... ............ ............ ............. .............
Nuclear generation 4.24 4.54 (6.6) 4.31 4.49 (4.0)
................................................... .......... .......... ............ ............ ............. .............
Lignite/coal generation(8) 13.93 12.48 11.60 12.96 12.53 3.40
................................................... .......... .......... ............ ............ ............. .............
Gas/Oil generation and purchased power 46.62 37.71 23.6 47.95 46.12 4.0
................................................... .......... .......... ............ ............ ............. .............
Average total electricity supply 26.19 23.84 9.9 29.02 28.73 1.0
................................................... .......... .......... ............ ............ ............. .............
................................................... .......... .......... ............ ............ ............. .............
ERCOT MCPE(9) ($/MWh) 47.64 32.96 44.5 42.26 41.79 1.1
................................................... .......... .......... ............ ............ ............. .............
ERCOT MWD(10) ($/MWh) 44.68 34.65 28.9 50.52 41.77 20.9
................................................... .......... .......... ............ ............ ............. .............
Gas Daily(11) ($/MMBtu) 6.18 4.96 24.6 5.75 5.42 6.1
................................................... .......... .......... ............ ............ ............. .............
Implied heat rate(12) (MMBtu/MWh) 7.23 6.99 3.5 8.79 7.71 14.0
................................................... .......... .......... ............ ............ ............. .............
NYMEX strip(13) ($/MMBtu) 7.12 5.05 41.0 6.32 5.29 19.5
==============================================================================================================================
Table 12 summarizes Energy segment retail and wholesale sales volumes.
- ------------------------------
(8) Includes depreciation and amortization of lignite mining plant and
equipment and related asset retirement obligations which are reported as
depreciation and amortization expense but are part of overall fuel costs.
(9) MCPE is Market Clearing Price of Energy in ERCOT. Prices are quoted by
zone and most of TXU Energy's generation capacity and customers are in
the North zone. MCPE does not include shaping, ancillary services and
other retail related purchased power costs.
(10) MWD refers to indexed prices as referenced in the Megawatt Daily
publication. Prices are quoted by zone and most of TXU Energy's
generation capacity and customers are in the North zone. MWD pricing is
based upon surveys.
(11) Houston Ship Channel average daily prices
(12) Efficiency at which a marginal unit converts fuel to electricity.
Calculated by dividing ERCOT MWD price by Gas Daily natural gas price.
(13) Average daily 12-month strip closing price for the period.
10
================================================================================
================================================================================
For fourth quarter and full year 2004, the decrease in retail sales volumes is
predominantly due to a decrease in customers and related business load in the
competitive market. For the fourth quarter this was somewhat offset by an
increase in sales of approximately 265 GWh as a result of weather. Average
residential usage for the quarter increased due to retention and addition of
larger customers and increased weather-driven usage. The decrease in average
small business segment volumes for the quarter is primarily due to competitive
activity, especially for larger customers in this customer segment; this
competitive intensity is evident throughout the state. The decline in large
business volumes reflects a change in strategy to focus on margin versus
volumes.
Total electricity sales for the year increased by 1.6 percent as a result of
increased wholesale sales which in aggregate exceeded the decrease in retail
sales. Retail sales declined primarily for the reasons mentioned above and due
to milder weather, primarily in the third quarter, which reduced volumes by
approximately 2,145 GWh for the year. Year-to-date average residential usage
reflects favorable customer mix trends and a decrease in sales due to the milder
weather. The Energy segment expects to continue to improve these customer mix
trends, while increasing its share of customers in the competitive market. As a
result of improved customer service, low retail margins, increased flexibility
of pricing to small business customers since the end of 2003, and other factors,
residential and small and medium business customer retention for the year
improved to 97 percent and native market retention improved to 95 percent, up
from 96 percent and 94 percent, respectively, in 2003.
TABLE 12: ENERGY SEGMENT - RETAIL AND WHOLESALE SALES VOLUMES
Q4 04 AND Q4 03; YTD 04 AND YTD 03; GWH
==============================================================================================================================
VOLUME COMPONENT Q4 04 Q4 03 %CHANGE YTD 04 YTD 03 %CHANGE
========================================================= ============= ============ ============= ============= =============
Retail electricity sales:
............................................ ............. ............. ............ ............. ............. .............
Native market:
............................................ ............. ............. ............ ............. ............. .............
Residential 6,652 6,840 (2.7) 30,897 34,082 (9.3)
............................................ ............. ............. ............ ............. ............. .............
Small business 2,141 2,875 (25.5) 10,476 12,673 (17.3)
............................................ ............. ............. ............ ............. ............. .............
Total native market 8,793 9,715 (9.5) 41,373 46,755 (11.5)
............................................ ............. ............. ............ ............. ............. .............
Other markets:
............................................ ............. ............. ............ ............. ............. .............
Residential 744 453 64.2 3,089 1,899 62.7
............................................ ............. ............. ............ ............. ............. .............
Small business 86 88 (2.3) 363 313 16.0
............................................ ............. ............. ............ ............. ............. .............
Total other markets 830 541 53.4 3,452 2,212 56.1
............................................ ............. ............. ............ ............. ............. .............
Large business 5,574 7,014 (20.5) 25,466 30,955 (17.7)
............................................ ............. ............. ............ ............. ............. .............
Total retail electricity sales 15,197 17,270 (12.0) 70,291 79,922 (12.1)
............................................ ............. ............. ............ ............. ............. .............
Wholesale electricity sales 11,656 10,665 9.3 48,309 36,809 31.2
............................................ ............. ............. ............ ............. ............. .............
Total electricity sales 26,853 27,935 (3.9) 118,600 116,731 1.6
==============================================================================================================================
Table 13 provides the Energy segment retail operating statistics.
11
================================================================================
================================================================================
TABLE 13: ENERGY SEGMENT - RETAIL OPERATING STATISTICS
Q4 04 AND Q4 03; YTD 04 AND YTD 03; MIXED MEASURES
============================================================================================================================
RETAIL OPERATING STATISTIC Q4 04 Q4 03 %CHANGE YTD 04 YTD 03 %CHANGE
=========================================================== ============ ============ ============ ============ ============
Retail electricity customers(14):
............................................... ............ ............ ............ ............ ............ ............
Native market:
............................................... ............ ............ ............ ............ ............ ............
Residential 1,951 2,059 (5.2)
............................................... ............ ............ ............ ............ ............ ............
Small business 309 316 (2.2)
............................................... ............ ............ ............ ............ ............ ............
Total native market 2,260 2,375 (4.8)
............................................... ............ ............ ............ ............ ............ ............
Other markets:
............................................... ............ ............ ............ ............ ............ ............
Residential 194 148 31.1
............................................... ............ ............ ............ ............ ............ ............
Small business 6 5 20.0
............................................... ............ ............ ............ ............ ............ ............
Total other markets 200 153 30.7
............................................... ............ ............ ............ ............ ............ ............
Large business 76 69 10.1
............................................... ............ ............ ............ ............ ............ ............
Total retail electricity customers 2,536 2,597 (2.3)
............................................... ............ ............ ............ ............ ............ ............
Volumes (GWh) - weather adjusted(15):
............................................... ............ ............ ............ ............ ............ ............
Residential 7,156 7,293 (1.9) 35,064 35,981 (2.6)
............................................... ............ ............ ............ ............ ............ ............
Small business 2,209 2,963 (25.5) 11,180 12,986 (13.9)
............................................... ............ ............ ............ ............ ............ ............
Large business 5,569 7,014 (20.6) 26,192 30,955 (15.4)
............................................... ............ ............ ............ ............ ............ ............
Average volume (KWh)/customer(16):
............................................... ............ ............ ............ ............ ............ ............
Residential 3,411 3,291 3.6 15,619 15,959 (2.1)
............................................... ............ ............ ............ ............ ............ ............
Small business 7,015 9,224 (23.9) 34,095 39,728 (14.2)
............................................... ............ ............ ............ ............ ............ ............
Large business 73,698 101,088 (27.1) 351,542 421,203 (16.5)
............................................... ............ ............ ............ ............ ............ ............
Avg. KWh/customer - weather adjusted(15):
............................................... ............ ............ ............ ............ ............ ............
Residential 3,300 3,291 0.3 16,114 15,959 1.0
............................................... ............ ............ ............ ............ ............ ............
Small business 6,957 9,224 (24.6) 35,169 39,728 (11.5)
............................................... ............ ............ ............ ............ ............ ............
Large business 73,625 101,087 (27.2) 361,566 421,206 (14.2)
............................................... ............ ............ ............ ............ ............ ............
Average revenue ($/MWh):
............................................... ............ ............ ............ ............ ............ ............
Residential 103.02 93.16 10.6 101.88 92.02 10.7
............................................... ............ ............ ............ ............ ............ ............
Small business 109.89 101.00 8.8 104.87 95.38 9.9
............................................... ............ ............ ............ ............ ............ ............
Large business 72.68 63.79 13.9 69.54 62.51 11.2
............................................... ............ ............ ............ ............ ............ ............
Average wires charge ($/MWh) 21.68 20.17 7.5 21.75 18.93 14.9
............................................... ............ ............ ............ ............ ............ ............
Estimated share of market (%)(17):
............................................... ............ ............ ............ ............ ............ ............
Native market:
............................................... ............ ............ ............ ............ ............ ............
Residential 81 86 (5.8)
............................................... ............ ............ ............ ............ ............ ............
Small business 78 82 (4.9)
............................................... ............ ............ ............ ............ ............ ............
Total ERCOT:
............................................... ............ ............ ............ ............ ............ ............
Residential 44 46 (4.4)
............................................... ............ ............ ............ ............ ............ ............
Small business 31 32 (3.1)
............................................... ............ ............ ............ ............ ............ ............
Large business 33 37 (10.8)
............................................... ............ ............ ............ ............ ............ ............
Weather - percent of normal(18):
............................................... ............ ............ ............ ............ ............ ............
Cooling degree days 122.4 113.4 7.9 89.9 95.7 (6.1)
............................................... ............ ............ ............ ............ ............ ............
Heating degree days 85.3 81.1 5.2 89.2 98.1 (9.1)
============================================================================================================================
- --------------------------------
(14) End of period; thousands; number of meters. Q4 data is omitted because it
is the same as YTD.
(15) 2004 amounts adjusted for estimated weather effect as compared to 2003.
(16) Based upon the average of the period beginning and ending customers.
(17) End of period. Estimated market share for residential and small and
medium business is based on the estimated number of customers in the
native market and the estimated number of customers in ERCOT that have
choice. Estimated market share for large business is based on the
estimated annualized consumption for this overall market within ERCOT. Q4
data is omitted because it is the same as YTD.
(18) Average for service territory. Weather data is obtained from WeatherBank,
Inc., an independent company that collects and archives weather data from
reporting stations of the National Oceanic and Atmospheric Administration
(a federal agency under the US Department of Commerce).
12
================================================================================
================================================================================
Table 14 presents the unrealized mark-to-market balance at December 31, 2004,
scheduled by contractual settlement dates of the underlying positions.
Eighty-four percent of the unrealized net mark-to-market balances will be
realized within three years. This is reflective of the terms of the positions
and the methods employed in valuing positions for periods where there is less
market liquidity and visibility.
TABLE 14: ENERGY SEGMENT - MATURITY DATES OF UNREALIZED NET MARK-TO-MARKET
BALANCES 12/31/04; $MILLIONS UNLESS NOTED
============================================================================================================================
LESS THAN 1 MORE THAN 5
SOURCE OF FAIR VALUE YEAR 1-3 YEARS 4-5 YEARS YEARS TOTAL
================================================= ============== ============== ============== ============== ==============
Prices actively quoted 59 - - - 59
.................................................. .............. .............. .............. .............. ..............
Prices provided by other external sources - (38) 8 (3) (33)
.................................................. .............. .............. .............. .............. ..............
Prices based on models 5 - - - 5
.................................................. .............. .............. .............. .............. ..............
Total 64 (38) 8 (3) 31
.................................................. .............. .............. .............. .............. ..............
.................................................. .............. .............. .............. .............. ..............
Percentage (%) of total fair value 207 (123) 26 (10) 100
============================================================================================================================
Table 15 summarizes the changes in commodity contract assets and liabilities for
the twelve months ended December 31, 2004. The net change in these assets and
liabilities represents the net effect of recording unrealized gains (losses)
under mark-to-market accounting for positions in the commodity contract
portfolio. These positions consist largely of economic hedge transactions, with
speculative trading representing a small fraction of the activity.
TABLE 15: ENERGY SEGMENT - CHANGES IN COMMODITY CONTRACT ASSETS AND LIABILITIES
04; $MILLIONS
============================================================================================================================
CHANGE COMPONENT IMPACT
====================================================================================================== =====================
Balance of net commodity contract assets -- beginning of period 108
....................................................................................................... .....................
Settlements of positions included in the opening balance(19) (59)
....................................................................................................... .....................
Unrealized mark-to-market valuations of positions held at end of period (31)
....................................................................................................... .....................
Other activity(20) 5
....................................................................................................... .....................
Balance of net commodity contract assets -- end of period 23
============================================================================================================================
ELECTRIC DELIVERY SEGMENT
TXU's Electric Delivery segment is focused on delivering operational excellence
in system reliability and maintaining a position of cost leadership. In 2004 the
segment delivered at or near top-decile performance in O&M expense per
distribution customer and O&M expense per MWh.
ELECTRIC DELIVERY SEGMENT: OPERATIONAL HIGHLIGHTS
For the year, System Average Interruption Duration Index (SAIDI) minutes of
75.54 placed Electric Delivery among top quartile reliability performers. System
Average Interruption Frequency Index (SAIFI) improved from 1.17 to 1.10 as
compared to 2003. Electric Delivery expects further improvement as current
reliability initiatives begin to be more fully realized in 2005 and 2006.
Electric Delivery has developed and implemented a multi-year Comprehensive
Maintenance Program in order to improve reliability on its worst performing
facilities. In contrast to previous "targeted" or "light" maintenance activities
primarily aimed at lightning strikes, wildlife and vegetation induced outages,
this program is a proactive strategy which includes both heavy maintenance and
selected replacement of aging infrastructure before outages occur. Comprehensive
maintenance was completed on twenty-eight distribution feeders in 2004. Initial
results indicate a reduction in both frequency and duration of outages on these
feeders in excess of initially projected performance improvements. This program
is expected to continue through 2006.
ELECTRIC DELIVERY SEGMENT: FINANCIAL HIGHLIGHTS
The Electric Delivery segment reported income from continuing operations of
$0.13 per share in the fourth quarter of 2004, compared to $0.06 per share in
the fourth quarter of 2003. Adjusting for special items of $0.07 per share,
operational earnings for 2004 were $0.20 per share as compared to $0.06 per
share in the prior year period. Excluding the effect of lower average shares,
the Electric Delivery segment results improved by $0.11 per share.
- ------------------------------
(19) Represents unrealized mark-to-market valuations of these positions
recognized in earnings as of the beginning of the period.
(20) Includes initial values of positions involving the receipt or payment of
cash or other consideration, such as option premiums and the amortization
of such values. These activities have no effect on unrealized
mark-to-market valuations.
13
================================================================================
================================================================================
For full year 2004, the Electric Delivery segment reported income from
continuing operations of $0.85 per share compared to income from continuing
operations of $0.68 per share for 2003. Adjusting for special items of $0.10 per
share and the effect of using diluted shares, operational earnings for 2004 were
$0.90 per share as compared to $0.68 per share in the prior year period.
Excluding the effect of lower average shares, the Electric Delivery segment
results improved by $0.08 per share.
Table 16 reconciles the change in operational earnings from the 2003 to 2004
periods.
TABLE 16: ELECTRIC DELIVERY SEGMENT - OPERATIONAL EARNINGS RECONCILIATION
Q4 04 VS. Q4 03 AND YTD 04 VS. YTD 03; $ PER SHARE
======================================================================
EARNINGS FACTOR QTR YTD
========================================= ============= ==============
Q4 03 OPERATIONAL EARNINGS 0.06 0.68
.......................................... ............. ..............
Contribution margin (revenues) 0.17 0.37
.......................................... ............. ..............
Operating costs 0.01 (0.06)
.......................................... ............. ..............
Depreciation and amortization (0.06) (0.24)
.......................................... ............. ..............
SG&A (0.01) (0.03)
.......................................... ............. ..............
Franchise and revenue based taxes - -
.......................................... ............. ..............
Other income and deductions - (0.01)
.......................................... ............. ..............
Net interest 0.03 0.07
.......................................... ............. ..............
Income taxes (0.03) (0.02)
.......................................... ............. ..............
Effect of reduced shares 0.03 0.14
.......................................... ............. ..............
Q4 04 OPERATIONAL EARNINGS 0.20 0.90
======================================================================
Excluding the $0.03 per share benefit of reduced average shares, the Electric
Delivery segment's contribution for the fourth quarter increased by $0.11 per
share from the prior year period. The primary driver of the change was the
approximate $35 million ($0.11 per share pre-tax) increase in contribution
margin (revenues) related to increased transmission tariff revenues, growth, and
increased miscellaneous and other revenues. Revenues also increased $21 million
related to transition charges under tariffs to service securitization bonds
which have associated costs. The increase in depreciation and amortization
expense was primarily due to $21 million ($0.07 per share pre-tax) of
amortization of regulatory assets as a result of securitization bonds issued in
August 2003 and June 2004 for which there are associated revenues. The major
factors in decreased net interest expense (interest expense net of interest
income) were higher reimbursements from the Energy segment related to
securitized regulatory assets and lower average interest rates.
The drivers of the full year results, excluding the $0.14 per share benefit of
reduced average shares were increased transmission-related revenues and
decreased net interest expense somewhat offset by increased operating costs and
milder weather. The increase in revenues for the year was driven by the same
factors in the quarter, somewhat offset by reduced volumes due to milder
weather, primarily in the third quarter, that reduced revenues by an estimated
$22 million as compared to 2003. Depreciation and amortization expense increased
by $92 million of which $87 million was increased amortization of regulatory
assets as a result of the securitization bonds. The remaining increase was
primarily due to increased investment. The majority of the increase in operating
costs reflects costs for which there are associated revenues.
Table 17 summarizes the details of the operating revenues for the Electric
Delivery segment for the fourth quarter of 2004 as compared to the fourth
quarter of 2003, and for the 2004 and 2003 year-to-date periods.
TABLE 17: ELECTRIC DELIVERY SEGMENT - OPERATING REVENUES
Q4 04 AND Q4 03; YTD 04 AND YTD 03 $MILLIONS
==============================================================================================================================
REVENUE COMPONENT Q4 04 Q4 03 %CHANGE YTD 04 YTD 03 %CHANGE
============================================== ============= ============ ============ ============ ============ =============
Electricity transmission and distribution:
............................................... ............. ............ ............ ............ ............ .............
Affiliated (TXU Energy) 319 322 (0.9) 1,420 1,489 (4.6)
............................................... ............. ............ ............ ............ ............ .............
Non-affiliated 219 160 36.9 806 598 34.8
............................................... ............. ............ ............ ............ ............ .............
Total 538 482 11.6 2,226 2,087 6.7
==============================================================================================================================
Table 18 summarizes operating statistics for the Electric Delivery segment for
the fourth quarter 2004 as compared to the fourth quarter of 2003, and for full
year 2004 as compared to 2003.
14
================================================================================
================================================================================
TABLE 18: ELECTRIC DELIVERY SEGMENT - OPERATING STATISTICS
Q4 04 AND Q4 03; MIXED MEASURES
============================================================================================================================
OPERATING STATISTIC 04 03 %CHANGE
==================================================================================== ============ ============= ============
Volume - Electricity distribution (GWh) - Q4 22,529 21,644 4.1
..................................................................................... ............ ............. ............
Volume - Electricity distribution (GWh) - YTD 101,928 101,810 0.1
..................................................................................... ............ ............. ............
..................................................................................... ............ ............. ............
Electricity points of delivery - number of meters (end of period, in thousands)(21) 2,971 2,932 1.3
..................................................................................... ............ ............. ............
..................................................................................... ............ ............. ............
System Average Interruption Duration Index (SAIDI) (non-storm)(22) 75.54 74.15 -
..................................................................................... ............ ............. ............
System Average Interruption Frequency Index (SAIFI) (non-storm)(22) 1.10 1.17 -
..................................................................................... ............ ............. ............
Customer Average Interruption Duration Index (CAIDI) (non-storm)(22) 68.67 63.30 -
============================================================================================================================
CORPORATE AND OTHER
Corporate and Other consists of TXU Corp.'s remaining non-segment operations
consisting primarily of general corporate expenses, equity earnings or losses of
unconsolidated affiliates, and interest on the debt at the corporate level. Loss
from continuing operations for Corporate and Other was $1.41 per share for the
fourth quarter 2004 as compared to a loss of $0.12 per share for 2003. Excluding
special items of $1.27 per share, operational earnings were a loss of $0.14 per
share as compared to a loss of $0.12 per share in 2003. For the full year, loss
from continuing operations for Corporate and Other was $1.94 per share as
compared to a loss of $0.58 per share for 2003. Excluding special items of $1.42
per share and reflecting the effect of use of diluted shares, operational
earnings were a loss of $0.40 per share as compared to a loss of $0.42 per share
in 2003.
Excluding the special items in Table 3, the current period expenses from
continuing operations declined by $0.01 per share from the prior year period,
excluding the effect of reduced average share count. The improvement is
primarily related to lower net interest expense. The lower net interest expense
is primarily due to inter-company interest income ($0.03 per share after tax)
from the TXU Energy Company exchangeable preferred membership interests
purchased by TXU Corp. in April, exceeding the increase in interest expense from
an increase in debt.
For the full year 2004, Corporate and Other expenses from continuing operations,
excluding special items and the effect of reduced average share count, decreased
by $0.16 per share from 2003 levels. The primary drivers of the improvement are
increased other income, decreased other deductions and decreased net interest
expense, somewhat offset by increased SG&A expenses. Other income increased as a
result of the amortization of the deferred gain on the sale of TXU Fuel in June
2004. Other deductions decreased primarily as a result of in inclusion in 2003
of $17 million ($0.03 per share after tax) of equity interest in losses of a
telecommunications partnership that has been sold. Net interest expense
decreased as a result of the inter-company interest income ($0.08 per share
after tax) from the TXU Energy Company exchangeable preferred membership
interests, lower credit facility fees and reduced debt. The increase in SG&A
expenses was primarily due to a $19 million increase in incentive compensation
expense and costs substantially offset by inter-company revenues or other
benefits.
DISCONTINUED OPERATIONS
Table 19 provides details of the components of discontinued operations for the
fourth quarter and full year 2004 and 2003. Transactions for the disposition by
sale of TXU Australia and merger transaction of TXU Gas were completed on July
30 and October 1, respectively. These are reported as discontinued operations
for 2004 (and the 2003 comparative periods have been reclassified accordingly).
For the fourth quarter 2004, discontinued operations results include a $143
million after-tax accrual of expenses associated with the settlement of all
potential claims from TXU Europe and its major creditors, a $102 million
after-tax loss on the sale of TXU Gas, a $31 million adjustment to the release
earlier in 2004 of a portion of the tax reserve associated with the investment
in TXU Europe to reflect a change in estimated capital gains, and a $2 million
after-tax increase in the gain on the sale of TXU Australia. The full year 2004
results include TXU Gas charges associated with the second quarter write off due
to a final order received in May by the Railroad Commission of Texas in the
company's system-wide rate case, an increase in tax reserves associated with an
ongoing dispute with the Internal Revenue Service related to the 1993 tax return
of ENSERCH Corp. (predecessor to TXU Gas), a goodwill impairment (charge) on the
TXU Gas transaction, somewhat offset by discontinuance of depreciation expense
while the merger transaction was pending, and the benefit of net releases of the
tax reserve associated with the 2002 write off of TXU Corp.'s investment in TXU
Europe. Included in 2004 discontinued operations for TXU Australia is a gain on
the sale of the business and a second quarter charge
- ---------------------------------
(21) Includes lighting sites, principally guard lights, for which TXU Energy
Retail is the REP, which are not included in TXU Energy Retail's customer
count. Such sites totaled 95,252 and 100,901 at December 31, 2004 and
2003, respectively. Adjusting for the guard lights, which have minimal
value, points of delivery increased 1.6%.
(22) SAIDI is the number of minutes in a year the average customer is out of
electric service. SAIFI is the number of times in a year the average
customer experiences an interruption to electric service. CAIDI is the
duration of the average interruption to electric service.
15
================================================================================
================================================================================
to recognize deferred income tax expenses associated with the excess of book
basis over tax basis of TXU's investment in TXU Australia. 2004 discontinued
operations also include a benefit from the second quarter release of a portion
of the tax reserve associated with the investment in TXU Europe. The results of
TXU Energy Company LLC's cogeneration and wholesale energy sales business in New
Jersey are also reflected in discontinued operations. Discontinued operations
for the Energy segment for the full year 2004 includes an impairment charge of
approximately $17 million, after tax, associated with the New Jersey business
and a charge of approximately $18 million, after tax, for settlement of a
contract in the company's energy outsourcing business that is being exited.
TABLE 19: DETAILS OF DISCONTINUED OPERATIONS
Q4 04, Q4 03, YTD 04 AND YTD 03; $ PER SHARE AFTER TAX
============================================================================================================================
DISCONTINUED OPERATION Q4 04 Q4 03 YTD 04 YTD 03
============================================================== ============== =============== =============== ==============
TXU Australia:
............................................................... .............. ............... ............... ..............
Gain on sale 0.01 - 0.80 -
............................................................... .............. ............... ............... ..............
Income tax benefit (expense) - tax basis differential - - (0.37) -
............................................................... .............. ............... ............... ..............
Other operating results - 0.04 0.16 0.32
............................................................... .............. ............... ............... ..............
TXU Gas:
............................................................... .............. ............... ............... ..............
Loss on sale (0.37) - (0.34) -
............................................................... .............. ............... ............... ..............
Write off due to rate case (Docket 9400) - - (0.33) -
............................................................... .............. ............... ............... ..............
Goodwill impairment - - (0.31) -
............................................................... .............. ............... ............... ..............
Suspension of depreciation due to pending merger - - 0.04 -
............................................................... .............. ............... ............... ..............
Income tax expense reserve - 1993 tax return - - (0.06) -
............................................................... .............. ............... ............... ..............
Other exit costs and operating results (0.05) 0.06 0.05 0.14
............................................................... .............. ............... ............... ..............
Income tax benefit - reserve release (TXU Europe) (0.12) - 2.26 -
............................................................... .............. ............... ............... ..............
Litigation settlement (TXU Europe) (0.53) - (0.48) -
............................................................... .............. ............... ............... ..............
Energy segment:
............................................................... .............. ............... ............... ..............
Impairment/business exit - - (0.08) -
............................................................... .............. ............... ............... ..............
Other operating results - (0.05) (0.03) (0.05)
............................................................... .............. ............... ............... ..............
TXU Communications - (0.07) (0.05) (0.20)
............................................................... .............. ............... ............... ..............
Other (0.01) (0.01) - (0.01)
............................................................... .............. ............... ............... ..............
TOTAL (1.07) (0.03) 1.26 0.20
============================================================================================================================
2005 OUTLOOK
Table 20 is a reproduction of the key areas of improvement from 2004 to 2005
that were identified on October 25, 2004 at the EEI Conference. This table
highlighted the areas of focus and impact of Phase Two of the company's
restructuring program. The numbers in the left column identify items that have
been updated since October 25.
TXU is affirming its outlook range for 2005, acknowledging some offsetting
movement in individual line items that were listed in October. Two line items
are particularly significant: first, natural gas prices fell significantly
between the end of October and early January, so TXU has not requested a fuel
factor adjustment, removing $0.16 of potential improvement. Second, operational
results from the Phase 2 program were more favorable than previously estimated,
reflecting that a higher portion of the savings are already in the 2004
run-rate; Phase 2 initiatives are achieving results at a faster pace and more
sizeable levels than reflected in the previous 2004 outlook of $2.65 to $2.70.
The incremental improvements that have been identified and realized in such
areas as general and administrative (G&A) expense, bad debt, and working capital
management are all offsets to the lost contribution margin associated with
removing the fuel factor adjustment in February.
16
================================================================================
================================================================================
TABLE 20: OPERATIONAL EARNINGS PERFORMANCE DRIVERS
04 VS. 05E; $ PER SHARE, INDICATIVE
===============================================================================================================================
PERFORMANCE DRIVER INCOME STATEMENT CATEGORY 05E
====== ====================================================================== ==================================== ============
1 04 OPERATIONAL EARNINGS 2.82
....... ...................................................................... .................................... ............
....... ...................................................................... .................................... ............
2 CHANGE IN AVERAGE SHARES OUTSTANDING 0.95
....... ...................................................................... .................................... ............
....... ...................................................................... .................................... ............
OPERATIONAL IMPROVEMENTS (INDICATIVE):
....... ...................................................................... .................................... ............
TXU POWER
....... ...................................................................... .................................... ............
3 Increased revenues from wholesale market price changes Operating revenues 1.10
....... ...................................................................... .................................... ............
Reduced O&M expenses (operating, benefit, lease, other) O&M expense 0.20
....... ...................................................................... .................................... ............
Increased production from coal generation Cost of energy sold expense 0.11
....... ...................................................................... .................................... ............
Reduced fuel expense Cost of energy sold expense 0.04
....... ...................................................................... .................................... ............
Increased expenses related to two-unit nuclear outage (O&M,
purchased power) Cost of energy sold/O&M expense (0.27)
....... ...................................................................... .................................... ............
TXU ENERGY
....... ...................................................................... .................................... ............
4 Increased expenses from wholesale market price changes Cost of energy sold expense (1.14)
....... ...................................................................... .................................... ............
Increased revenues from 04 fuel factor adjustments and out of
territory growth Operating revenues 0.82
....... ...................................................................... .................................... ............
Reduced SG&A expenses (CapGemini Energy contract, bad debt) SG&A expense 0.37
....... ...................................................................... .................................... ............
Reduced expense - purchased power and gas plant optimization,
restructured PPAs Cost of energy sold expense 0.28
....... ...................................................................... .................................... ............
5 Increased revenues from 2/05 fuel factor adjustment (50% of $6.92
fuel factor) Operating revenues -
....... ...................................................................... .................................... ............
Increased margin in large business segment Operating revenues/Cost of energy
sold 0.15
....... ...................................................................... .................................... ............
Reduced O&M expenses (gas plants) O&M expense 0.13
....... ...................................................................... .................................... ............
Reduced expenses and revenue losses due to hedge roll-off Operating revenues/Cost of energy
sold 0.11
....... ...................................................................... .................................... ............
Reduced wires expense Delivery fees expense 0.06
....... ...................................................................... .................................... ............
Reduced margin from mass market customer churn Operating revenues/Cost of energy
sold (0.04)
....... ...................................................................... .................................... ............
TXU ELECTRIC DELIVERY
....... ...................................................................... .................................... ............
Increased contribution margin Operating revenues 0.25
....... ...................................................................... .................................... ............
CORPORATE & OTHER Other income (0.03)
....... ...................................................................... .................................... ............
OTHER SG&A expense 0.08
....... ...................................................................... .................................... ............
INTEREST EXPENSE (0.24)
....... ...................................................................... .................................... ............
CONTINGENCY (0.10) - 0.10
....... ...................................................................... .................................... ............
SUBTOTAL OPERATIONAL IMPROVEMENTS 1.88 - 2.08
....... ...................................................................... .................................... ............
05E OPERATIONAL EARNINGS OUTLOOK RANGE 5.65 - 5.85
===============================================================================================================================
The performance of the business in 2004 has provided the base for the 2005
financial outlook. Much of the 2005 growth is evident in the 2004 run-rate, as
shown on Table 21: 2005 Comparative Analysis to 2004 Run-Rate (Estimates).
TABLE 21: 2005 COMPARATIVE ANALYSIS TO 2004 RUN-RATE (ESTIMATES)
04 VS. 05E; $ PER DILUTED SHARE
============================================================================================================================
PERFORMANCE DRIVER INCOME STATEMENT CATEGORY 05E
====================================================================== ===================================== ===============
04 OPERATIONAL EARNINGS
....................................................................... ..................................... ...............
Q3 AND Q4 EARNINGS (BASED ON 04 YEAR END AVERAGE SHARES) 1.77
....................................................................... ..................................... ...............
Weather effect on margin (adjust to normal weather) Operating revenues/Cost of energy
sold 0.12
....................................................................... ..................................... ...............
Full Q3 impact on revenue of July 04 fuel factor increase Cost of energy sold expense 0.07
....................................................................... ..................................... ...............
Share count adjustment (321 to 240 million shares) 0.66
....................................................................... ..................................... ...............
Pro forma Q3 and Q4 earnings 2.62
....................................................................... ..................................... ...............
Historical average contribution of last two quarters to full
year's earnings 58%
....................................................................... ..................................... ...............
ANNUALIZED RUN RATE 4.52
....................................................................... ..................................... ...............
Reduced G&A expenses (CapGemini Energy contract) SG&A expense 0.22
....................................................................... ..................................... ...............
Reduced expenses and revenue losses due to hedge roll-off Operating revenues/Cost of energy
sold 0.11
....................................................................... ..................................... ...............
TOTAL BEFORE IMPROVEMENTS 4.85
....................................................................... ..................................... ...............
PERFORMANCE IMPROVEMENTS 0.80 - 1.00
....................................................................... ..................................... ...............
05E OPERATIONAL EARNINGS OUTLOOK RANGE 5.65 - 5.85
============================================================================================================================
TXU expects cash flows to improve substantially in 2005 as a result of improved
earnings and operational improvements. Table 22 shows cash provided by operating
activities and free cash flow for 2004 and estimates of each for 2005.
17
================================================================================
================================================================================
TABLE 22: CASH PROVIDED BY OPERATING ACTIVITIES AND FREE CASH FLOW
05E VS. 04; $MILLIONS
============================================================================================================================
COMPONENT 05E 04 %CHANGE
==================================================================================== ============ ============= ============
Cash provided by operating activities(23) 2,525 1,759 43.5
..................................................................................... ............ ............. ............
Capital expenditures 1,025 999 2.6
..................................................................................... ............ ............. ............
FREE CASH FLOW ,1,500 760 97.4
..................................................................................... ............ ............. ............
Dividends on preference and common stock 562 172 -
..................................................................................... ............ ............. ............
Free cash flow after dividends 938 588 59.5
============================================================================================================================
TXU also sees significant growth potential in 2006. Much of the identified
improvement potential for 2006 is driven by having only one unit of the nuclear
plant refueled in 2006 versus two units in 2005 and the roll-off on the income
statement of the impact of a previously implemented change in hedging strategy.
Other factors include service territory growth and transmission investment
recovery in Electric Delivery, current forward natural gas curves and customer
retention levels, and ongoing execution on Phase Two of the restructuring
program. Table 23 highlights the major drivers of improvement from 2005 to 2006,
reflecting current forward natural gas curves and plan assumptions.
TABLE 23: SIGNIFICANT GROWTH DRIVERS
05E VS. 06E; % GROWTH
============================================================================================================================
PERFORMANCE DRIVER INCOME STATEMENT CATEGORY 06E
================================================================== ======================================== ================
Decreased expenses due to only single-unit nuclear outage Cost of energy sold expense 5.0
................................................................... ........................................ ................
O&M/SG&A improvements from Phase 2 initiatives O&M/SG&A expense 4.5
................................................................... ........................................ ................
Decreased expenses and revenue losses due to hedge roll off Operating revenues/Cost of energy sold 3.0
................................................................... ........................................ ................
Other/deployment of cash Interest expense/Avg. share count/Other 2.0 - 4.0
................................................................... ........................................ ................
Increased Electric Delivery revenue from growth and investment Operating revenues 2.0
................................................................... ........................................ ................
Increased production from coal generation Cost of energy sold expense 1.0
................................................................... ........................................ ................
Mass market customer churn Operating revenues/Cost of energy sold (0.5)
................................................................... ........................................ ................
EXPECTED GROWTH RANGE 16 - 20
============================================================================================================================
ADDITIONAL INFORMATION
Additional information, including consolidating income statements, consolidating
balance sheets, consolidated cash flow, and legal and regulatory summaries can
be obtained under the 2004 heading in the Fourth Quarter Financial Results file
at www.txucorp.com/investres/default.asp.
TXU Corp., a Dallas-based energy company, manages a portfolio of competitive and
regulated energy businesses in North America, primarily in Texas. In TXU Corp.'s
unregulated business, TXU Energy Retail provides electricity and related
services to more than 2.5 million competitive electricity customers in Texas,
more customers than any other retail electric provider in the state. TXU Power
has over 18,300 megawatts of generation in Texas, including 2,300 MW of
nuclear-fired and 5,837 MW of lignite/coal-fired generation capacity. The
company is also the largest purchaser of wind-generated electricity in Texas and
among the top five purchasers in North America. TXU Corp.'s regulated electric
distribution and transmission business, TXU Electric Delivery Company,
complements the competitive operations, using asset management skills developed
over more than one hundred years, to provide reliable electricity delivery to
consumers. TXU Electric Delivery operates the largest distribution and
transmission system in Texas, providing power to more than 2.9 million electric
delivery points over more than 98,000 miles of distribution and 14,000 miles of
transmission lines. Visit www.txucorp.com for more information about TXU Corp.
THIS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES. DISCUSSION OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM MANAGEMENT'S CURRENT PROJECTIONS,
FORECASTS, ESTIMATES AND EXPECTATIONS IS CONTAINED IN THE COMPANY'S SEC FILINGS.
IN ADDITION TO THE RISKS AND UNCERTAINTIES SET FORTH IN THE COMPANY'S SEC
FILINGS, THE FORWARD-LOOKING STATEMENTS IN THIS RELEASE COULD BE AFFECTED BY THE
ABILITY OF THE COMPANY TO IMPLEMENT THE INITIATIVES THAT ARE PART OF ITS
RESTRUCTURING, OPERATIONAL IMPROVEMENT AND COST REDUCTION PROGRAM, AND THE TERMS
UNDER WHICH THE COMPANY EXECUTES THOSE INITIATIVES.
-END-
INVESTOR RELATIONS: MEDIA:
Tim Hogan Bill Huber Steve Oakley Chris Schein
214-875-9275 214-875-8301 214-875-8403 214-875-8329
- ----------------------------
(23) Does not include potential one-time tax expense estimated at $500 million
to $600 million (related to portfolio restructuring transactions).
18
================================================================================
================================================================================
ATTACHMENT 1: FINANCIAL DEFINITIONS
OPERATIONAL EARNINGS PER SHARE (A NON-GAAP MEASURE): Per share (diluted) income
from continuing operations, excluding special items and net of preference share
dividends. TXU believes that operational earnings is a useful measure of
underlying results because of the magnitude and scope of the 4+4 performance
improvement program and the significant effect of the special items on reported
results. TXU relies on operational earnings for evaluation of performance and
believes that analysis of the business by external users is enhanced by
visibility to both reported GAAP earnings and operational earnings.
CASH INTEREST EXPENSE (A NON-GAAP MEASURE): Interest Expense and Related Charges
less amortization of discount and reacquired debt expense plus capitalized
interest. Cash interest expense is a measure used by TXU to assess credit
quality.
EBITDA (A NON-GAAP MEASURE): Income from Continuing Operations before Interest
Income, Interest Expense and Related Charges, and Income Tax plus Depreciation
and Amortization and Special Items. EBITDA is a measure used by TXU to assess
performance.
EBITDA/INTEREST (A NON-GAAP MEASURE): EBITDA divided by Cash Interest Expense is
a measure used by TXU to assess credit quality.
DEBT/EBITDA (A NON-GAAP MEASURE): Total Debt less transition bonds and
debt-related restricted cash divided by EBITDA. Transition, or securitization,
bonds are serviced by a regulatory transition charge on wires rates and are
therefore excluded from debt in credit reviews. Debt-related restricted cash is
treated as net debt in credit reviews. Debt/EBITDA is a measure used by
management to assess credit quality.
FREE CASH FLOW (A NON-GAAP MEASURE): Cash provided by operating activities less
capital expenditures (including nuclear fuel), used predominantly as a
forecasting tool to estimate cash available for dividends, debt reduction, and
other investments.
INCOME FROM CONTINUING OPERATIONS PER SHARE (A GAAP MEASURE): Per share
(diluted) income from continuing operations before cumulative effect of changes
in accounting principles, before preference share dividends.
CONTRIBUTION MARGIN (A GAAP MEASURE): Operating revenues less cost of energy
sold and delivery fees.
REPORTED EARNINGS PER SHARE (A GAAP MEASURE): Per share (diluted) net income
available to common shareholders. When calculating diluted earnings per share,
net income is adjusted for the after-tax interest on the securities creating the
dilution (exchangeable preferred membership interests) and for the fair value of
the option associated with TXU's floating rate convertible senior notes. For
periods where including common stock equivalents would be anti-dilutive, net
income is only adjusted for the after-tax fair value of the option associated
with the floating rate convertible senior notes and basic average shares are
used in the calculation.
RETURN ON AVERAGE COMMON STOCK EQUITY BASED ON NET INCOME: Twelve months ended
Net Income Available for Common Stock (a GAAP measure) divided by the average of
the beginning and ending Common Stock Equity (a GAAP measure) for the period
calculated.
RETURN ON AVERAGE COMMON STOCK EQUITY BASED ON OPERATIONAL EARNINGS (A NON-GAAP
MEASURE): Twelve months ended Operational Earnings (a non-GAAP measure) divided
by the average of the beginning and ending Common Stock Equity (a GAAP measure)
for the period calculated. This measure is used to evaluate operational
performance and management effectiveness.
RETURN ON INVESTED CAPITAL BASED ON ADJUSTED NET INCOME (A NON-GAAP MEASURE):
Twelve months ended Net Income (a GAAP measure) plus after-tax Interest Expense
and Related Charges net of interest income on restricted cash related to debt,
divided by the average of the beginning and ending Total Capitalization less
debt-related restricted cash for the period calculated. This measure is used to
evaluate operational performance and management effectiveness.
RETURN ON INVESTED CAPITAL BASED ON ADJUSTED OPERATIONAL EARNINGS (A NON-GAAP
MEASURE): Twelve months ended Operational Earnings (a non-GAAP measure) plus
Preference Share Dividends plus after-tax Interest Expense and Related Charges
net of interest income on restricted cash related to debt, divided by the
average of the beginning and ending Total Capitalization less debt-related
restricted cash for the period calculated. This measure is used to evaluate
operational performance and management effectiveness.
19
================================================================================
================================================================================
SPECIAL ITEMS: Unusual charges related to the implementation of the performance
improvement program and other charges, credits or gains that are unusual or
nonrecurring. The performance improvement program is being implemented in
phases, and the charges are expected to occur largely within a one-year period.
Special items are included in reported GAAP earnings, but are excluded from
operational earnings. Special items associated with the performance improvement
program will include costs related to severance programs, asset impairments and
facility closures.
TOTAL CAPITALIZATION (A NON-GAAP MEASURE): Total Debt plus Shareholders Equity.
TOTAL DEBT (A GAAP MEASURE): Long-term Debt (including current portion), plus
Bank Loans and Commercial Paper, plus Long Term Debt Held by Subsidiary Trusts,
plus Preferred Securities of Subsidiaries (including Exchangeable Preferred
Membership Interests).
TOTAL DEBT LESS TRANSITION BONDS AND RESTRICTED CASH (A NON-GAAP MEASURE): TXU
also uses a total debt measure that excludes transition bonds and restricted
cash. Transition, or securitization, bonds are serviced by a regulatory
transition charge on wires rates and are therefore excluded from debt in credit
reviews. Debt-related restricted cash is treated as net debt in credit reviews.
TXU uses this measure to evaluate its debt and capitalization levels.
20
================================================================================
================================================================================
ATTACHMENT 2: REGULATION G - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO
THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
TABLE 1: RETURN ON AVERAGE COMMON STOCK EQUITY CALCULATION
TWELVE MONTHS ENDED Q4 04 VS. Q4 03; $MILLIONS UNLESS OTHERWISE NOTED
==============================================================================================================================
COMPONENT Q4 04 Q4 03 REF
===================================================================================== =============== ================ =======
Net income (loss) available for common stock (386) 560 A
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Income from continuing operations before extraordinary gain and cumulative effect 81 566
of changes in accounting principles
...................................................................................... ............... ................ .......
Special items (a) 828 -
...................................................................................... ............... ................ .......
Preference stock dividends (22) (22)
...................................................................................... ............... ................ .......
Operational earnings 887 544 B
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Average common equity 2,961 5,193 C
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Return on average common equity - based on net income (A/C) (%) (13.0) 10.8
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Return on average common equity - based on operational earnings (B/C) (%) 30.0 10.5
==============================================================================================================================
TABLE 2: RETURN ON AVERAGE INVESTED CAPITAL CALCULATION
TWELVE MONTHS ENDED Q4 04 VS. Q4 03; $MILLIONS UNLESS OTHERWISE NOTED
==============================================================================================================================
COMPONENT Q4 04 Q4 03 REF
===================================================================================== ================ =============== =======
Net income (loss) 485 582
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income 434 486
...................................................................................... ................ ............... .......
Total return (based on net income) 919 1,068 A
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Operational earnings 887 544
...................................................................................... ................ ............... .......
Preference stock dividends 22 22
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income (b) 434 486
...................................................................................... ................ ............... .......
Total return (based on operational earnings) 1,343 1,052 B
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Average total capitalization 15,993 18,831 C
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Return on average invested capital - based on net income (A/C) (%) 5.7 5.7
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Return on average invested capital - based on operational earnings (B/C) (%) 8.4 5.6
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
(b) After-tax interest expense and related charges net of interest income
...................................................................................... ................ ............... .......
Interest expense 695 784
...................................................................................... ................ ............... .......
Interest income (28) (36)
...................................................................................... ................ ............... .......
Net 667 748
...................................................................................... ................ ............... .......
Tax at 35% 233 262
...................................................................................... ................ ............... .......
Net of tax 434 486
==============================================================================================================================
21
================================================================================
================================================================================
TABLE 3: INTEREST AND DEBT COVERAGE RATIOS
TWELVE MONTHS ENDED Q4 04 VS. Q4 03; $MILLIONS UNLESS OTHERWISE NOTED
==============================================================================================================================
COMPONENT Q4 04 Q4 03 REF
===================================================================================== =============== ================ =======
Income from continuing operations before income taxes and extraordinary items 123 818
...................................................................................... ............... ................ .......
Interest expense and related charges 695 784
...................................................................................... ............... ................ .......
Interest income (28) (36)
...................................................................................... ............... ................ .......
Depreciation and amortization 760 723
...................................................................................... ............... ................ .......
Special items 1,190 -
...................................................................................... ............... ................ .......
EBITDA 2,740 2,289 A
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Interest expense and related charges 695 784
...................................................................................... ............... ................ .......
Amortization of discount and reacquired debt expense (27) (31)
...................................................................................... ............... ................ .......
Capitalized interest 12 12
...................................................................................... ............... ................ .......
Cash interest expense 680 765 B
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Total debt 12,874 12,590
...................................................................................... ............... ................ .......
Transition bonds (1,258) (500)
...................................................................................... ............... ................ .......
Debt-related restricted cash - (525)
...................................................................................... ............... ................ .......
Total 11,616 11,565 C
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
EBITDA/Interest (A/B) 4.0 3.0
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Debt/EBITDA (C/A) 4.2 5.1
==============================================================================================================================
TABLE 4A: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
Q4 04; $MILLIONS AND $ PER SHARE AFTER TAX
===================================================================================================================================
ELECTRIC ELECTRIC CORP. CORP.
FACTOR ENERGY ENERGY DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================== ========== ========== ============ =========== =========== ============ ======== ==========
OPERATIONAL EARNINGS 167 0.61 55 0.20 (39) (0.14) 183 0.67
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Special items(1) (165) (0.60) (20) (0.07) (346) (1.27) (531) (1.94)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Discontinued operations(2) (1) - - - (287) (1.07) (288) (1.07)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Cumulative effect of accounting change 4 0.01 2 0.01 4 0.02 10 0.04
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Effect of dilution calculation - - - - - (0.02) - (0.02)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
NET INCOME TO COMMON 5 0.02 37 0.14 (668) (2.48) (626) (2.32)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - diluted 274
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - basic 270
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Dilutive effect of sr. convertible notes -
===================================================================================================================================
- ---------------------------
(1) See Table 3: Description of Special Items on page 5 of the Earnings
Release for details of special items.
(2) See Table 19: Details of Discontinued Operations on page 16 of the
Earnings Release and accompanying Segment Consolidating Income Statements
for details of discontinued operations.
22
================================================================================
================================================================================
TABLE 4B: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
Q4 03; $MILLIONS AND $ PER SHARE AFTER TAX
===================================================================================================================================
ELECTRIC ELECTRIC CORP. CORP.
FACTOR ENERGY ENERGY DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================== ========== ========== ============ =========== =========== ============ ======== =========
OPERATIONAL EARNINGS 57 0.18 20 0.06 (43) (0.13) 34 0.11
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Discontinued operations (16) (0.05) - - 5 0.02 (11) (0.03)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Effect of dilution calculation - - - - - (0.01) - (0.01)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
NET INCOME TO COMMON 41 0.13 20 0.06 (38) (0.12) 23 0.07
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - basic 323
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Dilutive effect of sr. convertible notes -
===================================================================================================================================
TABLE 4C: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
YTD 04; $MILLIONS AND $ PER SHARE AFTER TAX
===================================================================================================================================
ELECTRIC ELECTRIC CORP. CORP.
FACTOR ENERGY ENERGY DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================== ========== ========== ============ =========== =========== ============ ======== =========
OPERATIONAL EARNINGS 747 2.33 288 0.90 (148) (0.41) 887 2.82
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Special items (339) (1.06) (33) (0.10) (456) (1.42) (828) (2.58)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Discontinued operations (33) (0.11) - - 411 1.37 378 1.26
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Extraordinary gain, net of tax effect - - 16 0.05 - - 16 0.05
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Cumulative effect of accounting change 4 0.01 2 0.01 4 0.01 10 0.03
......................................... .......... .......... ............ ........... ........... ............ ........ .........
EPMI buyback premium - - - - (849) (2.83) (849) (2.83)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Effect of dilution calculation - 0.09 - - - (0.28) (0.04)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
NET INCOME TO COMMON 379 1. 26 273 0.86 (1,038) (3.46) (386) (1.29)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - basic 300
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - diluted 321
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Dilutive effect of EPMIs 18
===================================================================================================================================
TABLE 4D: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
YTD 03; $MILLIONS AND $ PER DILUTIVE SHARE AFTER TAX
===================================================================================================================================
ELECTRIC ELECTRIC CORP. CORP.
FACTOR ENERGY ENERGY DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================== ========== ========== ============ =========== =========== ============ ======== =========
OPERATIONAL EARNINGS 497 1.31 258 0.68 (211) (0.41) 544 1.58
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Discontinued operations (17) (0.05) - - 91 0.25 74 0.20
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Income from continuing operations
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Cumulative effect of accounting change (58) (0.15) - - - - (58) (0.15)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Effect of dilution calculation - - - - - (0.01) - (0.01)
......................................... .......... .......... ............ ........... ........... ............ ........ .........
NET INCOME TO COMMON 422 1.11 258 0.68 (120) (0.17) 560 1.62
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - basic 322
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Average shares - diluted 379
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Dilutive effect of sr. convertible notes -
......................................... .......... .......... ............ ........... ........... ............ ........ .........
Dilutive effect of EPMIs 53
===================================================================================================================================
23
================================================================================
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT
Quarter to Date Ended: December 31, 2004
ELECTRIC CORPORATE ELIMINATIONS /
ENERGY DELIVERY & OTHER ROUNDING TOTAL
---------- ------------ ------------ ------------- ----------
Operating revenues 1,906 538 7 (321) 2,130
---------------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 1,108 - - (314) 794
Operating costs 191 183 - (2) 372
Depreciation and amortization 81 103 (12) 1 173
---------------------------------------------------------------
Total direct costs and expenses 1,380 286 (12) (315) 1,339
---------------------------------------------------------------
Gross margin 526 252 19 (6) 791
Other costs and expenses
Selling, general and administrative expenses 172 67 53 (7) 285
Non-operating depreciation and other amortization 1 - 8 - 9
Franchise and revenue-based taxes 37 65 - - 102
Other income (61) (4) (11) 2 (74)
Other deductions 310 29 356 (1) 694
Interest income (10) (14) (24) 41 (7)
Interest expense and related charges 91 67 57 (41) 174
---------------------------------------------------------------
Total other costs and expenses 540 210 439 (6) 1,183
---------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles (14) 42 (420) - (392)
Income tax expense (benefit) (16) 7 (41) - (50)
---------------------------------------------------------------
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles 2 35 (379) - (342)
Income (loss) from discontinued operations, net of tax effect (1) - (287) - (288)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in
accounting principles, net of tax benefit 4 2 4 - 10
---------------------------------------------------------------
Net income (loss) 5 37 (662) - (620)
Exchangeable preferred membership interest buyback premium - - - -
Preference stock dividends - - 6 - 6
---------------------------------------------------------------
Net income (loss) available to common shareholders 5 37 (668) - (626)
===============================================================
Average shares of common stock outstanding, basic (millions) 270
Average shares of common stock outstanding, diluted (millions) 270
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles 0.01 0.13 (1.41) (0.00) (1.27)
Income (Loss) from discontinued operations, net of tax effect - - (1.07) - (1.07)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.02 (0.00) 0.04
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - (0.02) - (0.02)
Net income (loss) available to common shareholders 0.02 0.14 (2.48) - (2.32)
Diluted earnings:
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles 0.01 0.13 (1.41) (0.00) (1.27)
Income (Loss) from discontinued operations, net of tax effect - - (1.07) - (1.07)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.02 (0.00) 0.04
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - (0.02) - (0.02)
Net income (loss) available to common shareholders 0.02 0.14 (2.48) - (2.32)
Dividends declared 0.563
Page 1 of 3
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT
Quarter to Date Ended: December 31, 2003
ELECTRIC CORPORATE ELIMINATIONS /
ENERGY DELIVERY & OTHER ROUNDING TOTAL
--------- ------------ ---------- -------------- -----------
Operating revenues 1,743 482 5 (323) 1,907
-------------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 1,080 - - (318) 762
Operating costs 180 186 - (2) 364
Depreciation and amortization 91 79 - 1 171
-------------------------------------------------------------
Total direct costs and expenses 1,351 265 - (319) 1,297
-------------------------------------------------------------
Gross margin 392 217 5 (4) 610
Other costs and expenses
Selling, general and administrative expenses 179 62 23 (5) 259
Non-operating depreciation and other amortization 10 3 5 - 18
Franchise and revenue-based taxes 40 66 4 - 110
Other income (5) (2) (2) 1 (8)
Other deductions 13 - - (1) 12
Interest income (5) (9) (10) 8 (16)
Interest expense and related charges 77 71 47 (7) 188
-------------------------------------------------------------
Total other costs and expenses 309 191 67 (4) 563
-------------------------------------------------------------
Income (loss) from continuing operations before income
taxes, extraordinary gain and cumulative effect of
changes in accounting principles 83 26 (62) - 47
Income tax expense (benefit) 25 7 (24) - 8
-------------------------------------------------------------
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles 58 19 (38) - 39
Income (loss) from discontinued operations, net of tax effect (16) - 5 - (11)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in
accounting principles, net of tax benefit - - - - -
-------------------------------------------------------------
Net income (loss) 42 19 (33) - 28
Exchangeable preferred membership interest buyback premium - - - -
Preference stock dividends - - 5 - 5
-------------------------------------------------------------
Net income (loss) available to common shareholders 42 19 (38) - 23
=============================================================
Average shares of common stock outstanding, basic (millions) 323
Average shares of common stock outstanding, diluted (millions) 323
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles 0.18 0.06 (0.12) - 0.12
Income (Loss) from discontinued operations, net of tax (0.05) - 0.02 0.00 (0.03)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit - - - - -
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - (0.02) - (0.02)
Net income (loss) available to common shareholders 0.13 0.06 (0.12) - 0.07
Diluted earnings:
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles 0.18 0.06 (0.12) - 0.12
Income (Loss) from discontinued operations, net of tax (0.05) - 0.02 0.00 (0.03)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit - - - - -
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - (0.02) - (0.02)
Net income (loss) available to common shareholders 0.13 0.06 (0.12) - 0.07
Dividends declared 0.125
Page 2 of 3
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT - VARIANCE
QUARTER TO DATE ENDED DECEMBER 31, 2004 VS DECEMBER 31, 2003
ELECTRIC ORPORATE ELIMINATIONS /
ENERGY DELIVERY & OTHER ROUNDING TOTAL
--------- ------------ ----------- ----------- ----------
Operating revenues 163 56 2 2 223
--------------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 28 - - 4 32
Operating costs 11 (3) - - 8
Depreciation and amortization (10) 24 (12) - 2
--------------------------------------------------------------
Total direct costs and expenses 29 21 (12) 4 42
--------------------------------------------------------------
Gross margin 134 35 14 (2) 181
Other costs and expenses
Selling, general and administrative expenses (7) 5 30 (2) 26
Non-operating depreciation and other amortization (9) (3) 3 - (9)
Franchise and revenue-based taxes (3) (1) (4) - (8)
Other income (56) (2) (9) 1 (66)
Other deductions 297 29 356 - 682
Interest income (5) (5) (14) 33 9
Interest expense and related charges 14 (4) 10 (34) (14)
--------------------------------------------------------------
Total other costs and expenses 231 19 372 (2) 620
--------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles (97) 16 (358) - (439)
Income tax expense (benefit) (41) - (17) - (58)
--------------------------------------------------------------
Income (loss) from continuing operations before extraordinary
gain and cumulative effect of changes in accounting principles (56) 16 (341) - (381)
Income (loss) from discontinued operations, net of tax effect 15 - (292) - (277)
Extraordinary gain, net of tax - - - - -
Cumulative effect of changes in
accounting principles, net of tax benefit 4 2 4 - 10
--------------------------------------------------------------
Net income (loss) (37) 18 (629) - (648)
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - 1 - 1
--------------------------------------------------------------
Net income (loss) available to common shareholders (37) 18 (630) - (649)
==============================================================
Average shares of common stock outstanding, basic (millions)
Average shares of common stock outstanding, diluted (millions) (53)
(53)
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles (0.17) 0.07 (1.29) (0.00) (1.39)
Income (Loss) from discontinued operations, net of tax effect 0.05 - (1.09) (0.00) (1.04)
Extraordinary loss, net of tax effect - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.02 (0.00) 0.04
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - - - -
Net income (loss) available for common stock (0.11) 0.08 (2.36) - (2.39)
Diluted earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles (0.17) 0.07 (1.29) (0.00) (1.39)
Income (Loss) from discontinued operations, net of tax effect 0.05 - (1.09) (0.00) (1.04)
Extraordinary loss, net of tax effect - - - - -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.02 (0.00) 0.04
Exchangeable preferred membership interest buyback premium - - - - -
Preference stock dividends - - - - -
Net income (loss) available for common stock (0.11) 0.08 (2.36) - (2.39)
Dividends declared 0.438
Page 3 of 3
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT
YEAR TO DATE ENDED: DECEMBER 31, 2004
CORPORATE
ENERGY ELECTRIC DELIVERY & OTHER
----------------- ----------------- ------------------
Operating revenues 8,495 2,226 31
---------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 5,265 - (1)
Operating costs 704 730 1
Depreciation and amortization 327 386 (4)
---------------------------------------------------------
Total direct costs and expenses 6,296 1,116 (4)
---------------------------------------------------------
Gross margin 2,199 1,110 35
Other costs and expenses
Selling, general and administrative expenses 667 219 224
Non-operating depreciation and other amortization 23 3 25
Franchise and revenue-based taxes 117 248 2
Other income (110) (7) (33)
Other deductions 610 52 513
Interest income (31) (56) (77)
Interest expense and related charges 353 280 198
---------------------------------------------------------
Total other costs and expenses 1,629 739 852
---------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles 570 371 (817)
Income tax expense (benefit) 162 116 (235)
---------------------------------------------------------
Income (loss) from continuing operations before extraordinary gain and
cumulative effect of changes in accounting principles 408 255 (582)
Income (loss) from discontinued operations, net of tax effect (34) - 411
Extraordinary gain, net of tax - 16 -
Cumulative effect of changes in
accounting principles, net of tax benefit 4 2 4
---------------------------------------------------------
Net income (loss) 378 273 (167)
Exchangeable preferred membership interest buyback premium - - 849
Preference stock dividends - - 22
---------------------------------------------------------
Net income (loss) available to common shareholders 378 273 (1,038)
=========================================================
Average shares of common stock outstanding, basic (millions)
Average shares of common stock outstanding, diluted (millions)
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles 1.36 0.85 (1.94)
Income (Loss) from discontinued operations, net of tax effect (0.11) - 1.37
Extraordinary gain, net of tax - 0.05 -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.01
Exchangeable preferred membership interest buyback premium - - (2.83)
Preference stock dividends - - (0.07)
Net income (loss) available to common shareholders 1.26 0.91 (3.46)
Diluted earnings:
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles 1.36 0.85 (1.94)
Income (Loss) from discontinued operations, net of tax effect (0.11) - 1.37
Extraordinary gain, net of tax - 0.05 -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.01 0.01 0.01
Exchangeable preferred membership interest buyback premium - - (2.83)
Preference stock dividends - - (0.07)
Net income (loss) available to common shareholders 1.26 0.91 (3.46)
Dividends declared
ELIMINATIONS /
ROUNDING TOTAL
--------------------- ------------------
Operating revenues (1,444) 9,308
----------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees (1,417) 3,847
Operating costs (6) 1,429
Depreciation and amortization - 709
----------------------------------------
Total direct costs and expenses (1,423) 5,985
----------------------------------------
Gross margin (21) 3,323
Other costs and expenses
Selling, general and administrative expenses (19) 1,091
Non-operating depreciation and other amortization - 51
Franchise and revenue-based taxes - 367
Other income 2 (148)
Other deductions (3) 1,172
Interest income 136 (28)
Interest expense and related charges (136) 695
----------------------------------------
Total other costs and expenses (20) 3,200
----------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles (1) 123
Income tax expense (benefit) (1) 42
----------------------------------------
Income (loss) from continuing operations before extraordinary gain and
cumulative effect of changes in accounting principles - 81
Income (loss) from discontinued operations, net of tax effect 1 378
Extraordinary gain, net of tax - 16
Cumulative effect of changes in
accounting principles, net of tax benefit - 10
----------------------------------------
Net income (loss) 1 485
Exchangeable preferred membership interest buyback premium 849
Preference stock dividends - 22
----------------------------------------
Net income (loss) available to common shareholders 1 (386)
========================================
Average shares of common stock outstanding, basic (millions) 300
Average shares of common stock outstanding, diluted (millions) 300
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles - 0.27
Income (Loss) from discontinued operations, net of tax effect - 1.26
Extraordinary gain, net of tax - 0.05
Cumulative effect of changes in accounting principles,
net of tax benefit (0.00) 0.03
Exchangeable preferred membership interest buyback premium - (2.83)
Preference stock dividends - (0.07)
Net income (loss) available to common shareholders - (1.29)
Diluted earnings:
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles - 0.27
Income (Loss) from discontinued operations, net of tax effect - 1.26
Extraordinary gain, net of tax - 0.05
Cumulative effect of changes in accounting principles,
net of tax benefit (0.00) 0.03
Exchangeable preferred membership interest buyback premium - (2.83)
Preference stock dividends - (0.07)
Net income (loss) available to common shareholders - (1.29)
Dividends declared 0.938
Page 1 of 3
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT
YEAR TO DATE ENDED: DECEMBER 31, 2003
CORPORATE
ENERGY ELECTRIC DELIVERY & OTHER
------------------ ------------------ ------------------
Operating revenues 7,986 2,087 16
-------------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 5,117 - -
Operating costs 685 710 -
Depreciation and amortization 368 285 -
-------------------------------------------------------------
Total direct costs and expenses 6,170 995 -
-------------------------------------------------------------
Gross margin 1,816 1,092 16
Other costs and expenses
Selling, general and administrative expenses 636 207 72
Non-operating depreciation and other amortization 39 12 18
Franchise and revenue-based taxes 124 250 16
Other income (48) (9) (5)
Other deductions 22 - 24
Interest income (8) (52) (38)
Interest expense and related charges 323 300 223
-------------------------------------------------------------
Total other costs and expenses 1,088 708 310
-------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles 728 384 (294)
Income tax expense (benefit) 231 126 (105)
-------------------------------------------------------------
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles 497 258 (189)
Income (loss) from discontinued operations, net of tax effect (18) - 91
Extraordinary gain, net of tax - - -
Cumulative effect of changes in
accounting principles, net of tax benefit (58) - -
-------------------------------------------------------------
Net income (loss) 421 258 (98)
Exchangeable preferred membership interest buyback premium - - -
Preference stock dividends - - 22
-------------------------------------------------------------
Net income (loss) available to common shareholders 421 258 (120)
=============================================================
Average shares of common stock outstanding, basic (millions)
Average shares of common stock outstanding, diluted (millions)
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 1.54 0.80 (0.58)
Income (Loss) from discontinued operations, net of tax effect (0.06) - 0.29
Extraordinary loss, net of tax effect - - -
Cumulative effect of changes in accounting principles,
net of tax benefit (0.18) - -
Exchangeable preferred membership interest buyback premium - - -
Preference stock dividends - - (0.07)
Net income (loss) available for common stock 1.30 0.80 (0.36)
Diluted earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 1.31 0.68 (0.36)*
Income (Loss) from discontinued operations, net of tax effect (0.05) - 0.25
Extraordinary loss, net of tax effect - - -
Cumulative effect of changes in accounting principles,
net of tax benefit (0.15) - -
Exchangeable preferred membership interest buyback premium - - -
Preference stock dividends - - (0.06)
Net income (loss) available for common stock 1.11 0.68 (0.17)
Dividends declared
ELIMINATIONS /
ROUNDING TOTAL
------------------ -----------------
Operating revenues (1,489) 8,600
--------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees (1,477) 3,640
Operating costs (6) 1,389
Depreciation and amortization 1 654
--------------------------------------
Total direct costs and expenses (1,482) 5,683
--------------------------------------
Gross margin (7) 2,917
Other costs and expenses
Selling, general and administrative expenses (8) 907
Non-operating depreciation and other amortization 1 70
Franchise and revenue-based taxes - 390
Other income 4 (58)
Other deductions (4) 42
Interest income 62 (36)
Interest expense and related charges (62) 784
--------------------------------------
Total other costs and expenses (7) 2,099
--------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles - 818
Income tax expense (benefit) - 252
--------------------------------------
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles - 566
Income (loss) from discontinued operations, net of tax effect 1 74
Extraordinary gain, net of tax - -
Cumulative effect of changes in
accounting principles, net of tax benefit - (58)
--------------------------------------
Net income (loss) 1 582
Exchangeable preferred membership interest buyback premium -
Preference stock dividends - 22
--------------------------------------
Net income (loss) available to common shareholders 1 560
======================================
Average shares of common stock outstanding, basic (millions) 322
Average shares of common stock outstanding, diluted (millions) 379
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles (0.00) 1.76
Income (Loss) from discontinued operations, net of tax effect 0.00 0.23
Extraordinary loss, net of tax effect - -
Cumulative effect of changes in accounting principles,
net of tax benefit - (0.18)
Exchangeable preferred membership interest buyback premium - -
Preference stock dividends - (0.07)
Net income (loss) available for common stock (0.00) 1.74
Diluted earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles (0.00) 1.63
Income (Loss) from discontinued operations, net of tax effect - 0.20
Extraordinary loss, net of tax effect - -
Cumulative effect of changes in accounting principles,
net of tax benefit - (0.15)
Exchangeable preferred membership interest buyback premium - -
Preference stock dividends - (0.06)
Net income (loss) available for common stock (0.00) 1.62
Dividends declared 0.500
* Reflects the dilution adjustment ($53 million dilution adjustment / 57 million
shares).
Page 2 of 3
TXU CORP. AND SUBSIDIARIES
SEGMENT CONSOLIDATING INCOME STATEMENT - VARIANCE
YEAR TO DATE ENDED DECEMBER 31, 2004 VS DECEMBER 31, 2003
CORPORATE
ENERGY ELECTRIC DELIVERY & OTHER
------------------ ------------------ ------------------
Operating revenues 509 139 15
---------------------------------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 148 - (1)
Operating costs 19 20 1
Depreciation and amortization (41) 101 (4)
---------------------------------------------------------------
Total direct costs and expenses 126 121 (4)
---------------------------------------------------------------
Gross margin 383 18 19
Other costs and expenses
Selling, general and administrative expenses 31 12 152
Non-operating depreciation and other amortization (16) (9) 7
Franchise and revenue-based taxes (7) (2) (14)
Other income (62) 2 (28)
Other deductions 588 52 489
Interest income (23) (4) (39)
Interest expense and related charges 30 (20) (25)
---------------------------------------------------------------
Total other costs and expenses 541 31 542
---------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles (158) (13) (523)
Income tax expense (benefit) (69) (10) (130)
---------------------------------------------------------------
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles (89) (3) (393)
Income (loss) from discontinued operations, net of tax effect (16) - 320
Extraordinary gain, net of tax - 16 -
Cumulative effect of changes in
accounting principles, net of tax benefit 62 2 4
---------------------------------------------------------------
Net income (loss) (43) 15 (69)
Exchangeable preferred membership interest buyback premium - - 849
Preference stock dividends - - -
---------------------------------------------------------------
Net income (loss) available to common shareholders (43) 15 (918)
===============================================================
Average shares of common stock outstanding, basic (millions)
Average shares of common stock outstanding, diluted (millions)
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles (0.18) 0.05 (1.36)
Income (Loss) from discontinued operations, net of tax effect (0.05) - 1.08
Extraordinary loss, net of tax effect - 0.05 -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.19 0.01 0.01
Exchangeable preferred membership interest buyback premium - - (2.83)
Preference stock dividends - - -
Net income (loss) available for common stock (0.04) 0.11 (3.10)
Diluted earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 0.05 0.17 (1.58) *
Income (Loss) from discontinued operations, net of tax effect (0.06) - 1.12
Extraordinary loss, net of tax effect - 0.05 -
Cumulative effect of changes in accounting principles,
net of tax benefit 0.16 0.01 0.01
Exchangeable preferred membership interest buyback premium - - (2.83)
Preference stock dividends - - (0.01)
Net income (loss) available for common stock 0.15 0.23 (3.29)
Dividends declared
ELIMINATIONS /
ROUNDING TOTAL
------------------ ------------------
Operating revenues 45 708
----------------------------------------
Direct costs and expenses
Cost of energy sold including delivery fees 60 207
Operating costs - 40
Depreciation and amortization (1) 55
----------------------------------------
Total direct costs and expenses 59 302
----------------------------------------
Gross margin (14) 406
Other costs and expenses
Selling, general and administrative expenses (11) 184
Non-operating depreciation and other amortization (1) (19)
Franchise and revenue-based taxes - (23)
Other income (2) (90)
Other deductions 1 1,130
Interest income 74 8
Interest expense and related charges (74) (89)
----------------------------------------
Total other costs and expenses (13) 1,101
----------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary gain and cumulative effect of changes in
accounting principles (1) (695)
Income tax expense (benefit) (1) (210)
----------------------------------------
Income (loss) from continuing operations before extraordinary gain
and cumulative effect of changes in accounting principles - (485)
Income (loss) from discontinued operations, net of tax effect - 304
Extraordinary gain, net of tax - 16
Cumulative effect of changes in
accounting principles, net of tax benefit - 68
----------------------------------------
Net income (loss) - (97)
Exchangeable preferred membership interest buyback premium - 849
Preference stock dividends - -
----------------------------------------
Net income (loss) available to common shareholders - (946)
========================================
Average shares of common stock outstanding, basic (millions)
Average shares of common stock outstanding, diluted (millions) (22)
(79)
Per share of common stock:
Basic earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 0.00 (1.49)
Income (Loss) from discontinued operations, net of tax effect (0.00) 1.03
Extraordinary loss, net of tax effect - 0.05
Cumulative effect of changes in accounting principles,
net of tax benefit (0.00) 0.21
Exchangeable preferred membership interest buyback premium - (2.83)
Preference stock dividends - -
Net income (loss) available for common stock 0.00 (3.03)
Diluted earnings:
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles 0.00 (1.36)
Income (Loss) from discontinued operations, net of tax effect - 1.06
Extraordinary loss, net of tax effect - 0.05
Cumulative effect of changes in accounting principles,
net of tax benefit (0.00) 0.18
Exchangeable preferred membership interest buyback premium - (2.83)
Preference stock dividends - (0.01)
Net income (loss) available for common stock 0.00 (2.91)
Dividends declared 0.438
Page 3 of 3