Exhibit 99.1
================================================================================
News
Release [TXU LOGO]
- --------------------------------------------------------------------------------
1601 Bryan Street
Dallas, Texas 75201-3411
FOR IMMEDIATE RELEASE
TXU REPORTS IMPROVED FIRST QUARTER RESULTS; PROGRESS ON INITIATIVES, AND
INCREASED OUTLOOK
DALLAS - MAY 5, 2005 - TXU Corp. (NYSE: TXU) today reported consolidated results
for the first quarter ended March 31, 2005.
o For the first quarter of 2005, TXU reported net income available for common
stock of $416 million, representing a loss of $0.19(1) per share, compared
to net income of $173 million, or $0.49 per share for 2004.
o Operational earnings(2), which exclude special items and discontinued
operations, for the first quarter of 2005 were $246 million, $1.01 per
share, compared to $149 million, $0.43 per share for 2004, a 135 percent
increase in per share earnings.
o The outlook for operational earnings for 2005 was increased to $6.25 to
$6.45 per share, and the growth rate for 2006 relative to this revised
outlook base was maintained at 16 to 20 percent. For details see page 9.
REPORTED EARNINGS
For the first quarter of 2005, reported earnings of $416 million include income
from discontinued operations(3) of $15 million, or $0.06 per share. Income from
continuing operations was $406 million, representing a loss of $0.23 per share,
for the first quarter 2005 compared to income of $128 million, $0.37 per share
for the prior year period. Income from continuing operations for the first
quarter of 2005 includes income from special items, primarily associated with
the benefits of reductions in tax reserves and litigation settlement expenses
net of transitional Capgemini outsourcing costs and other restructuring-related
expenses, totaling $155 million, $0.64 per share. For reported earnings per
share purposes, the dilution calculation also subtracts $462 million related to
the estimated true-up (as of March 31, 2005) on the company's accelerated share
repurchase program. Reported earnings of $173 million, $0.49 per share, for the
first quarter of 2004 include losses from special items of $26 million, $0.07
per share and income from discontinued operations of $50 million, $0.13 per
share. Special items are discussed in more detail on page 3.
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
The 135 percent increase in operational earnings per share, which excludes
special items and the effect of the accelerated share repurchase program
true-up, reflects improved performance from the TXU Energy Holdings and TXU
Electric Delivery segments, reduced corporate expenses, and fewer average common
shares outstanding.
"The first quarter results are a solid start to delivering on our 2005 outlook,
in spite of unsustainably low margins and robust competition in the retail
business, and very volatile commodity prices," said C. John Wilder, chief
executive officer, TXU Corp. "We continue to progress in transforming TXU into a
high-performance industrial company through a focus on operational excellence,
market leadership, and performance management."
- ----------------------------
(1) A description of the calculation of diluted earnings per share is provided
in Table 2 on page 3. The primary reason for positive net income versus
negative diluted earnings per share is, pursuant to accounting rules, an
adjustment to net income for purposes of calculating earnings per share for
the $462 million change during the quarter in the estimated true-up payment
related to the company's 52.5 million share accelerated common stock
repurchase in November 2004, which is expected to be settled in the second
or third quarter of 2005.
(2) 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.
(3) See Appendix Table L for details of discontinued operations.
1
================================================================================
================================================================================
Table 1 below provides a recap of operational highlights and significant
transactions completed since the beginning of 2005.
TABLE 1: 2005 HIGHLIGHTS
================================================================================
DATE HIGHLIGHT
- ------------- ------------------------------------------------------------------
01-21 Reached a comprehensive settlement of shareholder class-action
litigation initially filed in Oct. 2002. The agreement, which is
subject to final court approval and in which TXU denies any
liability, benefited shareholders and the company by removing the
distractions, expense, and uncertainty that accompany such
litigation.
.............. ..................................................................
01-27 Announced a comprehensive agreement resolving potential claims
related to TXU Europe Ltd. and its affiliates and major creditor
groups. The agreement is contingent in part upon creditor
approval of the bankruptcy plan. While such approval has been
received, two creditor groups subsequently filed an application
in UK court objecting to the plan. TXU expects that these
objections will be resolved but that completion of the agreement
will be delayed until the third or fourth quarter of 2005. The
agreement benefits the parties by providing additional funds for
creditors, eliminating a potential protracted claim proceeding
that could have included claims of billions of dollars, and
closing a difficult chapter in TXU's history.
.............. ..................................................................
02-01 Offered the capacity from 61 percent of its natural-gas-fired
Texas generating fleet for contract (through a tolling
arrangement) or for sale. This request for proposal, which is
expected to be completed in phases in the second and third
quarters, will help TXU Power ensure it remains competitively
priced, highly dependable, and flexible to meet the needs of the
market.
.............. ..................................................................
02-01 Launched TXU ENERGY REWARDS+, a one-of-a-kind, internet-based
program for retail electricity customers that offers merchandise
and services at prices that are up to 45 percent lower than the
most popular online travel and shopping sites. Early results
indicate the new loyalty program is being well received by
customers as over 30,000 have joined during the pilot.
.............. ..................................................................
03-31 Amended subsidiary credit facilities, increasing the capacity
from $2.5 billion to $3.5 billion, lowering the borrowing costs
and extending the maturity dates. These actions further evidence
the strength of TXU's business.
.............. ..................................................................
04-15 Opened the Power Optimization Center (POC), a state-of-the-art,
fleet-level diagnostic facility designed to provide real-time
monitoring of TXU's power plant performance systems. The POC
integrates telecommunications and on-line technologies to detect
plant and equipment performance issues, resulting in improved
heat rates and reliability at the plants.
.............. ..................................................................
04-15 Filed a request with the Public Utility Commission of Texas to
raise retail electricity prices in native North Texas markets,
reflecting the more than 20 percent increase in natural gas
prices since the last adjustment in August 2004. Since the retail
electricity market in Texas opened to competition in 2002,
natural gas prices have increased more than 170 percent. If the
requested increase of 9.9 percent on an average residential bill
is approved, electricity prices would have increased only 25
percent from prices before the market opened. TXU Energy's price
to beat will remain one of the lowest in the state.
.............. ..................................................................
04-28 Comanche Peak Unit 2 synchronized to the grid after a 32 day
planned refueling and maintenance outage, 3 days earlier than the
35 day target.
.............. ..................................................................
05-04 Signed a definitive agreement to sell TXU's Pedricktown gas-fired
cogeneration facility located in New Jersey for $8.5 million. The
closing of the sale is expected to occur in the second or third
quarter of 2005.
.............. ..................................................................
05-05 Announced the intent to increase the accelerated share repurchase
program by 6 million shares, consistent with the company's
previously disclosed plan to offset share issuances and maintain
average diluted shares of common stock outstanding at
approximately 240 million for 2005. Details of the agreement will
be filed with the Securities and Exchange Commission in a Form
8-K.
================================================================================
EARNINGS TELECONFERENCE TODAY
TXU will host a teleconference with financial analysts to discuss its first
quarter 2005 results and updated outlook for 2005 and 2006 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
4355873. THE TELECONFERENCE WILL BE WEB CAST LIVE ON TXU CORP.'S WEB SITE AT
www.txucorp.com FOR ALL INTERESTED PARTIES.
CONSOLIDATED RESULTS
Table 2 below provides the shares and adjustments included in the calculation of
diluted earnings per share for reported and operational earnings for first
quarter 2005 compared to the first quarter 2004.
2
================================================================================
================================================================================
TABLE 2: SUMMARY CALCULATION OF EARNINGS PER SHARE(4)
Q1 05 AND Q1 04; $MILLIONS, MILLION SHARES, $ PER SHARE
============================================================================================================================
Q1 05 Q1 05 Q1 04 Q1 04
FACTOR REPORTED OPERATIONAL REPORTED OPERATIONAL
======================================================= ================= ================ ================ ================
NET INCOME TO COMMON 416 - 173 -
........................................................ ................. ................ ................ ................
OPERATIONAL EARNINGS - 246 - 149
........................................................ ................. ................ ................ ................
Interest on EPMIs, convertible senior notes - - 13 13
........................................................ ................. ................ ................ ................
Share repurchase estimated true-up (3/31/05) (462) - - -
........................................................ ................. ................ ................ ................
AVERAGE SHARES FOR DILUTED EARNINGS CALCULATION
........................................................ ................. ................ ................ ................
Basic shares 238 - - -
........................................................ ................. ................ ................ ................
Diluted shares - 243 380 380
........................................................ ................. ................ ................ ................
DILUTED EARNINGS PER SHARE (0.19) 1.01 0.49 0.43
============================================================================================================================
Table 3 below reconciles operational earnings to reported net income available
for common stock.
TABLE 3: RECONCILIATION OF OPERATIONAL EARNINGS TO REPORTED NET INCOME
Q1 05 VS. Q1 04; $MILLIONS AND $ PER SHARE AFTER TAX
============================================================================================================================
FACTOR Q1 05 Q1 05 Q1 04 Q1 04
======================================================= ================= ================ ================ ================
NET INCOME (LOSS) TO COMMON 416 (0.19) 173 0.49
............................................................... .............. ............... ............... ..............
Discontinued operations (15) (0.06) (50) (0.13)
............................................................... .............. ............... ............... ..............
Preference stock dividends 5 0.02 5 0.01
............................................................... .............. ............... ............... ..............
INCOME (LOSS) FROM CONTINUING OPERATIONS 406 (0.23) 128 0.37
............................................................... .............. ............... ............... ..............
Preference stock dividends (5) (0.02) (5) (0.01)
............................................................... .............. ............... ............... ..............
Special items (155) (0.64) 26 0.07
............................................................... .............. ............... ............... ..............
Effect of accelerated share repurchase estimated true-up - 1.94 - -
............................................................... .............. ............... ............... ..............
Effect of share dilution - (0.04) - -
............................................................... .............. ............... ............... ..............
OPERATIONAL EARNINGS 246 1.01 149 0.43
============================================================================================================================
Special items in the first quarter of 2005 accounted for income of $155 million
after tax, or $0.64 per share of common stock. These benefits relate primarily
to the reduction of $138 million of the company's federal income tax valuation
allowance reserve related to the write-off of its investment in TXU Europe due
to the anticipated ability to utilize additional capital losses and the expected
receipt of an additional $23 million ($35 million before tax) from insurance
carriers related to the settlement of the securities class action lawsuit
announced in January 2005. For the first quarter of 2004, special items
accounted for a loss of $26 million after tax or $0.07 per share and resulted
primarily from costs associated with the company's restructuring and improvement
program and one-time compensation expense as disclosed in 2004. 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 are described in Appendix Table A.
The calculation of reported earnings per share also includes the effect of the
estimated true-up on the price of the company's accelerated share repurchase
agreement entered in November 2004. The effect of the estimated adjustment on
reported (GAAP) earnings per share is to reduce net income to common by the
estimated $462 million change in the true-up during the quarter ending March 31,
2005. Although impacting the diluted earnings per share, the true-up will not
affect net income when paid.
Under the terms of the repurchase agreement, the counterparty immediately
borrowed shares of TXU Corp. common stock that were sold to and cancelled by TXU
Corp. at an initial price of $64.57 per share. The counterparty then purchases
an equivalent number of shares in the open market to return the shares. Under
the agreement, the initial price that TXU Corp. paid for the shares will be
adjusted to the actual price paid for the shares by the counterparty in the open
market plus related
- ---------------------------
(4) For the first quarter 2005, the dilution calculation for operational
earnings reflects the addition to net income of interest on the convertible
senior notes of $0.1 million after tax and addition of 5 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
(0.8 million). The diluted earnings per share calculation for reported
earnings reflects a reduction of net income by the $462 million change in
the estimated cost of the true-up of the company's share repurchase
agreement during the quarter and divides the reduced amount by the average
basic shares. For the first quarter 2004 reported and operational earnings
dilution calculation, the $13 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, are added to net income and the
related 57 million shares are added to the share average share count.
3
================================================================================
================================================================================
settlement fees and expenses. As of March 31, 2005, approximately 66% of the
shares had been purchased at an average price of $69.82. Had the remaining
shares been purchased at the $79.63 closing share price on that date, the
estimated change between December 31, 2004 and March 31, 2005 in the amount that
TXU Corp. would pay for the adjustment to the initial share price was $462
million.
As of May 3, 2005, approximately 84% of the shares had been repurchased at an
average price of $72.73. If the remaining shares are repurchased at the $81.65
closing share price on that date, the estimated true-up payment would be $540
million. While TXU Corp. has the option under the agreement to pay the true-up
in cash and/or common stock, it currently expects to make the payment in cash
from credit facility borrowings and repay those borrowings with free cash flows.
The timing of the true-up is currently estimated to be June 2005.
CONSOLIDATED OPERATIONAL EARNINGS SUMMARY
Table 4 below 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
Q1 05 VS. Q1 04; $MILLIONS AND $ PER SHARE
=========================================================================
EARNINGS FACTOR $MILLIONS $ PER SHARE
========================================== =============== ==============
Q1 04 OPERATIONAL EARNINGS 149 0.43
........................................... ............... ..............
TXU Energy Holdings segment 79 0.21
........................................... ............... ..............
TXU Electric Delivery segment 6 0.02
........................................... ............... ..............
Corporate expenses 12 0.03
........................................... ............... ..............
Effect of reduced shares - 0.32
........................................... ............... ..............
Q1 05 OPERATIONAL EARNINGS 246 1.01
=========================================================================
Operational earnings were $1.01 per share of common stock, up 135 percent from
$0.43 per share in the first quarter of 2004. The increase was driven by a
reduction in the average shares outstanding, a $0.21 per share improvement in
operational earnings from the TXU Energy Holdings segment, a $0.02 per share
improvement in operational earnings from the TXU Electric Delivery segment and a
$0.03 reduction in corporate expenses. The decrease in average shares of common
stock was primarily due to the repurchase of TXU Energy Company's exchangeable
preferred membership interests in April 2004, and approximately 84 million
shares of TXU Corp. common stock between May and November 2004, inclusive. A
more detailed review of variances by segment is provided below.
CASH FLOW AND FINANCIAL FLEXIBILITY
For the quarter ended March 31, 2005, cash provided by operating activities was
$197 million compared to $338 million for 2004. The decrease primarily reflects
a payment of $84 million in settlement of the securities class action lawsuit
announced in January 2005, which is net of $66 million of insurance carrier
proceeds received through March 31. An additional $35 million recovery has been
agreed to with carriers and is expected to be received later this month. The
variance also includes a $42 million tax payment in 2005 associated with 2004
results.
Table 5 below provides a summary of consolidated common stock and return
measures at March 31, 2005 and 2004.
TABLE 5: CONSOLIDATED - RETURN STATISTICS
TWELVE MONTHS ENDED 3/31/05 AND 3/31/04; MIXED MEASURES
============================================================================================================================
STATISTIC 3/31/05 3/31/04 %CHANGE
===================================================================================== ============ =========== =============
Common stock data:
...................................................................................... ............ ........... .............
Basic shares outstanding-end of period (millions) 239 324 (26.2)
...................................................................................... ............ ........... .............
Return on average common stock equity - based on net income (%) (4.5) 13.2 -
...................................................................................... ............ ........... .............
Return on average common stock equity - based on operational earnings (%) 31.1 12.7 -
...................................................................................... ............ ........... .............
Return on average invested capital - based on adjusted net income (%) 7.3 6.5 12.3
...................................................................................... ............ ........... .............
Return on average invested capital - based on adjusted operational earnings (%) 9.0 6.4 40.6
============================================================================================================================
TXU Corp.'s continued progress in improving its financial flexibility is
reflected in its credit metrics for the first quarter 2005 as compared to the
fourth quarter of 2004 in Table 6 below. Strong credit metrics are an essential
determinant in TXU Corp.'s disciplined approach to capital allocation.
4
================================================================================
================================================================================
TABLE 6: CONSOLIDATED - FINANCIAL FLEXIBILITY MEASURES
12 MONTHS ENDED 3/31/05 AND 12/31/04; MIXED MEASURES
============================================================================================================================
FINANCIAL FLEXIBILITY MEASURE 3/31/05 12/31/04 CHANGE %CHANGE
==================================== ===================== ==================== ===================== ======================
EBITDA/Interest 4.1 4.0 0.1 2.5
..................................... ..................... .................... ..................... ......................
Debt/EBITDA 4.1 4.2 (0.1) (2.4)
============================================================================================================================
Table 7 below represents available liquidity (cash and available credit facility
capacity) as of April 29, 2005 and December 31, 2004. In March, TXU Corp.'s
subsidiaries increased the capacity by $1 billion, lowered the cost and extended
the terms of their credit facilities as part of the company's ongoing efforts to
improve liquidity and financial flexibility. TXU plans to maintain minimum
available liquidity of $1.5 billion.
TABLE 7: CONSOLIDATED - LIQUIDITY
AVAILABLE AMOUNTS AS OF 4/29/05 AND 12/31/04; $MILLIONS
============================================================================================================================
LIQUIDITY COMPONENT BORROWER MATURITY 4/29/05 12/31/04
================================== ================================================ =============== ============ ===========
Cash and cash equivalents 10 106
................................... ................................................ ............... ............ ...........
$1.4 billion credit facility TXU Energy Co./TXU Electric Delivery Co. June 08 966 1,172
................................... ................................................ ............... ............ ...........
$1.6 billion credit facility TXU Energy Co./TXU Electric Delivery Co. March 10 1,560 -
................................... ................................................ ............... ............ ...........
$500 million credit facility TXU Energy Co./TXU Electric Delivery Co. June 10 375 500
................................... ................................................ ............... ............ ...........
$500 million credit facility TXU Energy Co. December 09 - 500
................................... ................................................ ............... ............ ...........
Terminated facilities - 531
................................... ................................................ ............... ............ ...........
Total liquidity 2,911 2,809
============================================================================================================================
BUSINESS SEGMENT RESULTS
The following is a discussion of operational earnings by business segment. TXU
Corp.'s business segments include the TXU Energy Company LLC (TXU Energy
Holdings segment), TXU Electric Delivery, and Corporate operations.
TXU ENERGY HOLDINGS SEGMENT
TXU Energy Company LLC, the unregulated business segment (TXU Energy Holdings
segment), consists of electricity generation (TXU Power) and consumer, business
and wholesale markets activities (collectively, TXU Energy). These businesses
are effectively managed as one business through the wholesale markets function
that captures the natural hedge inherent between the retail and generation
businesses. TXU Power and the retail business of TXU Energy are separate legal
entities that, in accordance with regulatory requirements, operate independently
within the competitive Texas power market.
TXU ENERGY HOLDINGS SEGMENT: OPERATIONAL PERFORMANCE
TXU Energy (consumer, business, and wholesale markets) continued to make
progress toward operational excellence and market leadership in the first
quarter of 2005.
Competition in consumer markets remained robust, primarily driven by increased
competitor marketing and higher discounting despite declining headroom as a
result of increased natural gas and power prices. Net residential customer
attrition was 1.2% for the quarter, down from 2.1% the previous quarter but
higher than the 0.5% net growth experienced during Q1 2004, primarily due to
higher native market switching than a year ago when competitive activity was low
and reduced levels of customers returned to TXU Energy from competitive
retailers due to non-payment. However, as TXU Energy continues to focus on
customer service improvements and bad debt reduction efforts, the relative
profitability of the customer base continues to improve. For example,
approximately 50 percent of the customer attrition was from customers with poor
payment history in the past 12 months.
TXU Energy expects to launch several initiatives during the summer of 2005,
including retention programs and competitive offers, to reduce the level of
switching during this period of high competition. These include expansion of the
successfully piloted TXU Rewards+ program in North Texas. The internet-based TXU
Energy Rewards+ program, a loyalty program allowing TXU Energy customers to use
Rewards dollars to obtain discounts on the purchase of travel, entertainment and
merchandise of up to 45 percent lower than popular on-line travel and shopping
sites, was launched in February. Over 30,000 customers have joined this program
since it began, and expansion of the program is underway. In addition, to remain
aggressive in acquiring and retaining a high-value customer mix, an assertive
advertising campaign is being launched outside of TXU Energy's native market to
highlight the benefits of switching to TXU Energy. These programs are expected
to increase profitable customer acquisitions since TXU Energy has improved its
bad debt management capabilities and lowered its cost to serve customers through
the Capgemini agreement. For the year TXU Energy expects native market attrition
to range from 7 to 8 percent as compared to previous forecasts of around 5
percent.
5
================================================================================
================================================================================
TXU Energy also continues to improve the customer experience. Average speed to
answer customer calls for the quarter was 12 seconds compared to over 110
seconds in the prior year period. Customer time in the integrated voice
recognition system (IVR) was down 28 percent from the prior year period to 78
seconds. PUC complaints were also down by 42 percent from the prior year. The
Capgemini Energy partnership has assisted in delivering these service
improvements and is expected to deliver an estimated $115 million of SG&A
expense savings system-wide in 2005 as compared to 2003, of which approximately
30 percent was realized in 2004. TXU Energy also continues to make substantial
progress in reduction of bad debt expense with an additional $15 million
reduction in the first quarter as compared to the prior year period.
Competition also remains robust in business markets. The churn rate for small
and medium businesses remained at about the fourth quarter 2004 pace even with
increased power prices reducing headroom during the first quarter of 2005. In
response, TXU Energy has expanded and enhanced the telephone and direct sales
forces. The acquisition process for new small and medium customers has also been
streamlined by eliminating several steps and improving monitoring which is
expected to significantly increase its effectiveness, simplify the process for
customers and reduce the time required to complete the acquisition. For large
commercial and industrial customers, delivered volumes decreased 35 percent to
4.4 TWh as compared to 6.7 TWh in the first quarter 2004, reflecting TXU
Energy's change in strategy in 2004 to focus on more profitable margins and
continued fierce competition in the market. Along with the change in strategy,
the business markets group has improved its contracting activity through more
effective sales coverage and by reducing selling costs by over 35 percent.
TXU Power achieved several significant milestones during the first quarter of
2005. Excluding planned outages, TXU Power's nuclear plant safely produced at a
100.1 percent capacity factor outperforming the 99.2 percent level in the same
period of 2004. Unit 2 recently completed a planned refueling outage that was
completed safely and in 32 days, or 3 days less than the targeted plan.
Performance from the lignite fleet also improved with high levels of reliable,
low cost output, achieving an aggregate capacity factor excluding planned
outages of 96.0 percent as compared to 92.3 percent in the first quarter of
2004. The lean operating techniques of the TXU Operating System have had a
dramatic and positive impact on the fleet performance. Planned outage durations
have been reduced by approximately nine percent, while maintaining the scope of
the maintenance performed. Cycle times for equipment repairs, such as draglines
and coal crushers have also been safely cut by 25 to 30 percent, increasing
availability and output. This and other TXU Operating System improvements have
been achieved by fully engaging employees and contractors in identifying and
eliminating waste and delivering sustainable operational and earnings
improvements. In mid-April, TXU Power opened the Power Optimization Center
(POC). The POC utilizes telecommunications and on-line technologies to detect
plant performance issues before they become a problem, resulting in improved
heat rates and reliability at the plants. The POC is already improving
reliability by identifying elevated vibration and temperature trends in fans and
motors at TXU Power's lignite and nuclear plants.
TXU ENERGY HOLDINGS SEGMENT: FINANCIAL PERFORMANCE
In the first quarter of 2005, the TXU Energy Holdings segment reported income
from continuing operations of $0.85 per share, a 174 percent increase over
income from continuing operations of $0.31 per share in the first quarter of
2004. Special items for the first quarter 2005 were $2 million, or $0.01, as
detailed in Appendix Table A. Operational earnings in the first quarter of 2005
were $0.85 per share as compared to $0.33 per share in the prior year period, a
158 percent increase. Excluding the effect of lower average shares, the TXU
Energy Holdings segment operational earnings improved by $0.21 per share.
Table 8 below reconciles the change in operational earnings from 2004 to 2005
for the first quarter periods.
TABLE 8: TXU ENERGY HOLDINGS SEGMENT - OPERATIONAL EARNINGS RECONCILIATION
Q1 05 VS. Q1 04; $MILLIONS AND $ PER SHARE
======================================================================
EARNINGS FACTOR $MILLIONS $ PER SHARE
========================================= ============== =============
Q1 04 OPERATIONAL EARNINGS 127 0.33
.......................................... .............. .............
Contribution margin 44 0.11
.......................................... .............. .............
Operating costs 15 0.04
.......................................... .............. .............
Depreciation and amortization 18 0.05
.......................................... .............. .............
SG&A 35 0.09
.......................................... .............. .............
Other income and deductions 7 0.02
.......................................... .............. .............
Net interest (5) (0.01)
.......................................... .............. .............
Income taxes (35) (0.09)
.......................................... .............. .............
Effect of reduced shares - 0.31
.......................................... .............. .............
Q1 05 OPERATIONAL EARNINGS 206 0.85
======================================================================
The $44 million ($0.11) increase in contribution margin for the first quarter
2005 versus the comparable 2004 period reflects higher retail and wholesale
prices (primarily driven by increased natural gas prices), increased lignite
generation plant output, and more effective replacement of gas plant output with
lower cost purchased power. These increases were partially offset by the effect
on contribution margins of decreased retail sales volumes due to robust
competition, milder weather (approximately $13 million in margin versus normal
weather and $5 million versus the prior year period), and reduced hedging and
risk management activities revenue. The decline in operating costs of $15
million was primarily due to reduced expenses resulting from the dissolution of
the customer services agreement with TXU Gas and the sale of the TXU Fuel
assets, both of which have associated reductions in contribution margin.. The
decline also reflects $3 million in lower pension and postretirement benefit
costs.
6
================================================================================
================================================================================
The reduction in depreciation and amortization expense was primarily the result
of reductions in the 2005 depreciation rates for lignite generation facilities
assets due to an increase in the estimated average depreciable lives of the
assets and decreased depreciation expense associated with TXU Fuel assets sold
in June 2004. SG&A expenses for the first quarter of 2005 declined $35 million
primarily due to reductions in shared services costs of $12 million including
the effects of the Capgemini agreement, reductions in pension and benefits
expenses and incentive plan accruals, and decreased bad debt expenses of $15
million as a result of stricter disconnect policies, more focused collection
activities and lower accounts receivable balances. Other deductions include the
benefit of a $15 million reduction to the estimated combustion turbine lease
impairment recorded in 2004. The adjustment was made to reflect the value of
bids received in the offer to lease the units under a tolling agreement. Other
deductions also include a $12 million provision for default by a counterparty
under a coal supply contract.
Total retail electricity revenues for the quarter ended March 31, 2005 decreased
$148 million, 10.5 percent as compared to the 2004 period primarily due to
decreased sales volumes resulting from the effects of retail customer losses and
milder weather, partially offset by higher retail prices, reflecting increased
natural gas prices. Wholesale electricity revenues increased $50 million, 10.7
percent, due to higher wholesale prices, somewhat offset by lower sales volumes.
The decrease of $11 million in other revenues for the first quarter 2005 as
compared to the prior period is primarily associated with the dissolution of the
customer services agreement with TXU Gas and the sale of the TXU Fuel assets in
June 2004. Appendix Table B provides details of operating revenues for the TXU
Energy Holdings segment for the first quarter of 2005 compared to previous year
period.
Revenues from hedging and risk management activities decreased $45 million for
the quarter ended March 31, 2005 versus the comparable 2004 period. The decrease
includes $18 million in losses related primarily to short term positions used to
hedge gas commodity price risk. It also includes an $8 million increase in
credit reserves due to increased commodity prices and $6 million in
mark-to-market losses on economic hedges on gas storage expected to be offset by
accrual gains later in the year. 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.
As shown in Appendix Table F, the total cost of energy sold and delivery fees
decreased $198 million, 15.8 percent for the first quarter 2005 compared to the
prior year quarter primarily due to a decrease in sales volumes. The segment
contribution margin percent improved due to more efficient base load generation
and lower levels of natural gas generation and purchased power, partially offset
by higher prices of natural gas and purchased power and an increase in average
delivery fees.
Appendix Table G provides a quarter-to-quarter summary of the TXU Energy
Holdings segment generation and supply operating statistics. Results for the
2005 quarter depict the benefit of more effective sourcing of purchased power
versus higher heat rate natural gas-fired generation as well as increased
production from the lignite generation plants. The increase in gas and purchased
power prices for 2005 was the result of higher gas prices. The increase in
lignite production was primarily due to improved operating performance, reduced
planned and unplanned outages and the timing of maintenance outages. The lignite
plants achieved record production levels in 2004 and are on pace to improve on
those levels in 2005.
Appendix Tables C through E provide TXU Energy customers and volumes statistics.
For the first quarter 2005, the 20% decrease in retail sales volumes is
predominantly due to a decrease in customers in the competitive market,
especially larger business customers, and reduced overall usage due to milder
weather. Native market residential customer levels declined 1.3 percent since
year-end and 6.3% versus the first quarter of 2004. The 16% 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 35% decline in large
business volumes reflects a change in strategy to focus on margin instead of
volumes.
TXU ELECTRIC DELIVERY SEGMENT
TXU's Electric Delivery segment continued to make progress on its goals of
delivering operational excellence in system reliability and maintaining a
position of cost leadership. In the first quarter 2005, the segment delivered at
or near top-decile performance in O&M expense per distribution customer and O&M
expense per MWh.
TXU ELECTRIC DELIVERY SEGMENT: OPERATIONAL HIGHLIGHTS
For the 2005 quarter, the three key metrics used to measure reliability showed
improvement over the comparable 2004 period. The first quarter 2005 System
Average Interruption Duration Index (SAIDI) minutes of 72.76, placed TXU
Electric Delivery among top quartile reliability performers and was a 12 percent
improvement over the same period in 2004. TXU Electric Delivery's System Average
Interruption Frequency Index (SAIFI) improved from 1.04 in 2004 to 0.92 in 2005
- -- also a 12 percent increase. Additionally, the first quarter 2005 Customer
Average Interruption Duration Index (CAIDI) improved to 78.72, a slight
improvement over 2004. As current reliability initiatives begin to be more fully
realized in 2005 and 2006, TXU Electric Delivery expects further improvement in
these key metrics.
7
================================================================================
================================================================================
TXU ELECTRIC DELIVERY SEGMENT: FINANCIAL HIGHLIGHTS
The TXU Electric Delivery segment reported income from continuing operations of
$0.30 per share in the first quarter of 2005, compared to $0.17 per share in the
first quarter of 2004. Special items totaled less than a penny. Excluding the
effect of lower average shares, the TXU Electric Delivery segment operational
earnings improved by $0.02 per share.
Table 9 below reconciles the change in operational earnings from the 2004 to
2005 first quarter periods.
TABLE 9: TXU ELECTRIC DELIVERY SEGMENT - OPERATIONAL EARNINGS RECONCILIATION
Q1 05 VS. Q1 04; $MILLIONS AND $ PER SHARE
======================================================================
EARNINGS FACTOR $MILLIONS $ PER SHARE
========================================= ============= ==============
Q1 04 OPERATIONAL EARNINGS 66 0.17
.......................................... ............. ..............
Contribution margin (revenues) 27 0.07
.......................................... ............. ..............
Operating costs (5) (0.01)
.......................................... ............. ..............
Depreciation and amortization (18) (0.05)
.......................................... ............. ..............
SG&A - -
.......................................... ............. ..............
Franchise and revenue based taxes 2 -
.......................................... ............. ..............
Other income and deductions (4) (0.01)
.......................................... ............. ..............
Net interest 6 0.02
.......................................... ............. ..............
Income taxes (2) -
.......................................... ............. ..............
Effect of reduced shares - 0.11
.......................................... ............. ..............
Q1 05 OPERATIONAL EARNINGS 72 0.30
======================================================================
Excluding the $0.11 per share benefit of reduced average shares, the TXU
Electric Delivery segment's contribution for the first quarter increased by
$0.02 per share from the prior year period. The improved performance reflected
an increase of $8 million ($0.02 per share pre tax) in contribution margin
(revenues), excluding transition revenue, due to increased transmission and
other tariff revenues, offset in part by decreased consumption due to milder
weather. Revenues also increased $19 million related to transition revenue under
tariffs to service securitization bonds which have offsetting depreciation and
amortization expense. The increase in operating costs was the result of
increased third party transmission costs and property taxes. The $18 million
increase in depreciation and amortization expense was primarily due to $19
million ($0.05 per share pre-tax) of amortization of regulatory assets as a
result of securitization bonds issued in June 2004 for which there are equal
associated transition revenues. The major factors in decreased net interest
(interest expense net of interest income) were higher reimbursements from the
TXU Energy Holdings segment related to securitized regulatory assets and lower
average interest rates.
Appendix Tables J and K summarize the details of the operating revenues and
operating statistics, respectively, for the TXU Electric Delivery segment for
the first quarter of 2005 as compared to the first quarter of 2004.
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 debt outstanding at the corporate
level. Income from continuing operations for Corporate and Other was $132
million, or a loss of $1.38 per share, reflecting the dilution adjustment
related to the share repurchase estimated true-up, for the first quarter 2005 as
compared to a loss of $53 million, $0.11 per share for the first quarter 2004.
Excluding the effect of the accelerated share repurchase true-up, special items
of $0.65 per share, and deducting preference stock dividends, operational
earnings were a loss of $0.14 per share in 2005 as compared to a loss of $0.07
per share in 2004.
Excluding the effect of reduced shares, current period operational earnings
improved by $0.03 per share from the prior year period. The improvement is
primarily related to lower SG&A expenses and increased other income. The
improvements in SG&A expense were driven by reduced services expenses as a
result of the Capgemini Energy agreement and reduced legal and consulting fees,
while the improvement in other income and deductions is primarily the
amortization of the deferred gain on the sale of the TXU Fuel assets.
DISCONTINUED OPERATIONS
Appendix Table L provides details of the components of discontinued operations
for the first quarter 2005 and 2004. For the first quarter of 2005, income from
discontinued operations of $15 million primarily reflects a $17 million after
tax benefit related to the TXU Gas sale as a result of favorable resolution of a
proposed working capital adjustment to the sales price. The $50 million after
tax of income from discontinued operations for the 2004 period primarily
reflects net income of $38 million and $32 million and a net loss of $16 from
TXU Gas, TXU Australia, and TXU Communications respectively, which were disposed
through sale or merger transactions in 2004. The results of TXU Energy Company
LLC's cogeneration and wholesale energy sales business in New Jersey are also
reflected in discontinued operations for both periods. As noted above, on May 4,
2005, TXU Energy Company LLC entered into a definitive agreement to sell this
business.
8
================================================================================
================================================================================
2005 OUTLOOK
TXU is updating its operational earnings outlook(5) for 2005 to a range of $6.25
to $6.45 per share, an increase of 10 percent from the previous outlook of $5.65
to $5.85 per share. As shown in Table 10, several factors led to the change in
outlook. The primary factor was the substantial increase in wholesale
electricity prices since the beginning of the year, driven by significant
increases in natural gas prices. This increases the estimated revenues from TXU
Power's base load plants by a pro forma estimate of $1.64 per share after tax.
As previously noted, however, TXU Energy Holdings segment's consolidated
portfolio is substantially balanced to natural gas prices in 2005. Absent
changes in retail prices to offset increases in the cost of goods sold, the
change in natural gas and wholesale market prices would lead directly to
compressed margins in TXU Energy. By submitting the requested fuel factor
adjustment to the price-to-beat to reflect higher natural gas prices, TXU Energy
is expected to offset at least a portion of the increase in its cost of goods;
overall, net of the fuel factor adjustment TXU Energy's expenses are expected to
increase by a pro forma estimate of $0.91 per share after tax. The net overall
impact of the increase in natural gas and wholesale market forward prices is
$0.73 per share.
The increase in wholesale market prices and resulting change in retail rates
also is expected to have some impact on customer switching, customer demand
elasticity, and bad debt in the small business and residential markets; the net
impact is estimated to be a decrease of approximately $30 million, or $0.08 per
share after tax. Interest expense (net of preferred dividends) is also expected
to increase relative to prior estimates by $0.05 per share, primarily as a
result of the increase in the company's share price this year and the impact on
the projected true-up payment for the accelerated share repurchase program and
the repurchase of the additional six million shares to achieve approximately 240
million average shares outstanding for the year.
In total, these changes increase the 2005 outlook for operational earnings from
the previous estimate of $5.65 to $5.85 per share to $6.25 to $6.45 per share.
Of this total, the operational earnings of TXU Energy Holdings represent roughly
89 percent of the midpoint range; TXU Electric Delivery 21 percent; and
corporate/other negative 10 percent.
TABLE 10: REVISED 05E OUTLOOK ESTIMATE
05E; $ PER SHARE
============================================================================================================================
PERFORMANCE DRIVER INCOME STATEMENT CATEGORY 05E
=========================================================================== ================================= ==============
PREVIOUS 05E OPERATIONAL EARNINGS OUTLOOK RANGE 5.65-5.85
............................................................................ ................................. ..............
Operational impacts:
............................................................................ ................................. ..............
Increased revenues from wholesale market price changes Operating revenues 0.73
............................................................................ ................................. ..............
Reduced margin from customer churn and demand (usage) elasticity Operating revenues/cost of (0.08)
energy sold
............................................................................ ................................. ..............
Increased interest expense Interest expense (0.05)
............................................................................ ................................. ..............
REVISED 05E OPERATIONAL EARNINGS OUTLOOK RANGE 6.25-6.45
============================================================================================================================
Table 11 details the phasing of the revised outlook. TXU's previous outlook
represented roughly 55 percent improvement in operational earnings for the full
year 2005, or a 105 percent increase on a per share basis. In the first quarter,
operational earnings exceeded last year's results by 65 percent, or 135 percent
on a per share basis. For the remainder of the year, with today's increase in
outlook, TXU's operational earnings are estimated to improve by 69 to 77 percent
over the last three quarters of 2004, or 120 to 128 percent on a per share
basis, corresponding to a full year outlook estimate for operational earnings of
$6.25 to $6.45 per share.
- --------------------------
(5) TXU Corp. does not provide net income outlook because it cannot reliably
predict future special items or extraordinary events.
9
================================================================================
================================================================================
TABLE 11: PHASING OF REVISED 05E OUTLOOK ESTIMATE
05E; $MILLIONS AND $ PER SHARE AFTER TAX
============================================================================================================================
CATEGORY $MILLIONS $ PER SHARE
%CHANGE %CHANGE
=============================================================================== ======================= ====================
Previous 05E operational earnings outlook range 1,356-1,404 5.65-5.85
................................................................................ ....................... ....................
04 operational earnings 887 2.82
................................................................................ ....................... ....................
PERCENT GROWTH ESTIMATE 53-58% 100-107%
................................................................................ ....................... ....................
................................................................................ ....................... ....................
Q1 05 operational earnings 246 1.01
................................................................................ ....................... ....................
Q1 04 operational earnings 149 0.43
................................................................................ ....................... ....................
PERCENT GROWTH 65% 135%
................................................................................ ....................... ....................
................................................................................ ....................... ....................
Q2 -Q4 05E revised operational earnings outlook 1,250-1,305 5.25-5.45
................................................................................ ....................... ....................
Q2 - Q4 04 operational earnings 738 2.39
................................................................................ ....................... ....................
PERCENT GROWTH ESTIMATE 69-77% 120-128%
................................................................................ ....................... ....................
................................................................................ ....................... ....................
Revised 05E operational earnings outlook 1,500-1,550 6.25-6.45
................................................................................ ....................... ....................
04 operational earnings 887 2.82
................................................................................ ....................... ....................
PERCENT GROWTH ESTIMATE RANGE 69-75% 122-129%
============================================================================================================================
TXU expects cash flows to improve substantially in 2005 as a result of increased
earnings and operational improvements. Table 12 shows cash provided by operating
activities and free cash flow for 2004 and estimates for 2005. The change in
free cash flow from the previous outlook is primarily driven by the increased
outlook for operational earnings, somewhat offset by a small increase in capital
expenditures due to the purchase of mining transportation equipment rather than
financing through an operating lease.
TABLE 12: CASH PROVIDED BY OPERATING ACTIVITIES AND FREE CASH FLOW
05E VS. 04; $MILLIONS
============================================================================================================================
COMPONENT 05E 04 %CHANGE
=========================================================================== =============== =============== ================
Cash provided by operating activities(6) 2,525 1,758 44%
............................................................................ ............... ............... ................
Capital expenditures 1,125 999 13%
............................................................................ ............... ............... ................
FREE CASH FLOW6 1,400 759 84%
............................................................................ ............... ............... ................
Dividends on preference and common stock 540 172 214%
............................................................................ ............... ............... ................
FREE CASH FLOW AFTER DIVIDENDS6 860 587 47%
============================================================================================================================
The outlook for 2005 includes the expected impact of implementing the Phase 2
improvement initiatives, which include among other items savings associated with
the Capgemini Energy joint venture; the ongoing success of the TXU Operating
System in improving productivity and output in the generation plants; increased
efficiency in sourcing purchased power and optimizing production of TXU Energy
Holding's gas generation fleet; improving margins in the large commercial and
industrial business, and other variables such as customer retention rates and
weather. Successful execution of these improvement initiatives remains a primary
focus of the management team and the overall implementation program is going
well, despite challenges to TXU Energy Holding's margins in the first quarter.
Notwithstanding the higher base of the revised 2005 outlook, TXU is affirming
its expected growth range of 16 to 20 percent in operational earnings in 2006
relative to 2005 based on current market forward natural gas curves and plan
assumptions. Table 13 highlights the main drivers of expected growth, including
the net impact of higher wholesale market prices. Consistent with the approach
taken in 2004, the company expects to conduct a detailed review of its 2006
business plan over the summer, review the plan with the Board of Directors in
the fall, and provide a more detailed update on the 2006 outlook in October or
November 2005.
- --------------------------
(6) Includes an estimated $125 million in cash special items in 2005 relating to
the settlement of the federal securities litigation, payment of accrued
severances, and remaining Capgemini Energy transition charges; includes $284
million of cash special items in 2004.
10
================================================================================
================================================================================
TABLE 13: SIGNIFICANT GROWTH DRIVERS
05E VS. 06E; PERCENT GROWTH ESTIMATES
=============================================================================================================================
PERFORMANCE DRIVER INCOME STATEMENT CATEGORY 06E
=============================================================== =========================================== ================
Net effect of increased wholesale market prices Operating revenues/cost of energy sold 5-6
expense
................................................................ ........................................... .................
Decreased expenses due to only single-unit nuclear refueling Cost of energy sold expense 4
................................................................ ........................................... .................
O&M/SG&A improvements from Phase 2 initiatives O&M/SG&A expense 3-4
................................................................ ........................................... .................
Decreased expenses and revenue losses due to hedge roll off Operating revenues/cost of energy sold 3
expense
................................................................ ........................................... .................
Increased Electric Delivery revenue from growth and investment Operating revenues 1-2
................................................................ ........................................... .................
Deployment of cash Interest expense/average share count/other 1-2
................................................................ ........................................... .................
Increased production from coal generation Cost of energy sold expense 1
................................................................ ........................................... .................
Mass market customer churn Operating revenues/cost of energy sold (1-2)
expense
................................................................ ........................................... .................
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 2005 heading in the First 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 provides electricity and related services to
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 and 5,837 MW of
lignite/coal-fired generation capacity. The company is also one of the largest
purchasers of wind-generated electricity in Texas and North America. TXU Corp.'s
regulated electric distribution and transmission business, TXU Electric
Delivery, 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 99,000 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
CHANGES IN WHOLESALE ELECTRICITY PRICES OR ENERGY COMMODITY PRICES AND THE
COMPANY'S ABILITY TO ANTICIPATE SUCH CHANGES, DELAYS IN IMPLEMENTING THE
COMPANY'S PRICE-TO-BEAT FUEL FACTOR ADJUSTMENT, THE TIMING AND SIZE OF ANY
FUTURE PRICE-TO-BEAT FUEL FACTOR ADJUSTMENTS, NEW LEGISLATION PASSED DURING THE
2005 TEXAS LEGISLATIVE SESSION, THE FINAL TRUE-UP PAYMENTS UNDER THE COMPANY'S
ACCELERATED SHARE REPURCHASE PROGRAMS, THE ABILITY OF THE COMPANY TO ATTRACT AND
RETAIN PROFITABLE CUSTOMERS, CHANGES IN DEMAND FOR ELECTRICITY, THE IMPACT OF
WEATHER ,CHANGES IN WHOLESALE ELECTRICITY PRICES OR ENERGY COMMODITY PRICES, 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
214-812-4641 214-812-2480 214-812-2220 214-875-8329
11
================================================================================
================================================================================
APPENDIX TABLES
APPENDIX TABLE A: CONSOLIDATED - DESCRIPTION OF SPECIAL ITEMS
Q1 05 AND Q1 04; $MILLIONS AND $ PER SHARE AFTER TAX
==========================================================================================================================
INCOME Q1 05 Q1 05
SPECIAL ITEM STATEMENT LINE Q1 05 Q1 05 CASH NON-CASH(7) Q1 04 Q1 04
=================================== =================== ========= ========= ========== ============= ========== ==========
TXU Energy Holdings segment:
.................................... ................... ......... ......... .......... ............. .......... ..........
Severance and related expenses Other deductions - - - - 10 0.03
.................................... ................... ......... ......... .......... ............. .......... ..........
Inventory/gas plant write-downs Other deductions - - - - 1 -
.................................... ................... ......... ......... .......... ............. .......... ..........
Outsourcing/transition costs Other deductions 2 0.01 2 - - -
.................................... ................... ......... ......... .......... ............. .......... ..........
TXU Electric Delivery segment:
.................................... ................... ......... ......... .......... ............. .......... ..........
Outsourcing/transition costs Other deductions 1 - 1 - - -
.................................... ................... ......... ......... .......... ............. .......... ..........
Corporate and Other:
.................................... ................... ......... ......... .......... ............. .......... ..........
Litigation settlement benefit Other income (23) (0.09) - (23) - -
.................................... ................... ......... ......... .......... ............. .......... ..........
One-time contract expense SG&A - - - - 15 0.04
.................................... ................... ......... ......... .......... ............. .......... ..........
Outsourcing/transition costs Other deductions 3 0.01 3 - - -
.................................... ................... ......... ......... .......... ............. .......... ..........
Income tax benefit Income tax expense (138) (0.57) - (138) - -
.................................... ................... ......... ......... .......... ............. .......... ..........
TOTAL (155) (0.64) 6 (161) 26 0.07
==========================================================================================================================
APPENDIX TABLE B: TXU ENERGY HOLDINGS SEGMENT - OPERATING REVENUES
Q1 05 AND Q1 04; $MILLIONS AND MIXED MEASURES
==========================================================================================================================
OPERATING REVENUE COMPONENT Q1 05 Q1 04 %CHANGE
=========================================================== ===================== =================== ====================
Retail electricity revenues(8):
............................................................ ..................... ................... ....................
Native market:
............................................................ ..................... ................... ....................
Residential 636 650 (2.2)
............................................................ ..................... ................... ....................
Small business 228 256 (10.9)
............................................................ ..................... ................... ....................
Total native market 864 906 (4.6)
............................................................ ..................... ................... ....................
Other markets:
............................................................ ..................... ................... ....................
Residential 57 43 32.6
............................................................ ..................... ................... ....................
Small business 12 6 -
............................................................ ..................... ................... ....................
Total other markets 69 49 40.8
............................................................ ..................... ................... ....................
Large business 327 453 (27.8)
............................................................ ..................... ................... ....................
Total retail electricity revenues 1,260 1,408 (10.5)
............................................................ ..................... ................... ....................
Wholesale electricity revenues 516 466 10.7
............................................................ ..................... ................... ....................
Hedging and risk management activities:
............................................................ ..................... ................... ....................
Realized gains (losses) (143) 10 -
............................................................ ..................... ................... ....................
Reversal of prior recognized unrealized (gains)/losses 25 (28) -
............................................................ ..................... ................... ....................
Unrealized gains (losses) on open positions(9) 65 10 -
............................................................ ..................... ................... ....................
Total (53) (8) -
............................................................ ..................... ................... ....................
Other revenues 80 91 (12.1)
............................................................ ..................... ................... ....................
Total operating revenues 1,803 1,957 (7.9)
............................................................ ..................... ................... ....................
Average revenue ($/MWh):
............................................................ ..................... ................... ....................
Residential 99.74 90.70 10.0
............................................................ ..................... ................... ....................
Small business 110.44 100.83 9.5
............................................................ ..................... ................... ....................
Large business 75.05 67.53 11.1
............................................................ ..................... ................... ....................
Average wires charge ($/MWh) 25.16 22.34 12.6
==========================================================================================================================
- -------------------------
(7) 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.
(8) Breakout of native and other markets are estimates and provided for
reference only.
(9) Net unrealized mark-to-market gains/(losses): Q1 05 includes $3 million of
ineffectiveness gains related to cash flow hedges as compared to $15
million of ineffectiveness losses for the comparable period in 2004.
12
================================================================================
================================================================================
APPENDIX TABLE C: TXU ENERGY HOLDINGS SEGMENT - RETAIL AND WHOLESALE SALES
Q1 05 AND Q1 04; MIXED MEASURES
==========================================================================================================================
VOLUME COMPONENT Q1 05 Q1 04 %CHANGE
======================================================== ===================== ===================== =====================
Retail electricity sales (GWh):
......................................................... ..................... ..................... .....................
Native market:
......................................................... ..................... ..................... .....................
Residential 6,317 7,119 (11.3)
......................................................... ..................... ..................... .....................
Small business 2,034 2,533 (19.7)
......................................................... ..................... ..................... .....................
Total native market 8,351 9,652 (13.5)
......................................................... ..................... ..................... .....................
Other markets:
......................................................... ..................... ..................... .....................
Residential 628 518 21.2
......................................................... ..................... ..................... .....................
Small business 139 61 -
......................................................... ..................... ..................... .....................
Total other markets 767 579 32.5
......................................................... ..................... ..................... .....................
Large business 4,362 6,709 (35.0)
......................................................... ..................... ..................... .....................
Total retail electricity sales 13,480 16,940 (20.4)
......................................................... ..................... ..................... .....................
Wholesale electricity sales 11,480 12,553 (8.5)
......................................................... ..................... ..................... .....................
Total electricity sales 24,960 29,493 (15.4)
......................................................... ..................... ..................... .....................
Volumes (GWh) - weather adjusted(10):
......................................................... ..................... ..................... .....................
Residential 7,084 7,637 (7.2)
......................................................... ..................... ..................... .....................
Small business 2,190 2,594 (15.6)
......................................................... ..................... ..................... .....................
Large business 4,376 6,709 (34.8)
......................................................... ..................... ..................... .....................
Average KWh/customer(11):
......................................................... ..................... ..................... .....................
Residential 3,256 3,452 (5.7)
......................................................... ..................... ..................... .....................
Small business 7,002 8,084 (13.4)
......................................................... ..................... ..................... .....................
Large business 63,906 91,240 (30.0)
......................................................... ..................... ..................... .....................
Average KWh/customer - weather adjusted(10):
......................................................... ..................... ..................... .....................
Residential 3,322 3,452 (3.8)
......................................................... ..................... ..................... .....................
Small business 7,054 8,084 (12.7)
......................................................... ..................... ..................... .....................
Large business 64,109 91,240 (29.7)
......................................................... ..................... ..................... .....................
Weather - percent of normal(12):
......................................................... ..................... ..................... .....................
Energy degree days 87.4 94.6 (7.6)
==========================================================================================================================
APPENDIX TABLE D: TXU ENERGY HOLDINGS SEGMENT - RETAIL CUSTOMER COUNTS
Q1 05 AND Q4 04; END OF PERIOD, THOUSANDS, # OF METERS
==========================================================================================================================
CUSTOMER COMPONENT Q1 05 Q4 04 %CHANGE
======================================================== ===================== ===================== =====================
Retail electricity customers:
......................................................... ..................... ..................... .....................
Native market:
......................................................... ..................... ..................... .....................
Residential 1,925 1,951 (1.3)
......................................................... ..................... ..................... .....................
Small business 299 309 (3.2)
......................................................... ..................... ..................... .....................
Total native market 2,224 2,260 (1.6)
......................................................... ..................... ..................... .....................
Other markets:
......................................................... ..................... ..................... .....................
Residential 195 194 0.5
......................................................... ..................... ..................... .....................
Small business 7 6 16.7
......................................................... ..................... ..................... .....................
Total other markets 202 200 1.0
......................................................... ..................... ..................... .....................
Large business 61 76 (19.7)
......................................................... ..................... ..................... .....................
Total retail electricity customers 2,487 2,536 (1.9)
==========================================================================================================================
- ----------------------------
(10) 2005 amounts adjusted for estimated weather effect as compared to 2004.
(11) Based upon the average of the period beginning and ending customers.
(12) Average for service territory is based on a 50% - DFW, 25% - Mineral Wells
and 25% Waco weighting. 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). Energy degree days calculation
includes both heating degree and cooling degree days.
13
================================================================================
================================================================================
APPENDIX TABLE E: TXU ENERGY HOLDINGS SEGMENT - RETAIL CUSTOMER COUNTS
Q1 05 AND Q1 04; END OF PERIOD, THOUSANDS, # OF METERS
==========================================================================================================================
CUSTOMER COMPONENT Q1 05 Q1 04 %CHANGE
======================================================== ===================== ===================== =====================
Retail electricity customers:
......................................................... ..................... ..................... .....................
Native market:
......................................................... ..................... ..................... .....................
Residential 1,925 2,054 (6.3)
......................................................... ..................... ..................... .....................
Small business 299 316 (5.4)
......................................................... ..................... ..................... .....................
Total native market 2,224 2,370 (6.2)
......................................................... ..................... ..................... .....................
Other markets:
......................................................... ..................... ..................... .....................
Residential 195 163 19.6
......................................................... ..................... ..................... .....................
Small business 7 5 40.0
......................................................... ..................... ..................... .....................
Total other markets 202 168 20.2
......................................................... ..................... ..................... .....................
Large business 61 78 (21.8)
......................................................... ..................... ..................... .....................
Total retail electricity customers 2,487 2,616 (4.9)
......................................................... ..................... ..................... .....................
Estimated share of market (%)(13):
......................................................... ..................... ..................... .....................
Native market:
......................................................... ..................... ..................... .....................
Residential 79 86 (8.1)
......................................................... ..................... ..................... .....................
Small business 76 83 (8.4)
......................................................... ..................... ..................... .....................
Total ERCOT:
......................................................... ..................... ..................... .....................
Residential 43 46 (6.5)
......................................................... ..................... ..................... .....................
Small business 30 32 (6.3)
......................................................... ..................... ..................... .....................
Large business 25 41 (39.0)
==========================================================================================================================
APPENDIX TABLE F: TXU ENERGY HOLDINGS SEGMENT - COST OF ENERGY SOLD AND DELIVERY
FEES Q1 05 AND Q1 04; $MILLIONS
==========================================================================================================================
COST COMPONENT Q1 05 Q1 04 %CHANGE
========================================================= ===================== ===================== ====================
Nuclear fuel (base load) 20 21 (4.8)
.......................................................... ..................... ..................... ....................
Lignite/coal (base load) 115 126 (8.7)
.......................................................... ..................... ..................... ....................
Total base load 135 147 (8.2)
.......................................................... ..................... ..................... ....................
Gas/oil fuel and purchased power 515 668 (22.9)
.......................................................... ..................... ..................... ....................
Other cost of energy sold 63 55 14.5
.......................................................... ..................... ..................... ....................
Cost of energy sold 713 870 (18.0)
.......................................................... ..................... ..................... ....................
Delivery fees 343 384 (10.7)
.......................................................... ..................... ..................... ....................
Cost of energy sold and delivery fees 1,056 1,254 (15.8)
==========================================================================================================================
- ---------------------------
(13) 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.
14
================================================================================
================================================================================
APPENDIX TABLE G: TXU ENERGY HOLDINGS SEGMENT - GENERATION AND SUPPLY STATISTICS
Q1 05 AND Q1 04; MIXED MEASURES
==========================================================================================================================
GENERATION AND SUPPLY STATISTIC Q1 05 Q1 04 %CHANGE
======================================================================================= ========== ========== ============
Production and purchased power (GWh):
........................................................................................ .......... .......... ............
Nuclear (base load) 4,797 4,854 (1.2)
........................................................................................ .......... .......... ............
Lignite/coal (base load) 10,520 10,203 3.1
........................................................................................ .......... .......... ............
Total base load 15,317 15,057 1.7
........................................................................................ .......... .......... ............
Gas/oil 260 910 (71.4)
........................................................................................ .......... .......... ............
Purchased power 9,806 14,232 (31.1)
........................................................................................ .......... .......... ............
Total energy supply 25,383 30,199 (15.9)
........................................................................................ .......... .......... ............
Less line loss and other 423 706 (40.1)
........................................................................................ .......... .......... ............
Net energy supply 24,960 29,493 (15.4)
........................................................................................ .......... .......... ............
Base load capacity factors (%):
........................................................................................ .......... .......... ............
Nuclear 96.9 97.0 (0.1)
........................................................................................ .......... .......... ............
Lignite/coal 87.8 83.7 4.9
........................................................................................ .......... .......... ............
Total base load 90.4 87.4 3.4
........................................................................................ .......... .......... ............
Base load capacity factors excluding planned outages and economic back down (%):
........................................................................................ .......... .......... ............
Nuclear 100.1 99.2 0.9
........................................................................................ .......... .......... ............
Lignite/coal 96.0 92.3 4.0
........................................................................................ .......... .......... ............
Total base load 97.2 94.3 3.1
........................................................................................ .......... .......... ............
Fuel and purchased power costs ($/MWh) (excludes plant operating costs):
........................................................................................ .......... .......... ............
Nuclear generation 4.18 4.41 (5.2)
........................................................................................ .......... .......... ............
Lignite/coal generation(14) 11.93 13.28 (10.2)
........................................................................................ .......... .......... ............
Total base load 9.50 10.42 (8.8)
........................................................................................ .......... .......... ............
Gas/oil generation and purchased power 51.55 43.90 17.4
........................................................................................ .......... .......... ............
ERCOT MCPE(15) ($/MWh) 44.30 34.82 27.2
........................................................................................ .......... .......... ............
ERCOT MWD(16) ($/MWh) 44.24 38.38 15.3
........................................................................................ .......... .......... ............
Gas Daily(17) ($/MMBtu) 6.10 5.39 13.2
........................................................................................ .......... .......... ............
Implied heat rate(18) (MMBtu/MWh) 7.25 7.12 1.8
........................................................................................ .......... .......... ............
NYMEX strip(19) ($/MMBtu) 8.11 6.07 33.6
==========================================================================================================================
APPENDIX TABLE H: TXU ENERGY HOLDINGS - MATURITY DATES OF NET UNREALIZED
MARK-TO-MARKET ASSETS/LIABILITIES 3/31/05; $MILLIONS UNLESS NOTED
==========================================================================================================================
LESS THAN 1 MORE THAN
SOURCE OF FAIR VALUE YEAR 1-3 YEARS 4-5 YEARS 5 YEARS TOTAL
============================================== ============== ============== ============== =============== ==============
Prices actively quoted 29 47 - - 76
............................................... .............. .............. .............. ............... ..............
Prices provided by other external sources 153 (134) 5 (3) 21
............................................... .............. .............. .............. ............... ..............
Prices based on models 10 - - - 10
............................................... .............. .............. .............. ............... ..............
Total 192 (87) 5 (3) 107
............................................... .............. .............. .............. ............... ..............
............................................... .............. .............. .............. ............... ..............
Percentage (%) of total fair value 179 (81) 5 (3) 100
==========================================================================================================================
- ------------------------------
(14) 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.
(15) MCPE is Market Clearing Price of Energy in ERCOT. Prices quoted are for
MCPE North Zone (24x7) as 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.
(16) MWD refers to indexed prices as referenced in the Megawatt Daily
publication. Prices quoted are for MWD North Zone (24x7) as most of TXU
Energy Holding's generation capacity and customers are in the North Zone.
MWD pricing is based upon surveys.
(17) Houston Ship Channel average daily prices
(18) Efficiency at which a marginal unit converts fuel to electricity.
Calculated by dividing ERCOT MWD price by Gas Daily natural gas price.
(19) Average daily 12-month strip closing price for the period.
15
================================================================================
================================================================================
APPENDIX TABLE I: TXU ENERGY HOLDINGS SEGMENT - CHANGES IN COMMODITY CONTRACT
ASSETS AND LIABILITIES Q1 05; $MILLIONS
==========================================================================================================================
CHANGE COMPONENT IMPACT
==================================================================================================== =====================
Balance of net commodity contract assets -- beginning of period 23
..................................................................................................... .....................
Settlements of positions included in the opening balance(20) 25
..................................................................................................... .....................
Unrealized mark-to-market valuations of positions held at end of period 62
..................................................................................................... .....................
Other activity(21) (5)
..................................................................................................... .....................
Balance of net commodity contract assets -- end of period 105
==========================================================================================================================
APPENDIX TABLE J: TXU ELECTRIC DELIVERY SEGMENT - OPERATING REVENUES
Q1 05 AND Q1 04; $MILLIONS
==========================================================================================================================
REVENUE COMPONENT Q1 05 Q1 04 %CHANGE
===================================================================================== ================== =================
Electricity transmission and distribution:
................................................................... .................. .................. .................
Affiliated (TXU Energy Holdings) 311 349 (10.9)
................................................................... .................. .................. .................
Nonaffiliated 239 174 37.4
................................................................... .................. .................. .................
Total 550 523 5.2
==========================================================================================================================
APPENDIX TABLE K: TXU ELECTRIC DELIVERY SEGMENT - OPERATING STATISTICS
Q1 05 AND Q1 04; MIXED MEASURES
==========================================================================================================================
OPERATING STATISTIC Q1 05 Q1 04 %CHANGE
=================================================================================== ============ =========== =============
Volumes - Electricity distribution (GWh) 23,448 23,631 (0.8)
.................................................................................... ............ ........... .............
.................................................................................... ............ ........... .............
Electricity points of delivery - number of meters (end of period, in thousands)(22) 2,985 2,942 1.5
.................................................................................... ............ ........... .............
.................................................................................... ............ ........... .............
System Average Interruption Duration Index (SAIDI) (nonstorm)(23) 72.76 82.31 (11.6)
.................................................................................... ............ ........... .............
System Average Interruption Frequency Index (SAIFI) (nonstorm)(23) 0.92 1.04 (11.5)
.................................................................................... ............ ........... .............
Customer Average Interruption Duration Index (CAIDI) (nonstorm)(23) 78.72 78.95 (0.3)
==========================================================================================================================
- ---------------------------------
(20) Represents unrealized mark-to-market valuations of these positions as of
the beginning of the period settled or recognized in earnings during the
quarter.
(21) 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. Also includes $12 million charge related to nonperformance
by a coal contract counterparty. These activities have no effect on
unrealized mark-to-market valuations.
(22) 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 94,187 and 99,591 at March 31, 2005 and 2004,
respectively. Adjusting for the guard lights, which have minimal value,
points of delivery increased 1.7%.
(23) 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.
16
================================================================================
================================================================================
APPENDIX TABLE L: DETAILS OF DISCONTINUED OPERATIONS
Q1 05, Q1 04; $MILLIONS AND $ PER SHARE AFTER TAX
=========================================================================================================================
DISCONTINUED OPERATION Q1 05 Q1 05 Q1 04 Q1 04
============================================================== ============== ============= ============== ==============
TXU Australia:
............................................................... .............. ............. .............. ..............
Gain on sale 2 0.01 - -
............................................................... .............. ............. .............. ..............
Operating results - 32 0.08
............................................................... .............. ............. .............. ..............
TXU Gas:
............................................................... .............. ............. .............. ..............
Loss on sale 17 0.06 - -
............................................................... .............. ............. .............. ..............
Operating results - 38 0.10
............................................................... .............. ............. .............. ..............
TXU Energy Holdings segment:
............................................................... .............. ............. .............. ..............
Impairment/business exit (3) (0.01) -
............................................................... .............. ............. .............. ..............
Operating results - - (3) (0.01)
............................................................... .............. ............. .............. ..............
TXU Communications operating results - - (16) (0.04)
............................................................... .............. ............. .............. ..............
Other operating results (1) - (1) -
............................................................... .............. ............. .............. ..............
TOTAL 15 0.06 50 0.13
=========================================================================================================================
17
================================================================================
================================================================================
ATTACHMENT 1: FINANCIAL DEFINITIONS
OPERATIONAL EARNINGS (A NON-GAAP MEASURE): Income from continuing operations,
less special items and preference stock dividends. TXU believes that operational
earnings is a useful measure of underlying results because of the magnitude and
scope of the 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.
OPERATIONAL EARNINGS PER SHARE (A NON-GAAP MEASURE): Per share (diluted) income
from continuing operations net of preference stock dividends, excluding special
items and the adjustment for the estimated cost of a true-up payment on the 52.5
million share accelerated common stock repurchase.
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.
EBIT (A NON-GAAP MEASURE): Income from continuing operations before interest
income, interest expense and related charges, and income tax and special items.
EBIT is a measure used by TXU to assess performance.
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 and 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 stock 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.
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 stock 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.
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 include debt extinguishment losses and 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 (EPMIs).
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.
18
================================================================================
================================================================================
EXHIBITS: REGULATION G - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO THE
MOST DIRECTLY COMPARABLE GAAP ATTACHMENT 2: FINANCIAL MEASURES
EXHIBIT 1: RETURN ON AVERAGE COMMON STOCK EQUITY CALCULATION
TWELVE MONTHS ENDED 3/31/05 AND 3/31/04; $MILLIONS UNLESS OTHERWISE NOTED
=============================================================================================================================
COMPONENT 3/31/05 3/31/04 REF
===================================================================================== =============== ================ ======
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK (143) 693 A
...................................................................................... ............... ................ ......
...................................................................................... ............... ................ ......
Income from continuing operations before extraordinary gain and cumulative 358 661
effect of changes in accounting principles
...................................................................................... ............... ................ ......
Special items 648 26
...................................................................................... ............... ................ ......
Preference stock dividends (22) (22)
...................................................................................... ............... ................ ......
OPERATIONAL EARNINGS 984 665 B
...................................................................................... ............... ................ ......
...................................................................................... ............... ................ ......
AVERAGE COMMON EQUITY 3,163 5,237 C
...................................................................................... ............... ................ ......
...................................................................................... ............... ................ ......
Return on average common equity - based on net income - percent (A/C) (4.5) 13.2
...................................................................................... ............... ................ ......
Return on average common equity - based on operational earnings - percent (B/C) 31.1 12.7
=============================================================================================================================
EXHIBIT 2: RETURN ON AVERAGE INVESTED CAPITAL CALCULATION
TWELVE MONTHS ENDED 3/31/05 AND 3/31/04; $MILLIONS UNLESS OTHERWISE NOTED
==============================================================================================================================
COMPONENT 3/31/05 3/31/04 REF
===================================================================================== ================ =============== =======
Net income 728 715
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income (a) 431 476
...................................................................................... ................ ............... .......
TOTAL RETURN (BASED ON NET INCOME) 1,159 1,191 A
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Operational earnings 984 665
...................................................................................... ................ ............... .......
Preference stock dividends 22 22
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income (a) 431 476
...................................................................................... ................ ............... .......
TOTAL RETURN (BASED ON OPERATIONAL EARNINGS) 1,437 1,163 B
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
AVERAGE TOTAL CAPITALIZATION 15,915 18,270 C
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
Return on average invested capital - based on net income (A/C) (%) 7.3 6.5
...................................................................................... ................ ............... .......
Return on average invested capital - based on operational earnings (B/C) (%) 9.0 6.4
...................................................................................... ................ ............... .......
...................................................................................... ................ ............... .......
(a) After-tax interest expense and related charges net of interest income
...................................................................................... ................ ............... .......
Interest expense 706 765
...................................................................................... ................ ............... .......
Interest income (43) (32)
...................................................................................... ................ ............... .......
Net 663 733
...................................................................................... ................ ............... .......
Tax at 35% 232 257
...................................................................................... ................ ............... .......
Net of tax 431 476
==============================================================================================================================
19
================================================================================
================================================================================
EXHIBIT 3: INTEREST AND DEBT COVERAGE RATIOS
TWELVE MONTHS ENDED 3/31/05 AND 12/31/04; $MILLIONS UNLESS OTHERWISE NOTED
==============================================================================================================================
COMPONENT 3/31/05 12/31/04 REF
===================================================================================== =============== ================ =======
Income from continuing operations before income taxes and extraordinary items 313 123
...................................................................................... ............... ................ .......
Interest expense and related charges 706 695
...................................................................................... ............... ................ .......
Interest income (43) (28)
...................................................................................... ............... ................ .......
Depreciation and amortization 757 760
...................................................................................... ............... ................ .......
Special items 1,132 1,190
...................................................................................... ............... ................ .......
EBITDA 2,865 2,740 A
...................................................................................... ............... ................ .......
Interest expense and related charges 706 695
...................................................................................... ............... ................ .......
Amortization of discount and reacquired debt expense (27) (27)
...................................................................................... ............... ................ .......
Capitalized interest 14 12
...................................................................................... ............... ................ .......
CASH INTEREST EXPENSE 693 680 B
...................................................................................... ............... ................ .......
Total debt 13,030 12,889
...................................................................................... ............... ................ .......
Transition bonds (1,237) (1,258)
...................................................................................... ............... ................ .......
TOTAL DEBT LESS TRANSITION BONDS 11,793 11,631 C
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Cash provided by operating activities 1,617 1,758
...................................................................................... ............... ................ .......
Reconciling adjustments from cash flow statement 1,259 1,677
...................................................................................... ............... ................ .......
Income from continuing operations 358 81
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
EBITDA/Interest - ratio (A/B) 4.1 4.0
...................................................................................... ............... ................ .......
Debt/EBITDA - ratio (C/A) 4.1 4.2
...................................................................................... ............... ................ .......
Cash provided by operating activities/Cash interest expense - ratio 2.1 2.6
...................................................................................... ............... ................ .......
Total debt/Cash provided by operating activities - ratio 8.1 7.3
==============================================================================================================================
EXHIBIT 4A: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
Q1 05; $MILLIONS AND $ PER SHARE AFTER TAX
==============================================================================================================================
FACTOR ENERGY ENERGY ELECTRIC ELECTRIC CORP. CORP.
HOLDINGS HOLDINGS DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================= =========== ========== ========== ========== ========== ========== ========= =========
OPERATIONAL EARNINGS 206 0.85 72 0.30 (32) (0.14) 246 1.01
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Special items (2) (0.01) (1) - 158 0.65 155 0.64
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Effect of share repurchase dilution - - - - - (1.94) - (1.94)
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Effect of share dilution and rounding (1) 0.01 - - 1 0.03 - 0.04
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Preference stock dividends - - - - 5 0.02 5 0.02
........................................ ........... .......... .......... .......... .......... .......... ......... .........
INCOME (LOSS) FROM CONT. OPERATIONS 203 0.85 71 0.30 132 (1.38) 406 (0.23)
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Discontinued operations (3) (0.01) - - 18 0.07 15 0.06
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Preference stock dividends - - - - (5) (0.02) (5) (0.02)
........................................ ........... .......... .......... .......... .......... .......... ......... .........
NET INCOME TO COMMON 200 0.84 71 0.30 145 (1.33) 416 (0.19)
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Average shares - diluted 243
........................................ ........... .......... .......... .......... .......... .......... ......... .........
Average shares - basic 238
==============================================================================================================================
20
================================================================================
================================================================================
EXHIBIT 4B: CONSOLIDATED - OPERATIONAL EARNINGS RECONCILIATION
Q1 04; $MILLIONS AND $ PER SHARE AFTER TAX
==============================================================================================================================
FACTOR ENERGY ENERGY ELECTRIC ELECTRIC CORP. CORP.
HOLDINGS HOLDINGS DELIVERY DELIVERY & OTHER & OTHER TOTAL TOTAL
======================================= =========== ========== ========== ========== ========== ========== ========== ========
OPERATIONAL EARNINGS 127 0.33 66 0.17 (44) (0.07) 149 0.43
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Special items (11) (0.03) - - (15) (0.04) (26) (0.07)
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Effect of rounding - 0.01 - - (0.01) - -
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Preference stock dividends - - - - 5 0.01 5 0.01
........................................ ........... .......... .......... .......... .......... .......... .......... ........
INCOME (LOSS) FROM CONT. OPERATIONS 116 0.31 66 0.17 (54) (0.11) 128 0.37
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Discontinued operations (3) (0.01) - - 53 0.14 50 0.13
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Preference stock dividends - - - - (5) (0.01) (5) (0.01)
........................................ ........... .......... .......... .......... .......... .......... .......... ........
NET INCOME TO COMMON 113 0.30 66 0.17 (6) 0.02 173 0.49
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Average shares - diluted 380
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Average shares - basic 323
........................................ ........... .......... .......... .......... .......... .......... .......... ........
Dilutive effect of sr. convertible notes 13
==============================================================================================================================
21
================================================================================