SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
-- OR --
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
================================================================================
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001 - 15709
TXU Europe Limited
Incorporated under the I.R.S. Employer Identification
Laws of England and Wales No. 98-0188080
The Adelphi, 1-11 John Adam Street, London, England WC2N 6HT
011-44-207-879-8081
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Common Stock outstanding at May 14, 2002 - 2,455,705,299 shares, at US$1 par
value, 150,000,000 shares, at (pound)1 par value and 100 deferred shares, at
(pound)1 par value.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Statements of Consolidated Income -
Three Months Ended March 31, 2002 and 2001..................................... 2
Condensed Statements of Consolidated Comprehensive Income -
Three Months Ended March 31, 2002 and 2001..................................... 3
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2002 and 2001..................................... 4
Condensed Consolidated Balance Sheets -
March 31, 2002 and December 31, 2001........................................... 5
Notes to Financial Statements.................................................. 6
Independent Accountants' Report .............................................. 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 21
SIGNATURES........................................................................................... 22
1
22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TXU EUROPE LIMITED AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
----------------------------------
----------------------------------
Three Months Ended March 31,
----------------------------------
2002 2001
---------------- ---------------
((pound) million)
Operating Revenues...................................... 2,752 2,271
Operating Expenses
Energy purchased for resale and fuel consumed ..... 2,578 1,964
Operation and maintenance.......................... 126 115
Depreciation and other amortization................ 16 36
Goodwill amortization ............................. - 31
---------------- ---------------
Total operating expenses............................ 2,720 2,146
---------------- ---------------
Operating Income........................................ 32 125
Other Income - Net...................................... 6 7
---------------- ---------------
Income Before Interest, Income Taxes, Distributions and
Minority Interest..................................... 38 132
Interest Income......................................... 4 12
Interest Expense........................................ 52 91
---------------- ---------------
Income (Loss) From Continuing Operations Before Income
Taxes, Distributions and Minority Interest............ (10) 53
Income Tax Expense (Benefit)............................ (4) 26
---------------- ---------------
Income (Loss) From Continuing Operations Before
Distributions and Minority Interest................... (6) 27
Discontinued Operations - Net of Taxes (Note 3) ........ - 24
Distributions on Preferred Securities of Subsidiary
Perpetual Trust ...................................... (3) (3)
Affiliate Interest in Subsidiary........................ 2 (1)
Minority Interest....................................... (6) (6)
---------------- ---------------
Net Income (Loss)....................................... (13) 41
---------------- ---------------
See Notes to Financial Statements.
2
TXU EUROPE LIMITED AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2002 2001
------------- -------------
((pound) million)
Net Income (Loss)..................................................... (13) 41
------------- -------------
Other Comprehensive Income (Loss)
Net change during period, net of tax effects:
Investments classified as
available for sale:
Unrealized holding gains ................................ - 38
Cumulative currency translation adjustment .................... (4) 1
Cash flow hedges:
Cumulative transition adjustment as of January 1, 2001..... - (72)
Net change in fair value of derivatives.................... 26 (15)
Amount reclassified or realized in earnings
during the period................................... (19) 6
------------- -------------
Total........................................................ 3 (42)
------------- -------------
Comprehensive Loss ................................................... (10) (1)
============= =============
See Notes to Financial Statements.
3
TXU EUROPE LIMITED AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2002 2001
-------------- ------------
((pound) million)
Cash Flows - Operating Activities
Net income (Loss).............................................. (13) 41
Adjustments to reconcile net income to cash provided by operating
activities:
Loss (gain) on sale of assets ............................. - (7)
Depreciation and amortization ............................. 17 76
Deferred income taxes (benefit)............................ (8) 28
Net effect of unrealized mark-to-market valuations - loss
(gain) .................................................... 16 (21)
Changes in operating assets and liabilities ............... (264) (120)
Other ..................................................... 44 31
-------------- ------------
Cash provided by (used in) operating activities ....... (208) 28
-------------- ------------
Cash Flows - Investing Activities
Proceeds from sale of Networks business ................... 563 -
Capital expenditures ...................................... (29) (45)
Acquisition of businesses ................................. (117) (145)
Proceeds from sale of assets and other investments ........ 133 97
Other investments ......................................... (20) (9)
-------------- ------------
Cash provided by (used in) investing activities ....... 530 (102)
-------------- ------------
Cash Flows - Financing Activities
Net borrowings under the:
Revolving Credit Facilities Agreement - Tranche A ......... 120 -
Sterling credit facility - Tranche B ...................... - 34
Other long-term debt ...................................... - 6
Issuance of capital stock ..................................... 100 -
Retirements of:
Sterling credit facility - Tranche B ...................... - (4)
Other long-term debt ...................................... (36) (370)
Change in notes payable - banks and other short-term loans..... (805) (29)
Debt discount and financing expenses ......................... (6) (1)
Distributions on preferred securities of subsidiary perpetual
trust ......................................................... (3) -
-------------- ------------
Cash used in financing activities ..................... (630) (364)
-------------- ------------
Effect Of Exchange Rates On Cash And Cash Equivalents .............. - (1)
-------------- ------------
Net Change In Cash And Cash Equivalents ............................ (308) (439)
Cash And Cash Equivalents - Beginning Balance ...................... 651 663
-------------- ------------
Cash And Cash Equivalents - Ending Balance ......................... 343 224
============== ============
See Notes to Financial Statements.
4
TXU EUROPE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
------------------
2002 December 31,
------------------ ------------------
(Unaudited) 2001
------------------ ------------------
((pound) million)
ASSETS
Current Assets
Cash and cash equivalents................................... 343 651
Accounts receivable......................................... 1,314 946
Inventories - at average cost .............................. 62 62
Energy trading assets ...................................... 571 573
Prepayments and other current assets........................ 182 267
------------------ ------------------
Total current assets.................................... 2,472 2,499
------------------ ------------------
Investments
Restricted cash ............................................ 365 358
Other ...................................................... 405 394
------------------ ------------------
Total investments....................................... 770 752
------------------ ------------------
Property, plant and equipment - net.............................. 787 774
Goodwill ....................................................... 3,746 3,697
Net assets of discontinued operation (Note 3) ................... - 411
Energy trading assets ........................................... 175 170
Deferred debits and other assets ................................ 696 687
------------------ ------------------
Total .............................................. 8,646 8,990
================== ==================
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable - banks ...................................... 56 793
Long-term debt due currently ............................... 262 274
Short-term loans on accounts receivable .................... 40 108
Accounts payable:
Trade..................................................... 1,163 1,026
Affiliates................................................ 57 55
Energy trading liabilities ................................. 575 634
Interest and taxes accrued.................................. 73 78
Other current liabilities................................... 265 142
------------------ ------------------
Total current liabilities................................. 2,491 3,110
------------------ ------------------
Accumulated deferred income taxes ............................... 64 64
Provision for unfavorable contracts ............................. 402 431
Energy trading liabilities ...................................... 242 183
Other deferred credits and noncurrent liabilities ............... 228 245
Long-term debt, less amounts due currently ...................... 2,961 2,794
Preferred securities of subsidiary perpetual trust .............. 95 95
Affiliate interest in subsidiary ................................ 207 208
Minority interest................................................ 98 92
Commitments and contingencies (Note 7)
Shareholder's equity (Note 6).................................... 1,858 1,768
------------------ ------------------
Total .............................................. 8,646 8,990
================== ==================
See Notes to Financial Statements.
5
TXU EUROPE LIMITED
Notes to Financial Statements
1. BUSINESS, ACQUISITIONS AND DISPOSITIONS
TXU Europe Limited (TXU Europe) is an indirect, wholly-owned subsidiary of
TXU Corp., a Texas corporation. TXU Corp. is a global energy services holding
company and engages in electricity generation, wholesale energy trading, retail
energy marketing, energy delivery, other energy-related services and, through a
joint venture, telecommunications services. TXU Europe is a holding company for
TXU Corp.'s United Kingdom (UK) and other European operations. Almost all of TXU
Europe's operating income is derived from, and consolidated assets are held by,
TXU Europe Group plc (TXU Europe Group) and TXU Europe Group's subsidiaries.
TXU Europe is managed as a single, integrated energy business;
consequently, there are no reportable business segments.
The energy business manages the energy value chain from fuel through to
the retail customer. It does this through an integrated portfolio of contracts
and physical gas and generation assets and by serving a substantial retail
customer base. Its contracts include those with sources for supplying the retail
customers with electricity and gas as well as contracts with third party energy
retailers, traders and wholesalers.
On January 18, 2002, TXU Europe completed the sale of its UK distribution
business (Eastern Electricity Limited), and its 50 percent interest in 24seven
Utility Services Limited (24seven) to London Electricity Group plc (LE Group).
These operations have been accounted for as discontinued operations in all
periods presented in the financial statements and related footnotes. The
(pound)7 million of income for the period from January 1, 2002 through the final
completion date of January 18, 2002 was recorded in December 2001. For more
information on the disposal, see Note 3 to Financial Statements.
On March 1, 2002, TXU Europe acquired the UK retail and trading business
of Amerada Hess (Amerada) in a transaction that brought over 400,000 domestic
energy and telecommunication accounts to TXU Europe. The (pound)117 million
acquisition also includes a 63 billion cubic feet (Bcf) commercial and
industrial gas supply operation in the UK as well as wholesale gas marketing
operations. The acquisition underlines TXU Europe's commitment to growing its
retail business in the UK. The process of determining the fair value of assets
and liabilities of Amerada continues but is expected to be completed within one
year of the acquisition date. The preliminary estimate of goodwill associated
with the acquisition is (pound)53 million. This amount is subject to further
revision as additional information on the fair value of assets acquired and
liabilities assumed becomes available. The results of operations of Amerada are
reflected in the consolidated financial statements from the March 1, 2002
acquisition date. Pro forma information for the three months ended March 31,
2002 and 2001, reflecting the acquisition of Amerada, would not be significantly
different from reported amounts.
On May 2, 2002, TXU Europe was confirmed as the preferred bidder for the
purchase of a majority interest in Braunschweiger Versorgungs (BVAG), an
electricity, gas, heating and water supplier for 210,000 domestic, commercial
and industrial customers in the German city of Braunschweig. BVAG is a
wholly-owned subsidiary of Stadtwerke Braunschweig. TXU Europe bid for 74.9% of
BVAG; Stadtwerke Braunschweig will retain the remaining 25.1%. The acquisition
is subject to the approval of the Town Council of Braunschweig.
2. SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of TXU Europe and its
subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America (US GAAP) and, except for the
adoption of the Statement of Financial Accounting Standard (SFAS) No. 142
"Goodwill and Other Intangible Assets" discussed below, on the same basis as the
audited financial statements included in its 2001 Annual Report on Form 10-K. In
the opinion of TXU Europe's management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of
operations and financial position have been included therein. Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in
6
TXU EUROPE LIMITED
Notes to Financial Statements
accordance with US GAAP have been omitted pursuant to the rules and regulations
of the United States (US) Securities and Exchange Commission. The results of
operations for an interim period may not give a true indication of results for
a full year. Certain previously reported amounts have been reclassified to
conform to current classifications.
Unless otherwise indicated, all amounts in the financial statements and
notes to financial statements are stated in millions of UK pounds sterling.
Changes in Accounting Standards - SFAS No. 142, became effective for TXU
Europe on January 1, 2002. SFAS No. 142 requires, among other things, the
allocation of goodwill to reporting units based upon the current fair value of
the reporting units and the discontinuance of goodwill amortization. The
amortization of TXU Europe's existing goodwill (approximately (pound)123 million
on an annualized basis) ceased effective January 1, 2002.
In addition, SFAS No. 142 requires completion of a transitional goodwill
impairment test six months from the date of adoption. It establishes a new
method of testing goodwill for impairment on an annual basis or on an interim
basis if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. Any goodwill impairment loss
during the transition period will be recognized as the cumulative effect of a
change in accounting principle. Subsequent impairments will be recorded in
operations.
As part of its effort to implement SFAS No. 142, TXU Europe is in the
process of completing the transitional impairment test. While the evaluation is
not complete, work to-date indicates that TXU Europe will not have an impairment
of goodwill.
At March 31, 2002 and December 31, 2001, goodwill was stated net of
accumulated amortization of (pound)338 million. Amortization ceased January 1,
2002, as required by SFAS No. 142, however, a small amount of the existing
balance is subject to foreign exchange valuation. Net income for the three
months ended March 31, 2001 would have been (pound)72 million had the
non-amortization provisions of SFAS No. 142 been applied in that period.
SFAS No. 143, "Accounting for Asset Retirement Obligations", will be
effective for TXU Europe on January 1, 2003. SFAS No. 143 requires the
recognition of a fair value liability for any retirement obligation associated
with long-lived assets. The offset to any liability recorded is added to the
previously recorded asset and the additional amount is depreciated over the same
period as the long-lived asset for which the retirement obligation is
established. SFAS No. 143 also requires additional disclosures. TXU Europe is
currently evaluating the impact of adopting this standard.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", became effective for TXU Europe on January 1, 2002. SFAS No. 144
establishes a single accounting model, based on the framework established in
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", for long-lived assets to be disposed of by
sale and resolves significant implementation issues related to SFAS No. 121. The
adoption of SFAS No. 144 by TXU Europe has not affected its financial position,
cash flows or results of operations.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections", was issued in April 2002
and is applicable to fiscal years beginning after May 15, 2002. Early
application of this standard is encouraged. TXU Europe is evaluating the impact
the adoption of this standard will have on its financial position and results of
operations.
3. DISCONTINUED OPERATIONS
On January 18, 2002, TXU Europe completed the sale of its UK distribution
business (Eastern Electricity Limited), and its 50 percent interest in 24seven
(together, the "Networks business") to LE Group for (pound)1.3 billion,
7
TXU EUROPE LIMITED
Notes to Financial Statements
consisting of a cash payment of (pound)563 million and the assumption by LE
Group of (pound)750 million aggregate principal amount of debt ((pound)350
million of 8.375% bonds due 2004, (pound)200 million of 8.5% bonds due 2025 and
(pound)200 million of 8.75% bonds due 2012). TXU Europe recorded a one-time
charge in December 2001 of (pound)87 million ((pound)61 million after tax)
associated with the disposition, after the estimated costs to be incurred in
closing out the business and swaps related to its debt and the allocation of
goodwill in the amount of (pound)252 million. The transaction resulted in
approximately (pound)1.3 billion of debt reduction, consisting of (pound)750
million of debt assumed by LE Group and (pound)563 million of debt being repaid
using the cash proceeds from the sale. In May 2002, the final analysis of
working capital and fixed asset amounts was completed and TXU Europe returned
(pound)39 million to LE Group, which had been included in the original sale
calculation accounted for in December 2001. This payment does not affect the
gain or loss arising on disposal.
As a result of the disposition of the Networks business, effective April
1, 2002, former TXU Europe employees that have been transferred to LE Group will
no longer participate in TXU Europe's pension scheme. TXU Europe is in the
process of determining the impact of these changes on its pension liability,
which could affect other comprehensive income, and cash funding obligations, if
any. This analysis is expected to be completed later this year.
Summary of 2001 operating results for the discontinued Networks
business are as follows:
Three Months Ended
March 31,
2001
---------------------
((pound) million)
Operating revenues............................................... 89
=====================
Operating income ................................................ 53
Interest expense ................................................ (14)
Income tax expense............................................... (12)
Affiliate interest in subsidiary................................. (3)
---------------------
Income from operations of discontinued Networks business - net 24
=====================
8
TXU EUROPE LIMITED
Notes to Financial Statements
Summarized balance sheet information for the discontinued Networks
business are as follows:
December 31,
2001
---------------------
((pound) million)
Current assets................................................... 15
Property, plant and equipment.................................... 1,335
Other non-current assets......................................... 265
---------------------
Total assets............................................ 1,615
---------------------
Current liabilities.............................................. 196
Long-term liabilities............................................ 1,008
---------------------
Total liabilities....................................... 1,204
---------------------
Net assets of discontinued Networks business..................... 411
=====================
4. SHORT-TERM FINANCING
Short-term Facilities - In January 2002, TXU Europe repaid the (pound)190
million short-term portion of its Tranche A borrowings and (pound)560 million of
the Tranche C bridge facility under the Revolving Credit Facilities Agreement.
The Tranche C facility was cancelled in February 2002. TXU Europe has a Euro
term loan facility with a commercial bank available only to fund its investment
in Atro Oyj. At March 31, 2002, there was (Euro) 50 million ((pound)31 million)
outstanding under this facility at an annual interest rate based on Euribor of
4.40%. As of March 31, 2002, total short-term borrowings aggregated (pound)56
million with a weighted average annual interest rate of 4.53%.
Accounts receivable securitization - TXU Europe has facilities with
Citibank N.A. to provide financing through trade accounts receivable whereby TXU
UK Limited (TXU UK) may sell up to (pound)300 million of its electricity and gas
receivables and TXU Finance (No. 2) Limited may borrow up to an aggregate of
(pound)175 million, collateralized by future receivables of TXU UK, through a
short-term note issue arrangement. The program has an overall limit of
(pound)300 million. TXU UK continually sells additional receivables to replace
those collected. Under the program, TXU UK has a receivables servicing
obligation but does not incur a measurable asset or liability. At March 31,
2002, TXU Europe sold (pound)260 million of billed and unbilled receivables, and
a further (pound)40 million of future receivables that were reflected as other
short-term loans on the balance sheet. Debt securitization discounts of (pound)3
million are included in interest expense. The short-term loans included in the
program bear interest at an annual rate based on commercial paper rates plus a
margin, which was 4.07% at March 31, 2002.
5. LONG-TERM DEBT
Euro Medium Term Note (EMTN) Program - TXU Europe has a (Euro) 2.0 billion
EMTN program, under which TXU Europe may from time to time issue notes in
various currencies. As of March 31, 2002, a financing subsidiary of TXU Europe
has (pound)301 million of 35 Put 5 Resettable Notes due 2035 (Resettable Notes)
outstanding under the EMTN program. The interest rate on the Resettable Notes is
7.79% per annum as of March 31, 2002. The issuer of the Resettable Notes has a
call option to repurchase the Resettable Notes at par on November 30, 2005. This
call option has been assigned to commercial banks for a consideration of
approximately (pound)5 million per annum for five years. The Resettable Notes
also include a put option that is exercisable at November 30, 2005 by the holder
and a reset feature that permits the holder to remarket the Resettable Notes at
a different interest rate if the put is not
9
exercised. On the reset date, the new interest rate will be 6.25% per annum,
plus a margin, in accordance with the terms of the Resettable Notes for the
next 30 years.
As of March 31, 2002, there was (pound)275 million in 7.25% Sterling
Eurobonds due March 8, 2030 also outstanding under the EMTN program. TXU Europe
has granted to the holders of the 7.25% Sterling Eurobonds due 2030 an optional
put in 2015 in exchange for a waiver of a provision that could have inhibited
the disposition of the Networks business. A similar provision in the Resettable
Notes has been waived for a fee without any further changes to the terms of the
Resettable Notes.
Revolving Credit Facilities Agreement - The disposition of the Networks
business necessitated the termination of the old Sterling Credit Agreement, with
all borrowings repaid along with associated interest. The Revolving Credit
Facilities Agreement immediately replaced the old senior debt facility. This
agreement is dated November 19, 2001. There are three tranches in this facility.
Tranche A is a multi-currency, (pound)800 million five-year revolver that can
include long-term drawings. Tranche A was originally set at (pound)900 million.
Tranche B was a short-term (pound)230 million standby facility that was never
drawn upon and was cancelled. Tranche C was a short-term (pound)600 million
bridge facility. This facility was repaid upon receipt of proceeds from the sale
of the Networks business in January 2002 and cancelled upon receipt of all bond
waivers on February 26, 2002. As of March 31, 2002, the outstanding borrowings
under this facility and the associated interest rates are as follows: Tranche A
- - (Euro) 564 million ((pound)351 million) at 3.96% per annum, 700 million
Norwegian kroner (NOK) ((pound)55 million) at 7.21% per annum, and (pound)120
million at 4.69%, all classified as long-term debt. On April 15, 2002, (pound)70
million of the (pound)120 million Tranche A drawing was repaid.
6. SHAREHOLDER'S EQUITY
In March 2002, TXU Europe's authorized capital was increased by an
additional 199,999,900 ordinary shares of (pound)1 par, and subsequently issued
150 million of these new ordinary shares to its immediate shareholders, both
wholly-owned subsidiaries of TXU Corp. The new shares were issued at par and
two-thirds paid. TXU Europe received (pound)100 million on issue and the
remaining (pound)50 million is to be received later in the year.
March 31,
------------------
2002 December 31,
------------------ ------------------
(Unaudited) 2001
------------------ ------------------
((pound) million)
SHAREHOLDER'S EQUITY
Common stock with US $1 par value:
Authorized shares - 3,000,000,000 ordinary and 100 deferred
Outstanding shares: 2002 and 2001 - 2,455,705,299
ordinary and 100 deferred ................................ 1,467 1,467
Common stock with(pound)1 par value:
Authorized shares - 199,999,900 ordinary
Outstanding shares: 2002 - 150,000,000 ordinary ........... 150 -
Less: Subscriptions receivable ............................... (50) -
Retained earnings ............................................ 327 340
Accumulated other comprehensive loss ......................... (36) (39)
------------------ ------------------
Total common stock equity............................... 1,858 1,768
================== ==================
7. CONTINGENCIES
TXU Europe is subject to business risks that are actively managed to limit
exposures.
Legal - On November 29, 2001, various subsidiaries of Enron Corporation
(Enron) went into Administration
10
TXU EUROPE LIMITED
Notes to Financial Statements
(bankruptcy) in the UK. Prior to Enron's going into Administration, TXU Europe
Energy Trading (TXUEET) had certain energy purchase and sales contracts with
Enron, which had been entered into in the ordinary course of business. The
terms of these contracts provided that they terminated automatically upon a
party going into Administration. Also, on November 29, 2001, just prior to
Enron going into Administration, TXUEET received a notice from Enron purporting
to terminate these contracts for cause. TXUEET and the Administrator have had
discussions regarding potential claims relating to contract termination; in
February 2002 TXUEET applied to the High Court in London for permission to seek
a judicial determination regarding contract termination, and in March 2002,
Enron filed an action in the High Court relating to interpretation of certain
other contractual provisions. For the more expeditious and economic resolution
of the issue of the contract termination, TXUEET and Enron agreed, in May 2002,
to Enron initiating proceedings in the High Court to enable the parties to seek
a judicial determination regarding contract termination, which action would
supersede previous actions. While the outcome of these matters cannot be
predicted, TXUEET believes, consistent with the advice of external legal
advisors in the UK, that the attempted termination of the contracts by Enron
was without substance. Accordingly, TXUEET believes any related claims by Enron
would be without merit.
General - TXU Europe and its subsidiaries are involved in various legal
and administrative proceedings arising in the ordinary course of its business.
TXU Europe believes that all such other lawsuits and resulting claims would not
have a material effect on its financial position, results of operations or cash
flows.
Financial guarantees - On May 19, 1998, The Energy Group PLC (TEG) sold
its US and Australian coal businesses and US energy marketing operations prior
to its acquisition by TXU Corp. TEG has guaranteed up to US$110 million
((pound)77 million) at March 31, 2002 of certain liabilities that may be
incurred and payable by the purchasers of these businesses and operations with
respect to the Peabody Holding Company Retirement Plan for Salaried Employees,
the Powder River Coal Company Retirement Plan and the Peabody Coal UMWA
Retirement Plan, subject to certain specified conditions.
In connection with various power purchase contracts requiring the payment
of annual capacity fees, at March 31, 2002, TXU Europe has provided a (pound)276
million guarantee (declining over time) with the counterparty providing a
(pound)170 million guarantee.
8. SUPPLEMENTARY FINANCIAL INFORMATION
Accounts Receivable - At March 31, 2002 and December 31, 2001, accounts
receivable were stated net of uncollectible accounts of (pound)48 million and
(pound)41 million, respectively.
Property, Plant and Equipment - At March 31, 2002 and December 31, 2001,
property, plant and equipment were stated net of accumulated depreciation of
(pound)246 million and (pound)234 million, respectively.
Credit Risk - Credit risk relates to the risk of loss that TXU Europe
would incur as a result of non-performance by counterparties. TXU Europe
maintains credit policies with regard to its counterparties that management
believes significantly minimize overall credit risk. These policies include an
evaluation of potential counterparties' financial condition (including credit
rating), guarantees and collateral requirements under certain circumstances and
the use of standardized agreements that allow for the netting of positive and
negative exposures associated with a single counterparty. Additionally, TXU
Europe has established controls to determine and monitor the appropriateness of
these limits on an ongoing basis. Price and credit risk are evaluated daily
within the established trading policies and limits established. Any material
adverse change in the financial condition of a counterparty or downgrade of its
credit quality will result in the reassessment of the credit limit with that
counterparty. This could result in a reduction of the credit limit or request
for additional financial assurances.
Concentration of Credit Risk - TXU Europe had no exposure to any one
customer that represented greater than 5% of the gross fair value of TXU
Europe's trade accounts receivable, energy trading assets and derivative assets
at March 31, 2002. The largest share of the assets subject to credit risk are
accounts receivable from the millions of
11
TXU EUROPE LIMITED
Notes to Financial Statements
residential and commercial customers associated with the retail sale of
electricity and gas. The risk of material loss from non-performance by these
customers is not considered likely. Reserves for uncollectible accounts
receivable are provided for the potential loss from non-payment by these
customers based on historical experience. The remaining trade accounts
receivable are with large commercial and industrial customers. TXU Europe's
energy trading portfolio is diversified across major energy companies and
financial institutions. At March 31, 2002, (pound)444 million or 95% of the
credit risk amounts are associated with energy trading counterparties that are
considered to be investment grade. The amount of non-trading credit risk
associated with other large commercial and industrial customers was (pound)279
million at March 31, 2002. The risk of non-performance by these customers is
not considered likely. Credit risk with counterparties that have no external
ratings is subject to internal review and due diligence to ensure that
appropriate credit support arrangements are in place. TXU Europe monitors and
reports exposures against limits daily and provides weekly and monthly reports
to its regional Credit Risk Committee and TXU Corp.'s global risk monitoring
committees.
Accounting for Derivatives and Hedging Activities - Essentially all of the
terms of TXU Europe's derivatives, that have been designated as accounting
hedges, match the terms of the underlying hedged items. TXU Europe experienced
hedge ineffectiveness of less than (pound)1 million for the three months ended
March 31, 2002. This amount was reported in interest expense and represented the
total ineffectiveness of all cash-flow hedges.
As of March 31, 2002, it is expected that (pound)6 million of net losses
(before tax) accumulated in other comprehensive income will be reclassified into
earnings during the next twelve months. This amount represents the projected
value of the hedges over the next twelve months relative to what would be
recorded if the hedge transactions had not been entered into. The amount
expected to be reclassified is not a forecasted loss incremental to normal
operations, but rather it demonstrates the extent to which volatility in
earnings (which would otherwise exist) is mitigated through the use of cash flow
hedges.
Supplemental Non-cash Information - In connection with the sale of the
Networks business, the buyer, LE Group, assumed (pound)750 million principal
amount of debt (see Note 3).
12
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholder of TXU Europe Limited and
Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of TXU
Europe Limited and subsidiaries (TXU Europe) as of March 31, 2002, and the
related condensed statements of consolidated income, comprehensive income and
cash flows for the three-months ended March 31, 2002 and 2001. These financial
statements are the responsibility of TXU Europe's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of TXU
Europe as of December 31, 2001, and the related consolidated statements of
income, comprehensive income, cash flows and shareholder's equity for the year
then ended (not presented herein); and in our report dated January 31, 2002, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2001, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
As disclosed in Note 2 to the Notes to Financial Statements TXU Europe Limited
changed its method of accounting for goodwill amortization in 2002 in connection
with the adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".
DELOITTE & TOUCHE
London, England
April 23, 2002
13
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS, ACQUISITIONS AND DISPOSALS
TXU Europe Limited (TXU Europe) is an indirect, wholly-owned subsidiary of
TXU Corp., a Texas corporation. TXU Corp. is a global energy services holding
company and engages in electricity generation, wholesale energy trading, retail
energy marketing, energy delivery, other energy related services and, through a
joint venture, telecommunications services. TXU Europe is a holding company for
TXU Corp.'s United Kingdom (UK) and other European operations. Almost all of TXU
Europe's operating income is derived from, and consolidated assets are held by,
TXU Europe Group plc (TXU Europe Group) and TXU Europe Group's subsidiaries.
TXU Europe is managed as a single, integrated energy business;
consequently, there are no reportable business segments.
The energy business manages the energy value chain from fuel through to
the retail customer. It does this through an integrated portfolio of contracts
and physical gas and generation assets and by serving a substantial retail
customer base. Its contracts include those with sources for supplying the retail
customers with electricity and gas as well as contracts with third party energy
retailers, traders and wholesalers.
On January 18, 2002, TXU Europe completed the sale of its UK distribution
business (Eastern Electricity Limited), and its 50 percent interest in 24seven
Utility Services Limited (24seven) to London Electricity Group plc (LE Group).
These operations have been accounted for as discontinued operations in all
periods presented in the financial statements and related footnotes. For more
information on the disposal, see Note 3 to financial statements included in this
Form 10-Q.
On March 1, 2002, TXU Europe acquired the UK retail and trading business
of Amerada Hess (Amerada) in a transaction that brought over 400,000 domestic
energy and telecommunication accounts to TXU Europe. The (pound)117 million
acquisition also includes a 63 billion cubic feet (Bcf) commercial and
industrial gas supply operation in the UK as well as wholesale gas marketing
operations. The acquisition underlines TXU Europe's commitment to growing its
retail business in the UK. The preliminary estimate of goodwill associated with
the acquisition is (pound)53 million. This amount is subject to further revision
as additional information on the fair value of assets acquired and liabilities
assumed becomes available. The results of operations of Amerada are reflected in
the consolidated financial statements from the March 1, 2002 acquisition date.
Pro forma information for the three months ended March 31, 2002 and 2001,
reflecting the acquisition of Amerada, would not be significantly different from
reported amounts.
On May 2, 2002, TXU Europe was confirmed as the preferred bidder for the
purchase of a majority interest in Braunschweiger Versorgungs (BVAG), an
electricity, gas, heating and water supplier for 210,000 domestic, commercial
and industrial customers in the city of Braunschweig, Germany. BVAG is a
wholly-owned subsidiary of Stadtwerke Braunschweig. TXU Europe bid for 74.9% of
BVAG; Stadtwerke Braunschweig will retain the remaining 25.1%. The acquisition
is subject to the approval of the Town Council of Braunschweig.
RESULTS OF OPERATIONS
Results for the three-month periods presented herein are not necessarily
indicative of expectations for a full year's operations because of seasonal and
other factors, including variations in maintenance and other operating expense
patterns. No significant changes or events which might affect the financial
condition of TXU Europe have occurred subsequent to year-end other than as
disclosed herein. The results of operations of TXU Europe have been restated to
reflect the disposition of the Networks business separately as a discontinued
operation in the condensed consolidated financial statements. (See Note 3 to
Financial Statements.)
14
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 Compared to 2001
Operating revenues increased by (pound)481 million to (pound)2.8 billion
in the first quarter of 2002. Increased trading activity in continental Europe
contributed (pound)270 million of the increase and the acquisition of Amerada
during the first quarter of 2002 contributed (pound)120 million of the increase
in revenues over last year. Additionally, trading activity in the UK increased
partially as a result of the implementation in March 2001 of the New Electricity
Trading Arrangements (NETA), which eliminated the Pool system and allows
contracts to be made directly between counterparties. Physical sales of power
and gas are recorded gross in revenues. Physical purchases of power and gas are
recorded in energy purchased for resale, while financial contracts are recorded
net in revenues. Physical wholesale energy sales in the first quarter of 2002
increased 41% over the first quarter of last year.
Gross margin, which is revenues less energy purchased for resale and fuel
consumed, decreased (pound)133 million to (pound)174 million compared to last
year. This decrease in gross margin arose almost exclusively from UK operations.
The margin decline in the UK is largely a result of the decline in wholesale
electricity and gas prices. Average wholesale prices for electricity and gas
declined 15% and 32%, respectively, during the first quarter of 2002 as compared
with last year. The mild weather in the UK during the first quarter of 2002
resulted in little or no price volatility. The decline in prices has resulted in
a sharp decrease in profits, and in the net value of assets and liabilities
marked-to-market. The net effect of mark-to-market accounting in the first
quarter of 2002 was a decrease in income of (pound)16 million compared with an
increase of (pound)21 million in the first quarter of 2001. This (pound)37
million impact reflects the downward price trend.
Price declines have also contributed to a reduction in generation output
and income from the generation portfolio. In the first quarter of 2001, 7,200
gigawatt-hours (GWh) were generated, compared to only 2,900 GWh in the first
quarter of 2002. This reflects TXU Europe's capacity reduction, which is the
result of plant disposals and the idling of units, as well as the low prices
apparent in the market which affects the operating regime of generating plants
such as TXU Europe's in the UK. Partially offsetting margin decline was an
improvement of (pound)11 million in continental Europe. Other factors affecting
gross margin have been the loss of ex-franchise customers, replaced with
customers outside of TXU Europe's ex-franchise area, but who contribute lower
margins. The acquisition of Amerada on March 1, 2002 and the idling of plants to
reduce operating costs were actions intended to address these pressures. The
number of UK retail electricity customers declined 7%, as of March 31, 2002
compared with the same period last year, while the number of UK retail gas
customers increased by 34% (largely as a result of the Amerada acquisition). The
number of retail gas customers in Germany showed a slight increase compared with
the first quarter of 2001, while retail electricity customers more than doubled
as a consequence of the Ares acquisition in May of 2001.
Operation and maintenance expense increased (pound)11 million over the
same period last year, primarily reflecting the impact of acquisitions offset by
cost reductions resulting from the disposal and idling of generating plants.
Other operating expenses declined by (pound)51 million, primarily as a result of
the discontinuance of goodwill amortization in 2002.
Interest expense, net of interest income, declined (pound)31 million
compared to the first quarter of 2001. This is due to the significant reduction
in debt of (pound)2.3 billion following the disposition of assets in late 2001
and the sale of the Networks business in early 2002, including the (pound)750
million term loan, (pound)845 million related to capital leases and (pound)737
million of short-term debt.
Income tax for TXU Europe resulted in a benefit of (pound)4 million in
2002 compared with expense of (pound)26 million in 2001. The effective tax rate
comparison to the prior period was affected by the amortization of goodwill,
which was discontinued January 1, 2002, and the considerable reduction in
non-deductible lease expense, as a consequence of the power station disposals.
15
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Discontinued Operations - Operating revenues for the first quarter of 2001
were (pound)89 million. Net income from operations of this discontinued
business, was (pound) 24 million. The (pound)7 million of income for the period
from January 1, 2002 through the final completion date of January 18, 2002 was
recorded in December 2001.
16
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING STATISTICS
---------------------------------
Three Months Ended
---------------------------------
March 31,
---------------------------------
2002 2001
---------------- ---------------
SALES VOLUMES
Electricity (GWh):
Industrial and commercial 8,004 6,324
Residential 7,024 6,859
---------------- ---------------
Total electricity 15,028 13,183
================ ===============
Gas (billion cubic feet) - (Bcf):
Industrial and commercial 24 23
Residential 38 41
---------------- ---------------
Total gas 62 64
================ ===============
Physical wholesale energy sales:
Electricity (GWh) 37,039 18,877
================ ===============
Gas (Bcf) 476 391
================ ===============
OPERATING REVENUES ((pound) millions)
Electric:
Industrial and commercial 293 242
Residential 394 405
---------------- ---------------
Total electric operating revenues 687 647
---------------- ---------------
Gas:
Industrial and commercial 75 62
Residential 143 124
---------------- ---------------
Total gas operating revenues 218 186
---------------- ---------------
Physical wholesale energy sales (electric and
gas) 1,707 1,207
Other 140 231
---------------- ---------------
Total operating revenues 2,752 2,271
================ ===============
TRADED VOLUMES
Electricity (GWh) 214,996 326,452
================ ===============
Gas (Bcf) 1,101 1,380
================ ===============
- -------------------------------------------------------------------------------------------
RETAIL CUSTOMERS (end of period & in thousands)
Electricity (retail) 4,379 4,484
Gas 1,615 1,224
17
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Energy Trading Activities
The table below summarizes the changes in energy trading assets and
liabilities for the quarter ended March 31, 2002. The net change, excluding
"other activity" as described below, of (pound)16 million represents the effect
of mark-to-market accounting on earnings for 2002 (in (pound) millions).
Balance of net trading assets/(liabilities) at December 31, 2001 ..... (pound) (74)
Settlements of positions included in the opening balance (1) ......... (21)
Unrealized mark-to-market valuations of positions held at quarter-end 5
Other activity (2).................................................... 19
-------------
Balance of net trading assets/(liabilities) at March 31, 2002 ........ (pound) (71)
=============
(1) Represents unrealized mark-to-market valuations of these positions
recognized in earnings as of December 31, 2001.
(2) Includes initial values of positions assumed in acquisitions or involving
the receipt or payment of cash, such as option premiums, and amortization
of such positions originating in prior periods. This activity has no
effect on unrealized mark-to-market valuations.
The above table includes all commodity contracts that are marked to
market, for both trading and non-trading purposes.
Of the net trading asset/liability balance above at March 31, 2002, the
amount representing unrealized mark-to-market net gains that have been
recognized in current and prior years' earnings is (pound)65 million. The
remainder ((pound)136 million) of the March 31, 2002 balance consists of the
initial values, net of amortization, of positions assumed in acquisitions or
involving the receipt or payment of cash, including option premiums. During the
quarter, certain contracts previously accounted for on a mark-to-market basis
were designated normal purchase contracts according to the exception available
within SFAS 133, "Accounting for Derivative Instruments and Hedging Activities".
This had no effect on net income or net assets, but will result in (pound)11
million of unrealized mark-to-market net gains, included in the closing balance
shown in the table above, being amortized over the remaining life of the
contracts rather than subject to future mark-to-market valuations. The following
table presents the unrealized mark-to-market balance at March 31, 2002 scheduled
by contractual settlement dates of the underlying positions (in millions).
Maturity dates of unrealized mark-to-market balance at March 31, 2002
--------------------------------------------------------------------------
Maturity Maturity in
less than Maturity of Maturity of Excess of
1 year 1-3 years 4-5 years 5 years Total
- ------------------------------ ------------- ------------- ------------- ------------- -------------
Pricing method:
Prices actively quoted....... 30 (13) - - 17
Prices provided by other
external..................... 13 (4) - - 9
sources....................
Prices based on models....... 16 21 5 (3) 39
------------- ------------- ------------- ------------- -------------
Total 59 4 5 (3) 65
============= ============= ============= ============= =============
Percentage of total 91% 6% 8% -5% 100.0%
As the above table indicates, 97% of the unrealized mark-to-market
valuations at March 31, 2002 mature within three years. This is reflective of
the terms of the positions and the conservative methodologies employed in
valuing positions in periods of decreased market liquidity and visibility. The
"prices actively quoted" category reflects exchange traded contracts with active
quotes available through 2011. The "prices provided by other external sources"
category represents forward commodity positions at locations for which
over-the-counter (OTC) broker
18
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
quotes are available. The "prices based on models" category contains the value
of all non-exchange traded options, valued using an industry accepted option
pricing model. In addition, this category contains other contractual
arrangements, which may have both forward and option components. In many
instances, these contracts can be broken down into their component parts and
modeled by TXU Europe as simple forward contracts and options based on prices
actively quoted. As the modeled value is ultimately the result of a combination
of prices from two or more different instruments, it has been included in this
category.
Regulatory Issues
Although the electricity and gas markets in the UK are now fully open to
competition, there were certain price restrictions on rates that could be
charged and other price restrictions for electricity supply businesses. These
restrictions, which affected TXU Europe Group's electricity supply business,
were removed in April 2002. TXU Europe Group's natural gas supply business is
not subject to price regulation.
Credit Risk - See Note 8 to Financial Statements for information on Credit Risk.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 2002 Compared with Three Months Ended March 31,
2001
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Europe's 2001 Annual Report on Form 10-K (2001 10-K). No
significant changes or events which might affect the financial condition of TXU
Europe have occurred subsequent to year-end other than as disclosed herein.
Cash used in operating activities was (pound)208 million for the three
months ended March 31, 2002 compared to cash provided of (pound)28 million for
the same period in 2001. The decline in cash flow from operating activities is
attributable to lower cash operating profits from continuing operations together
with the end of operating cash contributions from the discontinued operations.
The first quarter of 2001 includes cash contributions of (pound)10 million
(after payment of (pound)64 million in annual interest charges associated with
Networks business debt) from the discontinued Networks business, compared with
(pound)23 million of cash used by the Networks business during 2002, prior to
disposition. Declining wholesale prices in the UK adversely affected cash flows
from operations by precipitating the closing of unfavorable trading positions.
Other timing factors also contributed to the decline in cash from operating
activities.
Investing activities provided (pound)530 million to cash flows in the
first quarter of 2002 compared to using (pound)102 million of cash in the same
period last year. The cash provided in 2002 was primarily from the proceeds from
the sale of the Networks business. Capital expenditures declined (pound)16
million compared to 2001. (pound)117 million of cash was used to acquire Amerada
in the first quarter of 2002 compared to (pound)145 million used in the first
quarter of 2001 to acquire Stadtwerke Kiel AG in Germany. The first quarter of
2002 also includes proceeds of (pound)133 million received from the sale of
Rugeley generating station in 2001.
Cash used in financing activities for the three months ended March 31,
2002 was (pound)630 million compared to (pound)364 million in the first quarter
of 2001. In the first quarter of 2002, cash was used primarily to reduce debt by
(pound)841 million. This was offset by cash provided from (pound)120 million of
long-term debt issued under Tranche A of the Revolving Credit Facilities
Agreement and (pound)100 million of equity sold during the quarter from the
issuance of stock. Cash used in the first quarter of 2001 reflects debt
repayment of (pound)399 million, offset by cash received of (pound)40 million
from debt issued.
19
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financing Arrangements
See Notes 4 and 5 to Financial Statements for more information concerning
available sources of short-term and long-term financing.
Lines of credit - TXU Europe has a (Euro) 2.0 billion Euro Medium Term
Note (EMTN) program, under which TXU Europe may from time to time issue notes in
various currencies. As of March 31, 2002, a financing subsidiary of TXU Europe
has (pound)301 million of 35 Put 5 Resettable Notes due 2035 (Resettable Notes)
outstanding under the EMTN program. The interest rate on the Resettable Notes is
7.79% per annum as of March 31, 2002. The issuer of the Resettable Notes has a
call option to repurchase the Resettable Notes at par on November 30, 2005. This
call option has been assigned to commercial banks for a consideration of
approximately (pound)5 million per annum for five years. The Resettable Notes
also include a put option that is exercisable at November 30, 2005 by the holder
and a reset feature that permits the holder to remarket the Resettable Notes at
a different interest rate if the put is not exercised. On the reset date, the
new interest rate will be 6.25% per annum, plus a margin, in accordance with the
terms of the Resettable Notes for the next 30 years.
As of March 31, 2002, there was (pound)275 million in 7.25% Sterling
Eurobonds due March 8, 2030 also outstanding under the EMTN program. TXU Europe
has granted to the holders of the 7.25% Sterling Eurobonds due 2030 an optional
put in 2015 in exchange for a waiver of a provision that could have inhibited
the disposition of the Networks business. A similar provision in the Resettable
Notes has been waived for a fee without any further changes to the terms of the
Resettable Notes.
Revolving Credit Facilities Agreement - The disposition of the Networks
business necessitated the termination of the old Sterling Credit Agreement, with
all borrowings repaid along with associated interest. The Revolving Credit
Facilities Agreement immediately replaced the old senior debt facility. This
agreement is dated November 19, 2001. There are three tranches in this facility.
Tranche A is a multi-currency, (pound)800 million five-year revolver that can
include long-term drawings. Tranche A was originally set at (pound)900 million.
Tranche B was a short-term (pound)230 million standby facility that was never
drawn upon and was cancelled. Tranche C was a short-term (pound)600 million
bridge facility. This facility was repaid upon receipt of proceeds from the
Networks disposal in January 2002 and cancelled upon receipt of all bond waivers
on February 26, 2002. As of March 31, 2002, the outstanding borrowings under
this facility and the associated interest rates are as follows: Tranche A -
(Euro) 564 million ((pound)351 million) at 3.96% per annum, 700 million
Norwegian kroner (NOK) ((pound)55 million) at 7.21% per annum, and (pound)120
million at 4.69%, all classified as long-term debt. On April 15, 2002, (pound)70
million of the (pound)120 million Tranche A drawing was repaid.
FORWARD-LOOKING STATEMENTS
This report and other presentations made by TXU Europe contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Europe believes that in making
any such statement its expectations are based on reasonable assumptions, any
such statement involves uncertainties and is qualified in its entirety by
reference to factors contained in the Forward-Looking Statements section of Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 2001 10-K as well as general economic and business conditions
in the UK and in the service area for Eastern Electricity, which has been opened
to competition; unanticipated changes in interest rates, in rates of inflation,
or in foreign exchange rates; prevailing governmental, statutory, regulatory or
administrative policies and initiatives affecting TXU Europe, its subsidiaries
or the UK or European electric and gas utility industries; general industry
trends; regulation issues; power costs and availability; changes in business
strategy, development plans or vendor
20
TXU EUROPE LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
relationships; availability of qualified personnel; changes in, or the failure
or inability to comply with, governmental regulations, including, without
limitation, environmental regulations; changes in tax laws; and access to
adequate transmission facilities to meet changing demands, among others, that
could cause the actual results of TXU Europe to differ materially from those
projected in such forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Europe does not undertake any obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for TXU
Europe to predict all of such factors, nor can it assess the impact of each such
factor or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking
statement.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder is not significantly different from the
information as set forth in Item 7A. Quantitative and Qualitative Disclosures
About Market Risk included in the 2001 Form 10-K and is therefore not presented
herein.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
(b) Reports on Form 8-K filed since December 31, 2001, are as follows:
Date of Report Item Reported
-------------- -------------
January 31, 2002 Item 2. Disposition of Assets
Item 7. Financial Statements, Pro
Forma Financial Information
and Exhibits.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TXU EUROPE LIMITED
By /s/ Henry Birt
-----------------------
Henry Birt
Principal Financial Officer
By /s/ Henry Davies
------------------------
Henry Davies
Principal Accounting Officer
Date: May 14, 2002
23