Exhibit 99.1
News
Release TXU LOGO
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1601 Bryan Street
Dallas, Texas 75201-3411
TXU Reports Strong Third Quarter Results
DALLAS - October 22, 2004 - TXU Corp. (NYSE: TXU) today reported consolidated
results for the third quarter ended September 30, 2004.
Reported Earnings
Reported net income available for common stock for the third quarter 2004 was
$662 million, $1.34 per diluted share, as compared to $392 million, $1.07 per
diluted share for the third quarter 2003. Reported earnings include income from
discontinued operations1 of $287 million, $0.97 per diluted share, a dilutive
effect of Convertible Senior Notes of $268 million, $0.91 per diluted share, and
other net special items charges, primarily associated with the company's
restructuring program, of $10 million, $0.03 per diluted share. All amounts are
after tax. The Convertible Senior Notes, 92 percent of which were repurchased in
October, are dilutive because the conversion trigger price of $41.48 per share
was reached in the third quarter. Due to the Company's stated intent to settle
the conversion in cash, the calculation of diluted earnings per share reflects a
reduction in earnings for the assumed after-tax settlement expense based on the
fair market value of the embedded conversion option at September 30, 2004.2
Operational Earnings3
Operational earnings, which exclude special items, for the three months ended
September 30, 2004 were $385 million, $1.31 per diluted share of common stock,
versus $328 million, $0.90 per diluted share for the 2003 comparable period, a
46 percent increase per share. TXU's Energy segment's improved operational
performance, reduced corporate expenses, and fewer average diluted common shares
contributed to the improved results, while the contribution from TXU's Electric
Delivery segment declined slightly primarily due to the effect of mild summer
weather on revenues. Milder summer weather resulted in an estimated $17 million
decrease in the Electric Delivery segment revenues and $120 million decrease in
the Energy segment revenues, representing an estimated decrease in earnings of
$0.07 per diluted share of common stock. Results from continuing operations for
the third quarter 2004 were $380 million or $0.39 per diluted share, including
the $0.91 per diluted share effect of the Convertible Senior Notes, as compared
to $333 million, $0.91 per diluted share in the prior year period.
"TXU's restructuring strategies are continuing to yield results, and we are
moving closer to achieving high performance in each of our businesses," said C.
John Wilder, chief executive officer, TXU Corp. "These third quarter results
reflect strong execution and demonstrate the resiliency of our business as we
delivered solid earnings despite the mildest summer in 15 years."
Cash Flow and Liability Management
Year-to-date September 30, 2004 cash flow from operations was $1.1 billion
compared to $1.8 billion for the same period in 2003. The decrease primarily
reflects the receipt of a $616 million tax refund in 2003. Total debt has been
reduced by $2.3 billion year-to-date September 30, 2004. Excluding
securitization bonds, which is consistent with credit reviews treatment, total
debt has decreased $3.1 billion. The reduction includes $1.7 billion of debt
assumed by the purchaser of TXU Australia. In addition, TXU has defeased or
repurchased approximately $1.6 billion of debt in October 2004 primarily with
proceeds from the merger transaction between TXU Gas and Atmos Energy
Corporation, whereby Atmos Energy acquired the operations of TXU Gas.
Outstanding shares of common stock have also been reduced by approximately 32
million year-to-date September 30, 2004. The repurchase of the TXU Energy
Company exchangeable preferred membership interests and equity-linked and
convertible debt securities, including the tender offers that closed in October
2004, resulted in the elimination of actual or potential additional common stock
share dilution of 93 million shares.
- ---------------------------
1 See Table 20 for details of discontinued operations.
2 As a result of the success of the tender offer for the Convertible Senior
Notes, TXU Corp. now expects to settle any conversions of the remaining
notes with common stock, not cash.
3 Operational earnings is a non-GAAP measure adjusting 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.
1
Earnings Teleconference Today - EEI Conference and Presentation Next Week
TXU will host a teleconference with financial analysts to discuss third quarter
results at 10:00 a.m. Central time (11:00 a.m. Eastern time) today. The
telephone numbers are 800-309-0343 in the United States and Canada and
706-634-7057 internationally, with confirmation code 274457. The teleconference
will be web cast live on TXU Corp.'s web site at www.txucorp.com for all
interested parties.
On Tuesday, October 26, 2004, C. John Wilder, chief executive officer of TXU
Corp. will provide an update on TXU's strategy, business performance, and
financial outlook for 2004 through 2006 at the EEI Annual Financial Conference.
A live web cast of the EEI presentation will be available on the Investor
Resources section of TXU Corp.'s website at www.txucorp.com beginning at
approximately 7:30 a.m. Pacific time (10:30 a.m. Eastern time).
Table 1 provides a recap of operational highlights since the beginning of the
third quarter.
Table 1: Recent Highlights
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Date Highlight
- ---------------- ---------------------------------------------------------------------------------------------------------
07-01 Launched partnership with Capgemini Energy, a joint venture
providing business support services to TXU, and transferred
approximately 3,000 TXU full-time and contracted employees to
the new company.
................. .........................................................................................................
07-28 Received approval from the Public Utility Commission of Texas to raise electric price-to-beat prices in
North Texas by 12.7 percent, resulting from continued increases
in natural gas prices. TXU Energy Retail and its affiliate
continue to offer the lowest price to beat prices of any
incumbent in the state.
................. .........................................................................................................
07-30 Completed the sale of TXU Australia to Singapore Power for an enterprise value of $3.6 billion.
................. .........................................................................................................
09-28 Completed the repurchase of 20 million shares of TXU Corp. outstanding common stock pursuant to an
accelerated repurchase agreement that had been announced on June 30.
................. .........................................................................................................
09-28 Continued hurricane assistance to southeastern states by sending 100 TXU Electric Delivery employee
volunteers to areas hard-hit by series of storms.
................. .........................................................................................................
09-29 Announced that TXU Energy Company and Credit Suisse First Boston mutually agreed not to pursue a joint
energy marketing and trading venture previously announced on May 18.
................. .........................................................................................................
09-30 TXU Energy Company announced the realignment of and related appointments to its marketing operations
that further support its focus on customers and its initiative to improve customer service levels.
................. .........................................................................................................
10-01 Released an independent environmental study developed by NERA as part of a TXU Corp. shareholder
resolution.
................. .........................................................................................................
10-01 Completed the merger transaction between TXU Gas and Atmos Energy for cash proceeds of $1.905 billion.
Announced the redemption of TXU Gas preferred stock and defeasance of TXU Gas debt.
................. .........................................................................................................
10-15 Closed on the cash tender offers for equity-linked and convertible securities announced on September
15, retiring $1.1 billion stated amount of debt and avoiding
potential future issuances of up to 27.1 million shares of TXU
Corp. common stock associated with the securities.
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Consolidated Results - Additional Details
For the nine month (year-to-date) period ended September 30, 2004, TXU Corp.
reported net income available for common stock of $239 million, or a loss of
$0.09 per diluted share of common stock, as compared to net income available for
common stock of $537 million, $1.52 per diluted share, in the prior year period.
For the current year-to-date period, the positive net income of $239 million
represents a loss per diluted share due to the subtraction from net income
available for common stock of the $268 million effect of the Convertible Senior
Notes in the diluted earnings per share calculation. Year-to-date income from
continuing operations was $422 million, $0.50 per diluted share, as compared to
$527 million, $1.49 per diluted share, in the prior year period.
Year-to-date 2004 operational earnings were $704 million, $2.14 per diluted
share, as compared to $511 million, $1.45 per diluted share, in the prior year
period, a 48 percent increase. Major drivers of operational earnings are
described below in Table 4.
Provided below in Table 2a is a reconciliation of reported results to
operational earnings.
2
Table 2a: Reconciliation of Operational Earnings to Reported Net Income
Q3 04 vs. Q3 03, YTD 04 vs. YTD 03; $ per diluted share after tax
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Factor Q3 04 Q3 03 YTD 04 YTD 03
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Net income (loss) to common 1.34 1.07 (0.09) 1.52
............................................................... .............. ............... ............... ..............
Income from discontinued operations (0.97) (0.17) (2.13) (0.22)
............................................................... .............. ............... ............... ..............
Extraordinary gain - - (0.05) -
............................................................... .............. ............... ............... ..............
Cum. effect of changes in accounting principles - - - 0.15
............................................................... .............. ............... ............... ..............
Premium on EPMIs - - 2.72 -
............................................................... .............. ............... ............... ..............
Preference stock dividends 0.02 0.01 0.05 0.04
............................................................... .............. ............... ............... ..............
Income from continuing operations 0.39 0.91 0.50 1.49
............................................................... .............. ............... ............... ..............
Preference stock dividends (0.02) (0.01) (0.05) (0.04)
............................................................... .............. ............... ............... ..............
Dilutive effect of Convertible Senior Notes 0.91 - 0.80 -
............................................................... .............. ............... ............... ..............
Dilution effect of EPMIs - - 0.01 -
............................................................... .............. ............... ............... ..............
Special items 0.03 - 0.88 -
............................................................... .............. ............... ............... ..............
Operational earnings 1.31 0.90 2.14 1.45
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Table 2b demonstrates the dilution calculation for reported and operational
earnings per share for third quarter and year-to-date 2004. For the third
quarter 2004, average basic and average diluted shares outstanding are the same.
Table 2b: Calculation of Diluted Earnings Per Share4
Q3 04 and YTD 04; $millions, million shares, $ per share
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Factor Q3 04 Q3 04 YTD 04 YTD 04
Reported Operational Reported Operational
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Net income to common 662 239
............................................................... .............. ............... ............... ..............
Operational earnings 385 704
............................................................... .............. ............... ............... ..............
Dilutive effect of Convertible Senior Notes (268) - (268) -
............................................................... .............. ............... ............... ..............
Interest on exchangeable preferred securities - - - 18
............................................................... .............. ............... ............... ..............
Diluted earnings 394 385 (29) 722
............................................................... .............. ............... ............... ..............
Basic shares 313
............................................................... .............. ............... ............... ..............
Diluted shares 295 295 337
............................................................... .............. ............... ............... ..............
Diluted earnings per share 1.34 1.31 (0.09) 2.14
- -------------------------------------------------------------- -------------- --------------- --------------- --------------
Special items in the third quarter and year-to-date 2004 periods primarily
relate to TXU Corp.'s major restructuring and operational improvement program.
Because of the nature and significance of these items, presentation of results
after adjustment for the items allows for a more meaningful analysis of the
underlying performance of the business. Special items in the third quarter
relate primarily to debt retirement expenses associated with the company's
liability management program and professional expenses related to restructuring
transactions, somewhat offset by a gain on sale of land by TXU Energy Company.
Special items for the year-to-date period also include severance-related charges
and software project write-offs related to the business services outsourcing
partnership, Capgemini Energy, other severance-related charges arising from
organizational realignments, a write-down of spare parts inventories for excess
items on hand, impairments of generation-related assets due to closures,
one-time compensation expenses and a litigation accrual for the potential
settlement of certain cases. Special items also include the benefit of a
reduction in tax reserves associated with the 2002 write-off of the TXU Europe
investment. Special items are described in Table 3.
- ----------------
4 For year-to-date 2004, the dilution calculation for reported earnings
reflects the subtraction of the $268 million adjustment for the Convertible
Senior Notes from net income available for common stock, which results in a
net loss. Because of anti-dilution rules, average basic shares of common
stock of 313 million are used instead of average diluted shares and the
interest on TXU Energy Company's exchangeable preferred membership
interests (EPMIs) are not added to net income. However, for the
year-to-date 2004 operational earnings calculation, the $18 million
after-tax interest expense on the EPMIs, which were repurchased by TXU
Corp. on April 26, 2004, is added to net income and the related diluted
average share count of 337 million is used. The diluted earnings per share
calculation for third quarter 2003 adds the $13 million of interest expense
on the EPMIs to net income and divides by the 379 million average diluted
shares. The year-to-date 2003 calculation adds the $40 million of interest
expense on the EPMIs to net income and divides by the 378 million average
diluted shares.
3
Table 3: Description of Special Items
Q3 04 and YTD 04; $millions and $ per diluted share after tax
- --------------------------------------- ------------------- -------- --------- --------- --------- ----------- -------------
Special Item Earnings YTD YTD YTD YTD
Category Q3 04 Q3 04 04 04 04 Cash 04 Non-Cash5
- --------------------------------------- ------------------- -------- --------- --------- --------- ----------- -------------
Energy segment:
........................................ ................... ........ ......... ......... ......... ........... .............
Software projects write-off Other deductions (1) - 69 0.20 - 69
........................................ ................... ........ ......... ......... ......... ........... .............
Severance charges Other deductions 2 0.01 61 0.18 61 -
........................................ ................... ........ ......... ......... ......... ........... .............
Inventory/gas plant write-downs Other deductions 2 0.01 53 0.16 - 53
........................................ ................... ........ ......... ......... ......... ........... .............
Disposition of property Other deductions (12) (0.04) (12) (0.03) (12) -
........................................ ................... ........ ......... ......... ......... ........... .............
Electric Delivery segment:
............................................................ ........ ......... ......... ......... ........... .............
Severance/other charges Other deductions 1 - 14 0.04 13 1
........................................ ................... ........ ......... ......... ......... ........... .............
Corporate and Other:
............................................................ ........ ......... ......... ......... ........... .............
One-time compensation expense SG&A - - 51 0.15 51 -
........................................ ................... ........ ......... ......... ......... ........... .............
Transaction professional fees SG&A 10 0.03 22 0.06 22 -
........................................ ................... ........ ......... ......... ......... ........... .............
Litigation settlement reserve Other deductions - - 65 0.19 - 65
........................................ ................... ........ ......... ......... ......... ........... .............
Liability management expense Other deductions 7 0.02 46 0.14 7 39
........................................ ................... ........ ......... ......... ......... ........... .............
Severance charges Other deductions - - 3 0.01 3 -
........................................ ................... ........ ......... ......... ......... ........... .............
Income tax benefit Income tax expense - - (75) (0.22) - (75)
........................................ ................... ........ ......... ......... ......... ........... .............
Total 9 0.03 297 0.88 145 151
- --------------------------------------- ------------------- -------- --------- --------- --------- ----------- -------------
Consolidated Operational Earnings Summary
Table 4 provides a consolidated summary of major drivers of operational earnings
per diluted share. A more detailed discussion of contributions and drivers by
segment is provided in Business Segment Results.
Table 4: Consolidated - Operational Earnings Reconciliation
Q3 04 vs. Q3 03 and YTD 04 vs. YTD 03; $ per diluted share
- ------------------------------------------ -------------- --------------
Earnings Factor QTR YTD
- ------------------------------------------ -------------- --------------
Q3 03 operational earnings 0.90 1.45
........................................... .............. ..............
Contribution margin:
........................................... .............. ..............
Energy segment 0.17 0.60
........................................... .............. ..............
Electric Delivery segment 0.09 0.22
........................................... .............. ..............
Operating costs (0.01) (0.08)
........................................... .............. ..............
Depreciation and amortization (0.07) (0.11)
........................................... .............. ..............
SG&A (0.11) (0.20)
........................................... .............. ..............
Franchise and revenue based taxes (0.01) 0.04
........................................... .............. ..............
Other income and deductions 0.03 0.07
........................................... .............. ..............
Net interest 0.11 0.20
........................................... .............. ..............
Income taxes (0.05) (0.23)
........................................... .............. ..............
Effect of reduced shares 0.26 0.18
........................................... .............. ..............
Q3 04 operational earnings 1.31 2.14
- ------------------------------------------ -------------- --------------
Operational earnings per diluted share of common stock were $1.31, up 46 percent
from $0.90 in the third quarter of 2003. The increase was driven by a reduction
in the average diluted shares outstanding, a $0.14 improvement in operational
earnings from the Energy segment, and a $0.06 per share reduction in corporate
expenses, partially offset by a $0.05 per share lower contribution from the
Electric Delivery segment, primarily due to the effect of milder weather on
revenues. The decrease in diluted shares of common stock was primarily due to
repurchase of TXU Energy Company's exchangeable preferred membership interests
in April, approximately 24.9 million shares of common stock in May and June, and
approximately 5.7 million shares in the third quarter of 2004. Year-to-date
operational earnings per diluted share increased by $0.69 over the prior year
period as a result of a $0.38 per share increase in operational earnings from
the Energy segment, a $0.02 per share decrease from the Electric Delivery
segment, a $0.15 per share reduction in Corporate expenses, and the reduction in
average shares. A more detailed review of variances by segment is provided
below.
Cash Flows and Other Financial Measures
Cash provided by operating activities for the nine months ended September 30,
2004 was $1,084 million, a decrease of $726 million from the prior year period.
The decrease primarily reflects the receipt of a $616 million tax refund in 2003
and the improved working capital in the prior year period reflecting the
reduction in billing delays experienced during the transition to competition in
2002. Cash provided by operating activities before changes in operating assets
and liabilities increased by $20 million over the prior year period.
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5 While these items are reflected in earnings for the current period, the
cash impact of those items which are cash will be realized in future
quarters. These items are considered non-cash for the current period.
Severances, which are cash events, were accrued in Q2.However, the
majority of severance payments were made in Q3. Timing of the cash
settlement of the litigation reserve is not known at this time.
4
Table 5 provides a summary of consolidated common stock and return measures.
Table 5: Consolidated - Return Statistics
Periods ended 9/30/04 and 9/30/03; mixed measures
- ---------------------------------------------------------------------------------- ------------- ------------- -------------
Statistic 9/30/04 9/30/03 % Change
- ---------------------------------------------------------------------------------- ------------- ------------- -------------
Common stock data:
................................................................................... ............. ............. .............
Book value per share-end of period 15.14 16.74 (9.6)
................................................................................... ............. ............. .............
Basic shares outstanding-end of period (millions) 292 322 (9.3)
................................................................................... ............. ............. .............
Return on average common stock equity - based on net income (%) 5.1 (77.1) -
................................................................................... ............. ............. .............
Return on average common stock equity - based on operational earnings (%) 14.2 7.7 84.4
................................................................................... ............. ............. .............
Return on average invested capital - based on net income (%) 8.9 (20.2) -
................................................................................... ............. ............. .............
Return on average invested capital - based on operational earnings (%) 6.6 4.7 40.4
- ---------------------------------------------------------------------------------- ------------- ------------- -------------
Table 6 represents available liquidity (cash and available credit facility
capacity) as of October 15, 2004 (subsequent to funding the equity-linked and
Convertible Senior Notes tender offers) and December 31, 2003. TXU plans to
maintain minimum available liquidity of $1.5 billion.
Table 6: Consolidated - Liquidity
Available amounts as of 10/15/04 and 12/31/03; $millions
- ---------------------------------- ------------------------------------------------ ------------- ------------ -------------
Liquidity Component Borrower Maturity 10/15/04 12/31/03
- ---------------------------------- ------------------------------------------------ ------------- ------------ -------------
Cash and cash equivalents 75 829
................................... ................................................ ............. ............ .............
$1.4 billion credit facility TXU Energy Co./TXU Electric Delivery Co. June 07 1,080 -
................................... ................................................ ............. ............ .............
$600 million credit facility TXU Energy Co./TXU Electric Delivery Co. June 05 520 -
................................... ................................................ ............. ............ .............
$500 million credit facility TXU Energy Co./TXU Electric Delivery Co. June 09 500 -
................................... ................................................ ............. ............ .............
$500 million credit facility TXU Corp. August 08 71 78
................................... ................................................ ............. ............ .............
Terminated facilities - 2,206
................................... ................................................ ............. ............ .............
Total liquidity 2,246 3,113
- ---------------------------------- ------------------------------------------------ ------------- ------------ -------------
TXU Corp. has made substantial progress in improving its financial flexibility
as demonstrated on Table 7, which shows TXU Corp.'s capitalization and credit
ratio metrics. For the debt to market capitalization calculation, debt excludes
securitization bonds to reflect the off-credit treatment and is net of
debt-related restricted cash to reflect the net debt treatment in credit
reviews.
Table 7: Consolidated - Financial Flexibility Measures
Twelve months 9/30/04 and 12/31/03; mixed measures
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
Financial Flexibility Measure Q3 04 Q4 03 Change % Change
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
EBITDA/Interest 3.7 3.0 0.7 23.3
......................................................................... ........... ............. ............. .............
Debt/EBITDA 4.1 5.1 (1.0) (19.6)
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
Business Segment Results
The following is a discussion of operational earnings by business segment.
Energy Segment
TXU's Energy segment consists of the electricity generation and consumer,
business and wholesale markets activities of TXU Energy Company LLC, principally
in the competitive Texas market. TXU Corp. expects to split the Energy segment
into TXU Power (electricity generation operations) and TXU Energy (consumer,
business, and wholesale markets) for reporting purposes in 2005.
TXU Energy (consumer, business, and wholesale markets) had a solid operating
quarter, with continued progress in operational excellence, market leadership,
and commercial excellence. The business continued to deliver on its strategy to
improve the overall customer experience and be the best in the industry at
customer service. Average speed to answer customer calls for the quarter was 10
seconds compared to 388 seconds for the same quarter last year. Customer time in
the integrated voice recognition system (IVR) was also reduced via an ongoing
rollout of a shorter, more easily navigable IVR. Early results have delivered an
approximately 10 to 15 percent more effective completion rate which should also
result in improved customer satisfaction. In its first quarter of operations,
the CapGemini relationship has assisted in delivering these service improvements
and is on course to deliver $115 million of SG&A savings system-wide in 2005.
5
Progress is also being made in our Wholesale Markets business in reducing our
fuel and purchased power costs. Ancillary services and shaping power, a
component of fuel and purchased power, are increasingly being sourced from third
party suppliers at a market cost that is lower than the cost of generation from
the company's gas plants. As a result, gas plant usage declined by 50 percent
quarter over quarter and by 7.5 TWh year-to-date, delivering effective cost
improvements.
In the Business Markets group, large business contracting is improving through
more effective sales coverage, cost reductions and a more customer-focused
hedging strategy that protects against volatility in both natural gas prices
(which increased 12% over the prior year third quarter) and heat rates.
TXU Power's focus on operational excellence and cost leadership led to very
strong third quarter performance. TXU Power's nuclear plant produced at a
capacity factor of 99.5 percent compared to 87.8 percent in the third quarter of
2003. This was achieved while continuing to focus on safety. The lignite plants
operated at near record levels reflecting the early benefits of the TXU
Operating System, which is TXU's unique application of lean operating
techniques. Lignite fleet capacity factors exceeded 92.0% during the third
quarter of 2004. The pilot of the TXU Operating System is progressing well at
the Martin Lake plant and mine. TXU Power expects Operating System
implementation teams to begin at other TXU Power lignite plant and mine
locations before the end of the fourth quarter. The TXU Operating System is
expected to help TXU Power deliver sustainable operational and EBIT improvements
in its goal to establish a new benchmark in the generation industry.
In the third quarter of 2004, the Energy segment reported income from continuing
operations of $1.05 per diluted share as compared to income from continuing
operations of $0.66 per share in the third quarter of 2003. Subtracting special
items of $0.02 per share, primarily a gain on the sale of land, operational
earnings in the third quarter of 2004 were $1.03 per share as compared to $0.66
per share in the prior year period. Excluding the effect of lower average
diluted shares, the Energy segment results improved by $0.14 per share.
Table 8 reconciles the change in operational earnings from 2003 to 2004 for the
third quarter and year-to-date periods.
Table 8: Energy Segment - Operational Earnings Reconciliation
Q3 04 vs. Q3 03 and YTD 04 vs. YTD 03; $ per diluted share
- ----------------------------------------- -------------- -------------
Earnings Factor QTR YTD
- ----------------------------------------- -------------- -------------
Q3 03 operational earnings 0.66 1.16
.......................................... .............. .............
Contribution margin 0.17 0.60
.......................................... .............. .............
Operating costs 0.05 (0.02)
.......................................... .............. .............
Depreciation and amortization 0.04 0.10
.......................................... .............. .............
SG&A (0.04) (0.08)
.......................................... .............. .............
Franchise and revenue based taxes - 0.01
.......................................... .............. .............
Other income and deductions (0.02) (0.06)
.......................................... .............. .............
Net interest 0.01 -
.......................................... .............. .............
Income taxes (0.07) (0.17)
.......................................... .............. .............
Effect of reduced shares 0.23 0.19
.......................................... .............. .............
Q3 04 operational earnings 1.03 1.73
- ----------------------------------------- -------------- -------------
The increase in contribution margin for the quarter reflects higher retail and
wholesale prices, increased output from the nuclear generation plant and more
effective sourcing of purchased power versus higher heat rate gas-fired
generation. These were partially offset by decreased retail sales volumes due to
competition and milder weather, which decreased contribution margin by
approximately $0.04 per share after tax, lower revenues from hedging and risk
management activities, and increased average wires charges. The decrease in
operating costs of $19 million was primarily due to the termination of a service
agreement with TXU Gas, now served by Capgemini Energy, which was largely offset
by decreased revenues for the agreement, and the sale of TXU Fuel. The reduction
in depreciation and amortization expense was primarily due to the extensions at
the beginning of the year of estimated average depreciable lives of nuclear and
lignite generation facilities assets and depreciation on assets transferred to
the Capgemini Energy partnership. An increase in SG&A expenses of $16 million
was primarily due to increased deferred and incentive compensation expenses
associated with the increased TXU Corp. stock price and special incentive
program payments related to wholesale markets activities, somewhat offset by
lower out of territory marketing expense and a $4 million decrease in bad debt
expense. Other deductions increased primarily due to equity losses which
principally represent depreciation in the TXU Corp. entity that holds the assets
transferred to Capgemini Energy via license agreement.
The Energy segment operational earnings per share for year-to-date 2004
increased by $0.38 as compared to year-to-date 2003, excluding the lower average
diluted shares effect. The major drivers of improvement for the year-to-date
period are the same as for the quarter. As addressed in the second quarter,
year-to-date operating costs include costs associated with the spring refueling
of Unit 1 of the company's nuclear generation station. Earnings from continuing
operations for year-to-date 2004 were $1.31 per share as compared to $1.16 per
share for the 2003 period.
Tables 9a and 9b provide details of operating revenues for the Energy segment
for the third quarter of 2004 as compared to the third quarter of 2003, and
year-to-date 2004 as compared to year-to-date 2003, respectively.
6
Hedging and risk management revenues decreased $68 million and $200 million for
the quarter and year-to-date periods ended September 30, 2004 versus comparable
2003 periods. The quarter to quarter variance includes $22 million in losses
associated with required capacity auctions, which are now recorded in hedging
and risk management revenues to better match the obligations against the
transactions used to hedge them. The variance also includes $17 million in
increased reserves, primarily reflecting increased credit reserves as a result
of the effect of increased prices on contracts, and $15 million in
mark-to-market losses associated with market price movements against hedges of
gas in storage. The corresponding increase in value of the gas is not recorded
in the income statement until the gas is sold. Included in the 2003 year-to-date
period is $34 million of additional gas storage and retail gas business margin,
primarily due to margins on gas storage activity and retail gas businesses sold
in 2003; the 2003 year-to-date period also included an $18 million favorable
settlement with a counterparty and $11 million more gains related to roll off of
large business contracts that are no longer marked to market. 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 pricing and
cost changes on margins.
For other revenues and other cost of energy sold, the majority of the period to
period increase, $38 million for the quarter and $126 million for the
year-to-date period is due to a change in accounting rules, whereby revenues and
cost of sales of natural gas to business customers have been reported on a gross
basis since October 1, 2003 (previously, they were netted). Other cost of energy
sold is shown in Tables 11a and 11b.
Table 9a: Energy Segment - Operating Revenues
Q3 04 and Q3 03; $millions
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
Operating Revenue Component Q3 04 Q3 03 %Change
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
Retail electricity revenues:6
............................................................................. ............... ................ ..............
Native market:
............................................................................. ............... ................ ..............
Residential 1,073 1,086 (1.2)
............................................................................. ............... ................ ..............
Small business 352 289 21.8
............................................................................. ............... ................ ..............
Total native market 1,425 1,375 3.6
............................................................................. ............... ................ ..............
Other markets:
............................................................................. ............... ................ ..............
Residential 113 54 109.3
............................................................................. ............... ................ ..............
Small business 12 6 100.0
............................................................................. ............... ................ ..............
Total other markets 125 60 108.3
............................................................................. ............... ................ ..............
Large business 458 551 (16.9)
............................................................................. ............... ................ ..............
Total retail electricity revenues 2,008 1,986 1.1
............................................................................. ............... ................ ..............
Wholesale electricity revenues 487 399 22.1
............................................................................. ............... ................ ..............
Hedging and risk management activities:
............................................................................. ............... ................ ..............
Net unrealized mark to market gains/(losses)7 (15) 11 -
............................................................................. ............... ................ ..............
Realized gains (losses) (49) (7) -
............................................................................. ............... ................ ..............
Total (64) 4 -
............................................................................. ............... ................ ..............
Other revenues 86 48 79.2
............................................................................. ............... ................ ..............
Total operating revenues 2,517 2,437 3.3
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
- -----------------------------
6 Breakout of native and other markets are estimates and only provided for
reference.
7 Q3 04 and YTD 04 include $4 million and $21 million, respectively, of
ineffectiveness losses related to cash flow hedges as compared to $1
million of ineffectiveness gains for each of the 2003 comparable periods.
7
Table 9b: Energy Segment - Operating Revenues
YTD 04 and YTD 03; $millions
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
Operating Revenue Component YTD 04 YTD 03 %Change
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
Retail electricity revenues:
............................................................................. ............... ................ ..............
Native market:
............................................................................. ............... ................ ..............
Residential 2,472 2,506 (1.4)
............................................................................. ............... ................ ..............
Small business 867 922 (6.0)
............................................................................. ............... ................ ..............
Total native market 3,339 3,428 (2.6)
............................................................................. ............... ................ ..............
Other markets:
............................................................................. ............... ................ ..............
Residential 228 126 81.0
............................................................................. ............... ................ ..............
Small business 25 17 47.1
............................................................................. ............... ................ ..............
Total other markets 253 143 76.9
............................................................................. ............... ................ ..............
Large business 1,366 1,488 (8.2)
............................................................................. ............... ................ ..............
Total retail electricity revenues 4,958 5,058 (2.0)
............................................................................. ............... ................ ..............
Wholesale electricity revenues 1,429 914 56.3
............................................................................. ............... ................ ..............
Hedging and risk management activities
............................................................................. ............... ................ ..............
Net unrealized mark to market gains/(losses) (46) 58 -
............................................................................. ............... ................ ..............
Realized gains (losses) (15) 81 -
............................................................................. ............... ................ ..............
Total (61) 139 -
............................................................................. ............... ................ ..............
Other revenues 263 131 -
............................................................................. ............... ................ ..............
Total operating revenues 6,589 6,243 5.5
- ---------------------------------------------------------------------------- --------------- ---------------- --------------
Tables 10a and 10b provide details of the Energy segment cost of energy sold and
delivery fees for the third quarter of 2004 as compared to the third quarter of
2003, and year-to-date 2004 as compared to year-to-date 2003, respectively.
Table 10a: Energy Segment - Cost of Energy Sold and Delivery Fees
Q3 04 and Q3 03; $millions
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Cost Component Q3 04 Q3 03 %Change
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Nuclear fuel (base load) 22 21 4.8
............................................................................. ................ ................ .............
Lignite/coal (base load) 130 130 -
............................................................................. ................ ................ .............
Gas/oil fuel and purchased power 914 958 (4.6)
............................................................................. ................ ................ .............
Other cost of energy sold 33 (7) -
............................................................................. ................ ................ .............
Cost of energy sold 1,099 1,102 (0.3)
............................................................................. ................ ................ .............
Delivery fees 457 437 4.6
............................................................................. ................ ................ .............
Cost of energy sold and delivery fees 1,556 1,539 1.1
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Table 10b: Energy Segment - Cost of Energy Sold and Delivery Fees
YTD 04 and YTD 03; $millions
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Cost Component YTD 04 YTD 03 %Change
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Nuclear fuel (base load) 60 61 (1.6)
............................................................................. ................ ................ .............
Lignite/coal (base load) 372 362 2.8
............................................................................. ................ ................ .............
Gas/oil fuel and purchased power 2,363 2,394 (1.3)
............................................................................. ................ ................ .............
Other cost of energy sold 150 26 -
............................................................................. ................ ................ .............
Cost of energy sold 2,945 2,843 3.6
............................................................................. ................ ................ .............
Delivery fees 1,212 1,194 1.5
............................................................................. ................ ................ .............
Cost of energy sold and delivery fees 4,157 4,037 3.0
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
8
Tables 11a and 11b provide quarter to quarter and year-to-date to year-to-date
summaries of the Energy segment generation and supply operating statistics that
depict the benefit of increased generation from the nuclear plant, more
effective sourcing of purchased power versus higher heat rate gas-fired
generation and slightly higher quarter to quarter and decreased year-to-date
fuel and purchased power costs, in spite of substantially higher natural gas and
power prices. The increase in nuclear-fired generation in the quarter reflects
improved performance and an unplanned outage of approximately 17 days in the
third quarter of 2003.
Table 11a: Energy Segment - Generation and Supply Statistics
Q3 04 and Q3 03; mixed measures
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Generation and Supply Statistic Q3 04 Q3 03 %Change
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Production and purchased power (GWh):
............................................................................. ................ ................ .............
Nuclear (base load) 5,036 4,455 13.0
............................................................................. ................ ................ .............
Lignite/coal (base load) 11,437 11,441 -
............................................................................. ................ ................ .............
Gas/oil 1,988 4,048 (50.9)
............................................................................. ................ ................ .............
Purchased power 15,196 15,673 (3.0)
............................................................................. ................ ................ .............
Total energy supply 33,657 35,617 (5.5)
............................................................................. ................ ................ .............
Less line loss and other 1,073 1,765 (39.2)
............................................................................. ................ ................ .............
Net energy supply 32,584 33,852 (3.7)
............................................................................. ................ ................ .............
Base load capacity factors (%):
............................................................................. ................ ................ .............
Nuclear 99.5 87.8 13.3
............................................................................. ................ ................ .............
Lignite/coal 92.5 92.8 (0.3)
............................................................................. ................ ................ .............
Fuel and Purchased Power Costs ($/MWh):
............................................................................. ................ ................ .............
Nuclear generation 4.32 4.75 (9.1)
............................................................................. ................ ................ .............
Lignite/coal generation 12.33 11.89 3.7
............................................................................. ................ ................ .............
Gas/Oil generation and purchased power 53.03 48.38 9.6
............................................................................. ................ ................ .............
Average total electricity supply 31.95 31.23 2.3
............................................................................. ................ ................ .............
ERCOT MCPE - average North zone on peak ($/MWh)8 46.83 42.19 11.0
............................................................................. ................ ................ .............
Gas Daily - Houston Ship Channel average daily prices ($/MMBtu) 5.43 4.87 11.5
............................................................................. ................ ................ .............
Implied heat rate (MMBtu/MWh) 8.63 8.67 (0.4)
............................................................................. ................ ................ .............
NYMEX - 12 month strip - end of quarter ($/MMBtu) 6.96 4.89 42.3
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
- -------------------------
8 MCPE is Market Clearing Price of Energy in ERCOT. Prices are quoted by zone
and most of TXU Energy's generation capacity and customers are in the North
zone. MCPE does not include shaping, ancillary services and other retail
related purchased power costs.
9
Table 11b: Energy Segment - Generation and Supply Statistics
YTD 04 and YTD 03; mixed measures
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Generation and Supply Statistic YTD 04 YTD 03 %Change
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Production and purchased power (GWh):
............................................................................. ................ ................ .............
Nuclear (base load) 13,882 13,608 2.0
............................................................................. ................ ................ .............
Lignite/coal (base load) 31,863 30,272 5.3
............................................................................. ................ ................ .............
Gas/oil 4,300 11,870 (63.8)
............................................................................. ................ ................ .............
Purchased power 44,665 37,536 19.0
............................................................................. ................ ................ .............
Total energy supply 94,710 93,286 1.5
............................................................................. ................ ................ .............
Less line loss and other 2,963 4,489 (34.0)
............................................................................. ................ ................ .............
Net energy supply 91,747 88,797 3.3
Base load capacity factors (%):
............................................................................. ................ ................ .............
Nuclear 92.1 90.4 1.9
............................................................................. ................ ................ .............
Lignite/coal 86.8 83.2 4.3
............................................................................. ................ ................ .............
Fuel and Purchased Power Costs ($/MWh):
............................................................................. ................ ................ .............
Nuclear generation 4.33 4.47 (3.1)
............................................................................. ................ ................ .............
Lignite/coal generation 12.64 12.54 0.8
............................................................................. ................ ................ .............
Gas/Oil generation and purchased power 48.05 48.34 (0.6)
............................................................................. ................ ................ .............
Average total electricity supply 29.77 30.35 (1.9)
............................................................................. ................ ................ .............
ERCOT MCPE - median North zone on peak ($/MWh) 44.37 49.58 (10.5)
............................................................................. ................ ................ .............
Gas Daily - Houston Ship Channel average daily prices ($/MMBtu) 5.61 5.57 0.7
............................................................................. ................ ................ .............
Implied heat rate (MMBtu/MWh) 7.91 8.90 (11.1)
- ---------------------------------------------------------------------------- ---------------- ---------------- -------------
Tables 12a and 12b summarize Energy segment retail and wholesale sales volumes.
The decrease in retail sales volumes is predominantly due to a decrease in
customers and related business load in the competitive market, and milder
weather in the third quarter of 2004. The decrease in average customer volumes
in the residential segment is due to milder weather. The increase in average
small business segment volumes for the quarter is primarily due to a prior
period adjustment in the third quarter of 2003. Average volumes decreased for
the year-to-date period, reflecting milder weather and loss of larger small
business customers, predominantly in the second half of 2003. The decline in
large business volumes reflects a change in strategy to focus on margin versus
volumes. Total electricity sales decreased by 3.7 percent as a result of the
effect of milder weather on retail sales (approximately 1,410 GWh for the
quarter and 2,410 for the year-to-date period) and decreased customer volumes,
somewhat offset by increased wholesale sales, partially due to new congestion
zones, which resulted in the sale of additional power to third parties in the
Northeast zone and the purchase of additional power from third parties in the
North zones. The Energy segment expects to continue to improve retention of
these customers, while increasing its share of customers in the competitive
market. As a result of improved customer service, low retail margins, increased
flexibility of pricing to small business customers since the end of 2003, and
other factors, the Energy segment has reversed the trends of late 2003 and in
spite of substantially increased competitor advertising and increased customer
switching in the summer months, year-to-date customer count is only down by
approximately 10,000, or 0.4 percent, since the end of 2003, as shown in Table
14 below. This compares to a 3.5 percent decrease in customers for the same
period in 2003.
10
Table 12a: Energy Segment - Retail and Wholesale Sales Volumes
Q3 04 and Q3 03; GWh
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Volume Component Q3 04 Q3 03 %Change
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail electricity sales:
............................................................................ ................. ................ .............
Native market:
............................................................................ ................. ................ .............
Residential 9,760 10,991 (11.2)
............................................................................ ................. ................ .............
Small business 3,260 3,233 0.8
............................................................................ ................. ................ .............
Total native market 13,020 14,224 (8.5)
............................................................................ ................. ................ .............
Other markets:
............................................................................ ................. ................ .............
Residential 1,096 648 69.1
............................................................................ ................. ................ .............
Small business 127 77 64.9
............................................................................ ................. ................ .............
Total other markets 1,223 725 68.7
............................................................................ ................. ................ .............
Large business 6,412 8,501 (24.6)
............................................................................ ................. ................ .............
Total retail electricity sales 20,655 23,450 (11.9)
............................................................................ ................. ................ .............
Wholesale electricity sales 11,929 10,402 14.7
............................................................................ ................. ................ .............
Total electricity sales 32,584 33,852 (3.7)
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Table 12b: Energy Segment - Retail and Wholesale Sales Volumes
YTD 04 and YTD 03; GWh
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Volume Component YTD 04 YTD 03 %Change
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail electricity sales:
............................................................................ ................. ................ .............
Native market:
............................................................................ ................. ................ .............
Residential 24,246 27,242 (11.0)
............................................................................ ................. ................ .............
Small business 8,335 9,798 (14.9)
............................................................................ ................. ................ .............
Total native market 32,581 37,040 (12.0)
............................................................................ ................. ................ .............
Other markets:
............................................................................ ................. ................ .............
Residential 2,345 1,446 62.2
............................................................................ ................. ................ .............
Small business 277 225 23.1
............................................................................ ................. ................ .............
Total other markets 2,622 1,671 56.9
............................................................................ ................. ................ .............
Large business 19,891 23,941 (16.9)
............................................................................ ................. ................ .............
Total retail electricity sales 55,094 62,652 (12.1)
............................................................................ ................. ................ .............
Wholesale electricity sales 36,653 26,145 40.2
............................................................................ ................. ................ .............
Total electricity sales 91,747 88,797 3.1
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Tables 13a and 13b provide the Energy segment retail operating statistics.
11
Table 13a: Energy Segment - Retail Operating Statistics
Q3 04 and Q3 03; mixed measures
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail Operating Statistic Q3 04 Q3 03 %Change
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail electricity customers (end of period; thousands; # of meters):
............................................................................ ................. ................ .............
Native market:
............................................................................ ................. ................ .............
Residential 1,997 2,096 (4.7)
............................................................................ ................. ................ .............
Small business 313 318 (1.6)
............................................................................ ................. ................ .............
Total native market 2,310 2,414 (4.3)
............................................................................ ................. ................ .............
Other markets:
............................................................................ ................. ................ .............
Residential 195 129 51.2
............................................................................ ................. ................ .............
Small business 6 4 50.0
............................................................................ ................. ................ .............
Total other markets 201 133 51.1
............................................................................ ................. ................ .............
Large business 76 70 8.6
............................................................................ ................. ................ .............
Total retail electricity customers 2,587 2,617 (1.1)
............................................................................ ................. ................ .............
Average volume(KWh)/customer9:
............................................................................ ................. ................ .............
Residential 4,921 5,204 (5.4)
............................................................................ ................. ................ .............
Small business 10,530 10,183 3.4
............................................................................ ................. ................ .............
Large business 83,907 119,337 (29.7)
............................................................................ ................. ................ .............
Average volume(KWh)/customer - weather adjusted:
............................................................................ ................. ................ .............
Residential 5,234 5,204 0.6
............................................................................ ................. ................ .............
Small business 11,191 10,183 9.9
............................................................................ ................. ................ .............
Large business 90,611 119,337 (24.1)
............................................................................ ................. ................ .............
Average revenue ($/MWh):
............................................................................ ................. ................ .............
Residential 109.14 97.99 11.5
............................................................................ ................. ................ .............
Small business 107.45 89.13 20.6
............................................................................ ................. ................ .............
Large business 71.47 64.85 10.2
............................................................................ ................. ................ .............
Average wires charge ($/MWh) 22.06 18.19 21.3
............................................................................ ................. ................ .............
Estimated share of market (%)10:
............................................................................ ................. ................ .............
Native market:
............................................................................ ................. ................ .............
Residential 83 88 (5.7)
............................................................................ ................. ................ .............
Small business 81 84 (3.6)
............................................................................ ................. ................ .............
Total ERCOT:
............................................................................ ................. ................ .............
Residential 45 46 (2.2)
............................................................................ ................. ................ .............
Small business 32 33 (3.0)
............................................................................ ................. ................ .............
Large business 33 39 (15.4)
............................................................................ ................. ................ .............
Weather - percent of normal (average for service territory):11
............................................................................ ................. ................ .............
Cooling degree days 85.5 94.0 (9.0)
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
- ----------------------------
9 Based upon the average of the period beginning and ending customers.
10 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.
11 Weather data is obtained from WeatherBank, Inc., an independent company
that collects and archives weather data from reporting stations of the
National Oceanic and Atmospheric Administration (a federal agency under the
US Department of Commerce).
12
Table 13b: Energy Segment - Retail Operating Statistics
YTD 04 and YTD 03; mixed measures
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail Operating Statistic YTD 04 YTD 03 %Change
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Average volume(KWh)/customer:
............................................................................ ................. ................ .............
Residential 12,091 12,673 (4.6)
............................................................................ ................. ................ .............
Small business 26,905 30,599 (12.1)
............................................................................ ................. ................ .............
Large business 274,470 325,248 (15.6)
............................................................................ ................. ................ .............
Average volume(KWh)/customer - weather adjusted:
............................................................................ ................. ................ .............
Residential 12,694 12,673 0.2
............................................................................ ................. ................ .............
Small business 28,001 30,599 (8.5)
............................................................................ ................. ................ .............
Large business 284,566 325,248 (12.5)
............................................................................ ................. ................ .............
Average revenue ($/MWh):
............................................................................ ................. ................ .............
Residential 101.56 91.72 10.7
............................................................................ ................. ................ .............
Small business 103.57 93.71 10.5
............................................................................ ................. ................ .............
Large business 68.67 62.14 10.5
............................................................................ ................. ................ .............
Average wires charge ($/MWh) 21.76 18.59 17.1
............................................................................ ................. ................ .............
Weather - percent of normal (average for service territory):
............................................................................ ................. ................ .............
Cooling degree days 93.0 97.0 (4.1)
............................................................................ ................. ................ .............
Heating degree days 91.8 109.4 (16.1)
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Table 14 provides Energy segment retail customer counts as of September 30, 2004
compared to December 31, 2003.
Table 14: Energy Segment - Retail Customer Counts
Q3 04 and Q4 03; end of period, thousands, # of meters
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Statistic Q3 04 Q4 03 %Change
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Retail electricity customers:
............................................................................ ................. ................ .............
Native market:
............................................................................ ................. ................ .............
Residential 1,997 2,059 (3.0)
............................................................................ ................. ................ .............
Small business 313 317 (1.3)
............................................................................ ................. ................ .............
Total native market 2,310 2,376 (2.8)
............................................................................ ................. ................ .............
Other markets:
............................................................................ ................. ................ .............
Residential 195 148 31.8
............................................................................ ................. ................ .............
Small business 6 4 50.0
............................................................................ ................. ................ .............
Total other markets 201 152 32.2
............................................................................ ................. ................ .............
Large business 76 69 10.1
............................................................................ ................. ................ .............
Total retail customers 2,587 2,597 (0.4)
- --------------------------------------------------------------------------- ----------------- ---------------- -------------
Table 15 presents the unrealized mark-to-market balance at September 30, 2004,
scheduled by contractual settlement dates of the underlying positions.
Ninety-three percent of the unrealized net mark-to-market balances will be
realized within three years. This is reflective of the terms of the positions
and the methods employed in valuing positions for periods where there is less
market liquidity and visibility.
13
Table 15: Energy Segment - Maturity Dates of Unrealized Net Mark-to-Market Balances
09/30/04; $millions unless noted
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Less Than More Than
Source of Fair Value 1 Year 1-3 Years 4-5 Years 5 Years Total
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Prices actively quoted 88 - - - 88
.................................................. .............. .............. .............. .............. ..............
Prices provided by other external sources 76 (86) 10 (3) (3)
.................................................. .............. .............. .............. .............. ..............
Prices based on models 12 (1) - - 11
.................................................. .............. .............. .............. .............. ..............
Total 176 (87) 10 (3) 96
.................................................. .............. .............. .............. .............. ..............
Percentage (%) of total fair value 183 (90) 10 (3) 100
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Table 16 summarizes the changes in commodity contract assets and liabilities for
the nine months ended September 30, 2004. The net change in these assets and
liabilities represents the net effect of recording unrealized gains/(losses)
under mark-to-market accounting for positions in the commodity contract
portfolio. These positions consist largely of economic hedge transactions, with
speculative trading representing a small fraction of the activity.
Table 16: Energy Segment - Changes in Commodity Contract Assets and Liabilities
YTD 04; $millions
- ------------------------------------------------------------------------------------------------------ ---------------------
Change Component Impact
- ------------------------------------------------------------------------------------------------------ ---------------------
Balance of net commodity contract assets -- beginning of period 108
....................................................................................................... .....................
Settlements of positions included in the opening balance12 (46)
....................................................................................................... .....................
Unrealized mark-to-market valuations of positions held at end of period 20
....................................................................................................... .....................
Balance of net commodity contract assets -- end of period 82
- ------------------------------------------------------------------------------------------------------ ---------------------
Electric Delivery Segment
TXU's Electric Delivery segment is focused on delivering operational excellence
in system reliability while maintaining a position of cost leadership, remaining
on track to deliver O&M expense per distribution customer and O&M expense per
MWh delivered at or near top decile performance in 2004.
During the third quarter, System Average Interruption Duration Index (SAIDI)
minutes of 74.58 placed Electric Delivery among top quartile reliability
performers. System Average Interruption Frequency Index (SAIFI) improved from
1.19 to 1.09 as compared to the third quarter of 2003. Electric Delivery expects
further improvement as current reliability initiatives begin to be more fully
realized in 2005 and 2006. Initiatives currently underway include comprehensive
maintenance on underperforming facilities, increase in vegetation management,
and replacement or rehabilitation of aging infrastructure.
Electric Delivery expects to trim an additional 2,000 circuit miles of
distribution feeders in 2004 over 2003, and approximately 350 miles of high
voltage transmission circuits will be built or rebuilt during 2004, an increase
of 150 miles, or 75 percent, over 2003 levels. The business also provided
support to Florida and Gulf Coast states ravaged by hurricanes. Along with
support provided by Electric Delivery's contractor construction and vegetation
management workforce, two full work teams were dispatched to aid in
reconstruction activities. During the quarter, a "Customer Focus" training
program was completed and all employees are expected to be trained by year end
to enhance customer and community relationships.
The Electric Delivery segment reported income from continuing operations of
$0.36 per diluted share in the third quarter of 2004, compared to $0.33 per
diluted share in the third quarter of 2003. Special items, representing
severance and related costs for the quarter were less than $0.01 per diluted
share, so operational earnings per diluted share for the third quarter were the
same as income from continuing operations per diluted share.
Table 17 reconciles the change in operational earnings from the 2003 to 2004
periods.
- ---------------------
12 Represents unrealized mark-to-market valuations of these positions
recognized in earnings as of the beginning of the period.
14
Table 17: Electric Delivery Segment - Operational Earnings Reconciliation
Q3 04 vs. Q3 03 and YTD 04 vs. YTD 03; $ per diluted share
- --------------------------------------- ------------- -------------
Earnings Factor QTR YTD
- --------------------------------------- ------------- -------------
Q3 03 operational earnings 0.33 0.63
........................................ ............. .............
Contribution margin 0.09 0.22
........................................ ............. .............
Operating costs (0.05) (0.06)
........................................ ............. .............
Depreciation and amortization (0.10) (0.19)
........................................ ............. .............
SG&A (0.01) (0.02)
........................................ ............. .............
Franchise and revenue based taxes (0.01) -
........................................ ............. .............
Other income and deductions (0.01) (0.01)
........................................ ............. .............
Net interest 0.02 0.04
........................................ ............. .............
Income taxes 0.02 -
........................................ ............. .............
Effect of reduced shares 0.08 0.08
........................................ ............. .............
Q3 04 operational earnings 0.36 0.69
- --------------------------------------- ------------- -------------
Excluding the $0.08 per share benefit of reduced average diluted shares, the
Electric Delivery segment's contribution for the third quarter decreased by
$0.05 per share from the prior year period. The primary driver of the change was
the approximate $17 million pre-tax ($0.03 per share after tax) decrease in
revenues as a result of milder summer weather and increased vegetation
management expense ($0.02 per share after tax). The increase in contribution
margin (revenues) for the quarter was due primarily to transition charges under
tariffs to service securitization bonds ($38 million) and increased 3rd party
transmission cost recovery tariff revenues, both of which have associated costs.
The increase in operating costs primarily reflects costs for which there are
associated revenues and increased vegetation management as part of management's
goal to further improve system reliability. The increase in depreciation and
amortization expense was primarily due to $38 million pre-tax ($0.07 per share
after tax) of amortization of regulatory assets as a result of securitization
bonds issued in August 2003 and June 2004 for which there are associated
revenues, and increased investment.
Year-to-date TXU's Electric Delivery segment reported income from continuing
operations of $0.70 per basic share, ($0.65 per diluted share) as compared to
$0.63 per share in the 2003 year-to-date period. Excluding special items of
$0.04 per diluted share, Electric Delivery segment operational earnings per
share declined by $0.02 per diluted share, excluding the effect of lower share
count. The drivers of the year-to-date results were essentially the same as for
the quarter. However, the effect of increased transmission-related tariff
revenues, reflecting increased transmission investment, and lower interest
expense, primarily due to lower interest rates, somewhat offset the impacts of
third quarter weather and increased operating expense.
Electric Delivery segment revenues increased $35 million compared to the third
quarter of 2003 primarily due to a $38 million increase from new transition
charges associated with transition (securitization) bonds issued in August 2003
and June 2004 to recover regulatory assets, for which there is a corresponding
increase in depreciation and amortization expense for amortization of the
regulatory assets. The remaining $3 million decrease in revenues was primarily
due to the estimated $17 million negative effect on revenues of milder summer
weather exceeding increased transmission cost of service and cost recovery
tariffs ($10 million) and increased miscellaneous service revenues and growth.
The transmission cost recovery and miscellaneous revenues have associated
operating costs. Tables 18a and 18b summarize the details of the operating
revenues for the Energy Delivery segment for the third quarter of 2004 as
compared to the third quarter of 2003, and for the 2004 and 2003 year-to-date
periods.
Table 18a: Electric Delivery Segment - Operating Revenues
Q3 04 and Q3 03; $millions
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Revenue Component Q3 04 Q3 03 %Change
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Electricity transmission and distribution:
............................................................................. ............... ............... ...............
Affiliated (TXU Energy) 389 441 (11.8)
............................................................................. ............... ............... ...............
Non-affiliated 259 172 50.6
............................................................................. ............... ............... ...............
Total 648 613 5.7
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Table 18b: Electric Delivery Segment - Operating Revenues
YTD 04 and YTD 03; $millions
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Revenue Component YTD 04 YTD 03 %Change
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Electricity transmission and distribution:
............................................................................. ............... ............... ...............
Affiliated (TXU Energy) 1,070 1,167 (8.3)
............................................................................. ............... ............... ...............
Non-affiliated 618 438 41.1
............................................................................. ............... ............... ...............
Total 1,688 1,605 5.2
- ---------------------------------------------------------------------------- --------------- --------------- ---------------
Tables 19a and 19b summarize operating statistics for the Electric Delivery
segment for the third quarter 2004 as compared to the third quarter of 2003, and
for the 2004 and 2003 year-to-date periods, respectively.
15
Table 19a: Electric Delivery Segment - Operating Statistics
Q3 04 and Q3 03; mixed measures
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Operating Statistic Q3 04 Q3 03 %Change
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Volume - Electricity distribution (GWh) 30,868 31,881 (3.2)
..................................................................................... ............ ............. ............
Electricity points of delivery - number of meters (end of period, in thousands)13 2,963 2,920 1.5
..................................................................................... ............ ............. ............
System Average Interruption Duration Index (SAIDI) (non-storm)14 74.58 74.19 -
..................................................................................... ............ ............. ............
System Average Interruption Frequency Index (SAIFI) (non-storm)14 1.09 1.19 -
..................................................................................... ............ ............. ............
Customer Average Interruption Duration Index (CAIDI) (non-storm)14 68.25 62.46 -
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Table 19b: Electric Delivery Segment - Operating Statistics
YTD 04 and YTD 03; mixed measures
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Operating Statistic YTD 04 YTD 03 %Change
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Volume - Electricity distribution (GWh) 79,399 80,167 (1.0)
- ------------------------------------------------------------------------------------ ------------ ------------- ------------
Corporate and Other
Corporate and Other consists of TXU Corp.'s remaining non-segment operations
consisting primarily of general corporate expenses, equity earnings or losses of
unconsolidated affiliates, and interest on the debt at the corporate level.
Excluding the special items in Table 3, the current period expenses from
continuing operations declined by $0.06 per diluted share from the prior year
period, excluding the effect of reduced average share count. The improvement is
primarily related to lower net interest expense and reduced other deductions,
partially offset by increased SG&A expenses. The lower net interest expense is
primarily due to inter-company interest income ($0.03 per diluted share after
tax) from the TXU Energy Company exchangeable preferred membership interests
purchased by TXU Corp. in April, and lower interest expense due to debt
retirements. The increase in SG&A expenses was primarily due to a $9 million
increase in deferred and incentive compensation expense and costs substantially
offset by inter-company revenues or other benefits.
For year-to-date 2004, Corporate and Other expenses from continuing operations,
excluding special items and the effect of reduced average share count, decreased
by $0.15 per diluted share from year-to-date 2003 levels. The primary drivers of
the year-to-date improvement are the same as for the quarter. In addition, the
2003 year-to-date period includes $17 million ($0.03 per share after tax) of
equity interest in losses of a telecommunications partnership that has been
sold.
Discontinued Operations
Table 20 provides details of the components of discontinued operations for the
third quarter and year-to-date periods ended September 30, 2004 and 2003.
Transactions for the disposition by sale of TXU Australia and merger transaction
of TXU Gas were completed on July 30 and October 1, respectively. These are
reported as discontinued operations for 2004 (and the 2003 comparative periods
have been restated accordingly). For the third quarter of 2004, discontinued
operations results include a $239 million after tax gain on the sale of TXU
Australia, a $57 million after tax impairment (charge) on the TXU Gas
transaction, somewhat offset by $12 million after tax for discontinuance of
depreciation expense while the merger transaction was pending, and the benefit
of net releases of $73 million of the tax reserve associated with the 2002 write
off of TXU Corp.'s investment in TXU Europe. The year-to-date 2004 results
include TXU Gas charges associated with the second quarter write off due to a
final order received in May by the Railroad Commission of Texas in the company's
system-wide rate case, and an increase in tax reserves associated with an
ongoing dispute with the Internal Revenue Service related to the 1993 tax return
of ENSERCH Corp. (predecessor to TXU Gas). Included in year-to-date 2004
discontinued operations for TXU Australia is a second quarter 2004 charge to
recognize deferred income tax expenses associated with the excess of book basis
over tax basis of TXU's investment in TXU Australia. Year-to-date 2004
discontinued operations also include a benefit from the second quarter release
of a portion of the tax reserve associated with the investment in TXU Europe.
The results of TXU Energy Company LLC's cogeneration and wholesale energy sales
business in New Jersey are also reflected in discontinued operations.
Discontinued operations for the Energy segment for the year-to-date 2004 period
includes an impairment charge of approximately $17 million, after tax,
associated with the New Jersey business and a charge of approximately $18
million, after tax, for settlement of a contract in the company's energy
outsourcing business that is being exited.
- --------------------
13 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 96,499 and 102,267 at September 30, 2004 and
2003, respectively. Adjusting for the guard lights, which have minimal
value, points of delivery increased 1.7%.
14 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
Table 20: Details of Discontinued Operations
Q3 04, Q3 03, YTD 04 and YTD 03; $ per diluted share after tax
- --------------------------------------------------------- ---------------- ---------------- ---------------- ---------------
Discontinued Operation Q3 04 Q3 03 YTD 04 YTD 03
- --------------------------------------------------------- ---------------- ---------------- ---------------- ---------------
TXU Australia:
.......................................................... ................ ................ ................ ...............
Gain on sale 0.81 - 0.76 -
.......................................................... ................ ................ ................ ...............
Income tax benefit (expense) - tax basis differential 0.02 - (0.36) -
.......................................................... ................ ................ ................ ...............
Other 0.06 0.12 0.16 0.28
.......................................................... ................ ................ ................ ...............
TXU Gas:
.......................................................... ................ ................ ................ ...............
Write off due to rate case (Docket 9400) - - (0.32) -
.......................................................... ................ ................ ................ ...............
Impairment (0.19) - (0.29) -
.......................................................... ................ ................ ................ ...............
Suspension of depreciation due to pending merger 0.04 - 0.04 -
.......................................................... ................ ................ ................ ...............
Income tax expense reserve - 1993 tax return - - (0.05) -
.......................................................... ................ ................ ................ ...............
Other (0.02) (0.01) 0.08 0.09
.......................................................... ................ ................ ................ ...............
Income tax benefit - reserve release (TXU Europe) 0.25 - 2.27 -
.......................................................... ................ ................ ................ ...............
Energy segment:
.......................................................... ................ ................ ................ ...............
Other deductions - impairment/business exit - - (0.07) -
.......................................................... ................ ................ ................ ...............
Other - - (0.04) -
.......................................................... ................ ................ ................ ...............
TXU Communications - 0.06 (0.05) (0.14)
.......................................................... ................ ................ ................ ...............
Other - - - (0.01)
.......................................................... ................ ................ ................ ...............
Total 0.97 0.17 2.13 0.22
- --------------------------------------------------------- ---------------- ---------------- ---------------- ---------------
Additional Information
Additional information, including consolidating income statements, consolidating
balance sheets, consolidated cash flow, and legal and regulatory summaries can
be obtained under the 2004 heading in the Third Quarter Financial Results file
at www.txucorp.com/investres/default.asp.
TXU Corp., a Dallas-based energy company, manages a portfolio of competitive and
regulated energy businesses in North America, primarily in Texas. In TXU Corp.'s
unregulated business, TXU Energy Retail provides electricity and related
services to more than 2.5 million competitive electricity customers in Texas,
more customers than any other retail electric provider in the state. TXU Power
owns and operates over 18,300 megawatts of generation in Texas, including 2,300
MW of nuclear-fired and 5,837 MW of lignite/coal-fired generation capacity. The
company is also the largest purchaser of wind-generated electricity in Texas and
among the top five purchasers in North America. TXU Corp.'s regulated electric
distribution and transmission business, TXU Electric Delivery Company,
complements the competitive operations, using asset management skills developed
over more than one hundred years, to provide reliable electricity delivery to
consumers. TXU Electric Delivery operates the largest distribution and
transmission system in Texas, providing power to 2.9 million electric delivery
points over more than 98,000 miles of distribution and 14,000 miles of
transmission lines. Visit www.txucorp.com for more information about TXU Corp.
This release contains forward-looking statements, which are subject to various
risks and uncertainties. Discussion of risks and uncertainties that could cause
actual results to differ materially from management's current projections,
forecasts, estimates and expectations is contained in the company's SEC filings.
In addition to the risks and uncertainties set forth in the company's SEC
filings, the forward-looking statements in this release could be affected by the
ability of the company to implement the initiatives that are part of its
restructuring, operational improvement and cost reduction program, and the terms
under which the company executes those initiatives.
-END-
Investor Relations: Media:
Tim Hogan Bill Huber Angelika Torres Chris Schein
214-875-9275 214-875-8301 214-875-8302 214-812-5338
17
Attachment 1: Financial Definitions
Operational Earnings Per Share (a non-GAAP measure): Per share (diluted) income
from continuing operations, excluding special items and net of preference share
dividends. TXU believes that operational earnings is a useful measure of
underlying results because of the magnitude and scope of the 4+4 performance
improvement program and the significant effect of the special items on reported
results. TXU relies on operational earnings for evaluation of performance and
believes that analysis of the business by external users is enhanced by
visibility to both reported GAAP earnings and operational earnings.
Cash Interest Expense (a non-GAAP measure): Interest Expense and Related Charges
less amortization of discount and reacquired debt expense plus capitalized
interest. Net interest expense is a measure used by TXU to assess credit
quality.
EBITDA (a non-GAAP measure): Income from Continuing Operations before Interest
Income, Interest Expense and Related Charges, and Income Tax plus Depreciation
and Amortization and Special Items. EBITDA is a measure used by TXU to assess
credit quality.
EBITDA/Interest (a non-GAAP measure): EBITDA divided by Cash Interest Expense (a
GAAP measure) 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.
Income from Continuing Operations Per Share (a GAAP measure): Per share
(diluted) income from continuing operations before cumulative effect of changes
in accounting principles, before preference share dividends.
Contribution Margin (a non-GAAP measure): Operating revenues less cost of energy
sold and delivery fees.
Reported Earnings Per Share (a GAAP measure): Per share (diluted) net income
available to common shareholders. When calculating diluted earnings per share,
net income is adjusted for the after-tax interest on the securities creating the
dilution (exchangeable preferred membership interests) and for the fair value of
the option associated with TXU's floating rate convertible senior notes. For
periods where including common stock equivalents would be anti-dilutive, net
income is only adjusted for the after-tax fair value of the option associated
with the floating rate convertible senior notes and basic average shares are
used in the calculation.
Return on Average Common Stock Equity Based on Net Income: Twelve months ended
Net Income Available for Common Stock (a GAAP measure) divided by the average of
the beginning and ending Common Stock Equity (a GAAP measure) for the period
calculated.
Return on Average Common Stock Equity Based on Operational Earnings: 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.
Return on Invested Capital Based on Net Income: 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.
Return on Invested Capital Based on Operational Earnings: Twelve months ended
Operational Earnings (a non-GAAP measure) plus Preference Share Dividends plus
after-tax Interest Expense and Related Charges net of interest income on
restricted cash related to debt, divided by the average of the beginning and
ending Total Capitalization less debt-related restricted cash for the period
calculated.
Special Items: Unusual charges related to the implementation of the performance
improvement program and other charges, credits or gains that are unusual or
nonrecurring. The performance improvement program is being implemented in
phases, and the charges are expected to occur largely within a one-year period.
Special items are included in reported GAAP earnings, but are excluded from
operational earnings. Special items associated with the performance improvement
program will include costs related to severance programs, asset impairments and
facility closures.
Total Capitalization: Total Debt plus Shareholders Equity.
18
Total Debt (a non-GAAP measure): Long-term Debt (including current portion),
plus Bank Loans and Commercial Paper, plus Long Term Debt Held by Subsidiary
Trusts, plus Preferred Securities of Subsidiaries (including Exchangeable
Preferred Membership Interests).
Total Debt less transition bonds and restricted cash (a non-GAAP measure): TXU
also uses a total debt measure that excludes transition bonds and restricted
cash. Transition, or securitization, bonds are serviced by a regulatory
transition charge on wires rates and are therefore excluded from debt in credit
reviews. Debt-related restricted cash is treated as net debt in credit reviews.
19
Attachment 2: Regulation G - Reconciliation of Non-GAAP Financial Measures
to the Most Directly Comparable GAAP Financial Measures
Table 1: Return on Average Common Stock Equity Calculation
Twelve months ended Q3 04 vs. Q3 03; $millions unless otherwise noted
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Component Q3 04 Q3 03 Ref
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Net income (loss) available for common stock 263 (4,347) A
...................................................................................... ............... ................ .......
Income from continuing operations before extraordinary gain and cumulative effect 462 (12)
of changes in accounting principles
...................................................................................... ............... ................ .......
Special items (a) 298 467
...................................................................................... ............... ................ .......
Preference stock dividends (22) (22)
...................................................................................... ............... ................ .......
Operational earnings 738 433 B
...................................................................................... ............... ................ .......
Average common equity 5,205 5,638 C
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Return on average common equity - based on net income (A/C) (%) 5.1 (77.1)
...................................................................................... ............... ................ .......
Return on average common equity - based on operational earnings (B/C) (%) 14.2 7.7
...................................................................................... ............... ................ .......
(a) For Q3 04, all special items are 2004 as there were none in 2003.
...................................................................................... ............... ................ .......
For Q3 03, all special items are 2002 as there were none in 2003.
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Table 2: Return on Average Invested Capital Calculation
Twelve months ended Q3 04 vs. Q3 03; $millions unless otherwise noted
- ------------------------------------------------------------------------------------- ---------------- --------------- -------
Component Q3 04 Q3 03 Ref
- ------------------------------------------------------------------------------------- ---------------- --------------- -------
Net income (loss) 1,134 (4,325)
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income 437 490
...................................................................................... ................ ............... .......
Total return (based on net income) 1,571 (3,835) A
...................................................................................... ................ ............... .......
Operational earnings 738 433
...................................................................................... ................ ............... .......
Preference stock dividends (22) (22)
...................................................................................... ................ ............... .......
After-tax interest expense and related charges net of interest income (b) 437 490
...................................................................................... ................ ............... .......
Total return (based on operational earnings) 1,153 901 B
...................................................................................... ................ ............... .......
Average total capitalization 17,576 19,000 C
...................................................................................... ................ ............... .......
Return on average invested capital - based on net income (A/C) (%) 8.9 (20.2)
...................................................................................... ................ ............... .......
Return on average invested capital - based on operational earnings (B/C) (%) 6.6 4.7
...................................................................................... ................ ............... .......
(b) After-tax interest expense and related charges net of interest income
...................................................................................... ................ ............... .......
Interest expense 709 785
...................................................................................... ................ ............... .......
Interest income (36) (31)
...................................................................................... ................ ............... .......
Net 673 754
...................................................................................... ................ ............... .......
Tax at 35% 236 264
...................................................................................... ................ ............... .......
Net of tax 437 490
- ------------------------------------------------------------------------------------- ---------------- --------------- -------
20
Table 3: Interest and Debt Coverage Ratios
Twelve months ended Q3 04 vs. Q4 03; $millions unless otherwise noted
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Component Q3 04 Q4 03 Ref
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Income from continuing operations before income taxes and extraordinary items 562 818
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Interest expense and related charges 709 784
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Interest income (36) (36)
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Depreciation and amortization 767 723
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Special items 536 -
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
EBITDA 2,538 2,289 A
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Interest expense and related charges 709 784
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Amortization of discount and reacquired debt expense (29) (31)
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Capitalized interest 12 12
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Cash interest expense 692 765 B
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Total debt 12,085 12,590
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Transition bonds (1,267) (500)
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Debt-related restricted cash (525) (525)
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Total 10,293 11,565 C
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
EBITDA/Interest (A/B) 3.7 3.0
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
...................................................................................... ............... ................ .......
Debt/EBITDA (C/A) 4.1 5.1
- ------------------------------------------------------------------------------------- --------------- ---------------- -------
Table 4a: Consolidated - Operational Earnings Reconciliation
Q3 04; $millions and $ per dilutive share after tax
- ------------------------------------------- ---------- ---------- ------------ ----------- ----------- --------- -------- ---------
Factor Electric Electric Corp. Corp.
Energy Energy Delivery Delivery & Other & Other Total Total
- ------------------------------------------- -------- ---------- ---------- ----------- ----------- ------------ -------- ---------
Operational earnings 302 1.03 108 0.36 (25) (0.08) 385 1.31
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Special items1 6 0.02 (1) - (15) (0.05) (10) (0.03)
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Discontinued operations2 (2) (0.01) - - 289 0.98 287 0.97
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Extraordinary gain, net of tax effect - - - - - - - -
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Dilutive effect of sr. convertible notes - - - - - - - (0.91)
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Dilution effect of EPMIs - - - - - - - -
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Net income to common 306 1.04 107 0.36 249 0.85 662 1.34
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Average shares - diluted 295
............................................ ........ .......... .......... ........... ........... ............ ........ .........
............................................ ........ .......... .......... ........... ........... ............ ........ .........
Dilutive effect of sr. convertible notes (268)
- ------------------------------------------- -------- ---------- ---------- ----------- ----------- ------------ -------- ---------
- --------------------------
1 See Table 3: Description of Special Items on page 4 of the Earnings Release
for details of special items.
2 See Table 20: Details of Discontinued Operations on page 17 of the Earnings
Release and accompanying Segment Consolidating Income Statements for
details of discontinued operations.
21
Table 4b: Consolidated - Operational Earnings Reconciliation
Q3 03; $millions and $ per dilutive share after tax
- ------------------------------------------- ---------- ---------- ------------ ----------- ----------- ------------ -------- ------
Factor Electric Electric Corp. Corp.
Energy Energy Delivery Delivery & Other & Other Total Total
- ------------------------------------------- ---------- ---------- ------------ ----------- ----------- ------------ -------- ------
............................................ -------- ---------- ------------ ----------- ----------- ------------ -------- --------
Operational earnings 250 0.66 126 0.33 (48) (0.09) 328 0.90
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Special items - - - - - - -
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Discontinued operations (1) - - - 65 0.17 64 0.17
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Extraordinary gain, net of tax effect - - - - - - - -
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Dilutive effect of sr. convertible notes - - - - - - - -
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Dilution effect of EPMIs - - - - - - - -
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Net income to common 249 0.66 126 0.33 17 0.08 392 1.07
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Average shares - diluted 379
............................................ ........ .......... ............ ........... ........... .......... ........ .........
............................................ ........ .......... ............ ........... ........... .......... ........ .........
Dilutive effect of sr. convertible notes -
- ------------------------------------------- -------- ---------- ------------ ----------- ----------- ---------- -------- ---------
Table 4c: Consolidated - Operational Earnings Reconciliation
YTD 04; $millions and $ per dilutive share after tax
- ------------------------------------------- ---------- ---------- ------------ ----------- ----------- ------------ -------- ------
Factor Electric Electric Corp. Corp.
Energy Energy Delivery Delivery & Other & Other Total Total
- ------------------------------------------- --------- ---------- ------------ ----------- ----------- ---------- -------- ---------
Operational earnings 582 1.73 234 0.69 (112) (0.28) 704 2.14
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Special items (174) (0.51) (14) (0.04) (110) (0.33) (298) (0.88)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Discontinued operations (33) (0.11) - - 699 2.24 666 2.13
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Extraordinary gain, net of tax effect - - 16 0.05 - - 16 0.05
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Cumulative effect of accounting change - - - - - - - -
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
EPMI buyback premium - - - - (849) (2.72) (849) (2.72)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Dilutive effect of sr. convertible notes - - - - - - - (0.80)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Dilution effect of EPMIs - - - - - - - (0.01)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Net income to common 375 1.11 236 0.70 (372) (1.09) 239 (0.09)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Average shares - basic 313
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Average shares - diluted 337
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Dilutive effect of sr. convertible notes (268)
............................................ ......... .......... ............ ........... ........... .......... ........ .........
............................................ ......... .......... ............ ........... ........... .......... ........ .........
Dilutive effect of EPMIs 18
- ------------------------------------------- --------- ---------- ------------ ----------- ----------- ---------- -------- ---------
Table 4d: Consolidated - Operational Earnings Reconciliation
YTD 03; $millions and $ per dilutive share after tax
- ------------------------------------------- ---------- ---------- ------------ ----------- ----------- ------------ -------- ------
Factor Electric Electric Corp. Corp.
Energy Energy Delivery Delivery & Other & Other Total Total
- ------------------------------------------- --------- ---------- ------------ ----------- ---------- ------------ -------- ---------
Operational earnings 439 1.16 239 0.63 (167) (0.34) 511 1.45
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Special items - - - - - - - -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Discontinued operations (2) (0.01) - - 86 0.23 84 0.22
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Extraordinary gain, net of tax effect - - - - - - - -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Cumulative effect of accounting change (58) (0.15) - - - - (58) (0.15)
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
EPMI buyback premium - - - - - - -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Dilutive effect of sr. convertible notes - - - - - - - -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Dilution effect of EPMIs - - - - - - - -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Net income to common 379 1.00 239 0.63 (81) (0.11) 537 1.52
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Average shares - basic 321
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Average shares - diluted 378
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Dilutive effect of sr. convertible notes -
............................................ ......... .......... ............ ........... .......... ............ ........ .........
............................................ ......... .......... ............ ........... .......... ............ ........ .........
Dilutive effect of EPMIs 40
- ------------------------------------------- --------- ---------- ------------ ----------- ---------- ------------ -------- ---------
22