SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1 TO FORM 8 - K FILED AUGUST 18, 2000)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 3, 2000
TXU EUROPE LIMITED
(Exact name of registrant as specified in its charter)
ENGLAND AND WALES 001-15709 98-0188080
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
THE ADELPHI, 1-11 JOHN ADAM STREET, LONDON, ENGLAND WC2N 6HT
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE -44-207-879-8081
AMENDMENT NO. 1
TXU Europe Limited (TXU Europe) hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on
Form 8-K, dated August 3, 2000 and filed August 18, 2000, as set forth in
the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Audited Financial Statements of Norweb Energi as of March 31, 2000
and for the Year Ended March 31, 2000 and Unaudited Financial
Statements as of June 30, 2000 and for the Three Months Ended
June 30, 2000
Statement of Directors' Responsibilities
Report of Independent Auditors
Statement of Revenues and Direct Expenses for the Year Ended
March 31, 2000
Net Assets Acquired as of March 31, 2000
Notes to Financial Statements
Unaudited Statement of Revenues and Direct Expenses for the Three
Months Ended June 30, 2000
Unaudited Net Assets Acquired as of June 30, 2000
(b) Pro Forma Financial Information
Pro Forma Unaudited Condensed Consolidated Financial Statements of
TXU Europe Limited
Statement of Income for the Year Ended December 31, 1999
Statement of Income for the Six Months Ended June 30, 2000
Balance Sheet as of June 30, 2000
Notes to Pro Forma Financial Statements
FORWARD-LOOKING STATEMENTS
This report and other presentations made by TXU Europe contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Europe believes that in making
any such statement its expectations are based on reasonable assumptions, any
such statement involves uncertainties and is qualified in its entirety by
reference to factors contained in the Forward-Looking Statements sections of
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations in TXU Europe's Annual Report on Form 10-K for the year
ended December 31, 1999 and of Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations in TXU Europe's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2000, that could cause
the actual results of TXU Europe to differ materially from those projected in
such forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made. TXU Europe does not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time. It is not possible for TXU
Europe to predict all of such factors, nor can it assess the impact of each
such factor or the extent to which any factor, or combination of factors,
may cause results to differ materially from those contained in any
forward-looking statement.
2
Index To Financial Information
PAGE
Item 7(a) Financial Statements of Businesses Acquired
Financial Statements of Norweb Energi:
Statement of Directors' Responsibilities . . . . . . . . . . 5
Report of Independent Auditors . . . . . . . . . . . . . . . 6
Statement of Revenues and Direct Expenses for the Year
Ended March 31, 2000 . . . . . . . . . . . . . . . . . . . 7
Net Assets Acquired as of March 31, 2000 . . . . . . . . . . 8
Notes to the Financial Statements. . . . . . . . . . . . . . 9
Unaudited Statement of Revenues and Direct Expenses
for the Three Months Ended June 30, 2000. . . . . . . . . . 15
Unaudited Net Assets Acquired as of June 30, 2000 . . . . . . 16
Item 7(b) Pro Forma Financial Information
Unaudited Pro Forma Financial Information of TXU Europe Limited:
Unaudited Condensed Consolidated Pro Forma Balance Sheet
as of June 30, 2000 . . . . . . . . . . . . . . . . . . . 19
Unaudited Condensed Consolidated Pro Forma Statement
of Income for the Year Ended December 31, 1999 . . . . . . 20
Unaudited Condensed Consolidated Pro Forma Statement
of Income for the Six Months Ended June 30, 2000. . . . . . 21
Notes to Unaudited Condensed Consolidated Pro Forma
Financial Statements. . . . . . . . . . . . . . . . . . . . 22
Unaudited Pro Forma Financial Information of Norweb Energi
for the Six Months Ended June 30, 2000. . . . . . . . . . . 25
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
On August 3, 2000, TXU Europe announced its unconditional purchase,
through its subsidiary TXU Europe Group plc, of United Utilities plc's retail
energy supply business, Norweb Energi (a division of Norweb plc). Norweb
Energi's business is the supply of electricity and gas to industrial,
commercial and residential customers, predominantly in the Northwest of
England. As of June 30, 2000, Norweb Energi had 1.8 million electricity and
0.4 million gas customer accounts. Norweb Energi engages in electricity and
gas trading activities to help meet its supply requirements.
Also on August 3, 2000, TXU Europe announced that its subsidiary,
Eastern Energy Limited, had contracted its customer services functions to
Vertex Data Science Limited, United Utilities plc's customer services
business, for seven years.
Within the United Utilities group, Norweb Energi operated as one of
a number of divisions of Norweb plc, a single statutory legal entity.
Therefore, these financial statements represent an extraction of the results
of this division from the financial statements of Norweb plc as a whole. The
financial statements have been prepared as if the extraction had occurred
in the earliest period presented.
The financial statements do not include the assets, liabilities and
results of operations of Norweb plc which were not purchased by TXU Europe
Group plc. In preparing Norweb Energi's financial statements, management was
required to exercise its judgment in allocating expenses incurred by United
Utilities plc in connection with the operations of Norweb Energi. Management
believes that methods and criteria used in this allocation are equitable
and provide a reasonable estimate of the expenses attributable to Norweb
Energi. However, management believes that it is not practical to estimate
what the historical stand-alone expenses would have been for Norweb Energi,
and therefore these financial statements will not necessarily be
indicative of what the financial position or results of operations
would have been had Norweb Energi been an independent company during the
periods presented.
The following financial statements for Norweb Energi have been
prepared in accordance with generally accepted accounting principles of the
United Kingdom (UK GAAP) as if Norweb Energi existed as a separate reporting
entity for the relevant financial periods. A summary of the significant
differences between UK GAAP and accounting principles generally accepted in
the United States of America (US GAAP), as they relate to the financial
statements of Norweb Energi, is set forth in Note 14 to Norweb Energi's
financial statements.
4
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following financial statements of Norweb Energi have been prepared by
the Directors of TXU Europe Limited for the purpose of filing relevant
inancial information with the United States Securities and Exchange
Commission. These financial statements have been prepared so as to present
fairly the assets, liabilities, revenues and costs of Norweb Energi, under
generally accepted accounting principles of the United Kingdom (UK GAAP) as at
the end of the financial period, as if Norweb Energi had existed as a separate
reporting entity. As explained in the notes to the financial statements,
Norweb Energi did not exist as a statutory entity for the periods reported
and, as a consequence, certain information normally included in a full set of
United Kingdom statutory financial statements has, necessarily, not been
presented in these statements. The information not presented relates in
particular to share capital and reserves, the directors of the company and
their remuneration and interests and company secretarial and governance
matters, since there were no shares in issue, no directors and no separate
company secretarial and governance arrangements.
The Directors of TXU Europe Limited consider that, in preparing the
financial statements, appropriate accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates, have been
used and that all accounting standards which they consider to be applicable
have been followed. The financial statements have been prepared on the going
concern basis, it being the belief of the Directors of TXU Europe that it is
appropriate so to do.
5
REPORT OF INDEPENDENT AUDITORS
To the Directors of TXU Europe Limited
We have audited the accompanying Net Assets Acquired on page 8 of Norweb
Energi as of March 31, 2000, and the related Statement of Revenues and Direct
Expenses on page 7 for the year then ended, all expressed in pounds
sterling.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
These financial statements are the responsibility of the TXU Europe Limited
Directors. Our responsibility is to express an opinion on these financial
statements based on our audit.
BASIS OF OPINION
We conducted our audit in accordance with auditing standards issued by
acknowledged auditing bodies in the United Kingdom and the United States of
America. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also involves assessing the accounting principles used and significant
estimates made by the Directors, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
OPINION
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Norweb Energi as of March 31,
2000, and of its profit for the year then ended, in conformity with the
appropriate application of accounting principles generally accepted in the
United Kingdom.
Deloitte & Touche
Chartered Accountants and Registered Auditors
Hill House
1 Little New Street
London EC4A 3TR
England
16 October 2000
6
NORWEB ENERGI
STATEMENT OF REVENUES AND DIRECT EXPENSES FOR THE YEAR ENDED MARCH 31, 2000
NOTE YEAR ENDED
MARCH 31,
2000
pound
sterling million
Turnover. . . . . . . . . . . . . . . . 1 1,097.6
Cost of sales . . . . . . . . . . . . . (975.0)
--------
Gross profit. . . . . . . . . . . . . . 122.6
Operating costs . . . . . . . . . . . . (72.2)
--------
Profit on ordinary activities
before interest and taxation . . . . . 3 50.4
Interest income . . . . . . . . . . . . 3.4
--------
Profit on ordinary activities
before taxation . . . . . . . . . . . . 53.8
Taxation on profit on ordinary
activities. . . . . . . . . . . . . . . 4 (18.2)
--------
Profit for the financial year . . . . . 35.6
========
[FN]
SEE NOTES TO FINANCIAL STATEMENTS
There are no recognised gains or losses other than the profit shown above,
which is in respect of continuing operations.
</FN>
7
NORWEB ENERGI
NET ASSETS ACQUIRED AS OF MARCH 31, 2000
NOTE March 31, 2000
pound
sterling million
Fixed assets . . . . . . . . . . . . . . 5 3.2
--------
Current assets
Stock (inventory) . . . . . . . . . . 6 1.4
Debtors (receivables falling
due within one year) and
other current assets . . . . . . . 7 159.4
--------
Total current assets . . . . . . . . . . 160.8
Creditors (amounts falling due
within one year) and
other current liabilities . . . . . 8 (128.4)
--------
Net current assets . . . . . . . . . . . 32.4
Total assets less current liabilities. . 35.6
--------
Net assets . . . . . . . . . . . . . . . 35.6
========
Reserves
Profit and loss account. . . . . . . . . 9 35.6
--------
Net assets acquired. . . . . . . . . . . 35.6
========
[FN]
SEE NOTES TO FINANCIAL STATEMENTS
</FN>
These accounts were completed solely for the purpose of the Form 8-K
submission of TXU Europe Limited dated
October 16, 2000 and approved for that purpose by:
Scott R. J. Longhurst
Principal Accounting Officer
8
NORWEB ENERGI
NOTES TO THE FINANCIAL STATEMENTS
YEAR TO MARCH 31, 2000
Principal Activities
Norweb Energi are suppliers of electricity and gas to 2.2 million residential,
industrial and commercial customer accounts, predominately in the Northwest of
England. Its customer services functions have been outsourced to Vertex Data
Science Limited, a subsidiary of United Utilities plc.
1. Accounting policies
The financial statements, comprising Net Assets Acquired and Statement of
Revenues and Direct Expenses, have been prepared under the historical cost
accounting convention and in accordance with generally accepted accounting
principles of the United Kingdom (UK GAAP).
(a) Basis of preparation
The following financial statements for Norweb Energi have been prepared by
applying UK GAAP as if Norweb Energi had existed as a separate legal reporting
entity for the relevant financial year. As it was not a separate entity, no
comparative figures are provided.
Within United Utilities plc, Norweb Energi operated as one of a number of
divisions of Norweb plc, a single statutory legal entity. These financial
statements therefore represent an extraction of the results of this division
from the financial statements of Norweb plc as a whole. As a division rather
than a legal entity, Norweb Energi did not have certain of the features of a
separate legal entity which would normally result in information being
reported or presented in a standard set of UK statutory financial statements.
The information not presented relates in particular to share capital and
reserves, the directors of the company and their remuneration and interests
and company secretarial and governance matters, since there were no shares in
issue, no directors and no separate company secretarial and governance
arrangements.
Since Norweb Energi operated as a wholly-owned business within the United
Utilities group, relevant exemptions for the presentation of certain
information have been used in preparing the financial statements. These are
noted where appropriate.
The financial statements presented herein for Norweb Energi are not
necessarily indicative of the financial statements that would have been
prepared if Norweb Energi had been a separate legal reporting entity for the
relevant periods.
The preparation of financial statements in conformity with UK GAAP requires
management to make estimates and assumptions about the business which could
subsequently be revised and generate actual results which may differ
from results included in the financial statements prepared on the basis of
those estimates and assumptions at the reporting date.
(b) Turnover
Turnover represents the value of the electricity and gas sold during the year,
including an estimate of the sales value of units supplied to customers
between the date of the last meter reading and the year end, exclusive of
value added tax, but inclusive of the fossil fuel levy.
9
(c ) Fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation. The
charge for depreciation is calculated to write off assets over their estimated
useful economic lives, generally 5 to 10 years, on a straight line basis.
Fixed assets are periodically evaluated for impairment.
(d) Stock (Inventory)
Stock is valued at the lower of cost or net realizable value.
(e) Taxation
The basis of the tax charge reported in the Statement of Revenues and Direct
Expenses is set out in Note 4 to these financial statements.
Deferred taxation arises in respect of items where there is a timing
difference between their treatment for accounting purposes and their treatment
for taxation purposes. Provision for deferred taxation, using the liability
method, is made to the extent that it is probable that the liability will be
realized in the foreseeable future. Deferred tax assets are recognized only
if recovery is reasonably certain.
(f) Pension costs
A majority of the employees working for Norweb Energi participate in pension
schemes in the United Kingdom whose assets are held in separate funds
administered by trustees. The two major schemes are defined benefit schemes,
namely the United Utilities Pension Scheme (UUPS) and the Electricity Supply
Pension Scheme (ESPS).
Contributions to pension schemes are charged to the profit and loss account so
as to spread the cost of pensions over employees' anticipated working lives.
Variations in pension cost, which are identified as a result of actuarial
valuations, are similarly amortized over the average expected remaining
working lives of employees. Differences between the amount funded and the
amounts charged to profit and loss account are treated as either provisions
for liabilities and charges or prepayments in the Net Assets Acquired.
The last actuarial valuations on the two schemes were carried out as at March
31, 1998 by a qualified, independent actuary. The combined market value of
the assets of the two schemes at the valuation date exceeded the value of the
accrued benefits to the members of the schemes after allowing for expected
future earnings increases.
2. Directors and employees
The average number of people working for Norweb Energi during the year was
302. Norweb Energi had no directors. The aggregate remuneration of employees
comprised:
March 31,
2000
pound
sterling million
Wages and salaries . . . . . . . . . . . . . . . 9.3
Social security costs . . . . . . . . . . . . . 0.3
Other pension costs . . . . . . . . . . . . . . 0.7
--------
10.3
========
10
3. Profit on ordinary activities before interest and taxation
The operating profit on ordinary activities is stated after charging:
March 31, 2000
pound
sterling million
Employment costs (Note 2). . . . . . . . . . . . 10.3
Depreciation . . . . . . . . . . . . . . . . . . 0.6
4. Taxation
As a division of Norweb plc, Norweb Energi was not subject to taxation as a
stand alone entity for the period reported. The tax charge reported in the
Statement of Revenues and Direct Expenses has been calculated by reference to
the profits of Norweb Energi as presented in the financial statements, as
adjusted for known differences between treatment of items for book and tax
purposes, as follows:
March 31, 2000
pound
sterling million
Profit before tax. . . . . . . . . . . . . . . . . . 53.8
Less capital allowances in excess of depreciation. . (0.2)
Plus non-deductible expenses . . . . . . . . . . . . 7.2
---------
Taxable profits. . . . . . . . . . . . . . . . . . . 60.8
=========
Tax at standard corporate tax rate . . . . . . . . . 18.2
=========
This calculation does not take into account the actual or potential effects of
the inclusion of Norweb Energi within Norweb plc or the United Utilities
group since these amounts cannot be determined. There is no unprovided
deferred tax.
11
5. FIXED ASSETS
Fixtures,
Fittings,
Tools & Assets under
Equipment Construction Totals
pound pound pound
sterling sterling sterling
million million million
Cost
Extracted assets as of April 1, 1999 . 1.0 0.3 1.3
Additions. . . . . . . . . . . . . . . 2.1 0.9 3.0
-------- --------- ---------
As of March 31, 2000 . . . . . . . . . 3.1 1.2 4.3
-------- --------- ---------
Accumulated depreciation
Extracted assets as of April 1, 1999 . 0.5 - 0.5
Depreciation charge for the year . . . 0.6 - 0.6
-------- --------- ---------
As of March 31, 2000 . . . . . . . . . 1.1 - 1.1
-------- --------- ---------
NET BOOK VALUE AS OF MARCH 31, 2000. . 2.0 1.2 3.2
======== ========= =========
6. Stock (inventory)
March 31, 2000
pound
sterling million
Raw materials and consumables . . . . . . . . . . . 1.4
=========
7. Debtors (receivables falling due within one year) and other current assets
March 31, 2000
pound
sterling million
Trade debtors . . . . . . . . . . . . . . . . . . . 28.9
Prepayments and accrued income . . . . . . . . . . 130.5
--------
159.4
========
12
8. Creditors (amounts falling due within one year) and other
current liabilities
March 31, 2000
pound
sterling million
Trade creditors. . . . . . . . . . . . . . . . . . 91.1
Accruals . . . . . . . . . . . . . . . . . . . . . 9.1
Other creditors. . . . . . . . . . . . . . . . . . 10.0
Taxation . . . . . . . . . . . . . . . . . . . . . 18.2
---------
128.4
==========
9. Cash flows
Cash from operating activities was affected by purchases of electricity and
gas and the related sales to residential, industrial and commercial
customers. Payments of approximately £72.2 million were made for the
outsourcing of the customer services functions, wages and salaries and
related remuneration, administrative and other expenses. Interest income of
£3.4 million (net) related to interest earned on balances invested by
United Utilities plc.
Cash from investing activities decreased by £3 million largely due to
capital expenditures related to the relocation of office space and purchases
of fixtures, fittings tools and equipment.
10. Profit and loss account
March 31, 2000
pound
sterling million
Retained profit for the year. . . . . . . . . . 35.6
--------
Balance as of March 31, 2000 . . . . . . . . . 35.6
========
11. Contingent liabilities and commitments
As of March 31, 2000, Norweb Energi had two long-term power purchase
agreements in place with the following annual commitments to purchase:
(1) 1.8 terrawatt hours (TWh) from Lakeland Power Limited through November
2006. For the year ended March 31, 2000, the notional gross costs under
the Roosecote PSA were pound 53.8 million and pool receipts were
pound 42.9 million.
(2) 3.5 TWh from Keadby Power Station through June 2011. For the year
ended March 31, 2000, the gross costs of the Keadby contracts for
differences were pound 93.5 million and pool receipts were pound
81.6 million.
12. Related party transactions
Norweb Energi was within the ownership of United Utilities plc and, as
permitted by Financial Reporting Standard 8 "Related Party Disclosures",
transactions with other entities in the United Utilities group are not
disclosed.
13
13. Subsequent event
On April 1, 2000, Norweb Energi entered into a contract with Vertex Data
Science Limited, United Utilities plc's customer services business, to manage
Norweb Energi's customer services operation. The term of the contract is
until March 31, 2007, with an option to extend for an additional three years.
The charges levied under the contract are based primarily on the number of
customers existing at any point in time.
On August 3, 2000, Norweb Energi was acquired by TXU Europe Group plc.
14. Differences between UK GAAP and US GAAP
The financial statements presented above have been prepared in accordance with
UK GAAP which differs in certain respects from accounting principles generally
accepted in the United States of America (US GAAP). The following is a
summary of the principal differences between UK GAAP and US GAAP that are
significant to Norweb Energi. While this is not a comprehensive listing of
all the differences between UK GAAP and US GAAP, any omissions are not
considered to have a significant effect on the profit or net assets of Norweb
Energi.
Pensions - Under both UK GAAP and US GAAP, the cost of providing pension
benefits under the defined benefit schemes is charged to the profit and loss
account over the employees' service lives. US GAAP requires that the
projected benefit obligations be matched against the fair value of the
scheme's assets and that adjustments be made to reflect any unrecognized
obligations or assets in determining the pension cost or credit for the year.
Taxation - Under UK GAAP, deferred tax is provided using the liability method
for all timing differences to the extent that it is probable that the
liability will be realized in the foreseeable future. US GAAP require
deferred taxation to be provided in full, using the liability method on all
temporary differences between the tax and book bases of assets and
liabilities. Under US GAAP, valuation allowances with respect to deferred tax
assets are provided when it is considered more likely than not that all or a
portion of the deferred tax assets will not be realized.
14
UNAUDITED FINANCIAL INFORMATION OF NORWEB ENERGI FOR THE THREE MONTHS ENDED
JUNE 30, 2000
NORWEB ENERGI UNAUDITED FINANCIAL STATEMENTS
STATEMENT OF REVENUES AND DIRECT EXPENSES FOR THE THREE MONTHS
ENDED JUNE 30, 2000
THREE MONTHS
ENDED JUNE 30,
2000
pound
sterling million
Turnover. . . . . . . . . . . . . . . . . . . 210.4
Cost of sales . . . . . . . . . . . . . . . . (167.7)
--------
Gross profit . . . . . . . . . . . . . . . . 42.7
Operating costs . . . . . . . . . . . . . . . (23.0)
--------
Profit on ordinary activities before interest
and taxation . . . . . . . . . . . . . . . . 19.7
Interest income . . . . . . . . . . . . . . . 0.9
--------
Profit on ordinary activities before taxation 20.6
Taxation on profit on ordinary activities . . (6.3)
--------
Profit for the financial period . . . . . . . 14.3
========
[FN]
There are no recognised gains or losses other than the profit shown above,
which is in respect of continuing operations.
</FN>
15
NORWEB ENERGI UNAUDITED FINANCIAL STATEMENTS
NET ASSETS ACQUIRED AS OF JUNE 30, 2000
JUNE 30, 2000
pound
sterling million
Fixed assets . . . . . . . . . . . . . . . . . . . 5.0
---------
Current assets
Stock (inventory). . . . . . . . . . . . . . . . 1.1
Debtors (receivables falling due within
one year) and other current assets . . . . . . 136.1
---------
Total current assets . . . . . . . . . . . . . . . 137.2
Creditors (amounts falling due within one year). (92.3)
---------
Net current assets . . . . . . . . . . . . . . . . 44.9
Total assets less current liabilities. . . . . . . 49.9
---------
Net assets . . . . . . . . . . . . . . . . . . . . 49.9
=========
Reserves
Profit and loss account. . . . . . . . . . . . . . 49.9
---------
Net assets acquired. . . . . . . . . . . . . . . . 49.9
=========
The unaudited Net Assets Acquired as of June 30, 2000 and unaudited Statement
of Revenues and Direct Expenses for the three months ended June 30, 2000 of
Norweb Energi have been prepared on the same basis as the audited financial
statements of Norweb Energi as of and for the year ended March 31, 2000.
Certain information and footnote disclosures normally included in audited
annual financial statements have been omitted.
These accounts were completed solely for the purpose of the Form 8-K
submission of TXU Europe Limited dated October 16, 2000 and approved for that
purpose by:
Scott R. J. Longhurst
Principal Accounting Officer
16
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information
PRO FORMA FINANCIAL INFORMATION OF TXU EUROPE LIMITED
On August 3, 2000, TXU Europe Limited (TXU Europe) announced its
unconditional purchase, through its subsidiary TXU Europe Group plc (TXU
Europe Group), of United Utilities plc's retail energy supply business, Norweb
Energi (a division of Norweb plc) for total consideration, including direct
costs of the acquisition, of pound 352.8 million. The transaction also
includes the assumption of certain of Norweb Energi's obligations, including
its power purchase agreements, which will be integrated into TXU Europe's
energy portfolio. Some of these agreements provide for purchases of power by
TXU Europe at prices that are currently above market.
The agreement for the purchase of Norweb Energi includes the eventual
transfer of the current Norweb plc Public Energy Supply (PES) license-area
customers (franchise or "in area" customers) and the transfer of Norweb plc's
interest in two power purchase agreements to TXU Europe Group plc. TXU Europe
expects contracts with Norweb plc PES customers to be in place under the
Utilities Bill in early 2001. Meanwhile, Norweb plc's economic interest in
the franchise customers and power purchase agreements are effectively passed
to Eastern Energy Limited (Eastern Energy), a subsidiary of TXU Europe,
through an agency agreement. All of Norweb plc's "out-of-area" electricity
and all gas customers were transferred to TXU Europe Group on August 3, 2000.
The effective date of the acquisition for accounting purposes is August
3, 2000. The acquisition is a purchase for accounting purposes. The purchase
accounting adjustments contained herein are preliminary and represent
estimates based on information available to TXU Europe at this time. The
preliminary adjustments are subject to revisions as additional information
about the fair value of the assets acquired, liabilities assumed and
contingencies existing at the acquisition date become known. The final
determination of the purchase accounting adjustments requires additional
information and analysis, which is ongoing and is expected to be completed
within one year of the acquisition date.
The financial statements of Norweb Energi have been prepared on a UK
GAAP basis. Certain reclassifications have been made to Norweb Energi's
financial statements to conform to TXU Europe's presentation.
The unaudited condensed consolidated pro forma balance sheet as of
June 30, 2000 combines the balance sheet of TXU Europe as of June 30, 2000
with the Net Assets Acquired of Norweb Energi as of that date. The unaudited
condensed consolidated pro forma statement of income for the year ended
December 31, 1999 combines the statement of income for that period of TXU
Europe with the statement of income for the year ended March 31, 2000 of
Norweb Energi. The unaudited condensed consolidated pro forma statement of
income for the six months ended June 30, 2000 combines the unaudited statement
of income of TXU Europe for the six months ended June 30, 2000 with the
unaudited statement of income of Norweb Energi for the same period. The
results of Norweb Energi for the three months ended March 31, 2000 have been
included in both pro forma periods due to the difference in timing of year
ends and the lack of availability of any more recent financial information for
Norweb Energi.
The unaudited condensed consolidated pro forma balance sheet as of June
30, 2000 is presented as if the acquisition had occurred on that date. The
unaudited condensed consolidated pro forma statements of income for the twelve
months ended December 31, 1999 and for the six months ended June 30, 2000
assume that the acquisition occurred at the beginning of the earliest period
presented.
17
The fair valuation adjustments at acquisition date are based on economic
factors existing at that time, and those valuations have been used in
preparing the pro forma financial statements to reflect the impact of
transactions and valuations on historical financial statements. Actual
economic conditions in existence at January 1, 1999 may have resulted in
different valuation adjustments to the pro forma statements of income for
the periods presented if the acquisition had actually taken place at that
time.
The unaudited condensed consolidated pro forma financial statements
should be read in conjunction with the historical consolidated financial
statements of TXU Europe included in TXU Europe's Annual Report on Form 10-K
for the year ended December 31, 1999 and its Quarterly Report on Form 10-Q for
the six months ended June 30, 2000. The operations of TXU Europe and Norweb
are affected by seasonal weather patterns. The unaudited condensed
consolidated pro forma statements of income are not necessarily indicative of
the financial results that would have occurred had the above-described events
been consummated on the indicated dates, nor are they necessarily indicative
of future financial results. In addition, the unaudited condensed
consolidated pro forma statement of income for the six months ended June 30,
2000 may not be indicative of a full year's results.
The unaudited condensed consolidated pro forma statements of income do
not reflect any operating efficiencies and annual cost savings TXU Europe or
Norweb Energi may achieve as a result of the acquisition.
18
TXU EUROPE LIMITED
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 2000
(POUND STERLING MILLION)
Norweb
TXU Europe Energi US
Historical Historical GAAP Pro Forma Consolidated
(US GAAP) (UK GAAP) Adjustments Adjustments Pro Forma
---------- ---------- ----------- ----------- ------------
(a)
Property, plant and
equipment - net . . . . . . 2,713.0 5.0 - (3.1) (d) 2,714.9
Goodwill. . . . . . . . . . . 3,381.0 - - 647.1 (b) 4,028.1
Restricted cash and other
investments . . . . . . . . 1,427.0 - - - 1,427.0
Current assets
Cash and cash
equivalents. . . . . . . 382.0 - - (149.4) (i) 232.6
Accounts receivable. . . . 380.0 136.1 - - 516.1
Inventories. . . . . . . . 111.0 1.1 - - 112.1
Prepayments. . . . . . . . 63.0 - - - 63.0
Other current assets . . . 92.0 - - - 92.0
--------- ------- ------- -------- ---------
Total current assets. . 1,028.0 137.2 - (149.4) 1,015.8
Other assets. . . . . . . . . 647.0 - 1.2 - 648.2
--------- ------- ------- -------- ---------
Total. . . . . . . . 9,196.0 142.2 1.2 494.6 9,834.0
Capitalization:
Common stock equity. . . . 1,774.0 49.9 3.0 (52.9) (b) 1,774.0
Preferred securities of
subsidiary perpetual
trust. . . . . . . . . . 95.0 - - - 95.0
Minority interest. . . . . 253.0 - - - 253.0
Long-term debt, less
amounts due currently. . 4,544.0 - - 165.0 (i) 4,709.0
--------- ------- ------- -------- ---------
Total capitalization . . . 6,666.0 49.9 3.0 112.1 6,831.0
Current liabilities
Notes payable -term
loans. . . . . . . . . . 581.0 - - - 581.0
Long-term debt due
currently. . . . . . . . 324.0 - - - 324.0
Accounts payable . . . . . 470.0 67.8 - - 537.8
Other current
liabilities. . . . . . . 396.0 24.5 - 8.2 (e) 447.1
5.0 (f)
13.4 (f)
--------- ------- ------- -------- ---------
Total current
liabilities . . . . . . . 1,771.0 92.3 - 26.6 1,889.9
Deferred income taxes . . . . 453.0 - (1.8) (148.7) (b) 302.5
Other deferred credits
and noncurrent liabilities. 306.0 - - 484.6 (c) 810.6
20.0 (f)
--------- ------- ------- -------- ---------
Total. . . . . . . . 9,196.0 142.2 1.2 494.6 9,834.0
========= ======= ======= ======== =========
[FN]
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
</FN>
19
TXU EUROPE LIMITED
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE
YEAR ENDED
DECEMBER 31, 1999
(POUND STERLING MILLION)
TXU Norweb US
Europe Energi GAAP Pro Forma Consolidated
Historical Historical Adjustments Adjustments Pro Forma
---------- ---------- ----------- ----------- ------------
(a)
Operating revenues. . . . 3,753.0 1,097.6 - - 4,850.6
Operating expenses. . . . 3,210.0 1,047.2 - (71.3) (c) 4,217.0
(0.6) (d)
31.7 (h)
--------- --------- ------ -------- ----------
Operating income. . . 543.0 50.4 - 40.2 633.6
Other income. . . . . . . 8.0 - - - 8.0
--------- --------- ------ -------- ----------
Income before interest,
income taxes,
and minority interest . 551.0 50.4 - 40.2 641.6
Interest income . . . . . 63.0 3.4 - (7.6) (i) 58.8
Interest expense. . . . . 347.0 - - 36.3 (i) 383.3
--------- --------- ------ -------- ----------
Income before income
taxes and
minority interest . . . 267.0 53.8 - (3.7) 317.7
Income tax expense. . . . 111.0 18.2 (2.1) 8.4 (j) 135.5
--------- --------- ------ -------- ----------
Income before minority
interest. . . . . . . . 156.0 35.6 2.1 (12.1) 181.6
Minority interest . . . . 18.0 - - - 18.0
--------- --------- ------ -------- ----------
Net income. . . . . . . . 138.0 35.6 2.1 (12.1) 163.6
========= ========= ====== ======== ==========
[FN]
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
</FN>
20
TXU EUROPE LIMITED
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE
SIX MONTHS ENDED
JUNE 30, 2000
(POUND STERLING MILLION)
TXU Norweb US
Europe Energi GAAP Pro Forma Consolidated
Historical Historical Adjustments Adjustments Pro Forma
---------- ---------- ----------- ----------- ------------
(a)
Operating revenues. . . . . 1,972.0 537.3 - - 2,509.3
Operating expenses. . . . . 1,745.0 503.1 - (44.5) (c) 2,219.2
(0.3) (d)
15.9 (h)
--------- --------- ------ -------- ----------
Operating income. . . . 227.0 34.2 - 28.9 290.1
Other income. . . . . . . . 44.0 - - - 44.0
--------- --------- ------ -------- ----------
Income before interest,
income taxes, distributions
and minority interest . . 271.0 34.2 - 28.9 334.1
Interest income . . . . . . 32.0 1.6 - (4.3) (i) 29.3
Interest expense. . . . . . 180.0 - - 17.7 (i) 197.7
--------- --------- ------ -------- ----------
Income before income
taxes, distributions,
and minority interest . . 123.0 35.8 - 6.9 165.7
Income tax expense. . . . . 49.0 11.4 (0.7) 6.8 (j) 66.5
--------- --------- ------ -------- ----------
Income before distributions
and minority interest . . 74.0 24.4 0.7 0.1 99.2
Distributions on preferred
securities of subsidiary
perpetual trust . . . . . 3.0 - - - 3.0
Minority interest . . . . . 12.0 - - - 12.0
--------- --------- ------ -------- ----------
Net income. . . . . . . . . 59.0 24.4 0.7 0.1 84.2
========= ========= ====== ======== ==========
[FN]
See Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.
</FN>
21
TXU EUROPE LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
(a) Represents adjustments to US GAAP:
Adjustment to pensions for the estimated excess of fair value of pension plan
assets over projected benefit obligation at acquisition for the employees of
Norweb Energi before employee severance program (see Note 1) - pound 1.2
million (pound 0.8 million after tax). Annual pension adjustment applicable
to the remaining employees is less than pound 100 thousand for the twelve and
six month periods.
Adjustment to deferred taxes for application of the full provision method on
temporary differences between book and tax values - pound 2.2 million.
(b) Represents the excess of cost over the fair value assigned to net
assets acquired (goodwill), which is to be amortized over 20 years. The
excess amount is summarized below (amounts in pound million):
Net assets of Norweb Energi acquired (adjusted to US GAAP):
Net assets at June 30, 2000 . . . . . . . . . . . . . . . 52.9
Fair value adjustments for purchase accounting:
Valuation of out-of-the money power purchase
agreements (see Note c) . . . . . . . . . . . . . . . . (484.6)
Adjustment to property, plant & equipment
See Note d) . . . . . . . . . . . . . . . . . . . . . . (3.1)
Employee severance program and other costs to
exit certain activities of Norweb Energi (see Note e). . (8.2)
Less deferred income tax effects. . . . . . . . . . . . . 148.7
---------
Fair Value of Assets Acquired. . . . . . . . . . . . (294.3)
---------
Total consideration (including estimated costs
of acquisition):
TXU Europe purchase price (see Note f). . . . . . . . . . 352.8
---------
Estimated goodwill . . . . . . . . . . . . . . . . . . . . 647.1
=========
Pro forma purchase price adjustments:
(c) Represents a liability for the fair value adjustments for unfavorable
power purchase agreements of pound 465.1 million and pound 19.5 million for
related contracts for differences. Amounts to be utilized by these purchase
accounting adjustments as a reversal of operating expenses for electricity
purchases are estimated to be pound 71.3 million for the year (pound 44.5
million for the six months.) These adjustments have been made to adjust the
basis of these unfavorable contracts to fair values prevailing at the date of
acquisition.
(d) Fair value adjustments to property, plant and equipment are pound 3.1
million. Adjustments to depreciation expense are pound 0.6 million for the
twelve months (pound 0.3 million for six months). These adjustments reflect
22
a reduction to the previous book amount of fixed assets to reflect differences
in expected utilization of properties following acquisition.
(e) Represents additional liabilities accrued at acquisition in connection
with an exit plan to close certain facilities of Norweb Energi and initiate an
employee severance program. Shortly after the acquisition date, management of
TXU Europe evaluated and implemented a plan to terminate employment of 260 of
the 300 employees of Norweb Energi. In addition, management decided to close
the offices of Norweb Energi and relocate the remaining employees to other
facilities. The accrued liabilities related to the exit plan include the
estimated redundancy costs (severance benefits) and costs to close and
sublease the former office facilities of Norweb Energi. TXU Europe expects
the main parts of this plan will be completed within a year from the
acquisition date.
(pound sterling million)
(1) Redundancy costs . . . . . . . . . . . . . . 6.9
(2) Other exit costs . . . . . . . . . . . . . . 1.3
------
Total . . . . . . . . . . . . . . . . . 8.2
======
(f) Cost of acquisition:
(pound sterling million)
Cash purchase price for electric and gas
supply business . . . . . . . . . . . . . . . . 310.0
Payments for fixed assets and movements in
working capital . . . . . . . . . . . . . . . . 29.4
Estimated costs of acquisition (see Note g) . . . 13.4
-------
Total . . . . . . . . . . . . . . . . . . . . 352.8
=======
The primary assets being purchased are the supply contracts for gas and
electricity customers, represented by Norweb Energi's working capital. The
negotiated initial price paid at August 3, 2000 was for working capital as of
the latest billing period, July 23, 2000, and following that date TXU Europe
would receive all cash and make all payments on the transferred working
capital balance. An additional interim payment of pound 4.4 million was made
on August 10, 2000 to reflect the changes in working capital up to the August
3 acquisition date. Also in connection with the acquisition, TXU Europe
entered into an arrangement with Norweb plc for the grant of a license with
respect to certain fixed assets, primarily information technology assets.
Payments in respect of this license, consisting of a series of five annual
payments of pound 5 million from TXU Europe Group to Norweb plc, are
considered as part of the overall consideration for the purchase. The first
payment is due November 1, 2000. These payments are considered to be a
finance (capital) lease for accounting purposes, although the fair value of
the leased assets was immaterial as of the acquisition date.
(g) Represents estimated costs associated with the acquisition. Estimated direct
expenses incurred by TXU Europe as a result of the acquisition for stamp duty
(pound 9.8 million) and financial advisory, legal, accounting and other
payments and expenses (pound 3.6 million) aggregated pound 13.4 million and
are included in adjustments to goodwill.
23
(h) Amortization of goodwill:
(pound sterling million)
Estimated goodwill. . . . . . . . . . . . . . . . . 647.1
Less estimated increase in Norweb Energi net
assets to August 3, 2000. . . . . . . . . . . . . (13.1)
--------
Total goodwill to be amortized. . . . . . . . . . . 634.0
========
Annual amortization over 20 years . . . . . . . . . 31.7
========
Amortization for six month period . . . . . . . . . 15.9
========
(i) The net cost of the acquisition was financed as follows: pound 115
million through an existing joint sterling-denominated credit facility among
TXU Europe, one of its subsidiaries, Chase Manhattan plc, Lehman Brothers
International (Europe), Merrill Lynch Capital Corporation, and a group of
other banking institutions; pound 50 million through an existing short-term
line of credit with Bayerische Landesbank; and the remainder, including an
additional pound 4.4 million payment for changes in working capital up to
acquisition date, through cash on hand. The borrowings used to finance the
acquisition bear interest at variable rates.
Annual Six Months
Amount Interest Interest
(pound sterling million)
Increase in bank borrowings
(at a weighted
average rate of 6.30%). . . . . 165.0 10.4 5.2
Decrease in actual interest
income on temporary
cash investments (at a
weighted average rate of
5.12% for 1999 and 5.78% for
the six month period). . . . . 149.4 (7.6) (4.3)
Interest imputed on the present value of power purchase contracts, based on an
estimated rate of 6.0%, is pound 25.9 million for the twelve month period
(pound 12.5 million for the six month period).
The total pro forma increase to interest expense resulting from interest
related to the additional bank borrowings and power purchase contracts for the
twelve month period is pound 36.3 million (pound 17.7 million for the six
month period).
A change of 1/8% in the variable interest rate on the borrowings used to
partially finance the acquisition of Norweb Energi would cause interest
expense to change by pound 0.2 million for the twelve month period
(pound 0.1 million for the six month period).
(j) Represents taxes on adjustments (excluding goodwill amortization) at
the effective tax rate of 30%.
24
Unaudited Pro Forma Financial Information of Norweb Energi for the
Six Months Ended June 30, 2000
Norweb Energi's year ends on March 31. For purposes of presenting a
consolidated pro forma statement of income for the six months ended June 30,
2000 reflecting the acquisition, the statement of income for Norweb Energi for
that period includes the three months ended June 30, 2000 combined with a
statement of income for the three months ended March 31, 2000 as shown below.
The results for the three months ended March 31, 2000 are also included in
Norweb Energi's statement of income for the twelve months ended March 31,
2000. This duplication of information in the six-month period has been
presented solely as a means of providing information for Norweb Energi for a
period consistent with that of TXU Europe.
Certain reclassifications have been made to conform Norweb Energi's
financial statements to TXU Europe's presentation.
NORWEB ENERGI
--------------------------------------------------
Three Months Three Months Six Months
Ended Ended Ended
June 30, 2000 March 31, 2000 June 30, 2000
(pound sterling million)
(Unaudited)
Operating revenues . . . . . . . 210.4 326.9 537.3
Operating expenses . . . . . . . 190.7 312.4 503.1
------- -------- --------
Operating income . . . . . . 19.7 14.5 34.2
Other income (deductions). . . . - - -
------- -------- --------
Income before interest and
income taxes. . . . . . . . . . 19.7 14.5 34.2
Interest income. . . . . . . . . 0.9 0.7 1.6
------- -------- --------
Income before income taxes . . . 20.6 15.2 35.8
Income tax expense . . . . . . . 6.3 5.1 11.4
------- -------- --------
Net income . . . . . . . . . . . 14.3 10.1 24.4
======= ======== ========
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TXU EUROPE LIMITED
By: /s/Scott R. J. Longhurst
-------------------------------
Name: Scott R. J. Longhurst
Title: Principal Accounting Officer
Date: October 16, 2000