TXU Reports First Quarter Results
DALLAS, May 9 /PRNewswire-FirstCall/ -- TXU Corp. (NYSE: TXU) today
reported consolidated results for the first quarter ended March 31, 2007.
-- TXU reported a net loss available to common shareholders of $497 million,
$1.09 per share, in the first quarter 2007 compared to net income
available to common shareholders of $576 million, $1.22 per share, in the
first quarter 2006.(1) Reported earnings for first quarter 2007 included
net after-tax expenses of $941 million, $2.02 per share, treated as
special items, primarily related to a charge associated with the first
quarter suspension of certain generation facility development projects,
as referenced in the February 26 announcement of TXU's merger agreement
with an investment group led by Kohlberg Kravis Roberts & Co. and Texas
Pacific Group, and unrealized mark-to-market losses on positions in TXU's
long-term hedging program.
-- Operational earnings,(2) which exclude special items(3) and income or
losses not related to continuing operations, were $444 million, $0.96 per
share, in the first quarter 2007 compared to $529 million, $1.12 per
share, in the first quarter 2006. Operational earnings were expected to
be lower than the prior-year quarter due to the planned extended outage
at the Comanche Peak nuclear generation plant (which was completed
safely, successfully and in record time) and more planned outage time for
coal-fueled plant maintenance, as well as lower average retail pricing.
Operational earnings include the timing effect of approximately $0.04 per
share (after tax) of unrealized mark-to-market losses from wholesale
positions (not related to the long-term hedging program) for which
offsetting realized gains on the hedged transactions are expected through
the remainder of 2007.
-- As in previous quarters, details of TXU's results are included in this
release and related exhibits. In light of the proposed merger, the
company currently has no strategic update and, thus, did not plan a
conference call. Investor Relations and Corporate Communications staffs
are available to respond to questions.
Reported Earnings
TXU reported a first quarter 2007 net loss available to common shareholders
of $497 million, $1.09 per share, compared to net income available to common
shareholders of $576 million, $1.22 per share, for first quarter 2006. Reported
earnings for first quarter 2007 included net after-tax expenses of $941 million,
$2.02 per share, treated as special items. Special items consist primarily of a
charge of $463 million, $0.99 per share, associated with the first quarter
suspension of certain generation facility development projects, which are to be
terminated upon closing of the proposed merger contemplated by the merger
agreement between TXU and an investor group led by Kohlberg Kravis Roberts & Co.
(KKR) and Texas Pacific Group (TPG) (Merger Agreement) and unrealized
mark-to-market losses of $449 million, $0.97 per share, on positions in the
long-term hedging program. First quarter 2006 reported earnings included income
from discontinued operations of $60 million, $0.13 per share, related primarily
to reversal of an income tax reserve for TXU Gas upon favorable resolution of a
tax audit matter, as well as special items totaling $13 million, $0.03 per
share, in net after-tax expenses.
Operational Earnings
First quarter operational earnings decreased to $0.96 per share in 2007 from
$1.12 per share in 2006. The change was primarily due to a reduction in
contribution margin (operating revenues less fuel, purchased power and delivery
fees) of $0.21 per share, including the effects of baseload plant outages, the
timing effect of unrealized mark-to-market losses from wholesale positions not
related to the long-term hedging program described above, the effect of lower
average retail pricing ($0.06 per share), and increased selling, general and
administrative (SG&A) expenses ($0.06 per share) substantially related to the
generation facility development program, partially offset by a reduction in net
interest expense ($0.05 per share) and fewer average common shares outstanding
($0.02 per share). First quarter 2007 results also reflected higher sales
volumes due to the impact of colder, more normal weather and increased average
weather-adjusted customer usage.
Average common shares declined primarily due to the repurchase of
approximately 18.6 million shares of common stock between February and September
2006. TXU issued approximately 5.7 million shares in May 2006 related to the
settlement of equity-linked securities and 1.4 million shares in May 2006 under
the long-term incentive compensation plan. The company did not repurchase any
shares in the first quarter of 2007, and under the terms of the Merger
Agreement, TXU cannot, without the consent of KKR and TPG, purchase or otherwise
acquire any of TXU Corp.'s shares of common stock.
Operational earnings, including significant drivers by business segment, are
discussed in more detail beginning on page 6 under Consolidated Operational
Earnings Summary.
Table 1 below provides a recap of operating highlights for the beginning of
2007.
Table 1: 2007 operating highlights
Highlight
Operational Excellence:
-- Announced on February 26, 2007, the execution of the Merger Agreement
under which an investor group led by KKR and TPG, two of the nations'
leading private equity firms, will acquire TXU in a transaction valued at
approximately $45 billion. Under the terms of the Merger Agreement,
shareholders will receive $69.25 per share following closing, which
represents a 25 percent premium to the 20 trading day average closing
share price on February 22, 2007, the last trading day before press
reports of rumors about the merger transaction.
-- Filed in April 2007, an application with the U.S. Nuclear Regulatory
Commission (NRC) for approval of the indirect transfer of control of the
nuclear operating licenses relating to its Comanche Peak nuclear
generation units and an application with the Public Utility Commission of
Texas (PUC) requesting that the PUC make a determination that the
proposed merger as it relates to Oncor Electric Delivery is in the public
interest. In May 2007, TXU filed with the Federal Energy Regulatory
Commission (FERC) an application for the indirect transfer of control of
certain FERC jurisdictional assets. A preliminary proxy statement
relating to the shareholder meeting to vote on the proposed merger and
applications for additional necessary regulatory approvals (including the
Department of Justice under the Hart-Scott-Rodino Act and the Federal
Communications Commission) are expected to be filed within the next few
months to facilitate closing the proposed merger in the second half of
2007. All required regulatory approvals for consummation of the proposed
merger are expected to be obtained by the fourth quarter of 2007.
-- Received a court ruling clearing the way to complete construction of the
new, state-of-the-art Sandow Unit 5 coal-fueled generation unit to
provide reliable and cleaner power for Texas. Construction is expected to
be completed by mid-2009.
-- Safely completed the planned refueling and steam generator replacement
outage at Unit 1 of the Comanche Peak nuclear generating station 20 days
earlier than the planned 75 days, making it the shortest nuclear steam
generator replacement outage of its type on record. Comanche Peak Unit 2
achieved a 102.6 percent capacity factor.
-- Set new generation records for Big Brown and Monticello coal-fueled
generation plants in first quarter 2007. Completed the extensive and
complex planned outage on Martin Lake Unit 2 on schedule. This outage was
one of the largest ever attempted in the fossil fleet and involved
intensive planning using the TXU Operating System schedule and cost
optimization tools.
-- Continued work on applications to the NRC for 3.4 gigawatts (GW) of new
nuclear power generation capacity at Comanche Peak in an effort to
address Texas' power needs more than a decade in the future.
-- Launched Oncor Electric Delivery as the new name for TXU Electric
Delivery. TXU has committed to transform its operations into three
separate and distinct businesses (including separate boards of directors)
to better position each business to focus on the unique customers that it
serves. TXU's retail business is expected to retain TXU Energy as its
name, while the generation and related businesses (power, wholesale,
development and construction) are expected to adopt the Luminant Energy
brand.
-- Oncor Electric Delivery continued to progress toward its goal to elevate
the business from consistent top-quartile reliability to top- decile
performance. First quarter 2007 reliability performance improved
substantially, with a nearly six percent improvement in the System
Average Interruption Duration Index (SAIDI) in the first quarter of 2007
relative to the same period last year, reflecting Oncor's ongoing
reliability programs. Oncor continued to transform its power distribution
network into the nation's first broadband-enabled smart grid, with 27,019
homes now broadband-ready. During the first quarter of 2007, 74,534
advanced meters were installed. To date, 359,000 meters have been
installed toward the goal of upgrading Oncor's three million meters by
2012. Additionally, 21 automated smart switches were installed of a
planned 38 for the first half of 2007.
Market Leadership:
-- Continued to provide TXU Energy customers with lower prices and price
protection unmatched by any competitor. Beginning with meter reads on
March 27, residential customers in TXU Energy's native market who had not
already selected one of its other lower-priced offers began receiving a
six percent reduction, with a commitment to reduce prices an additional
four percent when the proposed merger transaction closes and provide
protection against price increases through September 2008. The aggregate
10 percent price reduction will result in approximately $300 million in
annual savings for these customers. TXU Energy's new price, after the six
percent discount, is now lower than any other incumbent's Price-to-Beat
rollover price and 15 percent lower than the largest competitor's
rollover prices. In April 2007, TXU Energy also cut prices for its TXU
Energy Market Tracker+(SM) pricing plan, which automatically lowers
electricity prices if natural gas costs trend lower, making prices for
this innovative offering among the lowest- priced offers in the North
Texas market. TXU Energy customers outside its native market are
benefiting from price cuts as well, with reductions implemented in April
2007 to the popular month-to-month TXU Energy Freedom(SM) plan and the
SummerSavings 24(SM) plan.
-- Funded a project at the University of Texas at Arlington (UTA) to
research and design a technology management system for reducing nitrogen
oxide (NOx) emissions, a principal cause of smog. The focus of the
year-long UTA-TXU Power research partnership will be to lessen NOx
emissions by creating operational and management tools to maximize the
performance of selective catalytic reduction (SCR)-related technology,
providing cleaner power for Texas consumers.
-- Committed $1.8 million to help fund a six-year TXU Carbon Management
Program at the University of Texas at Austin. The research program is led
by Chemical Engineering Professor Gary Rochelle and is designed to
improve an existing process for capturing 90 percent of carbon dioxide
emissions from coal-fueled power plants so it uses 10 percent less
energy.
-- Began the planning process, together with the investor group led by KKR
and TPG, for two integrated gasification combined cycle (IGCC) commercial
demonstration plants in Texas, representing TXU's expanded commitment to
move forward immediately to develop the next generation of low-cost,
clean-burning technologies. In connection with this plan, TXU will issue
a request for proposal from companies offering coal gasification
technologies with carbon dioxide capture.
-- Announced the completed construction by a third party (Airtricity) of the
Forest Creek Wind Farm, adding 125 MW of renewable energy to TXU's wind
energy purchases. TXU continues to lead the way for renewable energy in
Texas, helping make the state the nation's largest producer of
wind-generated energy. TXU Wholesale is the largest purchaser of wind
energy in Texas and the fifth largest in the U.S. TXU plans to double its
wind power purchases to 1,500 MW and increase investment in alternative
energy as part of the proposed merger.
-- In support of the PUC's project to identify transmission construction
necessary to support future renewable energy generation and consistent
with TXU's ongoing support of renewable energy, Oncor Electric Delivery
filed a transmission construction proposal and indicated interest in
working with the PUC, stakeholders and other potential transmission
service providers to meet the PUC's goals.
-- Continued to lead the market in energy-assistance programs to help those
most in need pay their electricity bills. TXU Energy announced that it
will contribute $5 million in 2007, in addition to donations from
customers and employees, through TXU Energy Aid to help families in
critical situations with bill-payment assistance. Since 1983, TXU's
signature aid program has provided more than $40 million to help over
300,000 families throughout Texas. In addition, on May 8, TXU Energy, KKR
and TPG, along with a bipartisan group of state legislators, announced a
commitment of more than $150 million to low-income customers over five
years.
-- In support of the PUC's project to identify transmission construction
necessary to support future renewable energy generation and consistent
with TXU's ongoing support of renewable energy, Oncor Electric Delivery
filed a transmission construction proposal and indicated interest in
working with PUC stakeholders and other potential transmission service
providers to meet the PUC's goals.
-- Received the American Coal Council's 2006 Excellence in the Advancement
of Energy Education Award and honorable mention for the 2006 Excellence
in Public Service or Community Development Award for TXU Power's efforts
to improve its local communities, provide energy-based education programs
and develop and transmit public information on coal and the energy
industry.
-- Received the 2007 ENERGY STAR Sustained Excellence Award from the U.S.
Environmental Protection Agency for the fifth year in a row for Oncor
Electric Delivery's continued leadership in protecting the environment
through energy efficiency.
-- Honored by the Women's Business Enterprise National Council as one of
America's Top Corporations for Women's Business Enterprises for the
eighth year in a row. This award is the only national award honoring
corporations for world-class supplier diversity programs.
-- Honored with the Corporate Award, the highest recognition by the Martin
Luther King Jr. Community Center, a social service organization of the
City of Dallas, for TXU Energy's longstanding support of the center, its
TXU Energy Aid program and its energy assistance workshops.
-- Received the National Arbor Day Foundation's 2007 Tree Line USA Utility
Award for the seventh straight year for Oncor Electric Delivery's
leadership in quality tree-care practices.
-- Honored by Institutional Investor magazine for the second consecutive
year as America's Most Shareholder Friendly Company in the electric
utilities category. TXU was given this award based on responses to
surveys from over 1,000 buy-side and sell-side analysts.
Risk/Return Mindset:
-- Continued the execution of the long-term commodity risk hedging program
strategy that began in late 2005. As of April 27, 2007, subsidiaries of
TXU have sold forward more than 2.1 billion MMBtu of natural gas for the
balance of 2007 through 2013, significantly improving TXU's risk profile.
-- Issued an aggregate $1.8 billion of senior unsecured floating rate notes
at TXU Energy Company LLC and Oncor Electric Delivery, the proceeds of
which were used to replace existing short-term borrowings. These notes
are mandatorily redeemable upon closing of the proposed merger
transaction. The proceeds from these offerings will not be used to fund
the proposed merger.
Performance Management:
-- Named Tom Baker vice chairman of TXU Corp. Baker, whose new duties
include regulatory and legislative affairs and coordinating TXU's
regulatory filings related to the proposed merger transaction, has a
36-year career of leadership at TXU, having held top positions in
virtually every area of the company.
-- Named Robert Shapard chairman and chief executive officer of Oncor
Electric Delivery to succeed Baker as part of the implementation of the
merger plan to further separate TXU's subsidiaries into three distinct
businesses. Shapard, who has served 20 years in financial and operational
leadership roles for TXU, rejoined the company as a strategic advisor in
late 2005, bringing a distinguished track record as a senior executive at
TXU and several other companies.
-- Named David Campbell chief financial officer. Campbell had served as
acting CFO since March 2006 and also serves as TXU's chief risk officer.
Consolidated Results
Table 2 below provides the shares and adjustments included in the
calculation of diluted earnings per share for reported and operational earnings
for first quarter 2007 and 2006.
Table 2: Summary calculation of earnings per share(4)
Q1 07 and Q1 06; $ millions, million shares, $ per share
Q1 07 Q1 07 Q1 06 Q1 06
Factor Reported Operational Reported Operational
Net income (loss)
available to
common shareholders (497) -- 576 --
Operational earnings -- 444 -- 529
Earnings used in
diluted per share
calculation (497) 444 576 529
Average basic
shares
outstanding 458 -- -- --
Average diluted
shares
outstanding -- 465 474 474
Diluted earnings per
share (1.09) 0.96 1.22 1.12
Table 3 below reconciles operational earnings to net income available to
common shareholders for first quarter 2007 and 2006.
Table 3: Reconciliation of operational earnings to net income (loss)
available to common shareholders
Q1 07 vs. Q1 06; $ millions and $ per share after tax
Q1 07 Q1 07 Q1 06 Q1 06
Factor $ Millions $ Per Share $ Millions $ Per Share
Net income (loss)
available to common
shareholders (497) (1.09) 576 1.22
Loss from discontinued
operations -- -- (60) (0.13)
Special items 941 2.02 13 0.03
Effect of share dilution -- 0.03 -- --
Operational earnings 444 0.96 529 1.12
First quarter 2007 special items of $941 million (after tax), $2.02 per
share, in net expense included a charge related to the generation development
program of $463 million, $0.99 per share, for the write-off of previously
incurred construction expenditures and cancellation and termination expenses
related to the suspension, and planned termination upon closing of the proposed
merger, of eight of the 11 coal-fueled generation units under development in
Texas. Special items also included $449 million, $0.97 per share, of unrealized
mark-to-market and cash flow hedge ineffectiveness net losses associated with
the company's long-term hedging program, inclusive of "day one" losses related
to commodity hedge transactions entered into at below market prices, as well as
charges of $29 million, $0.06 per share, related to corporate projects expenses,
including the write-off of projects terminated due to the transactions
contemplated by the Merger Agreement and costs associated with the proposed
merger. The long-term hedging program is discussed in more detail in the Risk
Management Update beginning on page 10. See Appendix Table A on page 14 for
special items details.
For the first quarter 2006, special items of $13 million (after tax), $0.03
per share, represented unrealized hedge ineffectiveness and mark-to- market net
losses associated with the TXU's long-term hedging program.
TXU expects to record a charge of approximately $11 million (pre-tax) in
second quarter 2007 as a result of the suspension and planned termination of the
InfrastruX Energy Services Group LP joint venture as announced on April 11, and
a charge of approximately $79 million (pre-tax) as a result of the termination
of certain equipment purchase orders in April 2007 associated with the eight
suspended coal-fueled generation units.
Consolidated Operational Earnings Summary
Table 4 below summarizes major drivers of consolidated operational earnings
per share. A more detailed discussion of contributions and drivers by segment is
provided in Business Segment Results beginning on page 8.
Table 4: Consolidated -- operational earnings reconciliation
Q1 06 to Q1 07; $ millions and $ per share
Earnings Factor $ Millions $ Per Share
06 operational earnings 529 1.12
TXU Energy Holdings segment (92) (0.19)
Oncor Electric Delivery segment 21 0.04
Corporate expenses (14) (0.03)
Effect of reduced shares -- 0.02
07 operational earnings 444 0.96
First quarter 2007 operational earnings were $0.96 per share, down $0.16 per
share from first quarter 2006. The decrease included a $0.19 per share reduction
in operational earnings from the competitive TXU Energy Holdings segment and a
$0.03 per share increase in corporate expenses, partially offset by a $0.04 per
share improvement in the Oncor Electric Delivery segment results and a $0.02 per
share improvement attributable to the reduction in average shares outstanding.
Cash Flow and Financial Flexibility
The execution of its ongoing performance improvement program has helped TXU
deliver continued strong returns, financial flexibility measures, and cash flow.
Table 5 below provides a summary of consolidated common stock and return
measures at March 31, 2007 and 2006.
Table 5: Consolidated -- return statistics
Twelve months ended 3/31/07 and 3/31/06; Mixed measures
%
Return Statistic 3/31/07 3/31/06 Change
Basic shares outstanding
-end of period (millions) 459 461 (0.4)
Return on average common
stock equity - based on
net income (%) 186.5 333.1 (44.0)
Return on average common
stock equity - based on
operational earnings (%) 316.1 339.9 (7.0)
Return on average invested
capital - based on adjusted
net income (%) 13.5 17.1 (21.1)
Return on average invested
capital - based on adjusted
operational earnings (%) 20.5 17.4 17.8
TXU continues to make progress in improving its financial flexibility, as
reflected in the comparison of its credit metrics for first quarter 2007 to
first quarter 2006 shown in Table 6 below. Strong credit metrics are an
important determinant in TXU's systematic approach to capital allocation. The
ratios of EBITDA/interest and debt/EBITDA, two of TXU's key financial
flexibility measures, have improved by 14.8 percent and 14.3 percent,
respectively, over the course of the past year. Total debt, excluding $1.1
billion of transition bonds and $244 million of debt proceeds from the issuance
of pollution control revenue bonds related to the generation development
program, which are held as restricted cash, increased by $686 million compared
to March 31, 2006 and $1.6 billion compared December 31, 2006. The increase in
total debt since year end was due primarily to an $809 million increase in cash
requirements to support risk management and trading margin requirements due to
increased forward natural gas prices; capital expenditures related to the
generation development program and an increase in cash and equivalents of $444
million. Over the past year, the improvement in key credit metrics was also
accompanied by a significant expansion of the company's commodity risk hedging
program, which contributes to near-term fluctuations in debt levels due to
margin requirements but further strengthens the expected resiliency of the
company's future cash flows in different commodity environments.
Table 6: Consolidated -- financial flexibility measures
Twelve months ended 3/31/07 and 3/31/06; $ millions and ratios
Financial Flexibility Measure 3/31/07 3/31/06 Change % Change
EBITDA (excluding special items) 5,340 4,416 924 20.9
Cash interest expense 861 824 37 4.5
Debt (excluding transition
bonds and debt-related
restricted cash) 12,899 12,213 686 5.6
EBITDA/interest 6.2 5.4 0.8 14.8
Debt/EBITDA 2.4 2.8 (0.4) (14.3)
As shown in Table 7, first quarter 2007 cash used in operating activities
was $88 million, an increase of $1.1 billion from first quarter 2006. The change
reflected $778 million of increased net commodity margin postings due to the
effect of higher forward natural gas prices on hedge positions, a premium of
$102 million paid in 2007 related to a structured economic hedge transaction in
the long-term hedging program, an $84 million unfavorable change in working
capital (accounts receivable, accounts payable, and inventories), and $51
million of lower operating earnings taking into account certain non-cash
expenses and income.
Table 7: Consolidated -- cash and free cash flow
Q1 07 and Q1 06; $ millions
Cash Flow Factor Q1 07 Q1 06 Change % Change
Cash (used in) provided
by operating activities (88) 1,046 (1,134) --
Capital expenditures 830 309 521 --
Nuclear fuel 6 14 (8) (57.1)
Free cash flow (non-GAAP) (924) 723 1,647 --
Table 8 below represents available liquidity (cash and available credit
facility capacity) as of April 30, 2007 and December 31, 2006. In March, TXU
Energy Company LLC and Oncor Electric Delivery Company issued an aggregate $1.8
billion of senior unsecured floating rate notes maturing in September 2008.
These notes were issued to replace existing short-term borrowings and are
mandatorily redeemable upon the closing of the proposed merger. The proceeds
from these offerings will not be used to fund the proposed merger. Liquidity as
of March 31, 2007 also reflected increases in cash requirements and outstanding
letters of credit of $861 million (approximately $1 billion through April 30,
2007) to support risk management and trading margin requirements due to
increased forward natural gas prices, incremental capital expenditures related
to the generation development program, and an agreement to maintain availability
under credit facilities equal to customer deposits and advance payments from
retail customers, which totaled $123 million as of March 31, 2007. Liquidity
continues to benefit from a subsidiary of TXU Energy Company having granted a
first-lien security interest in its two coal- fueled generation units at the
existing Big Brown power plant to support commodity hedging transactions entered
into by TXU DevCo, thereby reducing cash or letter of credit collateral
requirements. TXU targets minimum available liquidity of $1.5 billion.
Table 8: Consolidated -- liquidity
Available amounts as of 4/30/07 and 12/31/06; $ millions
Liquidity Component Borrower Maturity 4/30/07 12/31/06
Cash and cash
equivalents 348 25
Commercial paper
program TXU Energy Co./
~ Oncor Electric Delivery Co. (26) (1,296)
REP reserve
requirement TXU Energy Co. (123) --
$1.5 billion credit
facility(5) TXU Energy Co. February 08 1,500 1,500
$1.4 billion credit
facility TXU Energy Co./
~ Oncor Electric Delivery Co. June 08 352 911
$1.0 billion credit
facility TXU Energy Co./
~ Oncor Electric Delivery Co. August 08 505 850
$1.6 billion credit
facility TXU Energy Co./
~ Oncor Electric Delivery Co. March 10 824 1,597
$500 million credit
facility TXU Energy Co./
~ Oncor Electric Delivery Co. June 10 265 500
$500 million credit
facility TXU Energy Co. December 09 -- --
Total liquidity 3,645 4,087
Business Segment Results
The following is a discussion of operational earnings by business segment.
TXU Corp.'s businesses include the TXU Energy Holdings segment, the Oncor
Electric Delivery segment and Corporate operations.
TXU Energy Holdings Segment
The TXU Energy Holdings segment includes the results of TXU Energy Company
LLC, TXU DevCo (TXU's competitive power generation development business) and a
lease trust holding certain combustion turbines. TXU Energy Company LLC is the
competitive business of TXU Corp. that consists primarily of electricity
generation (TXU Power), wholesale energy markets activities (TXU Wholesale) and
retail consumer and business markets activities (TXU Energy). Because TXU
Wholesale manages commodity price exposure across TXU Energy and TXU Power
(including output from future generation developed by TXU DevCo) through
wholesale commercial operations and commodity risk management, TXU Energy
Holdings is currently effectively managed as one business. TXU Power, TXU
Wholesale and TXU Energy conduct their operations through separate legal
entities that, in accordance with regulatory requirements, operate independently
within the competitive Texas power market. TXU DevCo is not currently a
subsidiary of TXU Energy Company LLC, but in the future, the development
activities of TXU DevCo are expected to be continued by subsidiaries of TXU
Energy Company LLC.
As part of the announcement of the proposed Merger Agreement, TXU announced
the intent to transform its operations into three separate and distinct
businesses. These businesses will have distinct names and separate management
teams, headquarters and boards of directors. As part of this change, the TXU
Energy Holdings segment is expected to be split into two distinct businesses:
-- Luminant Energy: TXU's power, wholesale, development and construction
businesses (re-branding began last week); and
-- TXU Energy: TXU's retail business.
The financial performance of the TXU Energy Holdings segment reflects the
ongoing successful implementation of the TXU Operating System and other
performance improvement initiatives launched as part of the company's three-
year restructuring program. Relative to first quarter 2006, these improvements
were offset by the effects of a) special items expenses previously described, b)
planned nuclear and coal-fueled power plant maintenance and some incremental
unplanned coal plant outages, the latter primarily due to a previously disclosed
transformer failure, and c) lower average retail prices. First quarter 2007 was
also affected by the timing effect of approximately $0.04 per share (after tax)
in unrealized mark-to- market losses on wholesale market positions in the first
quarter 2007 (not related to the long-term hedging program) that are expected to
be offset by realized gains on the hedged transactions occurring through the
remainder of 2007.
For first quarter 2007, the TXU Energy Holdings segment reported a net loss
of $471 million, $1.03 per share, versus net income of $520 million, $1.10 per
share, for first quarter 2006. As shown in Appendix Table A, special charges of
$912 million, $1.96 per share, were reported for first quarter 2007 as compared
to special charges of $13 million, $0.03 per share, for first quarter 2006.
First quarter 2007 operational earnings were $0.95 per share as compared to
$1.12 per share for first quarter 2006. Excluding the effect of lower average
shares outstanding, the TXU Energy Holdings segment operational earnings
decreased by $0.19 per share.
Table 9 below reconciles the change in operational earnings from 2006 to
2007 for the first quarter. The $0.17 per share decrease was primarily the
result of a reduction in contribution margin.
Table 9: TXU Energy Holdings Segment -- operational earnings
reconciliation
Q1 06 to Q1 07; $ millions and $ per share
Earnings Factor $ Millions $ Per Share
06 operational earnings 533 1.12
Contribution margin (157) (0.33)
Operating costs 5 0.01
Depreciation and amortization 5 0.01
SG&A (37) (0.08)
Franchise and revenue based taxes 1 --
Other income and deductions (3) --
Net interest 58 0.12
Income taxes 36 0.08
Effect of reduced shares -- 0.02
07 operational earnings 441 0.95
The $157 million, $0.33 per share, decrease in contribution margin for first
quarter 2007 versus the comparable 2006 period primarily reflects lower average
retail pricing, customer attrition, an increase in the average cost of fuel and
purchased power, and decreased generation from the company's nuclear and
coal-fueled power generation plants, which resulted in increased purchased power
and increased use of the company's older, less efficient gas-fueled generation
plants. These effects were partially offset by an increase in residential sales
volumes due to colder, more normal weather and higher average weather-adjusted
customer usage. Wholesale electricity revenues for first quarter 2007 decreased
$78 million from first quarter 2006 primarily due to a decline in average
wholesale prices, which reflected lower natural gas prices. Wholesale power
sales also declined due to decreased net balancing energy sales.
Appendix Tables E and F provide a summary of the TXU Energy Holdings segment
generation and supply costs and operating statistics. First quarter 2007
baseload production levels were lower than first quarter 2006 primarily due to
the planned outage to replace the Comanche Peak Unit 1 steam generators,
increased planned coal-fueled plant maintenance, and an extended outage at a
coal-fueled plant to repair a failed main power transformer. The planned
refueling and steam generator replacement outage at Comanche Peak nuclear
generating station Unit 1 took 55 days (34 days in first quarter 2007 and 21
days in second quarter 2007). The outage was completed 20 days earlier than
planned, making it the shortest nuclear steam generator replacement outage of
its type ever, reflecting on-going benefits of the TXU Operating System. First
quarter 2007 baseload plant fuel expenses per MWh increased as a result of
higher Powder River Basin coal prices and the timing of lignite expenses.
For first quarter 2007, as compared to first quarter 2006, average
residential customer usage levels increased primarily as a result of colder
weather. For first quarter 2007, weather was more normal than first quarter
2006; last year, heating degree days were approximately 25 percent below normal.
Compared to the prior year period, the first quarter 2007 net effect of weather
resulted in an increase in margins of approximately $0.04 per share, after tax;
compared to estimated normal weather, the net effect of weather resulted in an
increase in margins of approximately $0.01 per share, after tax. Appendix Tables
B and E provide details of operating revenues and total fuel and purchased power
costs and delivery fees for the TXU Energy Holdings segment for first quarter
2007 and 2006.
The $5 million decrease in depreciation and amortization for first quarter
2007 compared to first quarter 2006 primarily reflects the impairment of the
natural gas generation plants in second quarter 2006. SG&A expenses for first
quarter 2007 increased $37 million, $0.08 per share, due to $20 million of costs
associated with power generation development, as well as increases in
advertising and other marketing expenses and service provider costs. The $58
million, $0.12 per share, decrease in net interest expense primarily reflects
decreased interest income from affiliates due to lower advances and reduced debt
levels.
As discussed in Table 1 - Operating Highlights beginning on page 2, TXU
Energy continues to adapt its pricing and refine its product offerings through
the "Pick Your Plan" initiative launched in October 2006 in preparation for the
transition to full competition in the Texas marketplace. TXU Energy implemented
a six percent decrease in prices, effective with March 27, 2007 meter reads, in
its native market for customers on its most popular month-to- month plans as
part of the aggregate 10 percent planned reduction announced with the proposed
merger transaction that in total will result in estimated annual customer
savings of approximately $300 million. In April, TXU Energy also announced price
adjustments to month-to-month products offered in other Texas markets and its
Market Tracker+(SM) product. This strategy is designed to provide customers
greater savings, peace of mind, flexibility and price certainty.
TXU Energy focuses on providing superior service and a range of innovative
and competitive products in its native market to meet the needs of customers and
increase retention while achieving indicative long-term residential net margins
of 5 to 10 percent - comparable to margins achieved by retailers in other
industries, many of which do not face significant volatility of commodity supply
costs. Many of the offerings have a minimum term commitment in exchange for
various pricing plan features or renewable content. The objective is to offer
plans that more directly meet the needs of customers since the price-to-beat
expired on December 31, 2006. The various plans TXU Energy offers have features
that include price certainty, prices indexed to natural gas, renewable energy
and time of use options. TXU Energy currently has 5 service plan alternatives
available for new residential customer enrollment in its native market, the most
that any ERCOT incumbent offers in their respective native market. TXU Energy is
aggressively marketing these new plans and has received a favorable response
from customers. In competitive areas of the state outside its native market, TXU
Energy is pursuing customers through a multi-channel approach using both savings
and dependable customer service messaging to achieve acquisition goals and an
indicative long-term net margin of 5 to 10 percent. TXU Energy increased its
number of residential and small business customers in those markets by over 19
percent since first quarter 2006.
Appendix Table C provides TXU Energy sales volume statistics. For first
quarter 2007, the 5.9 percent increase in retail sales volumes as compared to
first quarter 2006 was driven by a 9.3 percent increase in residential volumes
and a 4.9 percent increase in large business volumes. The increased usage
reflected colder weather (closer to normal than the first quarter 2006) and
higher average weather-adjusted consumption. Retail volume sales included the
effect of lower mass market customer levels in TXU Energy's native market due to
competitive activity, partially offset by increased customer levels outside TXU
Energy's native market.
Customer statistics for 2007 and 2006 are shown in Appendix Table D.
Attrition rates were somewhat higher in first quarter 2007 as compared to first
quarter 2006, reflecting increased levels of competitor discounts and
advertising as the market is now fully competitive. The net residential customer
attrition rate for the quarter was 0.9 percent as compared to 0.7 percent in
first quarter 2006. Recent product adjustments are intended to add value for TXU
Energy's existing customers and attract new customers.
Risk Management Update
Reflecting the relationship of wholesale power prices to natural gas prices
in Texas, TXU has entered into forward natural gas sales transactions to hedge
its power positions and facilitate the company's focus on maintaining strong
credit metrics. The natural gas position associated with TXU's baseload
generation assets is partially offset through market transactions to manage the
company's exposure to changes in natural gas prices. In total, as of April 27,
2007, TXU had sold more than 2.1 billion MMBtu of natural gas at fixed price
levels for the balance of 2007 through 2013. This long-term hedging program is
designed to reduce exposure to changes in future electricity prices due to
changes in the price of natural gas and enable TXU to increase the certainty of
its economic value.
For much of first quarter 2007, cash flow hedge accounting was used for the
majority of the positions in TXU's long-term hedging program, with the remainder
marked-to-market pending further progress on the power development program. As
of mid-March, TXU discontinued designating positions in the long- term hedging
program as cash flow hedges for accounting purposes. Subsequent changes in fair
value are expected to be marked-to-market in net income. As addressed above, the
unrealized gains and losses on the long-term hedging program are treated as
special items to provide a better view of realized results for performance
management purposes.
Based on the current size of the long-term hedging program, a parallel
$1.00/MMBtu move in gas prices would cause an estimated $2.1 billion of
unrealized mark-to-market pre-tax gains or losses. During the quarter, the
forward value of the company's natural gas hedges decreased by approximately
$1.3 billion, reflecting significant upward movement in forward commodity prices
and changes to the program during the period including the "day one" losses
described below. The changes in forward natural gas prices and market heat rates
resulted in an unrealized mark-to-market and cash flow hedge ineffectiveness net
loss of $386 million, $0.83 per share, after tax for first quarter 2007 related
to the long-term hedging program. TXU also incurred $63 million, $0.14 per
share, after tax in "day one" losses upon initiation of certain positions added
to the long-term hedging program during the quarter. The company actively
manages its natural gas and heat rate exposure and may adjust both natural gas
and heat rate positions in response to estimated generation production, customer
attrition and usage, wholesale market transactions, commodity market changes,
risk management strategy and policy revisions, and other factors.
Table 10 provides TXU's natural gas hedges through 2010 and their respective
average sales prices as of April 27, 2007.
Table 10: Pro forma natural gas hedges and average sales price BAL07-10 at
April 27, 2007; Million MMBtu, $/MMBtu
Component BAL07 08 09 10
Natural gas hedges 22 253 332 471
Average price of natural
gas hedges (NYMEX equivalent price) ~8.65 ~8.25 ~8.10 ~7.90
NYMEX close price as of 4/27/07 8.41 8.90 8.61 8.27
Oncor Electric Delivery Segment
The Oncor Electric Delivery segment consists of Oncor Electric Delivery
Company (previously named TXU Electric Delivery Company), TXU Corp.'s regulated
electric transmission and distribution business. Oncor Electric Delivery is the
sixth largest electric delivery company in the nation, delivering electricity to
three million distribution points of delivery across a network of over 14,300
miles of transmission lines and more than 101,000 miles of distribution lines in
the economically diverse North Central, East and West Texas areas. The North
American Electric Reliability Corporation estimates approximately 2.3 percent
annual demand growth in the ERCOT service area over the next 5 years.
The Oncor Electric Delivery segment reported net income of $86 million,
$0.19 per share, for first quarter 2007 as compared to reported net income of
$65 million, $0.14 per share for the prior-year period. Operational earnings for
first quarter 2007 were $0.19 per share as compared to $0.14 per share for first
quarter 2006.
Table 11 below reconciles the factors in operational earnings from first
quarter 2006 to first quarter 2007.
Table 11: Oncor Electric Delivery Segment -- operational earnings
reconciliation
Q1 06 to Q1 07; $ millions and $ per share
Earnings Factor $ Millions $ Per Share
06 operational earnings 65 0.14
Contribution margin 57 0.12
Operating costs (5) (0.01)
Depreciation and amortization (6) (0.01)
SG&A 5 0.01
Franchise and revenue based taxes (2) --
Other income and deductions (4) (0.01)
Net interest (7) (0.02)
Income taxes (17) (0.04)
Effect of reduced shares -- 0.01
07 operational earnings 86 0.19
Excluding the effect of lower average shares outstanding, the Oncor Electric
Delivery segment's operational earnings for first quarter 2007 increased $0.04
per share from first quarter 2006. The $57 million, $0.12 per share, increase in
contribution margin (revenues) reflected increased delivered volumes resulting
from colder, more normal winter weather, growth in customer delivery points, and
transmission-related rate increases approved in 2006. The net effect of weather
and increased average weather-adjusted usage was an estimated $20 million, $0.04
per share, after-tax improvement in revenues as compared to the prior-year
period and an estimated $1 million after-tax improvement in revenues as compared
to normal.
First quarter 2007 depreciation and amortization expenses increased $6
million, primarily due to depreciation on normal additions and replacements of
property, plant and equipment. SG&A expenses decreased $5 million as a result of
reduced support services costs and lower staffing levels. The $4 million
increase in other deductions was related to the 2006 rate settlement with
certain cities served by the company. Net interest expense increased $7 million,
due to higher average borrowings and interest rates. The $17 million increase in
income tax expense reflected higher earnings and increased state franchise taxes
due to the application of the new Texas margin tax effective January 1, 2008.
Appendix Tables I and J summarize the details of the operating revenues and
operating statistics for the Oncor Electric Delivery segment for first quarter
2007 and 2006.
Corporate
Corporate consists of TXU's remaining non-segment operations, primarily
discontinued operations, general corporate expenses, interest on debt at the
corporate level, activities involving mineral interest holdings, and inter-
company eliminations.
For first quarter 2007, the reported net loss for Corporate was $112
million, $0.25 per share, as compared to a first quarter 2006 loss of $9
million, $0.02 per share. Adjusting for special items charges of $29 million,
$0.06 per share, in expenses, first quarter 2007 Corporate operational results
were a loss of $83 million, $0.18 per share compared to a first quarter 2006
loss of $69 million, $0.14 per share. Excluding the $0.01 per share effect of
lower average shares outstanding, first quarter 2007 corporate expenses
increased $0.03 per share as compared to first quarter 2006. The majority of the
increase for first quarter 2007 was due to an increase of $27 million, $0.06 per
share, in net interest expense resulting from higher average affiliate
borrowings and interest rates.
Other Information
Other information, including consolidating income statements, consolidating
balance sheets and statements of consolidated cash flows, can be obtained under
the report heading "TXU Q1 2007 Earnings Results" at
http://www.txucorp.com/investres/default.aspx.
About TXU
TXU Corp., a Dallas-based energy company, manages a portfolio of competitive
and regulated energy businesses primarily in Texas. In the competitive TXU
Energy Holdings segment (electricity generation, wholesale marketing and
retailing), TXU Energy provides electricity and related services to more than
2.1 million competitive electricity customers in Texas. TXU Power has over
18,100 MW of generation in Texas, including 2,300 MW of nuclear and 5,800 MW of
coal-fueled generation capacity. TXU Wholesale optimizes the purchases and sales
of energy for TXU Energy and TXU Power and provides related services to other
market participants. TXU Wholesale is the largest purchaser of wind-generated
electricity in Texas and fifth largest in the United States. Power generation
and related businesses, such as TXU Power and TXU Wholesale, plan to transition
toward the new Luminant Energy brand. TXU Corp.'s regulated segment, Oncor
Electric Delivery, is an electric distribution and transmission business that
uses superior asset management skills to provide reliable electricity delivery
to consumers. Oncor Electric Delivery operates the largest distribution and
transmission system in Texas, providing power to three million electric delivery
points over more than 101,000 miles of distribution and 14,300 miles of
transmission lines. Visit http://www.txucorp.com for more information about TXU
Corp.
Forward Looking Statements
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 TXU
Corp.'s filings with the Securities and Exchange Commission (SEC). Specifically,
TXU Corp. makes reference to the section entitled "Risk Factors" in its annual
and quarterly reports. In addition to the risks and uncertainties set forth in
the TXU Corp.'s SEC reports or periodic reports, the proposed transactions
described in this release could be affected by, among other things, the
occurrence of any event, change or other circumstances that could give rise to
the termination of the merger agreement; the outcome of any legal proceedings
that may be instituted against TXU Corp. and others related to the merger
agreement; and failure to obtain shareholder approval or any other failure to
satisfy other conditions required to complete the transactions contemplated by
the merger agreement, including required regulatory approvals.
Additional Information and Where to Find It
In connection with the proposed merger of TXU Corp. with Texas Energy Future
Merger Sub Corp., a wholly-owned subsidiary of Texas Energy Future Holdings
Limited Partnership (the "Merger"), TXU will prepare a proxy statement to be
filed with the SEC. When completed, a definitive proxy statement and a form of
proxy will be mailed to the shareholders of TXU. BEFORE MAKING ANY VOTING
DECISION, TXU'S SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE
MERGER CAREFULLY AND IN ITS ENTIRETY BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED MERGER. TXU's shareholders will be able to
obtain, without charge, a copy of the proxy statement (when available) and other
relevant documents filed with the SEC from the SEC's website at
http://www.sec.gov. TXU's shareholders will also be able to obtain, without
charge, a copy of the proxy statement and other relevant documents (when
available) by directing a request by mail or telephone to Corporate Secretary,
TXU Corp., Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201, telephone:
(214) 812-4600, or from TXU's website, http://www.txucorp.com.
Participants in the Solicitation
TXU and its directors and officers may be deemed to be participants in the
solicitation of proxies from TXU's shareholders with respect to the Merger.
Information about TXU's directors and executive officers and their ownership of
TXU's common stock is set forth in TXU's Form 10-K/A, which was filed with the
SEC on April 30, 2007. Shareholders may obtain additional information regarding
the interests of TXU and its directors and executive officers in the Merger,
which may be different than those of TXU's shareholders generally, by reading
the proxy statement and other relevant documents regarding the Merger, when
filed with the SEC.
Appendix Tables
Table A: Description of special items
Q1 07 and Q1 06; $ millions and $ per share after tax
Income Statement
Special Item Line Q1 07 Q1 07 Q1 06 Q1 06
TXU Energy Holdings segment:
"Day one" losses on hedges Revenues 63 0.14 -- --
Cash flow hedge ineffectiveness
(gain)/loss Revenues (64) (0.14) 14 0.03
Positions marked to market
(gain)/loss Revenues 450 0.97 (1) --
1
Generation development
charges(6) Other deductions 463 0.99 -- --
Corporate and other:
Projects expenses(7) Other deductions 29 0.06 -- --
Total 941 2.02 13 0.03
Appendix Table B:TXU Energy Holdings Segment -- operating revenues Q1 07 vs.
Q1 06; $ millions and mixed measures
Operating Revenue Component Q1 07 Q1 06 % Change
Retail electricity revenues:
Native market:
Residential 784 746 5.1
Small business 238 257 (7.4)
Total native market 1,022 1,003 1.9
Other markets:
Residential 108 89 21.3
Small business 20 15 33.3
Total other markets 128 104 23.1
Large business 314 316 (0.6)
Total retail electricity revenues 1,464 1,423 2.9
Wholesale electricity revenues 456 534 (14.6)
Risk management and trading activities(8):
Net realized gains (losses) on
settled positions 78 (48) --
Reversal of prior net unrealized
(gains)/losses 8 36 --
Other net unrealized gains (772) (32) --
Net risk management and trading
activities (686) (44) --
Other revenues 82 97 (15.5)
Total operating revenues 1,316 2,010 (34.5)
Average residential revenue ($/MWh) 139.63 142.71 (2.2)
Average wires charge ($/MWh) 26.97 28.26 (4.6)
Appendix Table C: TXU Energy Holdings Segment -- retail and wholesale
sales
Q1 07 vs. Q1 06; Mixed measures
Volume Component Q1 07 Q1 06 % Change
Retail electricity sales volumes (GWh):
Native market:
Residential 5,647 5,232 7.9
Small business 1,643 1,727 (4.9)
Total native market 7,290 6,959 4.8
Other markets:
Residential 738 611 20.8
Small business 164 132 24.2
Total other markets 902 743 21.4
Large business 3,390 3,233 4.9
Total retail electricity sales
volumes 11,582 10,935 5.9
Wholesale electricity sales(9) 8,838 9,285 (4.8)
Total electricity sales volumes 20,420 20,220 1.0
Average KWh/customer(10):
Residential 3,427 2,959 15.8
Small business 6,836 6,528 4.7
Large business 84,333 60,718 38.9
Weather - percent of normal(11):
Heating degree days 102.2 75.1 36.1
Appendix Table D: TXU Energy Holdings Segment -- retail customer counts
Q1 07 vs. Q4 06 and Q1 07 vs. Q1 06; End of period, thousands, # of meters
Customer Component Q1 07 Q4 06 3 Month Q1 06 12 Month
% Change
Retail electricity customers:
Native market:
Residential 1,596 1,624 (1.7) 1,750 (8.8)
Small business 252 258 (2.3) 274 (8.0)
Total native market 1,848 1,882 (1.8) 2,024 (8.7)
Other markets:
Residential 258 247 4.5 218 18.3
Small business 10 9 11.1 7 42.9
Total other markets 268 256 4.7 225 19.1
Large business 37 44 (15.9) 52 (28.8)
Total retail electricity
customers 2,153 2,182 (1.3) 2,301 (6.4)
Estimated share of market(12)(%):
Native market:
Residential 64 65 (1.5) 71 (9.9)
Small business 63 64 (1.6) 69 (8.7)
Total ERCOT:
Residential 36 37 (2.7) 39 (7.7)
Small business 26 26 -- 28 (7.1)
Large business 11 14 (21.4) 18 (38.9)
Appendix Table E: TXU Energy Holdings Segment -- fuel, purchased power
costs and delivery fees
Q1 07 vs. Q1 06; $ millions
Cost Component Q1 07 Q1 06 % Change
Nuclear fuel 18 21 (14.3)
Lignite/coal 138 117 17.9
Total baseload fuel 156 138 13.0
Gas/oil fuel and purchased power costs 384 268 43.3
Other costs 74 71 4.2
Fuel and purchased power costs 614 477 28.7
Delivery fees 317 313 1.3
Fuel, purchased power costs and
delivery fees 931 790 17.8
Appendix Table F: TXU Energy Holdings Segment -- generation and supply
statistics
Q1 07 vs. Q1 06; Mixed measures
Generation and Supply Statistic Q1 07 Q1 06 % Change
Production and purchased power (GWh):
Nuclear (baseload) 4,063 5,080 (20.0)
Lignite/coal (baseload) 9,986 10,874 (8.2)
Total baseload generation 14,049 15,954 (11.9)
Gas/oil generation 750 189 --
Purchased power 5,669 4,326 31.0
Total energy supply 20,468 20,469 --
Less line loss and power imbalances 48 249 (80.7)
Net energy supply volumes 20,420 20,220 1.0
Baseload capacity factors (%):
Nuclear 82.0 102.7 (20.2)
Lignite/coal 87.2 90.4 (3.5)
Total baseload 85.7 93.9 (8.7)
Adjusted baseload capacity factors(13)(%):
Nuclear 102.0 102.7 (0.7)
Lignite/coal 94.7 97.5 (2.9)
Total baseload 96.8 99.0 (2.2)
Appendix Table G: TXU Energy Holdings Segment -- maturity dates of
unrealized net commodity contract assets (liabilities)
3/31/07; $ millions unless otherwise noted
Source of Fair Value Less Than More Than
1 Year 1-3 Years 4-5 Years 5 Years Total
Prices actively quoted (34) (142) (83) (22) (281)
Prices provided by other
external sources (79) (193) (178) (19) (469)
Prices based on models (18) (22) -- -- (40)
Total (131) (357) (261) (41) (790)
Percentage of total fair
value 17 45 33 5 100
Appendix Table H: TXU Energy Holdings Segment -- changes in commodity
contract assets and liabilities
Q1 07; $ millions
Change Component Impact
Net commodity contract liability - beginning of period (23)
Settlements of positions included in the opening balance(14) 24
Unrealized mark-to-market valuations of positions held --
end of period(15) (887)
Other activity(16) 171
Net commodity contract liability -- end of period (715)
Appendix Table I: Oncor Electric Delivery Segment -- operating revenues
Q1 07 vs. Q1 06; $ millions
Revenue Component Q1 07 Q1 06 % Change
Electricity transmission and distribution:
Affiliated (TXU Energy Holdings) 265 267 (0.7)
Nonaffiliated 354 295 20.0
Total 619 562 10.1
Appendix Table J: Oncor Electric Delivery Segment -- operating statistics
Q1 07 vs. Q1 06; Mixed measures
Operating Statistic Q1 07 Q1 06 % Change
Volumes - Electricity distribution (GWh) 24,994 23,131 8.1
Electricity distribution points of delivery -
number of meters (in thousands)(17) 3,067 3,025 1.4
System Average Interruption Duration Index
(SAIDI) (non-storm)(18) 74.70 79.32 (5.8)
System Average Interruption Frequency Index
(SAIFI) (non-storm)(18) 1.11 1.18 (5.9)
Customer Average Interruption Duration Index
(CAIDI) (non-storm)(18) 67.37 67.14 0.3
Attachment 1: Financial Definitions
Cash Interest Expense (non-GAAP): Interest expense and related charges less
amortization of discount and reacquired debt expense plus capitalized interest.
Cash interest expense is a measure used by TXU to assess credit quality.
Contribution Margin: Operating revenues (GAAP) less fuel and purchased power
costs and delivery fees (GAAP).
Debt (non-GAAP): Total debt less transition bonds and debt-relatedrestricted
cash. Transition, or securitization, bonds are serviced by a regulatory
transition charge on wires rates and are therefore excluded from debt in credit
reviews. Debt-related restricted cash is treated as net debt in credit reviews.
TXU uses this measure to evaluate its debt and capitalization levels.
Debt/EBITDA (non-GAAP): Debt divided by EBITDA. Debt/EBITDA is a measure
used by TXU to assess credit quality.
EBIT (non-GAAP): Income from continuing operations before interest income,
interest expense and related charges, and income tax and special items. EBIT is
a measure used by TXU to assess performance.
EBITDA (non-GAAP): Income from continuing operations before interest income,
interest expense and related charges, and income tax plus depreciation and
amortization and special items. EBITDA is a measure used by TXU to assess
performance.
EBITDA/Interest (non-GAAP): EBITDA divided by cash interest expense is a
measure used by TXU to assess credit quality.
Free Cash Flow (non-GAAP): Cash provided by operating activities less
capital expenditures and nuclear fuel. Used by TXU predominantly as a
forecasting tool to estimate cash available for dividends, debt reduction, and
other investments.
Income from Continuing Operations per Share (GAAP): Per share (diluted)
income from continuing operations before extraordinary gain and preference stock
dividends.
Operational Earnings (non-GAAP): Net income available to common shareholders
adjusted for special items and income or losses that are not reflective of
continuing operations (such as discontinued operations, extraordinary items and
cumulative effect of changes in accounting principles). TXU has adjusted
operational earnings for all periods to exclude all effects of recording
unrealized gains and losses from cash flow hedge ineffectiveness and other
mark-to-market valuations of positions in the long- term hedging program because
management believes such presentation will more appropriately reflect the
ongoing earnings of the business. TXU relies on operational earnings for
evaluation of performance and believes that analysis of the business by external
users is enhanced by visibility to both reported GAAP earnings and operational
earnings.
Operational Earnings per Share (a non-GAAP measure): Per share (diluted)
operational earnings. TXU forecasts earnings on such operational earnings basis
and is unable to reconcile forecasted operational earnings to a GAAP financial
measure because forecasts of special items and material non- recurring items are
not practical. TXU relies on operational earnings per share 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.
Reported Earnings per Share (GAAP): Per share (diluted) net income available
to common shareholders.
Return on Average Common Stock Equity Based on Net Income (GAAP): Twelve
months ended net income available to common shareholders (GAAP) divided by the
average of the beginning and ending common stock equity (GAAP) for the period
calculated.
Return on Average Common Stock Equity Based on Operational Earnings (non-
GAAP): Twelve months ended operational earnings (non-GAAP) divided by the
average of the beginning and ending common stock equity (GAAP) for the period
calculated. This measure is used to evaluate operational performance and
management effectiveness.
Return on Average Invested Capital Based on Adjusted Net Income (non- GAAP):
Twelve months ended net income (GAAP) plus after-tax interest expense and
related charges less interest income on restricted cash related to debt divided
by the average of the beginning and ending total capitalization less
debt-related restricted cash for the period calculated. This measure is used to
evaluate operational performance and management effectiveness.
Return on Average Invested Capital Based on Adjusted Operational Earnings
(non-GAAP): Twelve months ended operational earnings (non-GAAP) plus preference
stock dividends and after-tax interest expense and related charges less interest
income on debt proceeds held as restricted cash divided by the average of the
beginning and ending total capitalization less debt-related restricted cash for
the period calculated. This measure is used to evaluate operational performance
and management effectiveness.
Special Items (non-GAAP): Unusual charges related to the implementation of
the performance improvement program, the effects of unrealized gains and losses
from cash flow hedge ineffectiveness and other mark-to-market valuations of
positions in the long-term hedging program and other charges, credits or gains
that are unusual or nonrecurring. Special items are included in reported GAAP
earnings, but are excluded from operational earnings.
Total Capitalization (non-GAAP): Total debt plus common stock equity. This
measure is used to evaluate operational performance and management
effectiveness.
Total Debt (GAAP): Long-term debt (including current portion), plus bank
loans and commercial paper, plus long-term debt held by subsidiary trusts and
preferred securities of subsidiaries.
Exhibits: Regulation G - Reconciliation of Non-GAAP Financial Measures to
the Most Directly Comparable GAAP Financial Measures
Exhibit 1: Return on average common stock equity calculation Twelve months
ended 3/31/07 and 3/31/06; $ millions unless otherwise noted
Component 3/31/07 3/31/06 Ref
Net income available to common
shareholders 1,479 1,872 A
Income from continuing operations
before extraordinary gain/(loss) and
cumulative effect of changes in
accounting principles 1,452 1,884
Special items 1,055 30
Preference stock dividends -- (4)
Operational earnings 2,507 1,910 B
Average common equity 793 562 C
Return on average common stock equity -
based on net income (A/C) (%) 186.5 333.1
Return on average common stock equity -
based on operational
earnings (B/C) (%) 316.1 339.9
Exhibit 2: Return on average invested capital calculation Twelve months
ended 3/31/07 and 3/31/06; $ millions unless otherwise noted
Component 3/31/07 3/31/06 Ref
Net income 1,479 1,876
After-tax interest expense and
related charges net of interest
income (a) 493 509
Total return (based on net income) 1,972 2,385 A
Operational earnings 2,507 1,910
Preference stock dividends -- 4
After-tax interest expense and related
charges net of interest income (a) 493 509
Total return (based on operational
earnings) 3,000 2,423 B
Average total capitalization 14,620 13,955 C
Return on average invested capital -
based on adjusted net
income (A/C)(%) 13.5 17.1
Return on average invested capital
- based on adjusted operational
earnings (B/C) (%) 20.5 17.4
(a) After-tax interest expense and
related charges net of interest
income
Interest expense 813 821
Interest income (54) (38)
Net 759 783
Tax at 35% 266 274
Net of tax 493 509
Exhibit 3: Interest and debt coverage ratios
Twelve months ended 3/31/07 and 3/31/06; $ millions unless otherwise noted
Component 3/31/07 3/31/06 Ref
Cash provided by operating activities 3,820 3,642 A
Reconciling adjustments from
cash flow statement (2,368) (1,758) B
Income from continuing operations
before extraordinary gain/(loss) and
cumulative effect of changes in
accounting principles 1,452 1,884
Income tax expense 739 909
Interest expense and related charges 813 821
Interest income (54) (38)
Depreciation and amortization 829 793
EBITDA 3,779 4,369
Special items 1,561 47
EBITDA (excluding special items) 5,340 4,416 C
Interest expense and related charges
813 821
Amortization of discount and reacquired
debt expense (17) (15)
Capitalized interest 65 18
Cash interest expense 861 824 D
Total debt 14,196 13,458 E
Transition bonds (1,053) (1,146)
Debt-related restricted cash (244) (99)
Debt (total debt less transition bonds
and debt-related restricted cash) 12,899 12,213 F
EBITDA/interest (C/D) 6.2 5.4
Debt/EBITDA (F/C) 2.4 2.8
Cash provided by operating
activities+cash interest expense/
cash interest expense (A+D/D) 5.4 5.4
Total debt/cash provided by operating
activities - ratio (E/A) 3.7 3.7
Exhibit 4a: Consolidated -- operational earnings reconciliation
Q1 07; $ millions and $ per share after tax
Energy Energy Electric Electric
Factor Holdings Holdings Delivery Delivery Corp. Corp. Total Total
Operational
earnings (loss) 441 0.95 86 0.19 (83) (0.18) 444 0.96
Special items (912) (1.96) -- -- (29) (0.06) (941) (2.02)
Effect of share
dilution/
rounding -- (0.02) -- -- -- (0.01) -- (0.03)
Net income (loss) to
common (471) (1.03) 86 0.19 (112) (0.25) (497) (1.09)
Average shares
- diluted 465
Average shares
- basic 458
Exhibit 4b: Consolidated -- operational earnings reconciliation
Q1 06; $ millions and $ per share after tax
Energy Energy Electric Electric
Factor Holdings Holdings Delivery Delivery Corp. Corp. Total Total
Operational earnings
(loss) 533 1.12 65 0.14 (69) (0.14) 529 1.12
Special items (13) (0.03) -- -- -- -- (13) (0.03)
Discontinued
operations -- -- -- -- 60 0.13 60 0.13
Rounding -- 0.01 -- -- -- (0.01) -- --
Net income (loss)
to common 520 1.10 65 0.14 (9) (0.02) 576 1.22
Average shares
- diluted 474
TXU CORP.
DALLAS, TEXAS
SUMMARY OF CONSOLIDATED EARNINGS
(Unaudited)
THREE MONTHS ENDED March 31 2007 2006 % Change
Operating Revenues $1,669,000,000 $2,304,000,000 -27.6%
Income (Loss) from Continuing
Operations (a) ($497,000,000) $516,000,000 --
Consolidated Net Income (Loss)(b) ($497,000,000) $576,000,000 --
Average Number of Shares of
Common Stock Outstanding, Basic 458,000,000 464,000,000 -1.3%
Average Number of Shares of
Common Stock Outstanding, Diluted 458,000,000 474,000,000 -3.4%
Basic Earnings (Loss) per Share ($1.09) $1.24 --
Diluted Earnings (Loss) per
Share ($1.09) $1.22 --
(a) Q1 07 includes net after-tax expenses of $941 million treated as
special items primarily related to a charge of $463 million associated
with the Q1 07 suspension of certain generation facility development
projects, unrealized mark-to-market and cash flow net losses of $449
million associated with the company's long-term hedging program and
charges of $29 million related to corporate projects expenses and costs
associated with TXU's proposed merger. Q1 06 includes special items of $13
million related to unrealized hedge ineffectiveness and mark-to-market net
losses associated with the company's long-term hedging program.
(b) Q1 06 includes income from discontinued operations of $60 million
related primarily to reversal of an income tax reserve for TXU Gas upon
favorable resolution of a tax audit matter in Q1 06.
(1) Per share earnings amounts reflect diluted earnings per share. See
calculations in Table 2 on page 5.
(2) Operational earnings is a non-GAAP measure that adjusts net income
for special items and income or losses that are not related to
continuing operations. See Attachment 1: Financial Definitions for a
detailed definition of operational earnings and other GAAP and
non-GAAP financial measures used in this release.
(3) Beginning in the fourth quarter 2006, TXU treats as a special item
and excludes from operational earnings the effects of unrealized
gains and losses from cash flow hedge ineffectiveness and other
mark-to-market valuations of positions in its long-term hedging
program. First quarter 2006 has been adjusted accordingly.
Management uses this view to evaluate results on an as realized
basis and believes it is a useful measure when combined with the
GAAP presentation. See page 5 and Appendix Table A for details of
special items.
(4) Because of anti-dilution rules, average basic shares outstanding are
used in calculating first quarter 2007 reported earnings. The
dilution calculation for operational earnings reflects the addition
to net income available to common shareholders of interest on
convertible senior notes of $0.3 million (after tax), and the
addition to shares outstanding of 6.8 million shares related to the
effect of: 1) share- based compensation (5.3 million) and 2)
convertible senior notes (1.5 million). For first quarter 2006, the
dilution calculation for reported and operational earnings per share
reflects the addition to net income available to common shareholders
of interest on convertible senior notes of $0.3 million (after tax),
and the addition to shares outstanding of 9.8 million shares related
to the effect of: 1) share- based compensation (6.2 million), 2)
equity-linked securities (2.1 million) and 3) convertible senior
notes (1.5 million).
(5) Facility with a May 2007 maturity date was terminated and replaced
on March 1, 2007 with a new 364-day facility due to mature in
February 2008 with terms comparable to TXU's other existing
facilities. The amount in the 12/31/06 column was under the since
terminated facility.
(6) Generation development charges represent estimated expenses
associated with the cancellation/curtailment of a portion of the
company's generation development plans including suspension (in
first quarter 2007) of eight of 11 coal-fueled generation facilities
in Texas and their planned termination upon closing of the proposed
merger announced February 26, 2007.
(7) Includes expenses previously incurred and deferred related to the
analysis and planning associated with certain previously anticipated
strategic transactions that are no longer expected to be consummated
as a result of the proposed merger agreement and expenses associated
with the proposed merger.
(8) Amounts in first quarters 2007 and 2006 include unrealized net
losses of $599 million and $20 million, respectively, from cash flow
hedge ineffectiveness and other mark-to-market valuations of
long-term hedging program positions.
(9) Includes volumes related to ERCOT balancing of 324 gigawatt-hours
(GWh) and 1,431 GWh of net sales in first quarter 2007 and first
quarter 2006, respectively.
(10) Based upon the average of the period beginning and ending customers.
(11) Average for service territory is based on a 50 percent - Dallas/Fort
Worth, 25 percent - Mineral Wells and 25 percent - Waco weighting.
Weather data is obtained from WeatherBank, Inc., an independent
company that collects and archives weather data from reporting
stations of the National Oceanic and Atmospheric Administration (a
federal agency under the U.S. Department of Commerce).
(12) End of period. Estimated market share is based on the estimated
number of customers (meters) in the native market and the estimated
number of customers (meters) in ERCOT that have choice.
(13) Excludes planned outages and economic back-down.
(14) Represents reversals of unrealized mark-to-market valuations of
these positions recognized in earnings prior to the beginning of the
period, to offset realized gains and losses upon settlement.
(15) Includes a $97 million (pre-tax) charge for "day one" losses
recorded in first quarter 2007 related to a series of commodity
price hedge transactions entered into at below-market prices.
(16) These amounts do not arise from mark-to-market valuations. Includes
initial values of positions involving the receipt or payment of cash
or other consideration such as option premiums paid and received and
related amortization. Activity for the period includes $71 million
of natural gas received related to physical swap transactions and a
$102 million premium paid in 2007 related to a structured economic
hedge transaction in the long-term hedging program.
(17) Includes lighting sites, principally guard lights, for which TXU
Energy is the REP, but are not included in TXU Energy's customer
count. Such sites totaled 81,449 and 85,477 at March 31, 2007 and
2006, respectively. Adjusting for the guard lights, which have
minimal value, points of delivery increased 1.6 percent.
(18) SAIDI is the average number of electric service outage minutes per
customer in a year. SAIFI is the average number of electric service
interruptions per customer in a year. CAIDI is the average duration
in minutes of interruptions to electric service in a year.
SOURCE TXU Corp.
-0- 05/09/2007
/CONTACT: Investors, Tim Hogan, +1-214-812-4641, Bill Huber,
+1-214-812-2480, or Steve Oakley, +1-214-812-2220; or Media, Lisa Singleton,
+1-214-812-5049, all of TXU Corp. /
/Web site: http://www.txu.com /
(TXU)