DALLAS, Aug. 2 /PRNewswire-FirstCall/ -- TXU Corp. (NYSE: TXU) today
reported consolidated results for the second quarter ended June 30, 2005.
* Reflecting the successful execution of its ongoing restructuring
program, TXU reported net income available to common shareholders of
$375 million, or $1.39 per share,(1) for the second quarter of 2005
compared to a net loss available to common shareholders of $598 million,
or $1.87 per share, for the second quarter 2004.
* Quarterly operational earnings(2) show the same strong growth
trajectory. Operational earnings, which exclude special items and
discontinued operations, were $381 million, or $1.57 per share, during
the second quarter of 2005 compared to $168 million, or $0.51 per share,
for the second quarter 2004, a 208 percent increase in per share
earnings.
* For the six months ended (year-to-date) June 30, 2005, TXU reported net
income available to common shareholders of $791 million, or $1.21 per
share, compared to a net loss available to common shareholders of $425
million, or $1.32 per share, for year-to-date June 30, 2004.
* Year-to-date operational earnings were $628 million, or $2.58 per share,
compared to $316 million, or $0.93 per share, for year-to-date 2004, a
177 percent increase on a per share basis.
* TXU's outlook for operational earnings for 2005 remains at $6.25 to
$6.45 per share of common stock, and the initial outlook for 2006 growth
relative to the 2005 outlook remains at 16 to 20 percent. TXU expects
roughly 60 percent of the remaining operational earnings for 2005 to be
earned in the third quarter.(3)
Reported Earnings
In 2004, TXU launched a comprehensive restructuring program, which
included the disposition of non-core businesses, increased investments in
customer service and reliability, and a broad-based operational improvement
program. The successful execution of this ongoing restructuring program is
evident in the company's quarterly results. For the second quarter of 2005,
TXU's reported earnings of $375 million compared to a net loss available to
common shareholders of $598 million in the second quarter of 2004. Income
from continuing operations was $383 million, or $1.43 per share, for the
second quarter of 2005 compared to a loss of $90 million, $0.28 per share, for
the comparable prior-year period. TXU's reported earnings include a loss from
discontinued operations(4) of $4 million, or $0.02 per share. Income from
continuing operations for the second quarter of 2005 includes special charges
of $2 million, or $0.01 per share, associated with transitional costs related
to TXU's outsourcing agreement with Capgemini Energy. For the second quarter
of 2004, income from continuing operations included special charges totaling
$263 million, or $0.78 per share, primarily related to TXU's major
restructuring and operational improvement program. Special items are listed
in Appendix Tables A1 and A2 on page 13.
Reported earnings for year-to-date 2005 were $791 million, or $1.21 per
share, compared to a net loss of $425 million, or $1.32 per share, for the
comparable 2004 period. For the 2005 and 2004 year-to-date periods, reported
earnings include income from discontinued operations of $11 million ($0.05 per
share) and $380 million ($1.18 per share), respectively. Year-to-date 2004
reported earnings also include a $16 million ($0.05 per share) extraordinary
gain and an $849 million ($2.64 per share) buyback premium on exchangeable
preferred membership interests (EPMI) purchased in April 2004. Year-to-date
2005 income from continuing operations was $790 million, or $1.20 per share,
compared to $39 million, or $0.12 per share, for the comparable prior-year
period. Income from continuing operations for year-to-date 2005 includes
special credits, primarily associated with reductions in tax reserves and
insurance proceeds associated with litigation settlement expenses net of
transitional Capgemini outsourcing costs and other restructuring-related
expenses, totaling $152 million, or $0.63 per share. For the comparable 2004
period, income from continuing operations included special charges totaling
$288 million, or $0.80 per share, primarily related to TXU's major
restructuring and operational improvement plan implemented in 2004.
For purposes of calculating 2005 reported earnings per share, net income
is reduced by $36 million for the second quarter and $498 million for the
year-to-date period due to the true-up of the company's accelerated share
repurchase program. These amounts represent the change during the second
quarter and year-to-date, respectively, in the true-up values estimated at
March 31, 2005 and December 31, 2004. The actual cash true-up of $523
million, including fees and expenses, was paid in May upon completion of the
program.
Reported and operational earnings per share are diluted. For periods when
common stock equivalents are not dilutive, diluted shares are equal to basic
shares outstanding.
Operational Earnings
Quarterly operational earnings increased from $0.51 per share in the
second quarter of 2004 to $1.57 per share in the second quarter of 2005, an
increase of 208 percent. This strong growth rate reflects improvements in
contribution margins and reductions in operating costs and selling, general
and administrative expenses in TXU's core businesses, reflecting the
successful ongoing implementation of TXU's restructuring program. The
earnings per share improvement also shows the impact of fewer average common
shares outstanding, partially offset by increased corporate and other
expenses.
"The strong second quarter results demonstrate our progress in
transforming TXU into a high-performance industrial company," said C. John
Wilder, chairman and CEO of TXU Corp. "We're relentlessly executing, even
with unsustainably low retail margins, volatile commodity prices, and robust
competition in our retail business."
Operational earnings of $2.58 per share for the 2005 year-to-date period
increased $1.65 per share compared to 2004. The improved results reflect
improved performance from the TXU Energy Holdings and TXU Electric Delivery
segments, reduced corporate and other expenses, and fewer average common
shares outstanding.
Operational earnings are discussed in more detail beginning on page 4
under Consolidated Operational Earnings Summary.
Earnings Teleconference Today
TXU will host a teleconference with financial analysts to discuss its
second quarter 2005 results at 10:00 a.m. Central (11:00 a.m. Eastern) today.
The telephone numbers are 800-309-0343 in the United States and Canada and
706-634-7057 internationally, with confirmation code 7644091. The
teleconference will be web cast live on TXU Corp.'s web site at
http://www.txucorp.com for all interested parties.
Consolidated Results
Tables 1a and 1b below provide the shares and adjustments included in the
calculation of diluted earnings per share for reported and operational
earnings for second quarter and year-to-date 2005 compared to the comparable
2004 periods.
Table 1a: Summary Calculation of Earnings Per Share(5)
Q2 05 and Q2 04; $ millions, million shares, $ per share
Q2 05 Q2 05 Q2 04 Q2 04
Factor Reported Operational Reported Operational
Net income to common 375 - (598) -
Operational earnings - 381 - 168
Interest on EPMI,
convertible senior
notes - - - 4
Accelerated share
repurchase (ASR)
true-up (36) - - -
Average shares for
diluted earnings
calculation
Basic shares - - 320 -
Diluted shares 243 243 - 337
Diluted earnings per
share 1.39 1.57 (1.87) 0.51
Table 1b: Summary Calculation of Earnings Per Share(6)
YTD 05 and YTD 04; $ millions, million shares, $ per share
YTD 05 YTD 05 YTD 04 YTD 04
Factor Reported Operational Reported Operational
Net income to common 791 - (425) -
Operational earnings - 628 - 316
Interest on EPMI,
convertible senior
notes - - - 18
ASR true-up (498) - - -
Average shares for
diluted earnings calculation
Basic shares - - 322 -
Diluted shares 243 243 - 358
Diluted earnings per
share 1.21 2.58 (1.32) 0.93
Tables 2a and 2b below reconcile operational earnings to reported net
income available for common stock.
Table 2a: Reconciliation of Operational Earnings to Reported Net Income
Available to Common Shareholders
Q2 05 vs. Q2 04; $ millions and $ per share after tax
Q2 05 Q2 05 Q2 04 Q2 04
Factor $ Millions $ Per Share $ Millions $ Per Share
Net income (loss)
to common 375 1.39 (598) (1.87)
Discontinued operations 4 0.02 (330) (1.03)
Extraordinary gain - - (16) (0.05)
Buyback premium on EPMI - - 849 2.65
Preference stock dividends 4 0.02 5 0.02
Income (loss) from
continuing operations 383 1.43 (90) (0.28)
Effect of ASR true-up - 0.15 - -
Effect of share dilution - - - 0.03
Preference stock
dividends (4) (0.02) (5) (0.02)
Special items 2 0.01 263 0.78
Operational earnings 381 1.57 168 0.51
Table 2b: Reconciliation of Operational Earnings to Reported Net Income
Available to Common Shareholders
YTD 05 vs. YTD 04; $ millions and $ per share after tax
YTD 05 YTD 05 YTD 04 YTD 04
Factor $ Millions $ Per Share $ Millions $ Per Share
Net income (loss)
to common 791 1.21 (425) (1.32)
Discontinued operations (11) (0.05) (380) (1.18)
Extraordinary gain - - (16) (0.05)
Buyback premium on EPMI - - 849 2.64
Preference stock dividends 10 0.04 11 0.03
Income (loss) from
continuing operations 790 1.20 39 0.12
Effect of ASR true-up - 2.05 - -
Effect of share dilution/
rounding - - - 0.04
Preference stock
dividends (10) (0.04) (11) (0.03)
Special items (152) (0.63) 288 0.80
Operational earnings 628 2.58 316 0.93
Special items for the second quarter 2005 represent $2 million after tax,
or $0.01 per share, for expenses related to Capgemini transition costs.
Special items for the year-to-date period totaled a credit of $152 million
after tax, or $0.63 per share. These benefits relate primarily to the
reduction of $138 million of the company's federal income tax valuation
allowance reserve for the write-off of its investment in TXU Europe due to the
anticipated use of additional capital losses, and additional insurance
proceeds of $23 million ($35 million before tax) related to the settlement of
the securities class action lawsuit announced in January 2005. Special items
for the 2005 and 2004 quarter and year-to-date periods are described in
Appendix Tables A1 and A2.
For the quarter and year-to-date 2004, special items totaled $263 million
($0.78 per share) and $288 million ($0.80 per share) of charges, respectively.
Special items in these periods relate primarily to costs associated with the
company's restructuring and improvement program implemented in 2004, and
include severance-related charges and software project write-offs related to
the Capgemini outsourcing plan, other severance-related charges arising from
organizational realignments, a write-down of spare parts inventories from
excess items on hand, impairments of generation-related assets due to
closures, debt retirement expenses associated with the company's liability
management program, one-time compensation expenses, and an accrual for the
potential settlement of certain litigation, partially offset by the reduction
in tax reserves associated with the 2002 write-off of the TXU Europe
investment.
Consolidated Operational Earnings Summary
Table 3 below provides a consolidated summary of major drivers of
operational earnings per share. A more detailed discussion of contributions
and drivers by segment is provided in Business Segment Results beginning on
page 6.
Table 3: Consolidated -- Operational Earnings Reconciliation
Q2 04 to Q2 05 and YTD 04 to YTD 05; $ millions and $ per share
QTR QTR YTD YTD
Earnings Factor $ Millions $ Per Share $ Millions $ Per Share
Q2 04 operational earnings 168 0.51 316 0.93
TXU Energy Holdings segment 197 0.58 274 0.76
TXU Electric Delivery segment 26 0.08 32 0.09
Corporate expenses (10) (0.03) 6 0.02
Effect of reduced shares - 0.43 - 0.78
Q2 05 operational earnings 381 1.57 628 2.58
Operational earnings were $1.57 per share, up 208 percent from $0.51 per
share in the second quarter of 2004. The increase includes a $0.58 per share,
or 129 percent improvement in operational earnings from the unregulated TXU
Energy Holdings segment, an $0.08 per share, or 44 percent improvement in
operational earnings from the regulated TXU Electric Delivery segment, and a
$0.43 per share improvement attributable to the reduction in average shares
outstanding, partially offset by a $0.03 per share increase in corporate
expenses. The decrease in average shares of common stock was primarily due to
the repurchase of the EPMI in April 2004 and approximately 84 million shares
of TXU Corp. common stock from May through November 2004.
Year-to-date operational earnings rose by $1.65 per share, or 177 percent
over the $0.93 per share in 2004 as a result of a $0.78 per share improvement
attributable to reduction in the average shares outstanding, a $0.76 per share
improvement in TXU Energy Holdings segment performance, a $0.09 per share
improvement in TXU Electric Delivery segment performance, and a $0.02 per
share decrease in corporate expenses. A more detailed discussion of drivers
of segment performance is provided in Business Segment Results beginning on
page 6.
Cash Flow and Financial Flexibility
The benefits of TXU's restructuring program are also evident in continued
improvement in returns, financial flexibility measures, and cash flow.
Table 4 below provides a summary of consolidated common stock and return
measures at June 30, 2005 and 2004.
Table 4: Consolidated -- Return Statistics
Twelve months ended 6/30/05 and 6/30/04; mixed measures
Statistic 6/30/05 6/30/04 % Change
Common stock data:
Basic shares outstanding-end of
period (millions) 240 297 (19.2)
Return on average common stock equity
- based on net income (%) 37.0 (0.2) -
Return on average common stock equity
- based on operational earnings (%) 53.4 15.0 -
Return on average invested capital
- based on net income (%) 7.9 7.3 8.2
Return on average invested capital
- based on operational earnings (%) 10.1 6.4 57.8
TXU Corp.'s continued progress in improving its financial flexibility is
reflected in its credit metrics for the second quarter 2005 as compared to the
second quarter of 2004 in Table 5 below. Strong credit metrics are an
essential determinant in TXU Corp.'s disciplined approach to capital
allocation. The credit metric improvements incorporate an increase in the
second quarter 2005 of $1 billion in total debt, excluding transition bonds,
to $12.8 billion. The increase was due to the payment of a $523 million true-
up of the accelerated share repurchase program, the redemption of $300 million
of preference stock, and payment of dividends. The majority of TXU's cash
flow is typically received in the second half of the year, and the financial
flexibility measures, EBITDA/interest and debt/EBITDA, are expected to
continue to improve.
Table 5: Consolidated -- Financial Flexibility Measures
Twelve months ended 6/30/05 and 6/30/04; $ millions and ratios
Financial Flexibility Measure 6/30/05 6/30/04 Change % Change
EBITDA (excluding special
items) 3,220 2,466 754 30.6
Cash interest expense 712 721 (9) (1.2)
Debt (excluding transition
bonds) 12,784 12,287 497 4.0
EBITDA/interest 4.5 3.4 1.1 32.4
Debt/EBITDA 4.0 5.0 (1.0) (20.0)
As shown in Table 6, for year-to-date 2005, cash provided by operating
activities was $594 million, an increase of $107 million over the comparable
2004 period. The improvement primarily reflects higher earnings (as adjusted
for non-cash items in the statement of cash flows). This was offset by a $232
million increase in use of cash for working capital (accounts receivable,
inventories, and accounts payable) primarily due to timing effects arising
from lower wholesale power purchases and sales, as well as higher retail
accounts receivable balances due to higher prices and hotter weather. The
variance also includes an $84 million payment, net of insurance recoveries, in
settlement of the consolidated amended securities class action suit.
Table 6: Consolidated -- Cash and Free Cash Flow
YTD 05 and YTD 04; $ millions
Cash Flow Factor YTD 05 YTD 04 Change % Change
Cash provided by
operating activities 594 487 107 22.0
Capital expenditures (507) (355) (152) (42.8)
Nuclear fuel (26) (47) 21 44.7
Free cash flow 61 85 (24) (28.2)
Table 7 below represents available liquidity (cash and available credit
facility capacity) as of July 29, 2005 and December 31, 2004. In March 2005,
TXU Corp.'s subsidiaries increased the capacity under their credit facilities
by $1 billion and lowered the cost and extended the terms of their credit
facilities as part of the company's ongoing efforts to improve liquidity and
financial flexibility. In June 2005, TXU Corp.'s subsidiaries obtained bank
commitments for an additional $1 billion facility with terms similar to those
facilities announced in March. The new facility is expected to close in
mid-August. TXU plans to maintain minimum available liquidity of $1.5
billion.
Table 7: Consolidated -- Liquidity
Available amounts as of 7/29/05 and 12/31/04; $ millions
Liquidity Component Borrower Maturity 7/29/05 12/31/04
Cash and cash
equivalents 94 106
$1.4 billion
credit TXU Energy Co./
facility TXU Electric Delivery Co. June 08 777 1,172
$1.6 billion
credit TXU Energy Co./
facility TXU Electric Delivery Co. March 10 1,170 -
$500 million credit TXU Energy Co./
facility TXU Electric Delivery Co. June 10 330 500
$500 million
credit facility TXU Energy Co. December 09 - 500
Terminated facilities - 531
Total liquidity 2,371 2,809
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 TXU
Electric Delivery segment, and Corporate operations.
TXU Energy Holdings Segment
TXU Energy Company LLC, the unregulated business segment of TXU Corp. (TXU
Energy Holdings segment), consists of electricity generation (TXU Power) and
consumer, business, and wholesale markets activities (collectively, TXU
Energy). These businesses are effectively managed as one business through the
wholesale markets function that captures the natural hedge inherent between
the retail and generation businesses. TXU Power and the retail business of
TXU Energy are separate legal entities that, in accordance with regulatory
requirements, operate independently within the competitive Texas power market.
TXU Energy Holdings Segment: Operational Performance
In 2004, TXU launched a comprehensive business improvement program in TXU
Energy Holdings, including significant investments in customer service and
production reliability, as well as productivity improvement initiatives
targeting efficiency gains in SG&A and operating expenses. TXU Power also
designed and implemented the TXU Operating System, incorporating lean
operating techniques and process discipline into TXU Power's generation plant
and mining operations. The impact of the TXU Operating System is evident in
second quarter operating performance. The lignite (coal) fleet set a second
quarter production record. Excluding planned outages, the lignite fleet
achieved a 96.2 percent capacity factor in the second quarter of 2005 compared
to 92.9 percent for the same period in 2004. TXU Operating System project
teams identified waste and improvement opportunities during two significant
lignite unit overhauls, reducing the number of days required to complete the
overhauls by 23 percent and generating combined contribution margin benefit of
approximately $15 million. TXU Power's nuclear operations achieved similar
results. Excluding planned outages, the nuclear units achieved a 101.4
percent capacity factor in the second quarter of 2005 compared to 98.5 percent
for the same period in 2004. Comanche Peak Unit 2 completed its eighth
refueling outage three days earlier than planned, creating approximately $4
million of additional contribution margin. While successfully achieving these
increased production levels, fuel costs were reduced in the second quarter of
2005 by 2.8 percent per megawatt-hour (MWh) relative to the second quarter of
2004 for the lignite plants and by 1.2 percent for Comanche Peak.
Additionally, operating costs for TXU Energy Holdings were reduced by $23
million in the second quarter of 2005 relative to the same quarter of last
year even with increases in base-load production levels.
TXU's new Power Optimization Center (POC) was also an important
contributor to the success of TXU Power's second quarter results. The POC
utilizes telecommunications and on-line diagnostic technologies to detect
plant performance issues before they become a problem, resulting in improved
heat rates and reliability. The POC is currently monitoring both nuclear units
and all nine lignite units with equipment and performance modeling
capabilities that are expected to be fully implemented by the end of the third
quarter. Benefits already delivered by the POC include early detection of
increasing temperatures and vibration on major equipment, such as pumps, fans
and motors. The POC is a significant component of TXU Power's strategy of
safely producing reliable and low cost generation.
TXU Energy (consumer, business, and wholesale markets) continued to make
progress toward operational excellence and market leadership in the second
quarter of 2005.
TXU Energy improved the customer experience in the second quarter of 2005
by reducing average speed to answer customer calls to 12 seconds as compared
to 27 seconds in the prior-year period, customer time in the integrated voice
recognition system (IVR) to an average of 78 seconds, down 21 percent from the
prior-year period, and the number of Public Utility Commission of Texas
complaints by five percent from the comparable prior-year period.
The Capgemini Energy partnership assisted in delivering these service
improvements and in reducing overall TXU Energy Holdings segment SG&A by $50
million in the second quarter of 2005 versus the second quarter of 2004, or
$47 million (29 percent) excluding special items in the prior-year period.
This includes an $11 million (55 percent) reduction in retail bad debt expense
(a $26 million reduction year-to-date), predominantly driven by application of
disciplined credit and collection practices. This was accompanied by the
assignment of employees to assist customers with financial needs and continued
contributions to TXU Energy Aid. As announced in 2004, TXU Energy and its
affiliates will contribute $15 million over a three-year period to TXU Energy
Aid, the company's program that provides funds to local social agencies to
help customers with temporary financial needs pay their energy bills.
The increased credit and collections activities and continuing robust
competition in consumer markets have driven continued customer attrition.
Competitor marketing and discounting have continued despite low headroom as a
result of increased wholesale power prices driven by increased heat rates and
natural gas prices. Net residential customer attrition was 2.9 percent for
the quarter, up from 1.2 percent the previous quarter and down from 0.2
percent net growth during the second quarter 2004. In the second quarter
2004, competitive activity was comparatively low, and the number of customers
returned to TXU Energy from competitive retailers due to non-payment was much
higher. Approximately 35 percent of the attrition in the second quarter 2005
(41 percent year-to-date) was driven by more effective bad debt management
efforts; the savings generated by reduced bad debt more than offset the
incremental costs of customer churn. Assuming natural gas prices at the
current PTB fuel factor rate of $7.87/MMBtu, projected full-year 2005 bad debt
expense reduction of $30 million to $40 million saves more than the equivalent
economic cost of a 10 percent churn in residential customers. Current gas
prices are significantly higher than $7.87/MMBtu, making the current bad debt
trade-off even more favorable. TXU Energy continues to target full-year
native market attrition of 7 to 8 percent.
TXU Energy is currently launching initiatives, such as retention programs
and competitive offers, to reduce the level of switching. These include
expansion of the successfully piloted TXU Rewards+ program in North Texas.
This internet-based loyalty program was launched in February 2005. It allows
TXU Energy customers to use Rewards dollars to obtain discounts on the
purchase of travel, entertainment and merchandise. More than 75,000 customers
have joined this program since it began, an increase of more than 150 percent
over the number of participants in the first quarter. In addition, the
consumer segment continues to expand competitive offerings in South Texas
while evaluating alternatives to the Price-to-Beat in North Texas. Further,
an advertising campaign is being launched to reinforce the benefits of being a
TXU Energy customer. The campaign, labeled "The Power of Peace of Mind,"
highlights TXU Energy's proven track record of responsive, worry-free customer
service at competitive rates. Outside of TXU's native market, these marketing
programs are expected to increase profitable customer acquisitions since TXU
Energy has improved its bad debt management capabilities and lowered its cost
to serve customers through the Capgemini Energy agreement and other
initiatives.
Competition also remains robust in business markets. However, the churn
rate for small and medium businesses has improved from first quarter levels.
The churn improvement is largely attributable to the expansion of the
telephone and direct sales forces early this year. Specialized offerings in
historically high churn categories were implemented in the second quarter and
direct sales coverage was recently expanded to smaller business customers.
Customer satisfaction in the business segment continues to improve as call
center initiatives such as TXU Energy 1-Call Resolution(SM) and dedicated
queues for specialized need customers have been implemented. Business call
satisfaction is nearly eight percent higher compared to the second quarter
2004. The acquisition process for new small and medium business customers has
been improved and pilot launches of new sales channels are underway. For
large commercial and industrial customers, volumes sold during the first half
of the year decreased to 8.5 terawatt-hours (TWh) as compared to 13.5 TWh in
the first half of 2004, reflecting TXU Energy's continued focus on
profitability and fierce competition in the market. Improvements have been
made in operational processes, contract underwriting criteria, and cost
structure. This focus has improved the customer mix and reduced sales-related
costs by over 30 percent.
TXU Energy Holdings Segment: Financial Performance
The financial performance of TXU Energy Holdings reflects the ongoing
successful implementation of the restructuring initiatives described above.
In the second quarter of 2005, the TXU Energy Holdings segment reported income
from continuing operations of $1.42 per share, a $1.48 per share improvement
over a loss from continuing operations of $0.06 per share in the second
quarter of 2004. Special charges for the second quarter 2005 were $2 million,
or $0.01 per share, as compared to $169 million, or $0.50 per share, in 2004,
as detailed in Appendix Table A1. Operational earnings in the second quarter
of 2005 were $1.43 per share, a 218 percent increase over $0.45 per share in
the prior-year period. Excluding the effect of lower average shares, the TXU
Energy Holdings segment operational earnings improved by $0.58 per share, or
129 percent.
For the year-to-date period ended June 30, 2005, the TXU Energy Holdings
segment reported income from continuing operations of $2.26 per share, a $1.96
per share increase over income from continuing operations of $0.30 per share
in the comparable 2004 period. Special charges for the 2005 year-to-date
period were $4 million, or $0.02 per share, as compared to $180 million, or
$0.50 per share in 2004, as detailed in Appendix Table A2. Operational
earnings for year-to-date 2005 were $2.27 per share, a 191 percent increase
over the $0.78 per share in the prior-year period. Excluding the effect of
lower average shares, the TXU Energy Holdings segment operational earnings
improved by $0.76 per share, or 97 percent.
Table 8 below reconciles the change in operational earnings from 2004 to
2005 for the second quarter and year-to-date periods. During the quarter,
contribution margins improved while operating costs, depreciation and
amortization, and SG&A expenses all registered declines relative to the second
quarter of last year.
Table 8: TXU Energy Holdings Segment -- Operational Earnings
Reconciliation
Q2 04 to Q2 05 and YTD 04 to YTD 05; $ millions and $ per share
QTR QTR YTD YTD
Earnings Factor $ Millions $ Per Share $ Millions $ Per Share
Q2 04 operational earnings 150 0.45 278 0.78
Contribution margin 244 0.72 288 0.80
Operating costs 23 0.07 37 0.10
Depreciation and amortization 11 0.03 29 0.08
SG&A 47 0.14 79 0.22
Franchise and revenue based
taxes 3 0.01 3 0.01
Other income and deductions (12) (0.04) (5) (0.01)
Net interest 3 0.01 - -
Income taxes (122) (0.36) (157) (0.44)
Effect of reduced shares - 0.40 - 0.73
Q2 05 operational earnings 347 1.43 552 2.27
The $244 million increase in contribution margin for the second quarter
2005 versus the comparable 2004 period reflects higher retail and wholesale
prices (primarily driven by increased natural gas prices), increased
consumption due to hotter weather (approximately $8 million in margin versus
normal weather and $11 million versus the prior year period), increased
hedging and risk management activities revenue, increased base-load (nuclear
and lignite) generation plant output, lower per unit base-load fuel costs, and
reduced use of less efficient gas-fired generation. These increases were
partially offset by the effect on contribution margins of decreased retail
sales volumes due to robust competition, higher purchased power prices due to
higher natural gas prices and heat rates, and higher delivery fees. The
decline in operating costs of $23 million was achieved despite increases in
plant production levels and reflects disciplined cost management, reduced
expenses resulting from the expiration of the customer services agreement with
TXU Gas and the sale of the TXU Fuel assets in June 2004, both of which have
associated reductions in contribution margin, and lower pension,
postretirement benefit and other expenses. The decrease in pensions and other
postretirement benefits expense is predominantly due to transfer of such costs
to TXU Electric Delivery for periods of service to the regulated business
prior to the 2002 unbundling of the company. The reduction in depreciation
and amortization expense of $11 million was primarily the result of reductions
in the 2005 depreciation rates for lignite generation facilities assets due to
an increase in the estimated average depreciable lives of the assets and
decreased depreciation expense associated with the transfer of certain assets
related to the Capgemini Energy outsourcing agreement. SG&A expenses for the
second quarter of 2005 declined $47 million primarily due to reductions in
shared services costs of $24 million including the effects of the Capgemini
Energy outsourcing agreement, reductions in pension and benefits expenses and
incentive plan accruals, and decreased retail bad debt expenses of $11 million
as a result of stricter disconnect policies and more focused collection
activities. The $12 million decrease in other income and deductions was
primarily the result of the absence of the previous gain amortization from the
sale of power plants due to the termination in late 2004 of a tolling contract
over the term of which the gain was being amortized. The increase in income
tax expense reflects increased earnings and a $10 million charge related to
the resolution of audits for 1994 to 1996.
The major drivers of year-to-date 2005 results were substantially the same
as for the second quarter 2005.
Total retail electricity revenues for the quarter ended June 30, 2005
increased $11 million, or 0.7 percent, as compared to the same period in 2004
primarily due to higher retail prices, reflecting increased power and natural
gas prices, and increased consumption due to hotter weather, offset by
decreased sales volumes resulting from the effects of retail customer losses.
Wholesale electricity revenues for the second quarter of 2005 increased $73
million, or 15.3 percent, as compared to the 2004 period, due to higher
wholesale prices, somewhat offset by lower sales volumes. The decrease of $8
million in other revenues for the second quarter 2005 as compared to the prior
period is primarily associated with the dissolution of the customer services
agreement with TXU Gas and the sale of the TXU Fuel assets in June 2004.
Appendix Table B provides details of operating revenues for the TXU Energy
Holdings segment for the second quarter of 2005 compared to previous year
period.
Appendix Tables C and D provide TXU Energy volume and customer statistics.
For the second quarter 2005, the 16.7 percent decrease in retail sales volumes
as compared to the 2004 period is predominantly due to a 38.4 percent decline
in large business volumes. Sales volumes also reflect a 3.0 percent decrease
in mass market (residential and small business) sales as compared to the
second quarter 2004 driven by competitive activity, somewhat offset by
increased usage due to hotter weather. Native market residential customer
levels declined 4.4 percent since year-end 2004 and 8.4 percent since June 30,
2004. Average weather adjusted volumes for the second quarter 2005 compared
to the comparable 2004 period increased as a result of TXU Energy's marketing,
customer service and credit collection activities.
Revenues from hedging and risk management activities increased $36 million
for the quarter ended June 30, 2005 versus the comparable 2004 period. The
increase primarily reflects gains from power positions held to hedge power
price risk as prices increased. It also includes improved results in
positions to hedge exposure in other commodities such as sulfur dioxide
emissions and coal ($12 million improvement) and various other improvements.
Results also include an increase of $18 million in net losses realized from
other comprehensive income resulting primarily from the effect of hedges
removed in 2004. Because hedging activities are intended to mitigate the risk
of commodity price movements on revenues and cost of energy sold, the changes
in such results should not be viewed in isolation but rather taken together
with the effects of price and cost changes on margins.
As shown in Appendix Table E, the total cost of energy sold and delivery
fees decreased $132 million, or 9.8 percent, for the second quarter 2005
compared to the prior-year quarter, primarily due to a decrease in sales
volumes. The segment contribution margin percent improved due to more
efficient and increased base-load generation and lower levels of natural gas
generation and purchased power, partially offset by higher prices of natural
gas and purchased power and an increase in average delivery fees.
Appendix Table F provides a quarter-to-quarter summary of the TXU Energy
Holdings segment generation and supply operating statistics. Results for the
second quarter 2005 depict the benefit of more effective sourcing of purchased
power versus higher heat rate natural gas-fired generation as well as
increased production from the nuclear and lignite generation plants. The
increase in average costs of natural gas and purchased power for 2005 was the
result of higher gas prices and increased market heat rates. The increase in
base-load production was primarily due to improved operating performance,
fewer nuclear generation refueling days, reduced outages and the timing of
maintenance outages.
TXU Electric Delivery Segment
The TXU Electric Delivery Segment consists of TXU Electric Delivery
Company, TXU Corp.'s regulated transmission and distribution business. TXU
Electric Delivery is the sixth largest electric delivery company in the
nation, delivering electricity to three million meters across a network of
over 14,000 miles of transmission lines and 100,000 miles of distribution
lines in the economically diverse north central, east and west Texas. The
North American Electric Reliability Council estimates a 2.0 to 2.5 percent
annual growth rate in the North Texas service area over the next 10 years, one
of the highest growth regions in their survey. The benefits of the economic
growth and significant ongoing investments in transmission infrastructure are
reflected in TXU Electric Delivery's operational earnings improvement of $0.08
per share, or 44 percent, excluding the effect of reduced average shares,
during the second quarter of 2005 relative to the same period last year.
TXU Electric Delivery Segment: Operational Highlights
In the second quarter, the TXU Electric Delivery segment continued to make
progress on its goals of delivering operational excellence in system
reliability and maintaining a position of cost leadership. Operations and
maintenance (O&M) expense of $77 per distribution customer and O&M expense of
$2.24 per MWh delivered were at or near top-decile performance. The segment
also placed at or near top quartile reliability performers with a System
Average Interruption Duration Index (SAIDI) performance of 77.7 minutes
through the second quarter of 2005, 6 percent better than full-year 2003. As
reported in the Public Utility Commission of Texas Service Quality Report for
2004, TXU Electric Delivery non-storm outage minutes were 38 percent lower
than the comparable utility and 19 percent better than 2002, or two years
earlier. Summer readiness projects have been completed including high
priority projects to reduce transmission grid congestion in the Dallas-Fort
Worth area. TXU Electric Delivery transmission projects added 2,458 MVA (Mega
Volt Ampere) of transformer capacity; 1,050 Mvar (Mega Volt Ampere Reactive)
of reactive capacity and 243 miles of new, upgraded, or rebuilt circuit line.
In addition to traditional reliability-enhancing maintenance and related
programs, the TXU Electric Delivery segment is relentlessly focusing on
improving reliability and customer satisfaction while holding down operations
expense through increased technology investment. The TXU Electric Delivery
segment is implementing automated meter reading (AMR) to provide two-way
communications with meters. In addition to providing basic measurement
functions (i.e., meter reading), two-way communications to the customer
premise will provide capability for valuable system intelligence and control
such as real-time load survey, service interruption and restoration status,
and remote connect/disconnect capabilities. A pilot AMR deployment of roughly
2,800 meters was completed in April 2005, with an additional 80,000 meters to
be installed by year end. In light of the recent legislation regarding
recovery of AMR investments, scenarios are being reviewed to accelerate the
AMR deployment program.
Additionally, the TXU Electric Delivery segment has begun deployment of
distribution system equipment that provides for automatic service restoration
following an outage. This technology essentially creates a "self-healing"
delivery system. The first system was commissioned in June 2005 with
additional systems to be installed by year end.
TXU Electric Delivery Segment: Financial Highlights
The TXU Electric Delivery segment reported income from continuing
operations of $0.35 per share in the second quarter of 2005, compared to $0.15
per share in the second quarter of 2004, an increase of 133 percent. Special
charges were less than a penny in the current year period and $0.04 in the
second quarter of 2004. Excluding the effect of lower average shares, the TXU
Electric Delivery segment operational earnings improved by $0.08 per share.
For the year-to-date periods ended June 30, 2005 and 2004, income from
continuing operations was $0.65 per share and $0.35 per share, respectively.
Special charges were less than a penny in the current-year period and $0.04
per share year-to-date 2004. Excluding the effect of reduced weighted average
shares outstanding, operational earnings for the segment improved by $0.09 per
share over the prior year, an increase of 26 percent.
Table 9 below reconciles the change in operational earnings from 2004 to
2005 for the second quarter and year-to-date periods.
Table 9: TXU Electric Delivery Segment -- Operational Earnings
Reconciliation
Q2 04 to Q2 05 and YTD 04 to YTD 05; $ millions and $ per share
QTR QTR YTD YTD
Earnings Factor $ Millions $ Per Share $ Millions $ Per Share
Q2 04 operational
earnings 60 0.18 126 0.35
Contribution margin
(revenues) 46 0.14 73 0.20
Operating costs (1) - (5) (0.01)
Depreciation and
amortization (25) (0.08) (43) (0.12)
SG&A 9 0.03 9 0.03
Franchise and revenue
based taxes 3 0.01 3 0.01
Other income and
deductions (3) (0.01) (6) (0.02)
Net interest 3 0.01 9 0.02
Income taxes (6) (0.02) (8) (0.02)
Effect of reduced shares - 0.09 - 0.21
Q2 05 operational earnings 86 0.35 158 0.65
Excluding the $0.09 per share benefit of reduced average shares, the TXU
Electric Delivery segment's contribution for the second quarter increased by
$0.08 per share from the prior-year period. The improved performance
reflected an increase of $25 million ($0.07 per share pre-tax) in contribution
margin (revenues) due to increased transmission and other tariff revenues and
underlying market growth. Revenues also increased $21 million related to
transition charge tariffs to service securitization bonds, which have
offsetting amortization expense.
In tandem with these contribution margin improvements, operating costs
held steady, increasing by only $1 million, primarily due to increased
expenditures for vegetation management to improve reliability and other
maintenance expenditures, substantially offset by an $8 million reduction in
pension and other postretirement benefits expense. SG&A expense decreased by
$9 million including a decrease in pension and other postretirement benefits
expense, reduced incentive compensation, and lower support services costs as a
result of the Capgemini Energy outsourcing agreement. Pension and other
postretirement benefits expenses reflect the previously disclosed transfer of
pre-2002 expenses from TXU Energy Holdings and deferral through regulatory
assets and capitalization of $19 million pursuant to an amendment to the
Public Utilities Regulatory Act enacted by the Texas Legislature in May 2005.
The amendment provides for the deferral of amounts of pension and other
postretirement benefits expenses that are more or less than the actual amounts
approved in current rates. The $25 million increase in depreciation and
amortization expense was primarily due to $21 million ($0.06 per share pre-
tax) of amortization of regulatory assets as a result of securitization bonds
issued in June 2004, which have equal associated transition revenues. The
major factor in decreased net interest (interest expense net of interest
income) was lower average interest rates. Income taxes reflect a $4 million
credit related to the resolution of audits for 1994 to 1996.
The major drivers of year-to-date 2005 results were substantially the same
as for the quarter 2005.
Appendix Tables I, J1 and J2 summarize the details of the operating
revenues and operating statistics for the TXU Electric Delivery segment for
the second quarter and year-to-date 2005 and 2004.
Corporate and Other
Corporate and Other consists of TXU Corp.'s remaining non-segment
operations consisting primarily of discontinued operations, general corporate
expenses, and interest on debt at the corporate level. For the second quarter
2005 the loss from continuing operations for Corporate and Other was $48
million, or $0.34 per share, reflecting the dilution adjustment related to the
true-up for the accelerated share repurchase program, as compared to a loss of
$118 million, or $0.37 per share, for the second quarter 2004. Excluding the
dilution effect of the accelerated share repurchase program, deducting
preference stock dividends, and adjusting for special items in 2004 as
detailed in Appendix Table A1, operational results were a loss of $0.21 per
share in the second quarter 2005 as compared to a loss of $0.12 per share in
the second quarter of 2004.
Excluding the effect of reduced shares, current period expenses increased
by $0.03 per share from the prior-year period. The change is primarily
related to increased net interest expense.
Year-to-date 2005 income from continuing operations for Corporate and
Other was $85 million, but represents a loss of $1.71 per share, reflecting
the dilution adjustment related to the true-up for the accelerated share
repurchase program, as compared to a loss of $171 million, or $0.53 per share
for the comparable 2004 period. Excluding the dilution effect of the
accelerated share repurchase program, deducting preference stock dividends,
and adjusting for special items of a credit of $0.65 per share in 2005 and a
charge of $0.26 per share in 2004 as detailed in Appendix Table A2,
operational results were a loss of $0.34 per share year-to-date 2005 as
compared to a loss of $0.20 per share in the comparable 2004 period.
Excluding the effect of reduced shares, expenses were reduced by $0.02 per
share.
Outlook and Strategic Review
TXU's outlook for operational earnings for 2005 remains at $6.25 to $6.45
per share of common stock and the initial outlook for 2006 growth relative to
the 2005 outlook remains at 16 to 20 percent. TXU expects roughly 60 percent
of the remaining operational earnings for 2005 to be earned in the third
quarter. As previously announced, subsequent to rating actions taken by
Standard & Poor's Rating Services, TXU has undertaken a detailed review of its
financial strategy and business plans. In addition, TXU is continuing to
evaluate growth strategies and other value-creating opportunities involving
each of its businesses and assets. TXU expects to provide additional details
as these activities are completed.
Additional Information
Additional information, including consolidating income statements,
consolidating balance sheets, consolidated cash flow, and legal and regulatory
summaries, can be obtained under the 2005 heading in the Second Quarter
Financial Results file at http://www.txucorp.com/investres/default.asp.
TXU Corp., a Dallas-based energy company, manages a portfolio of
competitive and regulated energy businesses in North America, primarily in
Texas. In TXU Corp.'s unregulated business, TXU Energy provides electricity
and related services to more than 2.4 million competitive electricity
customers in Texas, more customers than any other retail electric provider in
the state. TXU Power has over 18,300 megawatts of generation in Texas,
including 2,300 MW of nuclear and 5,837 MW of lignite/coal-fired generation
capacity. The company is also one of the largest purchasers of wind-generated
electricity in Texas and North America. TXU Corp.'s regulated electric
distribution and transmission business, TXU Electric Delivery, complements the
competitive operations, using asset management skills developed over more than
one hundred years, to provide reliable electricity delivery to consumers. TXU
Electric Delivery operates the largest distribution and transmission system in
Texas, providing power to more than 3 million electric delivery points over
more than 100,000 miles of distribution and 14,000 miles of transmission
lines. Visit http://www.txucorp.com for more information about TXU Corp.
This release contains forward-looking statements, which are subject to
various risks and uncertainties. Discussion of risks and uncertainties that
could cause actual results to differ materially from management's current
projections, forecasts, estimates and expectations is contained in the
company's SEC filings. In addition to the risks and uncertainties set forth
in the company's SEC filings, the forward-looking statements in this release
could be affected by actions of rating agencies, changes in wholesale
electricity prices or energy commodity prices and the company's ability to
anticipate such changes, delays in implementing any future price-to-beat fuel
factor adjustments, the ability of the company to attract and retain
profitable customers, changes in demand for electricity, the impact of
weather, changes in wholesale electricity prices or energy commodity prices,
the ability of the company to implement the initiatives that are part of its
restructuring, operational improvement and cost reduction program, and the
terms under which the company executes those initiatives, and the decisions
made and actions taken as a result of the financial and growth strategies
review as discussed above.
SOURCE TXU Corp.
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Related links:
http://www.txu.com
CONTACT:
Investor Relations, Tim Hogan,
+1-214-812-4641, or Bill Huber, +1-214-812-2480, or Steve Oakley,
214-812-2220, or Media, Chris Schein, +1-214-875-8329, all for
TXU Corp.
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