Back to GetFilings.com
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3183
TXU Gas Company
(Exact Name of Registrant as Specified in its Charter)
Texas 75-0399066
(State of Incorporation) (I.R.S. Employer Identification No.)
1601 Bryan Street, Dallas, TX 75201 (214) 812-4600
(Address of Principal Executive Offices) (Registrant's Telephone Number)
(Zip Code)
------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- -------------------------
Depositary shares, Series F, each representing New York Stock Exchange
1/40 share of the Adjustable Rate Cumulative
Preferred Stock, Series F, liquidation preference
$1,000 per share
Securities registered pursuant to Section 12(g) of the Act: None
----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act). Yes[ ] No [X]
Aggregate market value of TXU Gas Company Common Stock held by
non-affiliates: None
Common Stock outstanding at March 12, 2004: 449,631 shares, par value
$0.01 per share.
----------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE - None
----------------------------------------
===============================================================================
TABLE OF CONTENTS
Page
----
Glossary.......................................................................................... iii
PART I
Items 1. and 2. BUSINESS and PROPERTIES
BUSINESS 1
COMPETITIVE STRATEGY.................................................................. 1
DESCRIPTION OF OPERATIONS............................................................. 2
ENVIRONMENTAL MATTERS................................................................. 4
Item 3. LEGAL PROCEEDINGS..................................................................... 5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................... 5
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................................... 5
Item 6. SELECTED FINANCIAL DATA............................................................... 5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................... 5
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK..................................................................... 5
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................... 6
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
ACCOUNTING AND FINANCIAL DISCLOSURE................................................... 6
Item 9A. CONTROLS AND PROCEDURES............................................................... 6
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................... 7
Item 11. EXECUTIVE COMPENSATION................................................................ 9
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 21
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 22
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES................................................ 22
i
Page
----
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 24
APPENDIX A - Financial Information of TXU Gas Company
APPENDIX B - Exhibits to 2003 Form 10-K
Periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K that
contain financial information of TXU Gas Company are made available to the
public, free of charge, on the TXU Corp. website at http://www.txucorp.com,
shortly after they have been filed with the Securities and Exchange Commission.
TXU Gas Company will provide copies of current reports not posted on the website
upon request.
ii
GLOSSARY
When the following terms and abbreviations appear in the text of this report,
they have the meanings indicated below.
2002 Form 10-K........................TXU Gas' Annual Report on Form 10-K for
the year ended December 31, 2002
2003 Form 10-K........................TXU Gas' Annual Report on Form 10-K for
the year ended December 31, 2003
APB Opinion 30........................Accounting Principles Board Opinion
No. 30, "Reporting the Results of
Operations - Reporting the
Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and
Infrequently Occurring Events and
Transactions."
Bcf...................................billion cubic feet
Commission............................Public Utility Commission of Texas
EITF..................................Emerging Issues Task Force
EPA...................................Environmental Protection Agency
ERCOT.................................Electric Reliability Council of Texas,
the Independent System Operator and the
regional reliability coordinator of the
various electricity systems within Texas.
ERISA.................................Employee Retirement Income Security Act
FASB .................................Financial Accounting Standards Board, the
designated organization in the private
sector for establishing standards for
financial accounting and reporting.
FERC..................................Federal Energy Regulatory Commission
FIN...................................Financial Accounting Standards Board
Interpretation
FIN 45................................FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees,
Including Indirect Guarantees of
Indebtedness of Others - an Interpretation
of FASB Statements Nos. 5, 57,
and 107 and Rescission of FIN No. 34"
FIN 46................................FIN No. 46, "Consolidation of Variable
Interest Entities"
Fitch.................................Fitch Ratings, Ltd.
IRS...................................Internal Revenue Service
Moody's...............................Moody's Investors Services, Inc.
Oncor.................................Oncor Electric Delivery Company, a
subsidiary of US Holdings
Oncor Utility Solutions...............Oncor Utility Solutions (Canada) Company,
Oncor Utility Solutions (North America)
Company, and Oncor Utility Solutions
(Texas) Company, all wholly-owned
subsidiaries of TXU Gas
RRC...................................Railroad Commission of Texas
S&P...................................Standard & Poor's, a division of the
McGraw-Hill Companies
Sarbanes-Oxley........................Sarbanes-Oxley Act of 2002
SEC...................................United States Securities and Exchange
Commission
SFAS..................................Statement of Financial Accounting
Standards issued by the FASB
SFAS 4................................SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt"
SFAS 71 ..............................SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation"
iii
SFAS 87 ..............................SFAS No. 87, "Employers' Accounting for
Pensions"
SFAS 106..............................SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than
Pensions"
SFAS 109..............................SFAS No. 109, "Accounting for Income
Taxes"
SFAS 132 .............................Revised SFAS No. 132, "Employers'
Disclosures about Pensions and
Postretirement Benefits"
SFAS 133 .............................SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities"
SFAS 140..............................SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and
Extinguishments of Liabilities -
a Replacement of FASB Statement No. 125"
SFAS 142..............................SFAS No. 142, "Goodwill and Other
Intangible Assets"
SFAS 143..............................SFAS No. 143, "Accounting for Asset
Retirement Obligations"
SFAS 144..............................SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived
Assets"
SFAS 145..............................SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of
FASB Statement 13, and Technical
Corrections"
SFAS 146..............................SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal
Activities"
SFAS 150..............................SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics
of both Liabilities and Equity"
SOP 98-1..............................American Institute of Certified Public
Accountants Statement of Position 98-1,
"Accounting for the Cost of Computer
Software Developed or Obtained for
Internal Use"
TCEQ..................................Texas Commission on Environmental Quality
TXU Business Services.................TXU Business Services Company, as
subsidiary of TXU Corp.
TXU Corp..............................TXU Corp., the parent company of TXU Gas
TXU Energy............................TXU Energy Company LLC, a subsidiary of
US Holdings
TXU Gas...............................refers to TXU Gas Company and/or its
consolidated subsidiaries, depending on
the context
US....................................United States of America
US GAAP...............................accounting principles generally accepted
in the US
US Holdings...........................TXU US Holdings Company, a subsidiary of
TXU Corp.
iv
PART I
Items 1. and 2. BUSINESS and PROPERTIES
BUSINESS
--------
TXU Gas, a Texas corporation, is a largely regulated business engaged in
the purchase, transmission, distribution and sale of natural gas in the
north-central, eastern and western parts of Texas, and also provides utility
asset management services. TXU Gas is a wholly-owned subsidiary of TXU Corp.
Prior to the restructuring of TXU Corp. and its US subsidiaries in
connection with the opening of the Texas electricity market to competition,
effective January 1, 2002, TXU Gas was also engaged in certain energy trading
and hedging/risk management activities and the retail sale of natural gas to
large commercial and industrial (business) customers in various competitive
markets in the US. As a part of that restructuring, TXU Gas transferred those
operations to TXU Energy. Accordingly, the transferred operations have been
reflected as discontinued operations in the statements of consolidated income
and cash flows of TXU Gas.
At December 31, 2003, TXU Gas had 1,261 full-time employees. TXU Gas and
its subsidiaries possess all necessary franchises, licenses and certificates to
enable them to conduct their respective businesses.
The predecessor company of TXU Gas is ENSERCH Corporation, which was
acquired by TXU Corp. in 1997.
Operating Segments
With the transfers of businesses to TXU Energy on January 1, 2002, TXU Gas
is an integrated business with no reportable segments.
COMPETITIVE STRATEGY
--------------------
As legislative, regulatory, economic and technological changes occur, the
energy and utility industries are faced with increasing pressure to become more
competitive while adhering to regulatory requirements. A number of variables,
including price, reliability of service, the cost of energy alternatives, new
technologies and governmental regulations, affect the level of competition.
TXU Gas intends for its utility natural gas business to be a leader in the
efficient and reliable transmission and distribution of gas and to deliver an
adequate return on its investments in facilities used in serving its customers.
TXU Gas aggressively manages its operating costs and capital expenditures
through streamlined business processes and develops and implements strategies to
maximize business value and improve return on assets. The majority of revenue
that TXU Gas receives from customers is under regulated rates approved by state
and local regulators, and TXU Gas seeks to manage its operation so as to achieve
returns granted by regulators while maintaining reliable service. A portion of
TXU Gas' service, primarily that to larger industrial and gas transportation
customers, is subject to direct competition from other gas utilities and new
technologies. TXU Gas responds to this competition by offering service under
negotiated rates when a positive margin can be maintained.
1
DESCRIPTION OF OPERATIONS
-------------------------
GENERAL
Gas Distribution -- TXU Gas provides service through 26,431 miles of
distribution mains. TXU Gas purchases, distributes and sells natural gas to over
1.4 million residential and business customers in approximately 550 cities and
towns, including the 11-county Dallas/Ft. Worth metropolitan area. The
distribution service rates that TXU Gas charges its residential and business
customers have been generally established by the municipal governments of the
cities and towns served, with the RRC having appellate, or in some instances,
primary jurisdiction. The majority of TXU Gas' residential and business
customers use natural gas for heating, and their needs are directly affected by
the mildness or severity of the heating season.
TXU Gas estimates its peak-day availability of natural gas supply from its
long-term contracts, short-term contracts and withdrawals from underground
storage to be 2.2 Bcf. Daily purchases on the spot market raise this
availability level to meet additional peak-day needs. TXU Gas' peak-day demand
in 2003 was on February 24, 2003, when sales to its customers reached
approximately 1.9 Bcf. During 2003, the average daily demand of TXU Gas'
residential and business customers was 0.4 Bcf.
TXU Gas has historically maintained a contractual right to interrupt
transportation load, which is designed to achieve the highest load factor
possible in the use of the pipeline system while ensuring continuous and
uninterrupted service to residential and business customers.
Estimates of natural gas supplies and reserves are not necessarily
indicative of TXU Gas' ability to meet current or anticipated market demands or
immediate delivery requirements because of factors such as the physical
limitations of gathering, storage and transmission systems, the duration and
severity of cold weather, the availability of gas reserves from its suppliers,
the ability to purchase additional supplies on a short-term basis and actions by
federal and state regulatory authorities. Curtailment rights provide TXU Gas
flexibility to meet the human-needs requirements of its customers on a firm
basis. Priority allocations imposed by federal and state regulatory agencies, as
well as other factors beyond the control of TXU Gas, may affect its ability to
meet the demands of its customers.
Gas Supply -- TXU Gas' natural gas supply consists of contracts for the
purchase of specific reserves, contracts not related to specific reserves or
fields, and natural gas in storage. The total planned natural gas supply as of
January 1, 2004 is 150 Bcf, which is approximately 1 percent more than TXU Gas'
actual supply during 2003. TXU Gas has approximately 17 Bcf committed under
contracts with specific reserves, 30 Bcf in working gas in storage and 41 Bcf
committed under gas supply contracts not related to specific reserves or fields.
In 2003, TXU Gas' natural gas requirements were purchased from approximately 76
independent producers, marketers and pipeline companies.
TXU Gas manages its storage working gas inventory and storage
deliverability along with other purchased gas to meet its peak-day requirements.
TXU Gas utilizes the services of five natural gas storage fields operated within
its pipeline system, all of which are located in Texas. These fields have a
working gas capacity of more than 38 Bcf and a storage withdrawal deliverability
of up to 1.2 Bcf per day.
TXU Gas buys natural gas under long-term and short-term contracts, some of
which require minimum purchases of gas. The estimated natural gas demand, which
assumes normal weather conditions, significantly exceeds the minimum purchase
obligations of these contracts for the year 2004 and thereafter.
The TXU Gas distribution supply program is designed to contract for new
supplies of natural gas and to recontract targeted expiring sources. In addition
to being heavily concentrated in the established natural gas-producing areas of
central, northern and eastern Texas, TXU Gas' intrastate pipeline system also
extends into or near the major producing areas of the Texas Gulf Coast and the
Delaware and Val Verde Basins of West Texas. Nine basins located in Texas are
estimated to contain a substantial portion of the nation's remaining onshore
natural gas reserves. TXU Gas' pipeline system provides access to all of these
basins. TXU Gas is well situated to receive large volumes into its pipeline
system at the major hubs, such as Katy and Waha, as well as from storage
facilities where TXU Gas maintains high delivery capabilities.
2
Gas Transmission -- TXU Gas owns and operates interconnected natural gas
transmission lines, five underground storage reservoirs, 20 compressor stations
and related properties, all within Texas. With a system consisting of 6,162
miles of transmission and gathering lines in Texas, TXU Gas is one of the
largest pipeline operators in the US. Through these facilities, it transports
natural gas to its distribution system and other customers. Rates for
transmission services are regulated by the RRC. The gas transmission and
distribution lines of TXU Gas have been constructed over lands of others
pursuant to easements or along public highways, streets and rights-of-way as
permitted by law.
Other Facilities -- The gas transmission and distribution lines of TXU Gas
have been constructed over lands of others pursuant to easements or along public
highways, streets and rights-of-way as permitted by law.
Customers -- There are no individually significant customers upon which
TXU Gas' business or results of operations are highly dependent.
ONCOR UTILITY SOLUTIONS
This operation consists of wholly-owned subsidiaries of TXU Gas that offer
unregulated utility asset management services for cooperatives and
municipally-owned and investor-owned utilities located in North America.
Electric, gas, water and wastewater utilities may choose from Oncor Utility
Solutions' menu of services ranging from a complete turnkey solution to selected
services such as work management, resource management, strategic planning,
design, maintenance and construction. Oncor Utility Solutions leverages TXU
Corp.'s existing economies of scale, asset management processes, technologies
and personnel to deliver cost savings and reliability improvements to client
network systems.
COMPETITION
Customer sensitivity to energy prices and the availability of
competitively priced natural gas continue to cause competition in the
electricity generation and industrial user markets. Natural gas faces varying
degrees of competition from electricity, coal, natural gas liquids, oil and
other refined products throughout the TXU Gas distribution service territory.
Pipeline systems of other companies, both intrastate and interstate, extend into
or through the areas in which TXU Gas' markets are located, creating competition
from other sellers and transporters of natural gas. TXU Gas intends to maintain
its focus on customer satisfaction and the creation of new value-added services
for its customers in order to remain its customers' service provider of choice.
TXU Gas is the sole transporter of natural gas to its distribution system.
TXU Gas competes with other pipelines in Texas to transport natural gas to
electricity generation and industrial user facilities as well as off-system
markets. These businesses are highly competitive. TXU Gas provides services to
its electricity generation and industrial customers under regulated tariffs and
responds to this competition by offering service under negotiated rates when a
positive margin can be maintained.
REGULATION AND RATES
TXU Gas is wholly intrastate in character and performs distribution
utility operations and pipeline transportation services in the State of Texas
subject to regulation, respectively, by municipalities in Texas and the RRC. The
RRC has original jurisdiction over the charge for the transportation of gas by
TXU Gas to its distribution system for sale to TXU Gas' residential and business
consumers. TXU Gas owns no certificated interstate transmission facilities
subject to the jurisdiction of the FERC under the Natural Gas Act, has no sales
for resale under the rate jurisdiction of the FERC and does not perform any
transportation service that is subject to FERC jurisdiction under the Natural
Gas Act.
The city gate rate for the cost of natural gas TXU Gas ultimately delivers
to residential and business customers is established by the RRC and provides for
full recovery of the actual cost of gas delivered. The cities served by TXU Gas
have original jurisdiction over the distribution rate TXU Gas charges its
residential and business customers, subject to appellate jurisdiction of the
RRC.
3
TXU Gas employs a continuing program of rate review for all classes of
customers in its regulatory jurisdictions. In May 2003, TXU Gas filed, for the
first time, a system-wide rate case for the distribution and pipeline
operations. The case was filed in all 437 incorporated cities served by the
distribution operations, and at the RRC for the pipeline business and for
unincorporated areas served by the distribution operations. The TXU Gas filing
requested an annual revenue increase of $69.5 million or 7.24%. All 437 cities
took action on the case within their statutory time frame, and TXU Gas has
appealed these actions to the RRC. Twelve parties have intervened in the case.
Based on the current procedural schedule, TXU Gas expects a final order from the
RRC in the second quarter of 2004.
In July and August of 2001, TXU Gas filed two cases with the RRC, a gas
cost review and a gas cost reconciliation covering the period between November
1997 and June 2001, seeking to recover $29 million of under-recovered gas costs.
On August 6, 2002, a partial settlement was approved by the RRC authorizing TXU
Gas to recover $18 million of this amount, which has been recovered through a
surcharge, while $11 million in under-recovered gas costs remains pending.
In August 2003, TXU Gas filed the city gate gas cost reconciliation for
the twelve-month period ended June 30, 2003 with the RRC and the incorporated
cities served by TXU Gas. TXU Gas reconciled $797 million of gas costs.
Including interest and prior period adjustments, TXU Gas under-recovered $6
million of gas costs which will be recovered via a surcharge for nine months
starting October 2003.
TXU Gas sells natural gas to industrial customers under standard regulated
rate schedules that permit automatic adjustment on a periodic basis for the full
amount of increases or decreases in the cost of natural gas. Transportation
services to electricity generation and other industrial customers are provided
under both regulated tariffs and competitively negotiated contracts.
TXU Gas has been an open access transporter under Section 311 of the
Natural Gas Policy Act of 1978 (NGPA) on its intrastate transmission facilities
since July 1988. Such transportation is performed pursuant to Section 311(a)(2)
of the NGPA and is subject to an exemption from the jurisdiction of the FERC
under the Natural Gas Act, pursuant to Section 601 of the NGPA.
ENVIRONMENTAL MATTERS
---------------------
TXU Gas is subject to various federal, state and local regulations dealing
with air and water quality and related environmental matters.
Air -- Under the Texas Clean Air Act, the TCEQ has jurisdiction over the
permissible level of air contaminant emissions from, and permitting requirements
for, gas delivery facilities located within the State of Texas. In addition, the
new source performance standards of the EPA promulgated under the Federal Clean
Air Act, as amended, are being implemented by the TCEQ, and are also applicable.
TXU Gas' facilities operate in compliance with applicable regulations, permits
and emission standards promulgated pursuant to these acts.
In addition, in 1999, the EPA promulgated National Emissions Standards for
Hazardous Air Pollutants that apply to certain TXU Gas facilities. The EPA has
also issued rules for controlling regional haze; the impact of these rules is
unknown at this time because the TCEQ has not yet implemented the regional haze
requirements.
In 2001, the Texas Clean Air Act was amended to require that
"grandfathered" facilities, other than electric utility generation plants, apply
for permits. TXU Gas anticipates that the permits can be obtained for almost all
of its "grandfathered" facilities without significant effects on the costs of
operating these facilities. It may be necessary at one TXU Gas facility to spend
approximately $6 million in capital expenditures in the near future to comply
with this requirement.
4
Water -- The TCEQ, the EPA and the RRC have jurisdiction over water
discharges (including storm water) from all domestic facilities. Facilities of
TXU Gas are presently in compliance with applicable state and federal
requirements relating to discharge of pollutants into the water. TXU Gas holds
all required waste water discharge permits from the TCEQ and the RRC for
facilities in operation and has applied for or obtained necessary permits for
facilities under construction. TXU Gas believes it can satisfy the requirements
necessary to obtain any required permits or renewals. Recent changes to federal
rules pertaining to Spill Prevention, Control and Countermeasure Plans for bulk
storage facilities for oil will require updating of certain facilities. TXU Gas
is unable to predict at this time the impact of these changes.
Treatment, storage and disposal of solid and hazardous waste are regulated
at the state level under the Texas Solid Waste Disposal Act and at the federal
level under the Resource Conservation and Recovery Act of 1976, as amended, and
the Toxic Substances Control Act. The EPA has issued regulations under the
Resource Conservation and Recovery Act of 1976 and the Toxic Substances Control
Act, and the TCEQ and the RRC have issued regulations under the Texas Solid
Waste Disposal Act applicable to facilities of TXU Gas. TXU Gas' facilities
operate in compliance with applicable solid and hazardous waste regulations.
Environmental Capital Expenditures - In 2003, TXU Gas' capital
expenditures for environmental matters totaled $220 thousand.
Item 3. LEGAL PROCEEDINGS
General -- TXU Gas and its subsidiaries are involved in various legal and
administrative proceedings the ultimate resolution of which, in the opinion of
management, are not expected to have a material effect on their financial
position, results of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable. All of TXU Gas' common stock is owned by TXU Corp.
Item 6. SELECTED FINANCIAL DATA
The information required hereunder for TXU Gas is set forth under Selected
Financial Data included in Appendix A to this report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required hereunder for TXU Gas is set forth under
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Appendix A to this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for TXU Gas is set forth under
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Appendix A to this report.
5
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder for TXU Gas is set forth under
Statement of Responsibility, Independent Auditors' Report, Statements of
Consolidated Income, Statements of Consolidated Comprehensive Income, Statements
of Consolidated Cash Flows, Consolidated Balance Sheets, Statements of
Consolidated Shareholder's Equity and Notes to Financial Statements included in
Appendix A of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Item 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of TXU Gas' management, including the principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of the disclosure controls and procedures in effect as of December 31,
2003. Based on the evaluation performed, TXU Gas' management, including the
principal executive officer and principal financial officer, concluded that the
disclosure controls and procedures were effective.
There have been no significant changes in TXU Gas' internal controls over
financial reporting for its continuing operations that have occurred during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, TXU Gas' internal control over financial reporting.
6
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Identification of Directors, business experience and other
directorships:
Other Positions and Date First Elected as
Offices Presently Held Director Present Principal Occupation or
With TXU Gas (Current Term Employment and Principal
(Current Term Expires Expires Business (Preceding Five Years),
Name of Director Age In May 2004) in May 2004) Other Directorships
------------------------------------------------------ ----------------------- ---------------------------------------
H. Dan Farell 54 None May 16, 2003 Executive Vice President and Chief
Financial Officer of TXU Corp.;
prior thereto, President of TXU
Gas; prior thereto, President of
TXU Electric; prior thereto,
Executive Vice President of TXU
Electric; other directorships:
Oncor, Oncor Electric Delivery
Transition Bond Company LLC, TXU
Energy and US Holdings.
M. S. Greene 58 Vice Chairman and Chief August 31, 2003 Vice Chairman and Chief Executive
Executive of Oncor and TXU Gas; prior
thereto, Vice Chairman of Oncor
and TXU Gas; prior thereto, President
of Oncor; prior thereto, President
of TXU Lone Star Pipeline and
Transmission Division of TXU
Electric; priorthereto, Executive
Vice President of TXU Fuel; other
directorships: Oncor and Oncor
Electric Delivery Transition
Bond Company LLC.
Michael J. 49 None August 5, 1997 Executive Vice President of TXU
McNally Corp.; prior thereto, Executive
Vice President and Chief
Financial Officer of TXU Corp.;
other directorships: Oncor, TXU
Energy and US Holdings.
Erle Nye 66 None August 5, 1997 Chairman of the Board of TXU
Corp.; prior thereto, Chairman
of the Board and Chief Executive
of TXU Corp.; other
directorships: TXU Corp., Oncor,
and TXU Energy.
Eric H. Peterson 43 None November 1, 2002 Executive Vice President and
General Counsel of TXU Corp.;
prior thereto, Senior Vice
President and General Counsel of
DTE Energy; prior thereto,
partner in the law firm of
Worsham, Forsythe & Wooldridge;
other directorships: Oncor,
Oncor Electric Delivery
Transition Bond Company LLC, TXU
Energy and US Holdings.
C. John Wilder 45 Chairman of the Board March 15, 2004 President and Chief Executive of
TXU Corp.; prior thereto,
Executive Vice President and
Chief Financial Officer of
Entergy Corporation; other
directorships: TXU Corp.,
Oncor, Oncor Electric Delivery
Transition Bond Company LLC, TXU
Energy and US Holdings.
Directors of TXU Gas receive no compensation in their capacity as Directors.
7
Identification of Executive Officers and business experience:
Positions and Offices Date First Elected to
Presently Held Present Offices
(Current Term Expires (Current Term Expires Business Experience
Name of Officer Age in May 2004) in May 2004) (Preceding Five Years)
- -------------------- -------- ----------------------- ----------------------- --------------------------------------
C. John Wilder 45 Chairman of the Board March 15, 2004 President and Chief Executive of
TXU Corp.; prior thereto,
Executive Vice President and
Chief Financial Officer of
Entergy Corporation.
M. S. Greene 58 Vice Chairman and March 15, 2004 Vice Chairman and Chief Executive
Chief Executive of Oncor and TXU Gas; prior
thereto, Vice Chairman of Oncor
and TXU Gas; prior thereto,
President of Oncor; prior thereto,
President of TXU Lone Star Pipeline
and Transmission Division of
TXU Electric; prior thereto,
Executive Vice President of
TXU Fuel.
Mike McCall 46 President March 26, 2003 President of TXU Gas; prior
thereto, Vice President of TXU
Business Services Company;
prior thereto, Director, Public
Policy, TXU Business Services
Company.
Scott R. Longhurst 36 Senior Vice President March 15, 2004 Senior Vice President and
and Principal Principal Financial Officer of
Financial Officer Oncor and TXU Gas; prior
thereto, Senior Vice President
of Oncor and TXU Gas; prior
thereto, Vice President -
Corporate Financial Planning of
TXU Business Services Company;
prior thereto, Vice President
of Finance of TXU Europe
Limited; prior thereto, Chief
Financial Officer of Shell Oil
Products Joint Venture Saudi
Arabia.
There is no family relationship between any of the above-named Directors and
Executive Officers.
8
Item 11. EXECUTIVE COMPENSATION
TXU Gas (the Company) and its affiliates have paid and awarded
compensation during the last three calendar years to the executive officers
named in the Summary Compensation Table for services in all capacities. Amounts
reported in the Table as Bonus and LTIP Payouts for any calendar year reflect
the performance of the individual and TXU Corp. in prior periods. Information
relating to compensation provided in 2004 based on performance in 2003 is
contained in the Organization and Compensation Committee Report on Executive
Compensation.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------------- ---------------------------------------
Awards Payouts
------------------------- ------------
Other
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus sation Awards Options/ Payouts sation
Principal Position Year ($) ($)(5) ($)(6) ($)(7) SARs (#) ($)(8) ($)(9)
- ------------------------- ------ ---------- ---------- ---------- ----------- ------------ ------------ ----------
Erle Nye (1) (10)..... 2003 966,667 0 --- 213,750 --- 1,531 482,911
Chairman of the Board 2002 1,037,500 1,950,000 --- 236,250 --- 4,286,400 299,985
and Chief Executive 2001 964,583 475,000 --- 694,375 --- 519,747 222,658
of the Company
M. S. Greene (2)(10).. 2003 341,708 98,400 --- 73,800 --- 12,683 77,110
Vice Chairman, Oncor 2002 326,667 200,000 --- 73,800 --- 351,516 82,420
2001 311,667 81,500 --- 153,500 --- 18,659 62,710
Mike McCall (3)(10)... 2003 197,416 46,988 --- 40,275 --- 0 29,203
President of the 2002 176,333 90,000 --- 40,275 --- 0 28,354
Company 2001 160,083 30,000 --- 66,675 --- 0 17,709
Scott Longhurst (4) 2003 205,000 61,500 429,840 0 --- 0 100,842
(10)................. 2002 185,194 128,290 170,875 0 --- 0 1,845
Senior Vice 2001 155,916 42,225 --- 0 --- 0 0
President Company
(1) Compensation amounts represent compensation paid by TXU Corp.
(2) Compensation amounts represent compensation paid by Oncor.
(3) Compensation amounts represent compensation paid by TXU Business Services
Company and, beginning March 26, 2003, TXU Gas.
(4) Compensation amounts represent compensation paid by Oncor.
(5) Amounts reported as Bonus in the Summary Compensation Table are
attributable principally to the named executive officers' participation in
the TXU Annual Incentive Plan (AIP). No AIP awards for 2002 performance
were provided in 2003 to any officers. Under the terms of the AIP
effective in 2003, target incentive awards ranging from 20% to 75% of base
salary, with a maximum award of 100% of base salary, are established. The
percentage of the target or maximum actually awarded, if any, is dependent
upon the attainment of per share net income goals established in advance
by the Organization and Compensation Committee (Committee), as well as the
Committee's evaluation of the participant's and TXU Corp.'s performance.
The amounts reported as Bonus for Messrs. Greene, McCall and Longhurst
represent special bonuses awarded in February 2003 in recognition of their
significant contributions in their areas of responsibility.
9
(6) The amount reported for Mr. Longhurst as Other Annual Compensation
consists of benefits provided by TXU Corp. under the standard expatriate
policy in connection with his extended assignment in the United States.
The amount reported represents housing and taxes associated with these
benefits paid on Mr. Longhurst's behalf, and other benefits.
(7) Amounts reported as Restricted Stock Awards in the Summary Compensation
Table are attributable to the named officer's participation in the
Deferred and Incentive Compensation Plan (DICP). Participants in the DICP
may defer a percentage of their base salary not to exceed a maximum
percentage determined by the Committee for each plan year and in any event
not to exceed 15% of the participant's base salary. Salary deferred under
the DICP is included in amounts reported as Salary in the Summary
Compensation Table. TXU Corp. makes a matching award (Matching Award)
equal to 150% of the participant's deferred salary. Prior to 2002,
one-half of any AIP award (Incentive Award) was deferred and invested
under the DICP. Matching Awards are subject to forfeiture under certain
circumstances. Under the DICP, a trustee purchases TXU Corp. common stock
with an amount of cash equal to each participant's deferred salary and
Matching Award, and accounts are established for each participant
containing performance units (Units) equal to such number of common
shares. DICP investments, including reinvested dividends, are restricted
to TXU Corp. common stock, and the value of each unit credited to
participants' accounts equals the value of a share of TXU Corp. common
stock and is at risk based on the performance of the stock. On the
expiration of the five year maturity period, the value of the
participant's maturing accounts are paid in cash based upon the then
current value of the Units; provided, however, that in no event will a
participant's account be deemed to have a cash value which is less than
the sum of such participant's deferrals together with 6% per annum
interest compounded annually. Participants may elect to defer amounts that
would otherwise mature under the DICP, under and subject to the provisions
of the Salary Deferral Program (SDP) as discussed in footnote (9). The
maturity period is waived if the participant dies or becomes totally and
permanently disabled and may be extended under certain circumstances.
Matching Awards that have been made under the DICP are included under
Restricted Stock Awards in the Summary Compensation Table. As a result of
these awards, undistributed Matching and Incentive Awards made in prior
years and dividends reinvested thereon, the number and market value at
December 31, 2003 of such Units (each of which is equal to one share of
common stock) held in the DICP accounts for Messrs. Nye, Greene, McCall
and Longhurst were 61,320 ($1,454,510), 13,145 ($311,799), 6,786
($160,964) and 0 ($0), respectively.
(8) Amounts reported as LTIP Payouts in the Summary Compensation Table for
2003 reflect earnings distributed during the year on salaries previously
deferred under the DICP. Amounts reported for 2002 and 2001 also include
the vesting and distribution of performance-based restricted stock awards
under the Long-Term Incentive Compensation Plan (LTICP). For the LTICP
cycle ending in 2003, no awards were earned.
The LTICP is a comprehensive, stock-based incentive compensation plan
providing for common stock-based awards, including performance-based
restricted stock. Outstanding awards, as of December 31, 2003, of
performance-based restricted stock to the named executive officers may vest
at the end of a two-year or three-year performance period, depending on the
award, and provide for an ultimate distribution of from 0% to 200% of the
number of the shares initially awarded, based on TXU Corp.'s total return
to shareholders over such performance period compared to the total returns
provided by the companies comprising the Standard & Poor's 500 Electric
Utilities Index. Dividends on restricted shares are reinvested in TXU Corp.
common stock and are paid in cash upon release of the restricted shares.
Under the terms of the LTICP, the maximum amount of any award that may be
paid in any one year to any of the named executive officers is the fair
market value of 100,000 shares of TXU Corp.'s common stock determined as of
the first day of such calendar year. The portion of any award that, based
on such limitation, cannot be fully paid in any year is deferred until a
subsequent year when it can be paid. Based on TXU Corp.'s total return to
shareholders over the three-year period ending March 31, 2003 compared to
the returns provided by the companies comprising the Standard & Poor's 500
Electric Utilities Index, all of the performance-based restricted shares
awarded in May 2000 were forfeited.
10
As a result of restricted stock awards under the LTICP, and reinvested
dividends thereon, the number of shares of restricted stock and the market
value of such shares at December 31, 2003 held for Messrs. Nye, Greene,
McCall and Longhurst were 459,405 ($10,897,087), 53,702 ($1,273,811),
24,756 ($587,212) and 29,073 ($689,612), respectively.
As noted, salaries deferred under the DICP are included in amounts reported
as Salary in the Summary Compensation Table. Amounts shown in the table
below represent the number of shares purchased under the DICP with such
deferred salaries for 2003 and the number of shares awarded under the
LTICP.
11
Long-Term Incentive Plans - Awards in Last Fiscal Year
Deferred and Incentive
Compensation Plan
(DICP) Long-Term Incentive Compensation Plan (LTICP)
---------------------------- ------------------------------------------------------------
Number of Performance Number of Performance
Shares, or Other Shares, or Other
Units or Period Until Units or Period Until
Other Maturation or Other Maturation or Estimated Future Payouts
Name Rights (#) Payout Rights (#) Payout ------------------------
---- ---------- ------ ---------- ------ Minimum (#) Maximum (#)
----------- -----------
Erle Nye.......... 7,888 5 Years 80,000 2 Years 0 160,000
80,000 3 Years 0 160,000
M. S. Greene...... 2,724 5 Years 18,000 2 Years 0 36,000
18,000 3 Years 0 36,000
Mike McCall....... 1,486 5 Years 8,500 2 Years 0 17,000
8,500 3 Years 0 17,000
Scott Longhurst... 0 --- 10,000 2 Years 0 20,000
10,000 3 Years 0 20,000
(9) Amounts reported as All Other Compensation in the Summary Compensation
Table are attributable to the named executive officer's participation in
certain plans and as otherwise described in this footnote.
Under the TXU Thrift Plan (Thrift Plan) all eligible employees of TXU
Corp. and any of its participating subsidiaries may invest a portion of
their regular salary or wages in common stock of TXU Corp., or in a
variety of selected mutual funds. Under the Thrift Plan, TXU Corp. matches
a portion of an employee's contributions. TXU Corp.'s matching
contribution is 75% of the first 6% of the employee's contribution for
employees covered under the traditional defined benefit component of the
TXU Retirement Plan, and 100% of the first 6% of the employee's
contribution for employees covered under the cash balance component of the
TXU Retirement Plan. All matching contributions are invested in common
stock of TXU Corp. The amounts reported under All Other Compensation in
the Summary Compensation Table include these matching amounts which, for
Messrs. Nye, Greene, McCall and Longhurst were $12,000, $9,000, $6,965 and
$12,000, respectively, during 2003.
Under the Salary Deferral Program (SDP) each employee of TXU Corp. and its
participating subsidiaries whose annual salary is equal to or greater than
an amount established under the SDP ($107,930 for the program year
beginning January 1, 2003) may elect to defer up to 50% of annual base
salary, and/or up to 100% of any bonus or incentive award and certain
maturing DICP awards, for a period of seven years, for a period ending
with the retirement of such employee, or for a combination thereof. TXU
Corp. makes a matching award, subject to forfeiture under certain
circumstances, equal to 100% of up to the first 8% of salary deferred
under the SDP; provided that employees who first become eligible to
participate in the SDP on or after January 1, 2002, who are also eligible,
or become eligible, to participate in the DICP, are not eligible to
receive any SDP matching awards. Salaries and bonuses deferred under the
SDP are included in amounts reported under Salary and Bonus, respectively,
in the Summary Compensation Table. Deferrals are credited with earnings or
losses based on the performance of investment alternatives under the SDP
selected by each participant. At the end of the applicable maturity
period, the trustee for the SDP distributes the deferrals and the
applicable earnings in cash as a lump sum or in annual installments. TXU
Corp. is financing the retirement option portion of the SDP through the
purchase of corporate-owned life insurance on the lives of participants.
The proceeds from such insurance are expected to allow TXU Corp. to fully
recover the cost of the retirement option. During 2003, matching awards,
which are included under All Other Compensation in the Summary
Compensation Table, were made for Messrs. Nye, Greene, McCall and
Longhurst in the amounts of $77,333, $34,367, $15,793 and $0,
respectively.
12
Under the TXU Split-Dollar Life Insurance Program (Insurance Program)
split-dollar life insurance policies are purchased for eligible corporate
officers of TXU Corp. and its participating subsidiaries. The eligibility
provisions of the Insurance Program were modified in 2003 so that no new
participants will be added after December 31, 2003. The death benefit of
participants' insurance policies are equal to two, three or four times
their annual Insurance Program compensation depending on their officer
category. Individuals who first became eligible to participate in the
Insurance Program after October 15, 1996, vest in the policies issued
under the Insurance Program over a six-year period. TXU Corp. pays the
premiums for the policies and has received a collateral assignment of the
policies equal in value to the sum of all of its insurance premium
payments; provided that, with respect to executive officers, premium
payments made after August 1, 2002, are made on a non-split-dollar life
insurance basis and TXU Corp.'s rights under the collateral assignment are
limited to premium payments made prior to August 1, 2002. Although the
Insurance Program is terminable at any time, it is designed so that if it
is continued, TXU Corp. will fully recover all of the insurance premium
payments covered by the collateral assignments either upon the death of
the participant or, if the assumptions made as to policy yield are
realized, upon the later of 15 years of participation or the participant's
attainment of age 65. During 2003, the economic benefit derived by Messrs.
Nye, Greene, McCall and Longhurst from the term insurance coverage
provided and the interest foregone on the remainder of the insurance
premiums paid by TXU Corp. amounted to $193,578, $33,743, $6,445 and $0,
respectively.
The amount reported as All Other Compensation for Mr. Nye for 2003
includes $200,000 as provided for in his employment agreement as discussed
in footnote (10).
The amount reported as All Other Compensation for Mr. Longhurst for 2003
includes a long-term incentive plan payment of $88,842 as provided for in
his employment agreement as discussed in footnote (10).
(10) TXU Corp. has entered into employment agreements with Messrs. Nye, Greene,
McCall and Longhurst as hereinafter described in this footnote.
Effective June 1, 2002, TXU Corp. entered into a new employment agreement
with Mr. Nye, which superseded his previous employment agreement. The new
agreement provides for an initial term expiring May 31, 2005, and a
secondary term expiring May 31, 2007. During the initial term, Mr. Nye
will continue to serve as TXU Corp.'s Chairman of the Board and Chief
Executive until such time as his successor is elected at which time Mr.
Nye may continue as TXU Corp.'s Chairman of the Board and/or in such other
executive position as he and TXU Corp. may mutually agree upon. During the
secondary term, Mr. Nye will continue as an employee of TXU Corp. or, with
TXU Corp.'s approval, he may retire and serve TXU Corp. in a consulting
capacity through the expiration of the secondary term. Mr. Nye will,
during the initial term, be entitled to a minimum annual base salary of
$1,050,000, eligibility for an annual bonus under the terms of the AIP,
and minimum annual restricted stock awards of 40,000 shares under the
LTICP. The agreement also provides for a special payment of $1,000,000 in
consideration for his entering into the new agreement which amount is
payable in equal annual installments over a five year period. During the
secondary term, Mr. Nye will be entitled to an annual base salary equal to
75% of his base salary prior to expiration of the initial term and
eligibility for a prorated bonus under the terms of the AIP for the 2005
AIP plan year. The agreement also provides Mr. Nye with certain benefits
following his retirement, including administrative support, annual medical
examinations and financial planning services. The agreement also
reconfirms TXU Corp.'s prior agreement to fund the retirement benefit to
which Mr. Nye will be entitled under TXU Corp.'s supplemental retirement
plan. Additionally, the agreement entitles Mr. Nye to certain severance
benefits in the event he dies, becomes disabled, is terminated without
cause or resigns or retires with TXU Corp.'s approval during the term of
the agreement, including the base salary and annual incentive awards he
would have received; continued payment of the remaining special award
installments; a payment in lieu of foregone and forfeited incentive
compensation; and health care benefits. The agreement also provides for
compensation and benefits under certain circumstances following a
change-in-control of TXU Corp. during the initial term, including a
payment equal to the greater of three times his annualized base salary and
target bonus or the total base salary and bonus he would have received for
the remainder of the term of the agreement; any unpaid portion of the
special bonus; a payment in lieu of foregone and forfeited incentive
compensation; health care benefits; and a tax gross-up payment to offset
any excise tax which may result from such change-in-control payments.
13
TXU Corp. entered into an employment agreement with Mr. Greene effective
July 1, 2000. The agreement, as amended, provides for the continued
service by Mr. Greene through June 30, 2006 (Term). Under the terms of the
agreement, Mr. Greene will, during the Term, be entitled to a minimum
annual base salary of $300,000, eligibility for an annual bonus under the
terms of the AIP, and minimum restricted stock awards of 5,000 shares
under the LTICP. The agreement entitles Mr. Greene to certain severance
benefits in the event he is terminated without cause during the Term,
including a payment equal to the greater of his annualized base salary and
target bonus, or the total amount of base salary and target bonuses he
would have received for the remainder of the Term; a payment in lieu of
foregone and forfeited incentive compensation; and health care benefits.
The agreement also provides for compensation and benefits under certain
circumstances following a change-in-control of TXU Corp. during the Term,
including a payment equal to three times his annualized base salary and
target bonus; a payment in lieu of foregone and forfeited incentive
compensation; health care benefits and a tax gross-up payment to offset
any excise tax which may result from such change-in-control payments.
TXU Gas entered into an employment agreement with Mr. McCall effective
March 5, 2003. The agreement provides for the continued service by Mr.
McCall through March 5, 2006 (Term). Under the terms of the agreement, Mr.
McCall will, during the Term, be entitled to a minimum annual base salary
of $179,000 and to participate in all employee benefit plans to the extent
he is eligible by virtue of his employment with TXU Gas. The agreement
entitles Mr. McCall to certain severance benefits in the event he is
terminated without cause during the Term, including a payment equal to the
greater of his annualized base salary and target bonus, or the total
amount of base salary and target bonuses he would have received for the
remainder of the Term; a payment in lieu of forfeited incentive
compensation; and health care benefits. The agreement also provides for
compensation and benefits under certain circumstances following a
change-in-control of TXU Corp. during the Term, including a payment equal
to three times his annualized base salary and target bonus; a payment in
lieu of foregone and forfeited incentive compensation; health care
benefits and a tax gross-up payment to offset any excise tax which may
result from such change-in-control payments.
Oncor entered into an employment agreement with Mr. Longhurst effective
November 1, 2002. The agreement provides for the continued service by Mr.
Longhurst through July 31, 2005 (Term). Under the terms of the agreement,
Mr. Longhurst will, during the Term, be entitled to an initial annual base
salary of $205,000, eligibility for an annual bonus under the terms of the
TXU Annual Incentive Plan, a retention bonus payment equal to $20,000 if
Mr. Longhurst continues his employment through the end of the Term, a
special payment equal to the amount owed to Mr. Longhurst under a
long-term incentive plan of TXU Europe and eligibility for consideration
for awards under the TXU Long-Term Incentive Compensation Plan. The
agreement also provides for benefits associated with Mr. Longhurst's
transition from international assignment status to his employment status
with Oncor, including housing, relocation and transportation assistance,
immigration assistance and tax preparation assistance. The agreement
entitles Mr. Longhurst to severance benefits in the event he is terminated
without cause during the Term, including a payment equal to the base
salary and target bonuses he would have received for the remainder of the
Term; the retention bonus payment; a payment in lieu of international
assignment transition benefits provided for in the agreement; and
relocation to the U.K. for Mr. Longhurst and his family.
TXU Corp. and its participating subsidiaries maintain a retirement plan
(Retirement Plan), which is qualified under applicable provisions of the
Internal Revenue Code of 1986, as amended (Code). The Retirement Plan contains
both a traditional defined benefit component and a cash balance component.
Annual retirement benefits under the traditional defined benefit component,
which applied during 2003 to each of the named officers other than Messrs. Nye
and Longhurst, are computed as follows: for each year of accredited service up
to a total of 40 years, 1.3% of the first $7,800, plus 1.5% of the excess over
$7,800, of the participant's average annual earnings during his or her three
years of highest earnings. The cash balance component covers all employees who
first become eligible to participate in the Retirement Plan on or after January
1, 2002, and employees previously covered under the traditional defined benefit
component who elected to convert the actuarial equivalent of their accrued
traditional defined benefit to the cash balance plan component. Mr. Nye elected
to convert to the cash balance component and Mr. Longhurst also participates in
the cash balance component. Under the cash balance component, hypothetical
accounts are established for participants and credited with monthly contribution
credits equal to a percentage of the participant's compensation (3.5%, 4.5%,
5.5% or 6.5% depending on the participant's combined age and years of accredited
service) and interest credits based on the average yield of the 30-year Treasury
bond for the 12 months ending November 30 of the prior year. Amounts reported
14
under Salary for the named executive officers in the Summary Compensation Table
approximate earnings as defined under the traditional defined benefit component
of the Retirement Plan without regard to any limitations imposed by the Code.
Benefits paid under the traditional defined benefit component of the Retirement
Plan are not subject to any reduction for Social Security payments but are
limited by provisions of the Code. Based on benefits accrued under the cash
balance component of the Retirement Plan as of December 31, 2003, the estimated
annual benefit payable in the form of a straight-life annuity as of that date
for Mr. Nye and at normal retirement age for Mr. Longhurst are $1,259,968 and
$10,909, respectively. As of December 31, 2003, years of accredited service
under the Retirement Plan for Messrs. Nye, Greene, McCall and Longhurst were 40,
33, 21 and 3, respectively.
PENSION PLAN TABLE
Years of Service
----------------------------------------------------------------------------------------
Remuneration 20 25 30 35 40
- ---------------------- ------------- -------------- ------------- ---------------- ---------------
$ 50,000 $14,688 $ 18,360 $22,032 $25,704 $29,376
100,000 29,688 37,110 44,532 51,954 59,376
200,000 59,688 74,610 89,532 104,454 119,376
400,000 119,688 149,610 179,532 209,454 239,376
800,000 239,688 299,610 359,532 419,454 479,376
1,000,000 299,688 374,610 449,532 524,454 599,376
1,400,000 419,688 524,610 629,532 734,454 839,376
1,800,000 539,688 674,610 809,532 944,454 1,079,376
2,000,000 599,688 749,610 899,532 1,049,454 1,199,376
TXU Corp.'s supplemental retirement plan (Supplemental Plan) provides
for the payment of retirement benefits, which would otherwise be limited by the
Code or the definition of earnings in the Retirement Plan, as well as retirement
compensation not payable under the Retirement Plan which TXU Corp. or its
participating subsidiaries are obligated to pay. Under the Supplemental Plan,
retirement benefits are calculated in accordance with the same formula used
under the qualified plan, except that, with respect to calculating the portion
of the Supplemental Plan benefit attributable to service under the traditional
defined benefit component of the Retirement Plan, earnings also include AIP
awards (100% of the AIP awards for 2003 and 2002 and 50% of the AIP award for
2001 are reported under Bonus for the named officers in the Summary Compensation
Table). The table set forth above illustrates the total annual benefit on a
straight-life basis payable at retirement under the Retirement Plan inclusive of
benefits payable under the Supplemental Plan, prior to any reduction for
earlier-than-normal or a contingent beneficiary option which may be selected by
participants.
15
The following report and performance graph are presented herein for information
purposes only. This information is not required to be included herein and shall
not be deemed to form a part of this report to be "filed" with the Securities
and Exchange Commission. The report set forth hereinafter is the report of the
Organization and Compensation Committee of the Board of Directors of TXU Corp.,
as currently expected to be filed with the SEC in the proxy statement of
TXU Corp. on or about April 5, 2004, and is illustrative of the methodology
utilized in establishing the compensation of executive officers of TXU Gas.
References in the report to the "Company" are references to TXU Corp. and
references to "this proxy statement" are references to TXU Corp.'s proxy
statement in connection with TXU Corp.'s 2004 annual meeting of shareholders.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors:
(i) reviews and approves corporate goals and objectives relevant to the
compensation of the Chief Executive Officer (CEO), evaluates the CEO's
performance in light of those goals and objectives and determines and approves
the CEO's compensation based on such evaluation; (ii) oversees the evaluation of
senior executives and makes recommendations to the Board with respect to
equity-based and other compensation plans, policies and practices; (iii) reviews
and discusses with the Board executive management succession planning; and (iv)
makes recommendations to the Board with respect to the compensation of the
Company's non-employee Directors. The role and responsibilities of the Committee
are fully set forth in the Committee's written charter which was approved by the
Board of Directors and which is posted on the Company's website. The Committee
consists only of directors of the Company who satisfy the requirements for
independence under applicable law and regulations of the SEC and the NYSE and is
chaired by J. E. Oesterreicher. The Committee has directed the preparation of
this report and has approved its content and submission to the shareholders.
As a matter of policy, the Committee believes that levels of executive
compensation should be based upon an evaluation of the performance of the
Company and its officers generally, as well as in comparison to persons with
comparable responsibilities in similar business enterprises. Compensation plans
should align executive compensation with returns to shareholders with due
consideration accorded to balancing both long-term and short-term objectives.
The overall compensation program should provide for an appropriate and
competitive balance between base salaries and performance-based annual and
long-term incentives. The Committee has determined that, as a matter of policy
to be implemented over time, the base salaries of the officers will be
established around the median, or 50th percentile, of the base salaries provided
by comparable energy companies, or other relevant market, and that opportunities
for total direct compensation (defined as the sum of base salaries, annual
incentives and long-term incentives) to reach the 75th percentile, or above, of
such market or markets will be provided through annual and long-term
performance-based incentive compensation plans. Such compensation principles and
practices have allowed, and should continue to allow, the Company to attract,
retain and motivate its key executives.
In furtherance of these policies, nationally recognized compensation
consultants have been retained to assist the Committee in its periodic reviews
of compensation and benefits provided to officers. As provided in its charter,
the Committee has the sole authority to retain any compensation consultant used
to assist in the evaluation of compensation provided to officers and directors.
The consultants' evaluations include comparisons to comparable utilities and
energy companies as well as to general industry with respect both to the level
and composition of officers' compensation.
The compensation of the officers of the Company consists principally of
base salaries, the opportunity to earn an incentive award under the Annual
Incentive Plan (AIP), awards of performance-based restricted shares under the
Long-Term Incentive Compensation Plan (Long-Term Plan) and, to a lesser extent,
the opportunity to participate in the Deferred and Incentive Compensation Plan
(DICP). Awards under the AIP are directly related to annual performance as
evaluated by the Committee. The ultimate value, if any, of awards of
performance-based restricted shares under the Long-Term Plan, as well as the
value of future payments under the DICP are directly related to the future
performance of the Company's common stock. It is anticipated that
performance-based incentive awards under the AIP and the Long-Term Plan, will,
in future years, continue to constitute a substantial percentage of the
officers' total compensation.
16
The AIP, which was first approved by the shareholders in 1995 and
reapproved in 2000, is administered by the Committee and provides an objective
framework within which annual performance can be evaluated by the Committee.
Depending on the results of such performance evaluations, and the attainment of
the per share net income goals established in advance, the Committee may provide
annual incentive compensation awards to eligible officers. The evaluation of
each individual participant's performance may be based upon the attainment of a
combination of corporate, group, business unit, function and/or individual
objectives. The Company's annual performance is evaluated based upon its total
return to shareholders, return on invested capital and earnings growth, as well
as other measures such as competitiveness, service quality and employee safety.
The combination of individual and Company results, together with the Committee's
evaluation of the competitive level of compensation which is appropriate for
such results, determines the amount of annual incentive, if any, actually
awarded. Awards under the AIP constitute the principal annual incentive
component of officers' compensation.
The Long-Term Plan, which was first approved by the shareholders in
1997 and reapproved as amended in 2002, is also administered by the Committee
and is a comprehensive stock-based incentive compensation plan under which all
awards are made in, or based on the value of, the Company's common stock. The
Long-Term Plan provides that, in the discretion of the Committee, awards may be
in the form of stock options, stock appreciation rights, performance and/or
restricted stock or stock units or in any other stock-based form. The purpose of
the Long-Term Plan is to provide performance-related incentives linked to
long-term performance goals. Such performance goals may be based on individual
performance and/or may include criteria such as absolute or relative levels of
total shareholder return, revenues, sales, net income or net worth of the
Company, any of its subsidiaries, business units or other areas, all as the
Committee may determine. Awards under the Long-Term Plan provided to the
officers of the Company have been almost exclusively in the form of
performance-based restricted stock as more fully described hereinafter. Awards
under the Long-Term Plan constitute the principal long-term component of
officers' compensation.
In establishing levels of executive compensation, the Committee has
reviewed various performance and compensation data, including the performance
measures under the AIP and the reports of its compensation consultant.
Information was also gathered from industry sources and other published and
private materials which provided a basis for comparing comparable electric and
gas utilities and other survey groups representing a large variety of business
organizations. Included in the data considered were the comparative returns
provided by the largest electric and gas utilities as represented by the returns
of the Standard & Poor's 500 Electric Utilities Index which are reflected in the
graph on page 25. Compensation amounts were established by the Committee based
upon its consideration of the above comparative data and its subjective
evaluation of Company and individual performance at levels consistent with the
Committee's policy relating to total direct compensation.
Since its last report to shareholders which was published in the proxy
statement for the 2003 annual meeting of shareholders, the Committee has
considered officers' compensation matters at several meetings. The results of
Committee actions taken in 2003 are included in the Summary Compensation Table
and related materials on pages 14 through 19 of this proxy statement. Generally
speaking, actions taken at those meetings reflected the Company's business
reversals in late 2002 and included freezing executive officers' salaries and
not providing any AIP awards for 2002 performance. Additionally, with respect to
the Long-Term Plan, the Committee determined that the Company's performance for
the three years ended in March of 2003 did not permit the payment of
performance-based restricted stock awards which had been made in May of 2000 and
such awards were completely forfeited. Moreover, it is anticipated that similar
awards provided in 2001 and 2002 for performance periods ending in 2004 and 2005
may also be completely or partially forfeited depending on returns during the
remainder of the relevant performance periods.
At its meetings in February 2003 and February 2004, the Committee
provided awards of performance-based restricted shares under the Long-Term Plan
to officers and other key employees. The ultimate value of all of such awards,
if any, will be determined by the Company's total return to shareholders over
future performance periods compared to the total returns for those periods of
the companies comprising the Standard & Poor's 500 Electric Utilities Index.
Depending upon the Company's relative total return for such periods, the
officers may earn from 0% to 200% of the original award, and their compensation
is, thereby, directly related to shareholder value. All of the awards
contemplate that 200% of the original award will be provided if the Company's
17
total return is in the 81st percentile or above of the returns of the companies
comprising the Standard & Poor's 500 Electric Utilities Index and that such
percentage of the original award will be reduced as the Company's return
compared to the returns provided by the companies in the Index declines so that
0% of the original award will be provided if the Company's return is in the 40th
percentile or below of returns provided by the companies comprising the Index.
Information relating to awards made to the named executive officers in 2003 is
contained in the Table on page 16 of this proxy statement. These awards, and any
awards that may be made in the future, are based upon the Committee's evaluation
of the appropriate level of long-term compensation consistent with its policy
relating to total direct compensation.
Actions taken by the Committee in 2003 with respect to Mr. Nye's
compensation as Chief Executive reflected the Company's business reversals in
late 2002. In February 2003, the Committee established Mr. Nye's base salary at
an annual rate of $1,050,000, which was the same rate as established in 2002. In
recognition of the Company's cost reduction efforts, Mr. Nye voluntarily reduced
his base salary to a rate of $950,000 for one year. As noted earlier, the
Committee did not provide AIP awards to any executive officers, including Mr.
Nye, in 2003 based on 2002 performance, and the May 2000 performance-based
restricted stock awards, including Mr. Nye's award, were completely forfeited.
Additionally, in 2003 and as reflected in the table on page 16 of this proxy
statement, the Committee provided awards of performance-based restricted stock
to Mr. Nye, the ultimate value of which will be determined by the Company's
performance over two and three-year performance periods. Under the terms of
those awards, Mr. Nye can earn from 0% to 200% of the original awards depending,
with respect to 80,000 shares, on the Company's total return to shareholders
over a two-year period (April 1, 2003 through March 31, 2005) and, with respect
to 80,000 shares, on the Company's total return to shareholders over a
three-year period (April 1, 2003 through March 31, 2006) compared to the total
returns provided for the respective periods by the companies comprising the
Standard & Poor's 500 Electric Utilities Index. The level of compensation
established for Mr. Nye was based upon the Committee's subjective evaluation of
the information contained in this report.
Effective February 23, 2004, C. John Wilder was elected President and
Chief Executive of the Company. In connection with his employment, the Committee
recommended, and the Board approved, entering into an employment agreement with
Mr. Wilder. The agreement provides for Mr. Wilder's service as President and
Chief Executive during a five-year term which may be extended for successive
one-year periods. The agreement contemplates that Mr. Wilder will be elected
Chairman of the Board following the annual meeting of shareholders in 2005.
Under the terms of the agreement, Mr. Wilder will be entitled to an annual base
salary of $1,250,000; target annual bonuses under the Annual Incentive Plan of
200% of base salary; annual performance-based restricted stock awards under the
Long-Term Incentive Compensation Plan, the ultimate value of which will be
determined by the Company's relative returns to shareholders, of 300,000 shares
in 2004 and 150,000 shares in each of 2005, 2006 and 2007; 1,000,000 phantom
performance units, each of which is equal to one share of the Company's common
stock, one third of which will become distributable in stock or cash if and when
the Company's common stock trades at $29, $31 and $33, respectively, for thirty
consecutive trading days; the establishment of a trust which will purchase
500,000 shares of Company common stock, to be distributed to Mr. Wilder in cash
or stock, in equal portions on the third and sixth anniversaries of the
agreement; a signing bonus of $1,000,000; and certain fringe benefits and tax
reimbursement payments related to certain fringe benefits. The agreement also
entitles Mr. Wilder to certain payments and benefits upon the expiration or
termination of the agreement under various circumstances and allows him to elect
to defer the receipt of certain payments. The Committee determined, based upon
its subjective evaluation of competitive market conditions, that the amount as
well as the form of Mr. Wilder's compensation was required and appropriate in
order to attract, incent and retain an individual with Mr. Wilder's
capabilities. A very significant portion of Mr. Wilder's total
expected future compensation (namely his annual bonus, performance units and
performance-based restricted stock awards) will only be provided based on the
Company's future performance, and his compensation is, therefore, directly
linked to shareholders' long-term interests.
As previously reported, the Company has entered into employment
agreements, as approved by the Committee, with certain officers. The terms of
employment agreements with the named executive officers are described in
Footnote 5 to the Summary Compensation Table on pages 17, 18 and 19 of this
proxy statement.
Certain of the Company's business units have developed separate annual
incentive compensation plans. Those plans focus on the results achieved by those
individual business units and the compensation opportunities provided by those
plans are considered to be competitive in the markets in which those units
compete. Generally, officers may not participate in both the traditional
incentive compensation plans as discussed herein and the business unit plans.
None of the named executive officers participate in the individual business unit
plans.
18
In discharging its responsibilities with respect to establishing
officers' compensation, the Committee normally considers such matters at its
February and May meetings. Although Company management may be present during
Committee discussions of officers' compensation, Committee decisions with
respect to the compensation of the Chief Executive are reached in private
session without the presence of any member of Company management.
Section 162(m) of the Code limits the deductibility of compensation
which a publicly traded corporation provides to its most highly compensated
officers. As a general policy, the Company does not intend to provide
compensation which is not deductible for federal income tax purposes. However,
the Committee reserves the right to provide compensation which may not be
deductible when it believes that providing such compensation is consistent with
the strategic goals of the Company and in its best interests. Awards under the
AIP and the Long-Term Plan are expected to be fully deductible and the DICP and
the Salary Deferral Program require the deferral of distributions of maturing
amounts until the time when such amounts would be deductible.
Shareholder comments to the Committee are welcomed and should be
addressed to the Secretary of the Company at the Company's offices.
Organization and Compensation Committee
J. E. Oesterreicher, Chair Jack E. Little
E. Gail de Planque Margaret N. Maxey
(appointed February 2004) (retired February 2004)
Derek C. Bonham Michael W. Ranger
William M. Griffin Herbert H. Richardson
Kerney Laday
19
PERFORMANCE GRAPH
The following graph compares the performance of TXU Corp.'s common
stock to the S&P 500 Index and S&P 500 Electric Utilities Index for the last
five years. The graph assumes the investment of $100 at December 31, 1998 and
that all dividends were reinvested. The amount of the investment at the end of
each year is shown in the graph and in the table which follows.
Cumulative Total Returns for the Five Years Ended 12/31/03
Line graph inserted here that shows Cumulative Total Returns in dollars
by years 1998-2003, using the data points in the table below.
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
TXU Corp...................................... 100 81 108 121 50 65
S&P 500 Index................................. 100 121 110 97 76 97
S&P 500 Electric Utilities Index.............. 100 84 129 107 91 113
20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners at March 15, 2004:
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Ownership Percent of Class
---------------------- ------------------------- ----------------------- -------------------
Common stock, TXU Corp. 449,631 shares 100.0%
$0.01 par value, Energy Plaza sole voting and
of TXU Gas 1601 Bryan Street investment power
Dallas, Texas 75201
Security ownership of management at March 15, 2004:
The following lists the common stock of TXU Corp. owned by the Directors
and Executive Officers of TXU Gas. The named individuals have sole voting and
investment power for the shares of common stock reported. Ownership of such
common stock by the Directors and Executive Officers, individually and as a
group, constituted less than 1% of the outstanding shares at February. None of
the named individuals own any of the preferred stock of TXU Gas or the preferred
securities of any subsidiaries of TXU Gas.
Number of Shares
---------------------------------------------------------------------------
Name Beneficially Owned Share Units (1) Total
---- ------------------ --------------- -----
H. Dan Farell .................... 55,661 21,639 77,300
M. S. Greene...................... 58,232 20,815 79,047
Scott R. Longhurst................ 29,931 0 29,931
Mike McCall....................... 28,120 10,925 39,045
Michael J. McNally................ 178,681 37,254 215,935
Erle Nye.......................... 503,741 95,694 599,435
Eric H. Peterson.................. 77,901 5,626 83,527
C. John Wilder.................... 300,000 1,500,000 (2) 1,800,000
All Directors and Executive
Officers as a group (8)......... 1,232,267 1,691,953 2,924,220
- -----------------
(1) Share units held in deferred compensation accounts under the Deferred
and Incentive Compensation Plan. Although these plans allow such units
to be paid only in the form of cash, investments in such units create
essentially the same investment stake in the performance of TXU Corp.'s
common stock as do investments in actual shares of common stock.
(2) Share units held in accounts established for Mr. Wilder pursuant to his
employment agreement. Such units may be paid in the form of stock or
cash at Mr. Wilder's election.
21
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
TXU Gas has no Audit Committee of its own, but relies upon the TXU
Corp. Audit Committee (Committee). The Committee has adopted a policy relating
to the engagement of TXU Corp.'s independent auditors. The policy provides that
in addition to the audit of the financial statements, related quarterly reviews
and other audit services, Deloitte & Touche LLP may be engaged to provide
non-audit services as described herein. Prior to engagement, all services to be
rendered by the independent auditors must be authorized by the Committee in
accordance with pre-approval procedures which are defined in the policy. The
pre-approval procedures require (i) the annual review and pre-approval by the
Committee of all anticipated audit and non-audit services; and (ii) the
quarterly pre-approval by the Committee of services, if any, not previously
approved and the review of the status of previously approved services. The
Committee may also approve certain on-going non-audit services not previously
approved in the limited circumstances provided for in the SEC rules. All
services performed by the independent auditor were pre-approved.
The policy defines those non-audit services which Deloitte & Touche may
also be engaged to provide as follows: (i) audit related services (e.g. due
diligence related to mergers, acquisitions and divestitures; employee benefit
plan audits; accounting and financial reporting standards consultation; internal
control reviews; and the like); (ii) tax services (e.g. Federal and state tax
returns; regulatory rulings preparation; general tax, merger, acquisition and
divestiture consultation and planning; and the like); and (iii) other services
(e.g. process improvement, review and assurance; litigation and rate case
assistance; general research; and the like). The policy prohibits the engagement
of Deloitte & Touche to provide: (i) bookkeeping or other services related to
the accounting records or financial statements of TXU Gas; (ii) financial
information systems design and implementation services; (iii) appraisal or
valuation services, fairness opinions, or contribution-in-kind reports; (iv)
actuarial services; (v) internal audit outsourcing services; (vi) management or
human resource functions; (vii) broker-dealer, investment advisor, or investment
banking services; (viii) legal and expert services unrelated to the audit; and
(ix) any other service that the Public Company Accounting Oversight Board
determines, by regulation, to be impermissible.
Compliance with the Committee's policy relating to the engagement of
Deloitte & Touche will be monitored on behalf of the Committee by TXU Corp.'s
chief internal audit executive. Reports from Deloitte & Touche and the chief
internal audit executive describing the services provided by the firm and fees
for such services will be provided to the Committee no less often than
quarterly.
22
For the years ended December 31, 2003 and 2002, fees billed to TXU Gas
by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their
respective affiliates were as follows:
2003 2002
------------- -------------
Audit Fees. Fees for services necessary to perform the annual audit,
review SEC filings, fulfill statutory and other attest service
requirements, provide comfort letters and consents....................... $ 338,000 $ 320,000
Audit-Related Fees. Fees for services including employee benefit plan audits,
due diligence related to mergers, acquisitions and divestitures, accounting
consultations and audits in connection with acquisitions, internal control
reviews, attest services that are not required by statute or regulation, and
consultation concerning financial accounting
and reporting standards.................................................. 19,000 -
Tax Fees. Fees for tax compliance, tax planning, and tax advice related
to mergers and acquisitions, divestitures, and communications with and
requests for rulings from taxing authorities.............................
- 339,000
All Other Fees. Fees for services including process improvement
reviews, forensic accounting reviews, litigation and rate case assistance - 163,000
------------- -------------
Total.................................................................... $357,000 $822,000
============= =============
23
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
Financial Statements (included in Appendix A to this report):
Item Page
----
Selected Financial Data................................................................... A- 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ A- 3
Statement of Responsibility............................................................... A-16
Independent Auditors' Report.............................................................. A-17
Statements of Consolidated Income and Comprehensive Income for each of the
three years in the period ended December 31, 2003.................................... A-18
Statements of Consolidated Cash Flows for each of the three years in the period
ended December 31, 2003.............................................................. A-19
Consolidated Balance Sheets, December 31, 2003 and 2002................................... A-20
Statements of Consolidated Shareholder's Equity for each of the three years in the
period ended December 31, 2003....................................................... A-21
Notes to Financial Statements............................................................. A-22
The consolidated financial statement schedules are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
(b) Reports on Form 8-K filed or furnished since September 30, 2003, are as
follows:
None
(c) Exhibits: Included in Appendix B to this report.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, TXU Gas Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TXU GAS COMPANY
Date: March 17, 2004 By: /s/ M. S. GREENE
------------------------------------------------
(M. S. Greene, Vice Chairman and
Chief Executive)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of TXU Gas
Company and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ M. S. GREENE Principal Executive Officer March 17, 2004
- ----------------------------------------------------------- and Director
(M. S. Greene, Vice Chairman and Chief Executive)
/s/ SCOTT LONGHURST Principal Financial Officer March 17, 2004
- -----------------------------------------------------------
(Scott Longhurst, Senior Vice President and
Principal Financial Officer)
/s/ DAVID H. ANDERSON Principal Accounting Officer March 17, 2004
- -----------------------------------------------------------
(David H. Anderson, Vice President)
/s/ C. JOHN WILDER Director March 17, 2004
- -----------------------------------------------------------
(C. John Wilder, Chairman of the Board)
/s/ H. DAN FARELL Director March 17, 2004
- -----------------------------------------------------------
(H. Dan Farell)
/s/ MICHAEL J. McNALLY Director March 17, 2004
- -----------------------------------------------------------
(Michael J. McNally)
ERLE NYE Director March 17, 2004
- -----------------------------------------------------------
(Erle Nye)
ERIC H. PETERSON Director March 17, 2004
- -----------------------------------------------------------
(Eric H. Peterson)
25
Appendix A
TXU GAS COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
December 31, 2003
Page
Selected Financial Data..................................................................... A- 2
Management's Discussion and Analysis of Financial Condition and Results of Operations....... A- 3
Statement of Responsibility................................................................. A-16
Independent Auditors' Report................................................................ A-17
Financial Statements:
Statements of Consolidated Income and Comprehensive Income............................. A-18
Statements of Consolidated Cash Flows.................................................. A-19
Consolidated Balance Sheets............................................................ A-20
Statements of Consolidated Shareholder's Equity........................................ A-21
Notes to Financial Statements.......................................................... A-22
A-1
TXU GAS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(millions of dollars, except ratios)
Total assets-- end of year...................... $2,328 $2,297 $4,551 $5,666 $3,483
====== ====== ====== ====== ======
Capitalization-- end of year
Long-term debt held by subsidiary trust (a).. $ 155 $ 155 $ 155 $ 155 $ 155
All other long-term debt, less amounts due
currently................................... 276 426 553 757 551
Preferred stock.............................. 75 75 75 75 75
Common stock equity.......................... 804 753 985 949 965
------ ------ ----- ----- ------
Total................................... $1,310 $1,409 $1,768 $1,936 $1,746
====== ====== ====== ====== ======
Capitalization ratios-- end of year
Long-term debt held by subsidiary trust (a).. 11.8% 11.0% 8.8% 8.0% 8.9%
All other long-term debt, less amounts due
currently................................... 21.1 30.2 31.3 39.1 31.5
Preferred stock.............................. 5.7 5.3 4.2 3.9 4.3
Common stock equity.......................... 61.4 53.5 55.7 49.0 55.3
------ ------ ------ ------ ------
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Operating revenues of continuing operations (b)
Gas distribution:
Residential............................... $ 770 $ 563 $ 710 $ 616 $ 402
Business and other........................ 455 313 435 346 232
------ ----- ----- ----- ------
Total................................... 1,225 876 1,145 962 634
Pipeline transportation...................... 57 53 59 57 57
Other revenues, net of eliminations.......... 62 52 25 88 177
------ ----- ----- ----- ------
Total operating revenues of continuing
operations............................ $1,344 $ 981 $1,229 $1,107 $ 868
====== ===== ====== ====== ======
Income (loss) from continuing operations (c).... $ 44 $ (12) $ 1 $ 66 $ 8
====== ===== ===== ===== ======
Ratio of income (loss) from continuing
operations to fixed charges.................. 2.40 0.69 1.12 2.43 1.08
Ratio of income (loss) from continuing
operations to combined fixed charges and
preferred dividends........................... 2.20 0.63 0.76 2.25 1.04
(a) As a result of the implementation of FIN 46 (See Note 1 to Financial
Statements), the wholly-owned subsidiary financing trust that
issued preferred securities is no longer consolidated. Amounts represent
the subordinated debentures of TXU Gas that are the sole assets of the
trust.
(b) With the transfer of certain businesses to TXU Energy on January 1, 2002
(See Note 1 to Financial Statements), the gas distrib