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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
-- OR --
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-12833
TXU Corp.
A Texas Corporation I.R.S. Employer Identification
No. 75-2669310
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
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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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
-- ---
Common Stock outstanding at May 12, 2003: 322,262,966 shares, without par value.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Statements of Consolidated Income -
Three Months Ended March 31, 2003 and 2002........................................... 1
Condensed Statements of Consolidated Comprehensive Income -
Three Months Ended March 31, 2003 and 2002.......................................... 2
Condensed Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2003 and 2002........................................... 3
Condensed Consolidated Balance Sheets -
March 31, 2003 and December 31, 2002................................................. 4
Notes to Financial Statements........................................................ 5
Independent Accountants' Report...................................................... 27
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 60
Item 4. Controls and Procedures.............................................................. 61
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 61
Item 4. Submission of Matters to a Vote of Security Holders ................................. 63
Item 6. Exhibits and Reports on Form 8-K .................................................... 63
SIGNATURE............................................................................................. 64
CERTIFICATIONS........................................................................................ 65
Periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K that
contain financial information of TXU Corp. 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
Corp. will provide copies of current reports not posted on the website upon
request.
(i)
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended
March 31,
-------------------
2003 2002
---- ----
(millions of dollars,
except per share amounts)
Operating revenues.................................................................. $2,815 $2,453
------ ------
Costs and expenses:
Cost of energy sold and delivery fees............................................ 1,387 800
Operating costs.................................................................. 429 365
Depreciation and amortization.................................................... 227 220
Selling, general and administrative expenses..................................... 262 338
Franchise and revenue-based taxes................................................ 111 118
Other income..................................................................... (14) (7)
Other deductions................................................................. 20 47
Interest income.................................................................. (10) (8)
Interest expense and other charges............................................... 254 216
----- -----
Total costs and expenses..................................................... 2,666 2,089
----- -----
Income from continuing operations before income taxes and cumulative effect
of changes in accounting principles.............................................. 149 364
Income tax expense.................................................................. 43 107
----- -----
Income from continuing operations before cumulative effect
of changes in accounting principles.............................................. 106 257
Loss on discontinued operations, net of tax benefit (Note 3)........................ (3) (2)
Cumulative effect of changes in accounting principles, net of tax benefit (Note 2).. (58) --
----- -----
Net income ......................................................................... 45 255
Preference stock dividends.......................................................... 5 5
----- -----
Net income available for common stock............................................... $ 40 $ 250
===== =====
Average shares of common stock outstanding (millions):
Basic............................................................................ 321 265
Diluted.......................................................................... 378 265
Per share of common stock:
Basic earnings:
Income from continuing operations before cumulative effect of
changes in accounting principles......................................... $ 0.31 $ 0.95
Loss on discontinued operations, net of tax benefit........................... (0.01) (0.01)
Cumulative effect of changes in accounting principles, net of tax benefit (0.17) --
Net income available for common stock......................................... 0.13 0.94
Diluted earnings:
Income from continuing operations before cumulative effect of
changes in accounting principles......................................... $ 0.30 $ 0.95
Loss on discontinued operations, net of tax benefit........................... (0.01) (0.01)
Cumulative effect of changes in accounting principles, net of tax benefit (0.15) --
Net income available for common stock......................................... 0.14 0.94
Dividends declared............................................................... 0.125 0.60
See Notes to Financial Statements.
1
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
-------------------
2003 2002
---- ----
(millions of dollars)
Components related to continuing operations:
Income from continuing operations before cumulative effect of changes
in accounting principles ................................................. $ 106 $ 257
------ -----
Other comprehensive income (loss) --
Net change during the period, net of tax effects:
Cumulative foreign currency translation adjustment ....................... 55 31
Minimum pension liability adjustments (net of tax benefit of $3).......... (6) -
Cash flow hedges:
Net change in fair value of derivatives (net of tax benefit of
$56 and $18)......................................................... (108) (31)
Amounts realized in earnings during the period (net of tax
expense of $42 and $7) ............................................. 81 15
------ -----
Total.................................................. 22 15
------ -----
Comprehensive income from continuing operations............................... 128 272
Comprehensive income from discontinued operations............................. (3) (53)
Cumulative effect of changes in accounting principles, net of tax benefit..... (58) -
------ -----
Comprehensive income.......................................................... $ 67 $ 219
====== =====
See Notes to Financial Statements.
2
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------
2003 2002
---- ----
(millions of dollars)
Cash flows - operating activities:
Income from continuing operations before cumulative effect of
changes in accounting principles....................................................... $ 106 $ 257
Adjustments to reconcile income from continuing operations before cumulative
effect of changes in accounting principles to cash provided by operating activities:
Depreciation and amortization ........................................................ 246 251
Deferred income taxes and investment tax credits - net ............................... - (19)
Net gain from sale of assets......................................................... (6) -
Net unrealized loss from mark-to-market valuations of commodity contracts............. 27 119
Net equity loss from unconsolidated affiliates and joint ventures..................... 15 14
Over (under) recovered gas costs...................................................... (39) 40
Reduction in regulatory liability..................................................... (42) (13)
Changes in operating assets and liabilities.............................................. 619 (203)
------ -----
Cash provided by operating activities............................................. 926 446
------ -----
Cash flows - financing activities:
Issuances of securities:
Long-term debt........................................................................ 1,317 145
Common stock.......................................................................... 4 1
Retirements/repurchases of securities:
Long-term debt........................................................................ (565) (604)
Preferred stock of subsidiary, subject to mandatory redemption........................ (4) -
Change in notes payable:
Commercial paper...................................................................... 5 749
Banks................................................................................. (1,286) (292)
Cash dividends paid:
Common stock.......................................................................... (40) (159)
Preference stock...................................................................... (5) (5)
Redemption deposit applied to debt retirements........................................... 138 -
Debt premium, discount, financing and reacquisition expenses............................. (48) (28)
------ -----
Cash used in financing activities................................................. (484) (193)
------ -----
Cash flows - investing activities:
Capital expenditures..................................................................... (228) (272)
Proceeds from sale of assets............................................................. 13 1
Nuclear fuel ............................................................................ - (10)
Other.................................................................................... 25 2
------ -----
Cash used in investing activities................................................. (190) (279)
------ -----
Effect of exchange rates on cash and cash equivalents...................................... 1 (9)
Cash contributions to discontinued operations.............................................. - (144)
------ -----
Net change in cash and cash equivalents.................................................... 253 (179)
Cash and cash equivalents - beginning balance.............................................. 1,574 216
------ -----
Cash and cash equivalents - ending balance................................................. $1,827 $ 37
====== =====
See Notes to Financial Statements.
3
TXU CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
--------- -------
ASSETS (millions of dollars)
Current assets:
Cash and cash equivalents................................................... $ 1,827 $ 1,574
Restricted cash............................................................. 72 210
Accounts receivable-- trade................................................. 1,848 1,696
Income taxes receivable..................................................... 34 488
Inventories................................................................. 426 493
Commodity contract assets................................................... 1,472 1,298
Other current assets........................................................ 231 263
------- -------
Total current assets................................................. 5,910 6,022
------- -------
Investments:
Restricted cash.............................................................. 111 96
Other investments............................................................ 786 757
Property, plant and equipment-- net............................................ 20,456 19,642
Goodwill....................................................................... 1,956 1,588
Regulatory assets-- net....................................................... 1,923 1,772
Commodity contract assets...................................................... 549 657
Cash flow hedges and other derivative assets................................... 163 150
Other noncurrent assets........................................................ 320 332
------ -------
Total assets.......................................................... $32,174 $31,016
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable:
Commercial paper......................................................... $ 24 $ 18
Banks.................................................................... 1,021 2,306
Long-term debt due currently................................................ 739 958
Accounts payable-- trade.................................................... 1,206 1,054
Commodity contract liabilities.............................................. 1,377 1,138
Other current liabilities................................................... 1,084 1,209
------- -------
Total current liabilities............................................ 5,451 6,683
------- -------
Accumulated deferred income taxes and investment tax credits.................. 4,187 4,060
Commodity contract liabilities................................................ 461 520
Cash flow hedges and other derivative liabilities............................. 306 220
Other noncurrent liabilities and deferred credits............................. 2,498 2,144
Long-term debt, less amounts due currently.................................... 13,459 11,597
Mandatorily redeemable, preferred securities of subsidiary trusts, each
holding solely junior subordinated debentures of the obligated company:
TXU Corp. obligated...................................................... 368 368
Subsidiary obligated..................................................... 147 147
Preferred stock of subsidiaries:
Not subject to mandatory redemption...................................... 190 190
Subject to mandatory redemption.......................................... 17 21
Contingencies (Note 7)
Shareholders' equity (Note 6)................................................. 5,090 5,066
------- -------
Total liabilities and shareholders' equity........................... $32,174 $31,016
======= =======
See Notes to Financial Statements.
4
TXU CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- TXU Corp. is an energy company that engages
in power production (electricity generation), wholesale energy sales, retail
energy sales and related services, portfolio management, including risk
management and certain trading activities, energy delivery and, through a joint
venture, telecommunications services. TXU Corp. is a holding company with its
principal United States (US) operations conducted through TXU US Holdings
Company (US Holdings) and TXU Gas Company (TXU Gas). US Holdings is also a
holding company with its principal operations conducted through TXU Energy
Company LLC (TXU Energy) and Oncor Electric Delivery Company (Oncor). TXU
Corp.'s principal international operations are conducted through TXU Australia
Holdings (Partnership) Limited Partnership (TXU Australia) and had also been
previously conducted through TXU Europe Limited (TXU Europe).
The term "TXU Corp.," refers to TXU Corp. and/or its consolidated
subsidiaries, depending on the context.
Exit of TXU Europe Business - In October 2002, TXU Corp. wrote off its
investment in TXU Europe. The results of operations for all periods presented
have been restated to reflect the operations in Europe as discontinued. See Note
3 for a summary of discontinued results.
Basis of Presentation -- The condensed consolidated financial
statements of TXU Corp. and its subsidiaries have been prepared in accordance
with accounting principles generally accepted in the United States of America
(US GAAP) and, except for the rescission of Emerging Issues Task Force (EITF)
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities," the adoption of Statement of Financial Accounting
Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations " and the
adoption of SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" discussed below,
on the same basis as the audited financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 2002 (2002 Form 10-K). In
the opinion of management, all other adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations and
financial position have been included therein. All intercompany items and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in annual consolidated financial
statements prepared in accordance with US GAAP have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Because the
consolidated interim financial statements do not include all of the information
and footnotes required by US GAAP, they should be read in conjunction with the
audited financial statements and related notes included in the 2002 Form 10-K.
The results of operations for an interim period may not give a true indication
of results for a full year. All dollar amounts in the financial statements and
tables in the notes, except per share amounts, are stated in millions of US
dollars unless otherwise indicated. Certain previously reported amounts have
been reclassified to conform to current classifications.
With respect to the telecommunications joint venture, Pinnacle One
(Pinnacle), in late February 2003, TXU Corp. and the joint venture partner
(Zenith, an unaffiliated statutory business trust with a bank as its trustee)
entered into a Put/Call Agreement that among other provisions, gave TXU Corp.
the right to buy from Zenith all of its interests in Pinnacle and Pinnacle's
general partner for $150 million in cash. In consideration of the rights
accorded TXU Corp. under the agreement and applicable accounting rules, TXU
Corp. consolidated the operations of Pinnacle in its financial statements
effective March 1, 2003. Previously, TXU Corp. used the equity method of
accounting for its investment in Pinnacle. Pinnacle's revenues for the month
ended March 31, 2003 were $16 million, and its net loss was $8 million. On a
proforma basis for the three months ended March 31, 2003, operating revenues
would have been $33 million higher had Pinnacle been consolidated at the
beginning of the period. TXU Corp. exercised its right under the Put/Call
Agreement and acquired all Zenith's interest on May 13, 2003. On May 14, 2003,
TXU Corp. finalized a formal plan to dispose of the telecommunications business
by sale. Accordingly, activities of Pinnacle will be reported as discontinued
operations.
5
The following summarizes the impact of the Pinnacle consolidation on
TXU Corp.'s balance sheet as of March 31, 2003:
Total current assets................................. $ 30
Investments.......................................... 36
Property, plant and equipment - net.................. 236
Goodwill............................................. 317
Other noncurrent assets.............................. 3
------
Total assets................................... $ 622
======
Total current liabilities............................ $ 42
Accumulated deferred income tax ..................... (16)
Other noncurrent liabilities......................... (219)
Long-term debt, less amounts due currently ($2 million) 829
Retained earnings.................................... (8)
Accumulated other comprehensive income............... (6)
-------
Total liabilities and shareholders' equity..... $ 622
======
The reduction in other noncurrent liabilities reflects the
elimination of the negative investment in Pinnacle, less the recording of the
minority interest, as a result of the consolidation.
Changes in Accounting Standards -- In October 2002, the EITF rescinded
EITF Issue No. 98-10, which required mark-to-market accounting for all trading
activities. SFAS No. 143 became effective on January 1, 2003. As a result of the
implementation of these two accounting standards, TXU Corp. recorded a
cumulative effect of changes in accounting principles as of January 1, 2003.
(See Note 2 for a discussion of the impacts of these two accounting standards.)
As a result of guidance provided in EITF Issue No. 02-3, "Issues
Involved in Accounting for Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk Management Activities," TXU Corp.
has not recognized origination gains on commercial/industrial retail contracts
in 2003. For the three months ended March 31, 2002, TXU Corp. had recognized $13
million in origination gains on such contracts.
SFAS No. 145, became effective on January 1, 2003. One of the
provisions of this statement is the rescission of SFAS No. 4, "Reporting Gains
and Losses from Extinguishment of Debt." As required by the standard, the
results for the three months ended March 31, 2002 reflects a reclassification of
a previously reported extraordinary loss of $17 million (after-tax) on the early
extinguishment of debt to other deductions ($26 million) and income tax expense
($9 million) as the loss does not meet the criteria of an extraordinary item as
defined by Accounting Principles Board Opinion 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."
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," became effective on January 1, 2003. SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
only when the liability is incurred and measured initially at fair value. The
adoption of SFAS No. 146 did not materially impact results of operations for
the three months ended March 31, 2003.
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition
and Disclosure" was issued in December 2002. TXU Corp. adopted the disclosure
requirements of SFAS No. 148 effective December 31, 2002. This statement
provides transition alternatives when companies adopt fair value accounting for
stock-based compensation. TXU Corp. accounts for certain of its stock-based
compensation plans, including stock options, using the intrinsic value method.
TXU Corp. does not currently issue stock options, and only approximately 26,000
previously issued options remain outstanding at March 31, 2003. Had compensation
expense for these stock-based compensation plans been determined based upon the
fair value methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation", TXU Corp.'s net income and per share amounts would
not have been materially different from reported amounts.
6
Financial Accounting Standards Board Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FIN No. 34" requires recording
the fair value of guarantees upon issuance or modification after December 31,
2002. The interpretation also requires expanded disclosures of guarantees (see
Note 7 under Guarantees). The adoption of FIN No. 45 did not materially impact
results of operations for the three months ended March 31, 2003.
FIN No. 46, "Consolidation of Variable Interest Entities" was issued
in January 2003. FIN No. 46 provides guidance related to identifying variable
interest entities and determining whether such entities should be consolidated.
This guidance will be effective for existing variable interest entities in the
quarter ending September 30, 2003 and immediately for any new variable interest
entities.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities," was issued in April 2003 and becomes effective on June
30, 2003. SFAS No. 149 clarifies the definition of a derivative and the
treatment in the statement of cash flows when a derivative contains a financing
component.
For accounting standards not yet adopted or implemented, TXU Corp. is
evaluating the potential impact on its financial position and results of
operations.
Earnings Per Share -- Basic earnings per share applicable to common
stock are based on the weighted average number of common shares outstanding
during the quarter. Diluted earnings per share include the effect of all
potential issuances of common shares under certain debt securities and other
arrangements. For the quarter ended March 31, 2003, the $750 million
exchangeable subordinated notes issued in November 2002 were dilutive and were
included in the calculation of diluted earnings per share. Assuming these
securities were converted to common stock at the beginning of the period at the
exercise price of $13.1242 per share, 57.1 million more shares would have been
issued and net income would have increased by $12.6 million, representing the
after-tax interest savings on the notes.
Additional dilution of earnings per share would result from
approximately 7.0 million shares and 18.0 million shares of common stock
issuable in connection with equity-linked debt securities issued in 2002 and
2001, respectively, if the average of the closing price per share of TXU Corp.
common stock on each of the twenty consecutive trading days ending on the third
day immediately preceding the end of a reporting period is above the strike
price of $62.91 and $55.68 per share, for the respective issuances.
2. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The following summarizes the effect on results for the three months
ended March 31, 2003 for changes in accounting principles effective January 1,
2003:
Charge from rescission of EITF Issue No. 98-10, net of tax effect of $34 million....... $(63)
Credit from adoption of SFAS No. 143, net of tax effect of $3 million.................. 5
----
Total net charge.................................................................. $(58)
====
On October 25, 2002, the EITF rescinded EITF Issue No. 98-10, which
required mark-to-market accounting for all trading activities. Pursuant to this
rescission, only financial instruments that are derivatives under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," will be subject
to mark-to-market accounting. Financial instruments that may not be derivatives
under SFAS No. 133, but were marked-to-market under EITF Issue No. 98-10,
consist primarily of gas transportation and storage agreements, power tolling,
full requirements and capacity contracts. This new accounting rule was effective
for new contracts entered into after October 25, 2002. Non-derivative contracts
entered into prior to October 26, 2002, continued to be accounted for at fair
value through December 31, 2002; however, effective January 1, 2003, such
contracts were required to be accounted for on a settlement basis. Accordingly,
a charge of $97 million ($63 million after-tax) has been reported by TXU Energy
as a cumulative effect of a change in accounting principles in the first quarter
of 2003. Of the total, $75 million reduced net commodity contract assets and
liabilities and $22 million reduced inventory that had previously been
marked-to-market as a trading position. The cumulative effect adjustment
represents the net gains previously recognized for these contracts under
mark-to-market accounting.
7
SFAS No. 143 became effective on January 1, 2003. SFAS No. 143
requires entities to record the fair value of a legal liability for an asset
retirement obligation in the period of its inception. For TXU Corp., such
liabilities relate to nuclear generation plant decommissioning, land reclamation
related to lignite mining and removal of lignite plant ash treatment facilities.
The liability is recorded at its net present value with a corresponding increase
in the carrying value of the related long-lived asset. The liability is accreted
each period, representing the time value of money, and the capitalized cost is
depreciated over the remaining useful life of the related asset.
As the new accounting rule required retrospective application to the
inception of the liability, the effects of the adoption reflect the accretion
and depreciation from the liability inception date through December 31, 2002.
Further, the effects of adoption take into consideration liabilities of $215
million (which was previously reflected in accumulated depreciation) TXU Corp.
had previously recorded as depreciation expense and $26 million (reflected in
other noncurrent liabilities) of unrealized net gains associated with the
decommissioning trust.
The following table summarizes the impact as of January 1, 2003 of
adopting SFAS No. 143:
Increase in property, plant and equipment - net......... $488
Increase in other noncurrent liabilities and deferred
credits............................................... (528)
Increase in accumulated deferred income taxes........... (3)
Increase in regulatory assets - net..................... 48
----
Cumulative effect of change in accounting principles.... $ 5
====
The asset retirement liability at March 31, 2003 was $560 million,
comprised of the $554 million liability as a result of adoption of SFAS No. 143
and $6 million of accretion during the period.
With respect to nuclear decommissioning costs, TXU Corp. believes
that the adoption of SFAS No. 143 results primarily in timing differences in the
recognition of legal asset retirement costs that TXU Energy is currently
recovering, as Oncor recovers regulated decommissioning fees from retail
electric providers on behalf of TXU Energy, and will be deferring such
differences as part of the regulatory cost-recovery process.
On a pro forma basis, prior to deregulation in January 2002,
TXU Corp.'s earnings for the years ended December 31, 2001 and 2000 would not
have been impacted by the adoption of SFAS No. 143. Assuming SFAS No. 143 had
been adopted at the beginning of the periods, earnings for the year ended
December 31, 2002 and the three months ended March 31, 2002, would have
increased by $6.5 million and $1.5 million, respectively, and the liability for
asset retirement obligations as of December 31, 2001, March 31, 2002, and
December 31, 2002, would have been $522 million, $531 million and $554 million,
respectively.
3. DISCONTINUED OPERATIONS
The following summarizes the historical consolidated financial
information of TXU Europe reported as discontinued operations:
Three Months Ended
March 31, 2002
------------------
Operating revenues...................................... $1,510
Operating costs and expenses............................ 1,445
Other deductions-- net.................................. 3
Interest income......................................... (6)
Interest expense and other charges...................... 83
------
Loss before income taxes................................ (15)
Income tax benefit...................................... (13)
------
Loss from discontinued operations .................. $ (2)
======
Additional legal, audit and administrative expenses of $4 million ($3
million after-tax) related to TXU Europe were accrued in the three months ended
March 31, 2003.
8
4. FINANCING ARRANGEMENTS
Credit Facilities -- At March 31, 2003, TXU Corp. had outstanding
short-term borrowings consisting of bank borrowings of approximately $1.0
billion and commercial paper (in Australia) of $24 million. Weighted average
interest rates on short-term borrowings were 2.84% and 2.60% at March 31, 2003
and December 31, 2002, respectively.
During the first quarter of 2003, $1.3 billion in outstanding
short-term borrowings were repaid with proceeds from the issuance of long-term
debt in March 2003 and cash flows from operations.
At March 31, 2003, TXU Corp. and its subsidiaries had credit
facilities (some of which provide for long-term borrowings) as follows:
At March 31, 2003
--------------------------------------------------
Authorized Facility Letters of Cash
Facility Expiration Date Borrowers Limit Credit Borrowings Availability
- -------- --------------- --------- ----- ------ ---------- ------------
364-Day Revolving Credit Facility April 2003 US Holdings, TXU
Energy, Oncor $ 1,000 $ 152 $ 500 $ 348
364-Day Senior Secured Credit Facility December 2003 Oncor 150 -- -- 150
Five -Year Revolving Credit Facility February 2005 US Holdings 1,400 371 -- 1,029
Three-Year Revolving Credit Facility May 2005 TXU Corp. 500 -- 500 --
------- ------ ------ ------
Total North America $ 3,050 $ 523 $1,000 $1,527
Senior Facility (a) October 2004 TXU Australia $ 1,052 $ -- $ 850 $ 198
Working Capital Facility October 2003 TXU Australia 60 -- 18 42
Standby Facility (a) December 2003 TXU Australia 20 -- -- --
------- ------ ------ ------
Total Australia $ 1,132 $ -- $ 868 $ 240
(a) Commercial paper borrowings totaling $24 million at March 31, 2003 were
supported by the Standby Facility ($20 million) and the Senior Facility ($4
million).
In April 2003, all outstanding cash borrowings under the North
America credit facilities were repaid. A new $450 million revolving credit
facility was established for TXU Energy and Oncor that matures on February 25,
2005. The new facility will be used for working capital and other general
corporate purposes, including commercial paper backup and letters of credit, and
replaces the $1 billion 364-day revolving credit facility that expired in April
2003. Up to $450 million of letters of credit may be issued under the facility.
In connection with the restructuring of the North America credit
facilities of TXU Corp. and its subsidiaries in April 2003:
o Oncor cancelled its undrawn $150 million secured 364-day credit
facility that was scheduled to expire in December 2003.
o US Holdings replaced TXU Corp. as the borrower under the $500
million three-year revolving credit facility. Concurrently, the
facility was reduced to $400 million and TXU Corp. entered into
additional separate revolving credit facilities of $45 million and
$55 million, each of which expires on May 1, 2005.
o US Holdings' $1.4 billion five-year revolving credit facility was
amended. Among other things, the amendment increased the amount of
letters of credit allowed to be issued under the facility to $1
billion from $500 million.
9
As a result of the repayments and other activities discussed above,
TXU Corp. and its North America subsidiaries' credit facilities as of May 13,
2003 were as follows:
At May 13, 2003
--------------------------------------------------
Authorized Facility Letters of Cash
Facility Expiration Date Borrowers Limit Credit Borrowings Availability
- -------- --------------- --------- ----- ------ ---------- ------------
Five-Year Revolving Credit Facility February 2005 US Holdings $ 1,400 $ 377 $ -- $1,023
Revolving Credit Facility February 2005 TXU Energy, Oncor 450 -- -- 450
Three-Year Revolving Credit Facility May 2005 US Holdings 400 -- -- 400
Revolving Credit Facility May 2005 TXU Corp. 55 -- -- 55
Revolving Credit Facility May 2005 TXU Corp. 45 -- -- 45
------- ------ ------ ------
Total North America $ 2,350 $ 377 $ -- $1,973
Australia's credit facilities were not affected by the above
refinancings.
In addition to providing back-up of commercial paper issuance by TXU
Energy and Oncor, the North America facilities above are for general corporate
and working capital purposes, including providing collateral support for TXU
Energy portfolio management activities. At March 31, 2003 and May 13, 2003,
there was no outstanding commercial paper under these programs.
10
Long-Term Debt -- At March 31, 2003 and December 31, 2002, the
long-term debt of TXU Corp. and its consolidated subsidiaries consisted of the
following:
March 31, December 31,
--------- ------------
2003 2002
TXU Energy ---- ----
- ----------
Pollution Control Revenue Bonds:
Brazos River Authority:
Floating Taxable Series 1993 due June 1, 2023.................................... $ -- $ 44
4.900% Fixed Series 1994A due May 1, 2029(c)..................................... 39 39
5.400% Fixed Series 1994B due May 1, 2029(c)..................................... 39 39
5.400% Fixed Series 1995A due April 1, 2030(c)................................... 50 50
5.050% Fixed Series 1995B due June 1, 2030(c).................................... 118 118
4.800% Fixed Series 1999A due April 1, 2033(c)................................... 111 111
6.750% Fixed Series 1999B due September 1, 2034(c)............................... 16 16
7.700% Fixed Series 1999C due March 1, 2032(c)................................... 50 50
4.950% Fixed Series 2001A due October 1, 2030(c)................................. 121 121
4.750% Fixed Series 2001B due May 1, 2029(c)..................................... 19 19
5.750% Fixed Series 2001C due May 1, 2036(c)..................................... 274 274
4.250% Fixed Series 2001D due May 1, 2033(c)..................................... 271 271
1.500% Floating Taxable Series 2001F due December 31, 2036(d).................... 39 39
1.500% Floating Taxable Series 2001G due December 31, 2036(d).................... 72 72
1.360% Floating Taxable Series 2001H due December 31, 2036(d).................... 31 31
1.310% Floating Taxable Series 2001I due December 31, 2036(d).................... 63 63
1.250% Floating Series 2002A due May 1, 2037(d).................................. 61 61
6.750% Fixed Series 2003A due April 1, 2038(c).................................. 44 --
Sabine River Authority of Texas:
6.450% Fixed Series 2000A due June 1, 2021....................................... 51 51
5.500% Fixed Series 2001A due May 1, 2022(c)..................................... 91 91
5.750% Fixed Series 2001B due May 1, 2030(c)..................................... 107 107
4.000% Fixed Series 2001C due May 1, 2028(c)..................................... 70 70
1.500% Floating Taxable Series 2001D due December 31, 2036(d).................... 12 12
1.360% Floating Taxable Series 2001E due December 31, 2036(d).................... 45 45
Trinity River Authority of Texas:
4.900% Fixed Series 2000A due May 1, 2028(c)..................................... 14 14
5.000% Fixed Series 2001A due May 1, 2027(c)..................................... 37 37
Other:
7.000% Fixed Senior Notes - TXU Mining Company LP due May 1, 2003................ 72 72
6.875% Fixed Senior Notes - TXU Mining Company LP due August 1, 2005............. 30 30
9.000% Fixed Exchangeable Subordinated Notes due November 22, 2012............... 750 750
6.125% Fixed Senior Notes due March 15, 2008..................................... 250 --
7.000% Fixed Senior Notes due March 15, 2013..................................... 1,000 --
Capital lease obligations........................................................ 10 10
Other............................................................................ 8 8
Unamortized premium and discount................................................. (116) (110)
------ ------
Total TXU Energy ............................................................ 3,849 2,605
------ ------
US Holdings
- -----------
7.170% Fixed Senior Debentures due August 1, 2007................................ 10 10
9.556% Fixed Notes due in bi-annual installments through December 4, 2019........ 73 73
8.254% Fixed Notes due in quarterly installments through December 31, 2021....... 67 68
2.150% Floating Rate Junior Subordinated Debentures, Series D due January 30,
2037(a)........................................................................ 1 1
8.175% Fixed Junior Subordinated Debentures, Series E due January 30, 2037....... 8 8
------ ------
Total US Holdings ........................................................... 159 160
------ ------
11
March 31, December 31,
--------- ------------
2003 2002
---- ----
Oncor
- -----
9.530% Fixed Medium Term Secured Notes due January 30, 2003...................... -- 4
9.700% Fixed Medium Term Secured Notes due February 28, 2003..................... -- 11
6.750% Fixed First Mortgage Bonds due March 1, 2003.............................. -- 133
6.750% Fixed First Mortgage Bonds due April 1, 2003.............................. 70 70
8.250% Fixed First Mortgage Bonds due April 1, 2004.............................. 100 100
6.250% Fixed First Mortgage Bonds due October 1, 2004............................ 121 121
6.750% Fixed First Mortgage Bonds due July 1, 2005............................... 92 92
7.875% Fixed First Mortgage Bonds due March 1, 2023.............................. 224 224
8.750% Fixed First Mortgage Bonds due November 1, 2023........................... -- 103
7.875% Fixed First Mortgage Bonds due April 1, 2024.............................. 133 133
7.625% Fixed First Mortgage Bonds due July 1, 2025............................... 215 215
7.375% Fixed First Mortgage Bonds due October 1, 2025............................ 178 178
6.375% Fixed Senior Secured Notes due May 1, 2012................................ 700 700
7.000% Fixed Senior Secured Notes due May 1, 2032................................ 500 500
6.375% Fixed Senior Secured Notes due January 15, 2015........................... 500 500
7.250% Fixed Senior Secured Notes due January 15, 2033........................... 350 350
5.000% Fixed Debentures due September 1, 2007.................................... 200 200
7.000% Fixed Debentures due September 1, 2022.................................... 800 800
Unamortized premium and discount and fair value adjustments...................... (32) (35)
------ ------
Total Oncor.................................................................. 4,151 4,399
------ ------
TXU Gas
- -------
6.250% Fixed Notes due January 1, 2003........................................... -- 125
6.375% Fixed Notes due February 1, 2004.......................................... 150 150
7.125% Fixed Notes due June 15, 2005............................................. 150 150
6.564% Fixed Remarketed Reset Notes due January 1, 2008.......................... 125 125
Unamortized premium and discount and fair value adjustments...................... 1 1
------- -------
Total TXU Gas ............................................................... 426 551
------- -------
TXU Australia
- -------------
5.570% Floating Notes due October 30, 2003(b).................................... 18 17
5.222% Floating Notes due September 21, 2007(b).................................. 165 155
5.763% Floating Note, Tranche A Facility due October 26, 2004(b)................. 24 23
5.760% Floating Note, Tranche A Facility due October 26, 2004(b)................. 75 142
5.710% Floating Note, Tranche B Facility due October 26, 2004(b)................. 120 113
5.723% Floating Note, Tranche B Facility due October 26, 2004(b)................. 36 34
5.740% Floating Note, Tranche B Facility due October 26, 2004(b)................. 66 62
5.710% Floating Note, Tranche B Facility due October 26, 2004(b)................. 78 73
5.832% Floating Note, Tranche C Facility due October 26, 2004(b)................. 331 311
5.907% Floating Note, Tranche C Facility due October 26, 2004(b)................. 120 113
7.000% Fixed Medium Term Notes due September 22, 2005............................ 120 113
5.260% Floating Senior Notes due December 1, 2006(b)............................. 217 203
5.510% Floating Senior Notes due December 1, 2016(a)............................. 74 70
Unamortized premium and discount and fair value adjustments...................... 81 99
------ ------
Total TXU Australia.......................................................... 1,525 1,528
------ ------
12
March 31, December 31,
--------- ------------
2003 2002
---- ----
Corporate and Other
8.830% Fixed Senior Secured Notes due August 15, 2004 (e)....................... 810 --
7.270% to 8.640% Fixed Mortgage Notes due December 20, 2013 (e)................ 18 --
6.375% Fixed Senior Notes Series B due October 1, 2004.......................... 175 175
6.375% Fixed Senior Notes Series C due January 1, 2008.......................... 200 200
5.520% Fixed Senior Notes Series D due August 16, 2003.......................... 323 323
4.050% Fixed Senior Notes Series E due August 16, 2004.......................... 2 2
6.375% Fixed Senior Notes Series J due June 15, 2006............................ 800 800
4.750% Fixed Senior Notes Series K due November 16, 2006 (equity-linked)........ 500 500
5.450% Fixed Senior Notes Series L due November 16, 2007 (equity-linked)........ 500 500
5.800% Fixed Senior Notes Series M due May 16, 2008 (equity-linked)............. 440 440
6.000% Fixed Telecom Overfund Trust Debt due bi-annually through August 15, 2004 135 178
11.98% Floating Notes due monthly through October 31, 2007 (a).................. 4 4
8.820% Building Financing due bi-annually through February 11, 2022............. 135 140
Capital Lease Obligation (e).................................................... 3 --
Unamortized premium and discount................................................ 43 50
------ ------
Total Corporate and Other.................................................. 4,088 3,312
------ ------
Total TXU Corp. consolidated.................................................... 14,198 12,555
Less amount due currently....................................................... 739 958
------ ------
Total Long-Term Debt............................................................ $13,459 $11,597
======= =======
NOTES:
(a) Interest rates in effect at March 31, 2003. (b) Interest rates fixed by
swaps at March 31, 2003.
(c) These series are in the multiannual mode and are subject to mandatory
tender prior to maturity on the mandatory remarketing date.
On such date, a new interest rate and interest rate period will be
reset for the bonds.
(d) Interest rates in effect at March 31, 2003. These series are in a
flexible or weekly rate mode and are classified as long-term as they
are supported by long-term irrevocable letters of credit. Series
in the flexible mode will be remarketed for periods of less than 270
days.
(e) These obligations relate to Pinnacle. See Basis of Presentation in
Note 1 for discussion of Pinnacle consolidation.
In January 2003, TXU Gas redeemed, at par value, $125 million
principal amount 6.25% Notes at maturity. TXU Gas used cash advances from TXU
Corp. and cash on hand to fund the redemption of these notes.
In early March 2003, TXU Energy issued $1.25 billion aggregate
principal amount of senior unsecured notes in two series in a private placement
with registration rights. One series in the amount of $250 million is due March
15, 2008, and bears interest at the annual rate of 6.125%, and the other series
in the amount of $1 billion is due March 15, 2013, and bears interest at the
annual rate of 7%. Net proceeds from the issuance were used for general
corporate purposes, including the repayment of borrowings under credit
facilities.
In March 2003, Oncor redeemed all ($103 million principal amount) of
its First Mortgage and Collateral Trust Bonds, 8.75% Series due November 1,
2023, at 104.01% of the principal amount thereof, plus accrued interest to the
redemption date.
In March 2003, Oncor redeemed all ($133 million principal amount) of
its First Mortgage Bonds, 6.75% Series, at the maturity date for par value plus
accrued interest. A restricted cash deposit of $138 million was utilized to fund
the redemption.
In March 2003, the Brazos River Authority issued $44 million
aggregate principal amount of pollution control revenue bonds for TXU Energy.
The bonds will bear interest at the annual rate of 6.75% until the mandatory
tender date of April 1, 2013. On April 1, 2013, the bonds will be remarketed.
Proceeds from the issuance of the bonds were used to refund the entire principal
amount of Brazos River Authority Series 1993 pollution control revenue bonds due
June 1, 2023.
13
In March 2003, the Brazos River Authority Series 1999B and 1999C
pollution control revenue bonds (aggregate principal amount of $66 million)
were converted from a floating rate mode to a multiannual mode at annual rates
of 6.75% and 7.7%, respectively. These rates will remain in effect until 2013
at which time they will be remarketed and the 1999C bonds will be callable.
In April 2003, the Brazos River Authority Series 1999A pollution
control revenue bonds were remarketed. The bonds now bear interest at a fixed
annual rate of 7.70% and are callable beginning on April 1, 2013 at a price of
101% until March 31, 2014 and at 100% thereafter.
In April 2003, Oncor redeemed all ($70 million principal amount)
of its First Mortgage Bonds, 6.75% Series, at the maturity date for par value
plus accrued interest. The remaining restricted cash deposit of $72 million was
utilized to fund the redemption.
On May 1, 2003, $72 million principal amount of the 7% TXU
Mining Company LP (TXU Mining) fixed rate senior notes were repaid on maturity.
Australia -- At March 31, 2003, TXU Australia had A$505 million ($303
million) in medium-term notes outstanding, of which interest and principal
payments associated with A$475 million ($285 million) were guaranteed under a
policy of insurance. The medium-term notes have three tranches consisting of
fixed and variable rates of which A$30 million ($18 million) is due October 2003
and the remainder is due between September 2005 and September 2007.
Sale of Receivables -- Certain subsidiaries of TXU Corp. sell trade
accounts receivable to TXU Receivables Company, a wholly-owned bankruptcy remote
subsidiary of TXU Corp., which sells undivided interests in accounts receivable
it purchases to financial institutions. As of March 31, 2003, TXU Energy
(through certain subsidiaries), Oncor and TXU Gas are qualified originators of
accounts receivable under the program. TXU Receivables Company may sell up to an
aggregate of $600 million in undivided interests in the receivables purchased
from the originators under the program. As of March 31, 2003, $1.2 billion face
amount of receivables were sold to TXU Receivables Company under the program in
exchange for cash of $302 million and $907 million in subordinated notes, with
$5 million of losses on sales for the three months ended March 31, 2003 that
principally represents the interest costs on the underlying financing. These
losses approximated 6% of the cash proceeds from the sale of undivided interests
in accounts receivable on an annualized basis. Funding under the program
decreased from $406 million at December 31, 2002 to $302 million at March 31,
2003 primarily due to reserve requirements which apply factors from the prior
12-month period in determining the current period reserve. This period reflects
the billing and collection delays previously experienced as a result of new
systems and processes in TXU Energy and the Electric Reliability Council of
Texas (ERCOT) for clearing customers switching and billing data upon the
transition to competition.
Upon termination, cash flows to the originators would be delayed as
collections of sold receivables would be used by TXU Receivables Company to
repurchase the undivided interests of the financial institutions instead of
purchasing new receivables. The level of cash flows would normalize in
approximately 16 to 31 days. TXU Business Services Company, a subsidiary of TXU
Corp., services the purchased receivables and is paid a market based servicing
fee by TXU Receivables Company. The subordinated notes receivable from TXU
Receivables Company represent TXU Corp.'s subsidiaries' retained interests in
the transferred receivables and are recorded at book value, net of allowances
for bad debts, which approximates fair value due to the short-term nature of the
subordinated notes, and are included in accounts receivable in the consolidated
balance sheet.
In October 2002, the program was amended to extend the program to
July 2003, to provide for reserve requirement adjustments as the quality of the
portfolio changes and to provide for adjustments to reduce receivables in the
program by the related amounts of customer deposits held by originators. In
February 2003, the program was amended to allow receivables that are 31-90 days
past due into the program. TXU Corp. intends to extend the program upon
expiration in July 2003.
14
Contingencies Related to Receivables Program -- Although TXU
Receivables Company expects to be able to pay its subordinated notes from the
collections of purchased receivables, these notes are subordinated to the
undivided interests of the financial institutions in those receivables, and
collections might not be sufficient to pay the subordinated notes. The program
may be terminated if either of the following events occurs:
1) the credit rating for the long-term senior debt securities of all
originators and the parent guarantor, if any, declines below BBB- by
Standard & Poor's (S&P) or Baa3 by Moody's; or
2) the delinquency ratio (delinquent for 31 days) for the sold
receivables, the default ratio (delinquent for 91 days or deemed
uncollectible), the dilution ratio (reductions for discounts,
disputes and other allowances) or the days collection outstanding
ratio exceed stated thresholds and the financial institutions do not
waive such event of termination.
The delinquency and dilution ratios exceeded the relevant thresholds
during the first quarter of 2003, but waivers were granted. These ratios were
affected by issues related to the transition to deregulation. Certain billing
and collection delays arose due to implementation of new systems and processes
within TXU Energy and ERCOT for clearing customer switching and billing data.
The billing delays have been resolved but, while improving, the lagging
collection issues continue to impact the ratios. The implementation of new
provider of last resort (POLR) rules by the Public Utility Commission of Texas
(Commission) and strengthened credit and collection policies and practices are
expected to bring the ratios into consistent compliance with the program.
Under the receivables sale program, all originators are required to
maintain a `BBB-' (S&P) and a `Baa3' (Moody's) rating or better (or supply a
parent guarantee with a similar rating). A downgrade below the required ratings
for an originator would prevent that originator from selling its accounts
receivable under the program. If all originators and the parent guarantor, if
any, are downgraded so that there are no eligible originators, the facility
would terminate.
The accounts receivable program also contains a cross default
provision with a threshold of $50 million applicable to each of the originators
under the program. TXU Receivables Company and TXU Business Services Company
each have a cross default threshold of $50,000. If either an originator, TXU
Business Services Company or TXU Receivables Company defaults on indebtedness of
the applicable threshold, the facility could terminate.
Financial Covenants, Credit Rating Provisions and Cross Default
Provisions -- The terms of certain financing arrangements of TXU Corp. and its
consolidated subsidiaries contain financial covenants that require maintenance
of specified fixed charge coverage ratios, shareholders' equity to total
capitalization ratios and leverage ratios and/or contain minimum net worth
covenants. TXU Energy's exchangeable subordinated notes also limit its
incurrence of additional indebtedness unless a leverage ratio and interest
coverage test are met on a pro forma basis. As of March 31, 2003, TXU Corp. and
its subsidiaries were in compliance with all such applicable covenants.
Certain financing and other arrangements of TXU Corp. and its
subsidiaries contain provisions that are specifically affected by changes in
credit ratings and also include cross default provisions. The material cross
default provisions are described below.
Other agreements of TXU Corp. and its subsidiaries, including some of
the credit facilities discussed above, contain terms pursuant to which the
interest rates charged under the agreements may be adjusted depending on the
credit ratings of TXU Corp. or its subsidiaries.
Cross Default Provisions
------------------------
Certain financing arrangements of TXU Corp. and its subsidiaries
contain provisions that would result in an event of default if there is a
failure under other financing arrangements to meet payment terms or to observe
other covenants that would result in an acceleration of payments due. Such
provisions are referred to as "cross default" provisions.
15
TXU Corp.'s $45 million and $55 million revolving facilities, which
provide back-up for any Oncor and TXU Energy commercial paper issuances, contain
a cross default provision with respect to any default by TXU Corp. or any US
subsidiary thereof in respect of any indebtedness in a principal amount in
excess of $50 million. A default by TXU Australia would not trigger the cross
default provision contained in these facilities.
A default by US Holdings or any subsidiary thereof on financing
arrangements of $50 million or more would result in a cross default under the
$1.4 billion US Holdings five-year revolving credit facility, the $400 million
US Holdings credit facility, the $68.1 million US Holdings letter of credit
reimbursement and credit facility agreement and $102 million of TXU Mining
senior notes (which have a $1 million threshold).
A default by TXU Energy or Oncor or any subsidiary thereof in respect
of indebtedness in a principal amount in excess of $50 million or more would
result in a cross default for such party under the TXU Energy/Oncor $450 million
revolving credit facility. Under this credit facility, a default by TXU Energy
or any subsidiary thereof would cause the maturity of outstanding balances under
such facility to be accelerated as to TXU Energy, but not as to Oncor. Also,
under this credit facility, a default by Oncor or any subsidiary thereof would
cause the maturity of outstanding balances to be accelerated under such facility
as to Oncor, but not as to TXU Energy.
A default or similar event under the terms of TXU Energy's
exchangeable subordinated notes (or any security of TXU Energy or its
subsidiaries issued directly or indirectly upon the conversion, exchange or
extension (in whole or in part) of such notes) that results in the acceleration
(or other mandatory repayment prior to the maturity date) of such notes or such
other security or the failure to pay such notes or such other security at
maturity would result in a default under TXU Energy's $1.25 billion senior
unsecured notes.
TXU Corp.'s 6% Notes due 2003 to 2004, which are held by the Pinnacle
Overfund Trust ($135 million outstanding at March 31, 2003) and Pinnacle's 8.83%
Senior Secured Notes due 2004 ($810 million outstanding at March 31, 2003)
contain cross default provisions relating to a failure to pay principal or
interest on indebtedness of TXU Corp. or TXU Communications Ventures Company (in
the case of the 8.83% Senior Secured Notes due 2004) in a principal amount of
$50 million or above.
TXU Energy has entered into certain mining and equipment leasing
arrangements aggregating $124 million that would terminate upon the default of
any other obligations of TXU Energy owed to the lessor. In the event of a
default by TXU Mining, a subsidiary of TXU Energy, on indebtedness in excess of
$1 million, a cross default would result under the $31 million TXU Mining
leveraged lease and the lease would terminate.
A default by TXU Gas or any of its material subsidiaries on
indebtedness of $25 million or more would result in a cross default under the
$300 million TXU Gas senior notes due 2004 and 2005.
TXU Energy enters into energy-related contracts, the master forms of
which contain provisions whereby an event of default would occur if TXU Energy
were to default under an obligation in respect of borrowings in excess of
thresholds stated in the contracts, which thresholds vary.
TXU Corp. and its subsidiaries have other arrangements, including
interest rate and currency swap agreements and leases with cross default
provisions, the triggering of which would not result in a significant effect on
liquidity.
16
5. TRUST SECURITIES
TXU Corp. or Subsidiary Obligated, Mandatorily Redeemable, Preferred
Securities of Subsidiary Trusts, Each Holding Solely Junior Subordinated
Debentures of TXU Corp. or Related Subsidiary (Trust Securities)-- The statutory
business trust subsidiaries had Trust Securities and trust assets outstanding as
follows:
Trust Securities Maturity
-------------------------------------------------- Trust Assets --------
Units (000's) Amount Amount
------------------------ ------------------------
March 31, December 31, March 31, December 31, March 31, December 31,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
TXU Corp.
- ---------
TXU Corp. Capital I
(7.25% Series)..... 9,200 9,200 $223 $ 223 $237 $237 2029
TXU Corp. Capital II
(8.70% Series)..... 6,000 6,000 145 145 155 155 2034
------ ------ ---- ----- ---- ----
Total TXU Corp..... 15,200 15,200 368 368 392 392
------ ------ ---- ----- ---- ----
TXU Gas
- -------
TXU Gas Capital I
(Floating Rate Trust
Securities)(a).... 150 150 147 147 155 155 2028
------ ------ ---- ----- ---- ----
Total.............. 15,350 15,350 $515 $ 515 $547 $547
====== ====== ==== ===== ==== ====
(a) Interest rate swaps effectively fix the rate on $100 million of the TXU Gas
Floating Rate Trust Securities at 6.629% and at 6.444% on the remaining $50
million of the Trust Securities to July 1, 2003.
Each parent company owns the common trust securities issued by its
subsidiary trust and has effectively issued a full and unconditional guarantee
of such trust's securities.
6. SHAREHOLDERS' EQUITY
March 31, December 31,
2003 2002
------- ------
Shareholders' equity:
Preferred stock - not subject to mandatory redemption........... $ 300 $ 300
------ ------
Common stock without par value:
Authorized shares: 1,000,000,000
Outstanding shares: March 31, 2003 -- 322,155,194
and December 31, 2002-- 321,974,000 ....................... 10 7,995
Additional paid in capital...................................... 8,097 111
Retained deficit................................................ (2,899) (2,900)
Accumulated other comprehensive loss............................ (418) (440)
------- -------
Total common stock equity.................................. 4,790 4,766
------ ------
Total shareholders' equity............................... $5,090 $5,066
====== ======
Under Texas law, TXU Corp. may only declare dividends out of surplus,
which is statutorily defined as total shareholders' equity less the book value
of common stock and preferred stock (stated capital). The write-off in 2002 of
TXU Corp.'s investment in TXU Europe resulted in negative surplus as of December
31, 2002. Texas law permits, subject to the receipt of shareholder approval, the
reclassification of stated capital into surplus. TXU Corp. received such
shareholder approval of this reclassification in a special meeting of
shareholders held February 14, 2003. Accordingly, approximately $8.0 billion was
reclassified from stated capital to additional paid-in capital, resulting in
surplus of $4.78 billion at March 31, 2003.
17
Additional paid-in capital includes $109 million and $111 million
of discount on the 9% Fixed Enchangeable Subordinated Notes of TXU Energy at
March 31, 2003 and December 31, 2002, respectively.
The Board of Directors of TXU Corp., at its February 2003 meeting,
declared a quarterly dividend of $0.125 a share, payable April 1, 2003, to
shareholders of record on March 7, 2003. Future dividends may vary depending
upon TXU Corp.'s profit levels, operating cash flows and capital requirements as
well as financial and other business conditions existing at the time.
The mortgage of Oncor restricts its payment of dividends to the
amount of its retained earnings. Certain other debt instruments and preferred
securities of TXU Corp.'s subsidiaries contain provisions that restrict payment
of dividends during any interest or distribution payment deferral period or
while any payment default exists. At March 31, 2003, there were no restrictions
on the payment of dividends under these provisions.
7. CONTINGENCIES
Guarantees -- TXU Corp. has entered into contracts that contain
guarantees to outside parties that could require performance or payment under
certain conditions. These guarantees have been grouped based on similar
characteristics and are described in detail below.
Project development guarantees -- In 1990, TXU Corp. repurchased an
electric co-op's minority ownership interest in the Comanche Peak nuclear
generation plant and assumed the co-op's indebtedness to the US government for
the facilities. TXU Corp. is making principal and interest payments to the co-op
in an amount sufficient for the co-op to make payments on its indebtedness. TXU
Corp. guaranteed the co-op's payments, and in the event that the co-op fails to
make its payments on the indebtedness, the US government would assume the
co-op's rights under the agreement, and such payments would then be owed
directly by TXU Corp. At March 31, 2003, the balance of the indebtedness was
$140 million with maturities of principal and interest extending to December
2021. The indebtedness is secured by a lien on the purchased facilities.
Residual value guarantees in operating leases -- TXU Corp. is the
lessee under various operating leases that obligate it to guarantee the residual
values of the leased facilities. At March 31, 2003, the aggregate maximum amount
of residual values guaranteed was approximately $299 million with an estimated
residual recovery of approximately $222 million. The average life of the lease
portfolio is approximately nine years.
Shared saving guarantees -- TXU Corp. has guaranteed that certain
customers will realize specified annual savings resulting from energy management
services it has provided. In aggregate, the average annual savings has exceeded
the annual savings guaranteed. The maximum potential annual payout is
approximately $9 million and the maximum total potential payout is approximately
$56 million. The fair value of guarantees issued during the three months ended
March 31, 2003 was $1.8 million with a maximum potential payout of $42 million.
The average remaining life of the portfolio is approximately five years.
Standby letters of credit -- TXU Corp. has entered into various
agreements that require letters of credit for financial assurance purposes.
Approximately $523 million of letters of credit were outstanding at March 31,
2003 to support existing floating rate pollution control revenue bond debt of
approximately $432 million. The letters of credit are available to fund the
payment of such debt obligations. These letters of credit have expiration dates
in 2003 and 2004; however, TXU Corp. intends to provide from either existing or
new facilities for the extension, renewal or substitution of these letters of
credit to the extent required for such floating rate debt or their remarketing
as fixed rate debt. In April 2003, approximately $173 million of the $523
million of letters of credit referenced above were terminated as a result of the
refinancing of approximately $110 million of floating rate pollution control
revenue bonds.
TXU Corp. has outstanding letters of credit in the amount of $111
million to support portfolio management margin requirements in the normal
course of business. As of March 31, 2003, approximately 78% of the obligations
supported by these letters of credit mature within one year, and substantially
all of the remainder mature in the second year.
TXU Corp. has an outstanding letter of credit in the amount of $34
million as support for a subordinated loan related to a pipeline construction
project in Australia. The obligation expires on January 31, 2005.
18
TXU Australia has outstanding letters of credit in the amount of
approximately $57 million, primarily to allow participation in the electricity
and gas spot markets. Although the average life of these guarantees is for
approximately one year, the obligation to provide guarantees is ongoing based
on TXU Australia's continued participation in the electricity and gas spot
markets.
Surety bonds -- TXU Corp. has outstanding surety bonds of
approximately $48 million to support performance under various subsidiary
construction contracts in the normal course of business. The term of the surety
bond obligations is approximately two years.
Other -- TXU Corp. has entered into contracts with public agencies to
purchase cooling water for use in the generation of electric energy and has
agreed, in effect, to guarantee the principal, $16 million at March 31, 2003,
and interest on bonds issued by the agencies to finance the reservoirs from
which the water is supplied. The bonds mature at various dates through 2011 and
have interest rates ranging from 5.50% to 7%. TXU Corp. is required to make
periodic payments equal to such principal and interest, including amounts
assumed by a third party and reimbursed to TXU Corp. In addition, TXU Corp. is
obligated to pay certain variable costs of operating and maintaining the
reservoirs. TXU Corp. has assigned to a municipality all its contract rights and
obligations in connection with $19 million remaining principal amount of bonds
at March 31, 2003, issued for similar purposes, which had previously been
guaranteed by TXU Corp. TXU Corp. is, however, contingently liable in the
unlikely event of default by the municipality.
In 1992, a discontinued engineering and construction business of TXU
Gas completed construction of a plant, the performance of which is warranted
through 2008. The maximum contingent liability under the guarantee is $92
million. No claims have been asserted under the guarantee and none are
anticipated.
Income Tax Contingencies -- On its United States federal income tax
return for calendar year 2002, TXU Corp. claimed a deduction related to the
worthlessness of TXU Corp.'s investment in TXU Europe, the tax benefit of which
is now expected to be $983 million. The previous estimate of the tax benefit was
$1.2 billion. While TXU Corp. believes that its tax reporting for the TXU Europe
write-off was proper, there is a risk that the Internal Revenue Service could
challenge TXU Corp.'s position regarding this deduction. As previously reported,
TXU Corp. has not recognized in book income any tax benefit for the TXU Europe
deduction. In the first quarter of 2003, TXU Corp. received a cash refund of
$527 million related to the deduction, which may be repaid in the future, with
interest, should TXU Corp. not prevail in its position.
Legal Proceedings -- In October, November and December 2002 and
January 2003, at least twenty-nine lawsuits were filed in or removed to the
United States District Court for the Northern District of Texas, and two in the
United States District Court for the Eastern District of Texas, against TXU
Corp., Erle Nye and Michael J. McNally. Some of the lawsuits also name former
officer David W. Biegler as a defendant; however, based on the alleged class
period, Mr. Biegler is inappropriately named as a defendant. The plaintiffs seek
to represent classes of certain purchasers of TXU Corp. common and preferred
stock during specified class periods ranging from January 31, 2002 to October
11, 2002. No class or classes have been certified. The complaints allege
violations of the provisions of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and
Sections 11 and 12 of the Securities Act of 1933, as amended (Securities Act),
19
relating to alleged materially false and misleading statements, including
statements in prospectuses related to the offering by TXU Corp. of its
equity-linked securities and common stock in May and June 2002. The named
individual defendants are current or former officers and/or directors of TXU
Corp. While TXU Corp. believes the claims are without merit and intends to
vigorously defend these lawsuits, it is unable to estimate any possible loss or
predict the outcome of these actions.
On October 23, 2002, a derivative lawsuit was filed by a purported
shareholder on behalf of TXU Corp. in the 116th Judicial District Court of
Dallas County, Texas, against TXU Corp., Erle Nye, Michael J. McNally, David W.
Biegler, J.S. Farrington, William M. Griffin, Kerney Laday, Jack E. Little,
Margaret N. Maxey, J.E. Oesterreicher, Charles R. Perry and Herbert H.
Richardson. The plaintiff alleges breach of fiduciary duty, abuse of control,
mismanagement, waste of corporate assets, and breach of the duties of loyalty
and good faith. The named individual defendants are current or former officers
and/or directors of TXU Corp. No amount of damages has been specified.
Furthermore, plaintiffs in such suit have failed to make a demand upon the
directors as is required by law. Therefore, TXU Corp. is unable to estimate any
possible loss or predict the outcome of this action.
On October 30, 2002, a lawsuit was filed in the 191st Judicial
District Court of Dallas County, Texas, against TXU Corp. and Erle Nye alleging
negligence, negligent misrepresentation, fraud and statutory fraud. On November
12, 2002, the lawsuit was amended and the plaintiffs alleged the same claims on
behalf of themselves and a putative class of persons or entities similarly
situated. No amount of damages has been specified. TXU Corp. has removed this
case to the United Stated District Court for the Northern District of Texas to
have it consolidated with the other cases described above pending in that court.
While TXU Corp. believes the claim is without merit and intends to vigorously
defend the lawsuit, it is unable to estimate any possible loss or predict the
outcome of this action.
On November 26, 2002, a lawsuit was filed in the United States
District Court for the Northern District of Texas against TXU Corp. and the
directors of TXU Corp. asserting claims under the Employee Retirement Income
Security Act (ERISA) on behalf of a putative class of participants in various
employee benefit plans of TXU Corp. The plaintiff seeks to represent a class of
participants in such plans during the period between January 31, 2002, and
October 11, 2002, based on factual allegations substantially the same as the
other cases described above pending in the United States District Court for the
Northern District of Texas. While TXU Corp. believes the claims are without
merit and intends to vigorously defend the lawsuit, it is unable to estimate any
possible loss or predict the outcome of this action.
In November and December 2002, two lawsuits were filed in the 191st
and 116th Judicial District Courts of Dallas County, Texas, against TXU Corp.,
Erle Nye, Michael J. McNally, Biggs Porter and the directors of TXU Corp.
asserting a claim under Section 11 of the Securities Act on behalf of purchasers
of TXU Corp.'s equity linked debt securities issued in June 2002. These cases
have been removed from the United States District Court for the Northern
District of Texas and transferred to the court with jurisdiction of the
consolidated cases described above. The plaintiffs have filed motions to remand
the cases to state district court. The defendants intend to file a motion to
have these cases consolidated with the other cases described above pending in
such court. While TXU Corp. believes the claims are without merit and intends to
vigorously defend these lawsuits, it is unable to estimate any possible loss or
predict the outcome of these actions.
On February 28, 2003, a lawsuit was filed in the United States
District Court for the Northern District of Texas, Dallas Division, against TXU
Corp., the directors of TXU Corp., Peter B. Tinkham, Diane J. Kubin, Robert L.
Turpin and other former unidentified members of the TXU Thrift Plan Committee
asserting claims under ERISA on behalf of a putative class of participants and
beneficiaries of the TXU Thrift Plan. The plaintiff seeks to represent a class
of participants in such plan during the period between November 23, 2001 through
October 11, 2002. The complaint has not yet been served on the defendants and,
therefore, the defendants have not yet responded thereto. While TXU Corp.
believes the claim is without merit and intends to vigorously defend the
lawsuit, it is unable to estimate any possible loss or predict the outcome of
this action.
On April 28, 2003, a lawsuit was filed by a former employee
of TXU Portfolio Management Company LP (TXU Portfolio Management), in the
United States District Court for the Northern District of
20
Texas, Dallas Division, against TXU Corp., TXU Energy and TXU Portfolio
Management. Plaintiff asserts claims under Section 806 of the Sarbanes Oxley-Act
of 2002 (Sarbanes-Oxley) arising from plaintiff's employment termination and
claims for breach of contract relating to payment of certain bonuses. Plaintiff
seeks back pay, payment of bonuses and alternatively, reinstatement or future
compensation, including bonuses. TXU Corp. believes the plaintiff's claims are
without merit. The plaintiff was terminated as the result of a reduction in
force, not as a reaction to any concerns the plaintiff had expressed and
plaintiff was not in a position with TXU Portfolio Management such that he had
knowledge or information that would qualify the plaintiff to evaluate TXU
Corp.'s financial statements or assess the adequacy of TXU Corp.'s financial
disclosures. Thus, TXU Corp. does not believe that there is any merit to the
plaintiff's claims under Sarbanes-Oxley. Accordingly, TXU Corp., TXU Energy and
TXU Portfolio Management intend to vigorously defend the litigation. While TXU
Corp., TXU Energy and TXU Portfolio Management dispute the plaintiff's claims,
like any litigation, TXU Corp. is unable to predict the outcome of this
litigation or the possible loss in the event of an adverse judgment.
Open-Access Transmission -- At the state level, the Texas Public
Utility Regulatory Act, as amended, requires owners or operators of transmission
facilities to provide open access wholesale transmission services to third
parties at rates and terms that are non-discriminatory and comparable to the
rates and terms of the utility's own use of its system. The Commission has
adopted rules implementing the state open access requirements for utilities that
are subject to the Commission's jurisdiction over transmission services, such as
Oncor.
On January 3, 2002, the Supreme Court of Texas issued a mandate
affirming the judgment of the Court of Appeals that held that the pricing
provisions of the Commission's open access wholesale transmission rules, which
had mandated the use of a particular rate setting methodology, were invalid
because they exceeded the statutory authority of the Commission. On January 10,
2002, Reliant Energy Incorporated and the City Public Service Board of San
Antonio each filed lawsuits in the Travis County, Texas, District Court against
the Commission and each of the entities to whom they had made payments for
transmission service under the invalidated pricing rules for the period January
1, 1997, through August 31, 1999, seeking declaratory orders that, as a result
of the application of the invalid pricing rules, the defendants owe unspecified
amounts. US Holdings and TXU SESCO Company are named defendants in both suits.
TXU Corp. is unable to predict the outcome of any litigation related to this
matter.
General -- In addition to the above, TXU Corp. and its US and
Australian subsidiaries are involved in various other legal and administrative
proceedings the ultimate resolution of which, in the opinion of each, should not
have a material effect upon their financial position, results of operations or
cash flows.
8. SEGMENT INFORMATION
TXU Corp. has three reportable segments: North America Energy,
North America Energy Delivery and Australia.
North America Energy - consists of operations of TXU Energy, which
are principally in the competitive Texas market, involving power production,
wholesale energy sales, retail energy sales and services, and portfolio
management, including risk management and certain trading activities.
North America Energy Delivery - consists of operations of Oncor
and TXU Gas, which are largely regulated, involving the transmission and
distribution of electricity and the purchase, transportation, distribution and
sale of natural gas in Texas.
Australia - consists of operations, principally in Victoria and South
Australia, involving the generation of electricity, wholesale sales of energy,
retail energy sales and services in largely competitive markets, portfolio
management and gas storage, as well as regulated electricity and gas
distribution.
Effective with reporting for the three months ended March 31, 2003,
results for the North America Energy segment exclude expenses incurred by the US
Holdings holding company in order to present the segment on the same basis as
the separate reporting for TXU Energy Company LLC and as the results of the
business are evaluated by management. The activities of the holding company
consist primarily of the servicing of approximately $160 million of debt. Prior
year amounts are presented on the revised basis.
21
Certain of the business segments provide services or sell products
to one or more of the other segments. Generally, such sales are made at prices
comparable with those received from nonaffiliated customers for similar products
or services. Effective January 1, 2003, TXU Business Services Company billings
for such services in Corporate and Other are reflected as allocation of costs.
Prior year amounts have been reclassified to conform to this presentation.
Three Months Ended
March 31,
2003 2002
Operating revenues -
North America Energy................... $ 1,806 $1,799
North America Energy Delivery.......... 1,127 838
Australia.............................. 225 212
Corporate and other ................... 43 30
Eliminations........................... (386) (426)
------- ------
Consolidated......................... $ 2,815 $2,453
======= ======
Regulated revenues included in
operating revenues -
North America Energy .................. $ - $ -
North America Energy Delivery.......... 1,127 838
Australia.............................. 20 14
Corporate and other.................... 35 23
Eliminations........................... (380) (419)
-------- -------
Consolidated......................... $ 802 $ 456
======= ======
Affiliated revenues included in
operating revenues -
North America Energy .................. $ 6 $ 7
North America Energy Delivery.......... 380 419
Corporate and other.................... - -
Eliminations........................... (386) (426)
------- -------
Consolidated......................... $ - $ -
======= ======
Income from continuing operations
before cumulative effect of changes
in accounting principles -
North America Energy .................. $ 35 $ 187
North America Energy Delivery.......... 110 101
Australia ............................. 27 51
Corporate and other.................... (66) (82)
------- ------
Consolidated......................... $ 106 $ 257
======= ======
22
9. SUPPLEMENTARY FINANCIAL INFORMATION
Regulated Versus Unregulated Operations --
Three Months Ended
March 31,
------------------
2003 2002
---- ----
Operating revenues:
Regulated................................................. $ 1,182 $ 875
Unregulated............................................... 2,019 2,004
Intercompany sales eliminations - regulated............... (380) (419)
Intercompany sales eliminations - unregulated ............ (6) (7)
------ ------
Total operating revenues.............................. 2,815 2,453
------ ------
Costs and operating expenses:
Cost of energy sold and delivery fees - regulated........... 457 203
Cost of energy sold and delivery fees - unregulated*........ 930 597
Operating costs - regulated................................. 212 187
Operating costs - unregulated............................... 217 178
Depreciation and amortization - regulated................... 100 91
Depreciation and amortization - unregulated................. 127 129
Selling, general and administrative expenses - regulated.... 41 41
Selling, general and administrative expenses - unregulated.. 221 297
Franchise and revenue-based taxes - regulated............... 74 79
Franchise and revenue-based taxes - unregulated............. 37 39
Other income................................................ (14) (7)
Other deductions............................................ 20 47
Interest income............................................. (10) (8)
Interest expense and other charges.......................... 254 216
----- ------
Total costs and expenses............................... 2,666 2,089
----- ------
Income from continuing operations before income taxes and
cumulative effect of changes accounting principles.......... $ 149 $ 364
====== ======
--------------
*Includes cost of fuel consumed of $425 million in 2003 and $270
million in 2002. The balance represents energy purchased for resale and
delivery fees.
The operations of the North America Energy segment are included
above as unregulated, as the Texas market is now open to competition. However,
retail pricing to residential and small business customers in its historical
service territory continues to be subject to certain price controls.
Other Income and Deductions --
Three Months Ended
March 31,
------------------
2003 2002
---- ----
Other income:
Net gain on sale of businesses and other properties. $ 6 $ 1
Lignite coal royalties.............................. - 2
Unrealized foreign exchange gain on Australian dollar
denominated note receivable..................... 5 -
Allowance for funds used during construction........ 1 1
Other............................................... 2 3
---- ----
Total other income............................. $ 14 $ 7
==== ====
Other deductions:
Equity in losses of unconsolidated entities......... $ 16 $ 14
Loss on retirement of debt.......................... - 26
Charges related to sold business.................... - 3
Other............................................... 4 4
---- ----
Total other deductions......................... $ 20 $ 47
==== ====
23
Interest Expense and Related Charges --
Three Months Ended
March 31,
------------------
2003 2002
---- ----
Interest................................................... $ 233 $ 198
Distributions on mandatorily redeemable, preferred securities
of subsidiary trusts, each holding solely junior subordinated
debentures of the obligated company:
TXU Corp. obligated................................... 8 8
Subsidiary obligated.................................. 2 2
Preferred stock dividends of subsidiaries................... 3 3
Amortization of debt discounts, premiums and issuance cost.. 11 8
Allowance for borrowed funds used during construction
and capitalized interest................................. (3) (3)
----- -----
Total interest expense and other related charges.... $ 254 $ 216
===== =====
Regulatory Assets and Liabilities --
March 31, December 31,
2003 2002
------- ------
Regulatory Assets:
Generation-related regulatory assets subject to securitization $1,652 $1,652
Securities reacquisition costs............................. 125 124
Recoverable deferred income taxes - net.................... 69 76
Other regulatory assets.................................... 300 217
------ ------
Total regulatory assets.................................. 2,146 2,069
------ ------
Regulatory Liabilities:
Liability related to excess mitigation credit.............. 125 170
ITC and protected excess deferred taxes.................... 96 99
Other regulatory liabilities............................... 2 28
------ ------
Total regulatory liabilities............................. 223 297
------ ------
Net regulatory assets.................................... $1,923 $1,772
====== ======
Included above are assets of $1.9 billion at March 31, 2003 and $1.8
billion at December 31, 2002, that were not earning a return. Of the assets not
earning a return, $1.652 billion is expected to be recovered over the term of
the securitization bonds expected to be issued by Oncor in 2003 and 2004
pursuant to the regulatory settlement plan approved by the Commission. All
other regulatory assets have a remaining recovery period of 13 to 48 years.
Included in other regulatory assets as of March 31, 2003 was $57
million related to nuclear decommissioning liabilities. (See Note 2 for a
discussion of the accounting impact of recording asset retirement obligations.)
Restricted Cash -- At March 31, 2003, approximately $72 million of
the net proceeds from Oncor's issuance of senior secured notes in December 2002
remained in a trust to pay interest and principal of First Mortgage Bonds of
Oncor due on April 1, 2003, and was reported in current assets on the balance
sheet. Other restricted cash included $111 million as collateral for letters of
credit issued and was reported in investments on the balance sheet.
Accounts Receivable -- At March 31, 2003 and December 31, 2002,
accounts receivable are stated net of allowance for uncollectible accounts of
$87 million and $83 million, respectively.
24
Accounts receivable included $627 million and $644 million of
unbilled revenues at March 31, 2003 and December 31, 2002, respectively.
Intangible Assets -- SFAS No. 142, "Goodwill and Other Intangible
Assets," became effective for TXU Corp. on January 1, 2002. SFAS No. 142
requires, among other things, the allocation of goodwill to reporting units
based upon the current fair value of the reporting units, and the discontinuance
of goodwill amortization. SFAS No. 142 also requires additional disclosures
regarding intangible assets (other than goodwill) that are amortized or not
amortized:
As of March 31, 2003 As of December 31, 2002
------------------------------ ----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
-------- ------------ ---- -------- ------------ ----
Amortized intangible assets (included in
property, plant and equipment):
Capitalized software.............. $ 563 $ 243 $320 $540 $217 $323
Land ea