<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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 SEPTEMBER 30, 2000
-- OR --
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
---------------------
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
--- ---
COMMON STOCK OUTSTANDING AT NOVEMBER 10, 2000: 258,132,897 shares, without par
value.
===============================================================================
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Statements of Consolidated Income -
Three and Nine Months Ended September 30, 2000 and 1999............................ 3
Condensed Statements of Consolidated Comprehensive Income -
Three and Nine Months Ended September 30, 2000 and 1999............................ 4
Condensed Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 2000 and 1999...................................... 5
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999........................................... 6
Notes to Financial Statements...................................................... 8
Independent Accountants' Report.................................................... 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................... 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................... 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................. 33
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 34
SIGNATURE............................................................................................ 35
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
OPERATING REVENUES................................................... $5,834 $4,435 $15,202 $12,632
------- ------- ------- -------
OPERATING EXPENSES
Energy purchased for resale and fuel consumed................... 3,794 2,384 9,592 7,052
Operation and maintenance....................................... 789 709 2,232 2,142
Depreciation and other amortization............................. 222 254 743 805
Goodwill amortization........................................... 55 49 152 143
Taxes other than income......................................... 159 154 478 471
------- ------- ------- -------
Total operating expenses.................................. 5,019 3,550 13,197 10,613
------- ------- ------- -------
OPERATING INCOME..................................................... 815 885 2,005 2,019
OTHER INCOME (DEDUCTIONS) - NET...................................... 58 35 191 7
------- ------- ------- -------
INCOME BEFORE INTEREST, OTHER CHARGES AND INCOME TAXES............... 873 920 2,196 2,026
------- ------- ------- -------
INTEREST INCOME...................................................... 28 36 95 98
INTEREST EXPENSE AND OTHER CHARGES
Interest........................................................ 375 373 1,103 1,087
Distributions on mandatorily redeemable, preferred
securities of subsidiary trusts, each holding solely
junior subordinated debentures of the obligated company:
TXU Corp. obligated................................... 8 5 23 13
Subsidiary obligated.................................. 20 20 59 59
Preferred stock dividends of subsidiaries....................... 3 3 10 10
Distributions on preferred securities of subsidiary perpetual
trust of TXU Europe......................................... 4 -- 9 --
Allowance for borrowed funds used during
construction and capitalized interest....................... (3) (1) (8) (7)
------- ------- ------- -------
Total interest expense and other charges.................. 407 400 1,196 1,162
------- ------- ------- -------
INCOME BEFORE INCOME TAXES........................................... 494 556 1,095 962
INCOME TAX EXPENSE................................................... 160 195 341 320
------- ------- ------- -------
NET INCOME........................................................... 334 361 754 642
PREFERENCE STOCK DIVIDENDS........................................... 6 -- 6 --
------- ------- ------- -------
NET INCOME AVAILABLE FOR COMMON STOCK................................ $ 328 $ 361 $ 748 $ 642
======= ======= ======= =======
Average shares of common stock outstanding (millions)................ 262 276 266 280
Per share of common stock:
Basic earnings.................................................. $1.25 $1.31 $2.81 $2.30
Diluted earnings................................................ $1.25 $1.31 $2.81 $2.30
Dividends declared.............................................. $0.60 $0.575 $1.80 $1.725
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
MILLIONS OF DOLLARS
<S> <C> <C> <C> <C>
NET INCOME..................................................... $ 334 $ 361 $ 754 $ 642
----- ----- ----- -----
OTHER COMPREHENSIVE INCOME (LOSS) --
Net change during period, net of tax effects:
Foreign currency translation adjustments............... (181) 118 (421) 1
Unrealized holding gains (losses) on investments....... (27) (1) 34 2
Reclassification to other income (deductions) - net
of gain realized on sale of SME................... (14) -- (14) --
Minimum pension liability adjustments.................. -- -- -- 1
----- ----- ----- -----
Total............................................ (222) 117 (401) 4
----- ----- ----- -----
COMPREHENSIVE INCOME........................................... $ 112 $ 478 $ 353 $ 646
===== ===== ===== =====
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
TXU CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
MILLIONS OF DOLLARS
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
Net income................................................................... $ 754 $ 642
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ........................................... 1,070 1,085
Deferred income taxes and investment tax credits - net ................. (122) 121
Gains from the sale of assets........................................... (186) --
Reduction of revenues for earnings in excess of earnings cap............. 247 59
Other.................................................................... (11) (8)
Changes in operating assets and liabilities:
Accounts receivable............................................... (679) 460
Inventories....................................................... 40 9
Accounts payable.................................................. 833 (252)
Interest and taxes accrued........................................ 131 102
Other working capital ............................................ (348) 167
Over/(under)-recovered fuel revenue - net of deferred taxes....... (326) (71)
Energy marketing risk management assets and liabilities........... (33) (216)
Other - net....................................................... (47) (149)
-------- --------
Cash provided by operating activities...................... 1,323 1,949
-------- --------
CASH FLOWS - FINANCING ACTIVITIES
Issuances of securities:
Acquisition and interim facilities........................................ -- 926
Other long-term debt...................................................... 1,774 4,650
Preferred securities of subsidiary perpetual trust of TXU Europe.......... 150 --
Preference stock.......................................................... 300 --
Common stock.............................................................. 1 1
Retirements/repurchases of securities:
Acquisition and interim facilities........................................ -- (1,225)
Other long-term debt/obligations.......................................... (1,890) (1,385)
Common stock.............................................................. (596) (250)
Change in notes payable:
Commercial paper.......................................................... (59) (1,154)
Banks..................................................................... 89 (476)
Cash dividends paid:
Common stock.............................................................. (479) (485)
Preference stock.......................................................... (5) --
Debt premium, discount, financing and reacquisition expenses.................. (32) (60)
-------- --------
Cash provided by (used in) financing activities.......... (747) 542
-------- --------
CASH FLOWS - INVESTING ACTIVITIES
Construction expenditures..................................................... (957) (1,192)
Acquisitions of businesses ................................................... (808) (1,013)
Proceeds from sale of assets.................................................. 785 45
Cash distribution from equity investee........................................ 599 --
Nuclear fuel ................................................................. (47) (55)
Other......................................................................... (312) (191)
-------- --------
Cash used in investing activities......................... (740) (2,406)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS............................. (32) (32)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... (196) 53
CASH AND CASH EQUIVALENTS - BEGINNING BALANCE..................................... 560 796
-------- --------
CASH AND CASH EQUIVALENTS - ENDING BALANCE........................................ $ 364 $ 849
======== ========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
TXU CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- --------------
MILLIONS OF DOLLARS
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
United States (US):
Electric................................................................... $23,879 $23,599
Gas distribution and pipeline.............................................. 1,479 1,378
Other...................................................................... 733 1,004
------- -------
Total............................................................... 26,091 25,981
Less accumulated depreciation.............................................. 8,614 8,159
------- -------
Net of accumulated depreciation..................................... 17,477 17,822
Construction work in progress.............................................. 441 314
Nuclear fuel (net of accumulated amortization: 2000--$700; 1999--$635)... 155 171
Held for future use........................................................ 23 24
Reserve for regulatory disallowances....................................... (836) (836)
------- -------
Net US property, plant and equipment................................ 17,260 17,495
Europe - Electric and other (net of accumulated depreciation: 2000--$514;
1999--$424).................................................................. 4,045 4,394
Australia - Electric and gas distribution (net of accumulated depreciation:
2000--$204; 1999--$196)..................................................... 1,568 1,751
------- -------
Net property, plant and equipment.................................. 22,873 23,640
------- -------
INVESTMENTS
Goodwill (net of accumulated amortization: 2000--$442; 1999--$345)............. 7,539 7,519
Other investments............................................................... 2,865 2,876
------- -------
Total investments................................................... 10,404 10,395
------- -------
CURRENT ASSETS
Cash and cash equivalents...................................................... 364 560
Accounts receivable (net of allowance for uncollectible accounts: 2000--$65;
1999--$50).................................................................. 2,284 1,492
Inventories - at average cost:
Materials and supplies...................................................... 229 261
Fuel stock.................................................................. 185 230
Gas stored underground...................................................... 143 131
Energy marketing risk management assets......................................... 1,057 619
Other current assets............................................................ 453 607
------- -------
Total current assets............................................... 4,715 3,900
------- -------
OTHER ASSETS
Regulatory assets.............................................................. 2,000 1,784
Long-term prepayments.......................................................... 610 577
Energy marketing risk management assets........................................ 250 151
Other deferred debits.......................................................... 600 451
------- -------
Total other assets................................................. 3,460 2,963
------- -------
Total.................................................... $41,452 $40,898
======= =======
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
TXU CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- --------------
MILLIONS OF DOLLARS
<S> <C> <C>
CAPITALIZATION
Common stock without par value:
Authorized shares: 1,000,000,000
Outstanding shares: 2000--258,133,006 and 1999--276,406,519...... $ 6,356 $ 6,795
Retained earnings........................................................ 1,814 1,691
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments........................... (590) (169)
Unrealized holding gains on investments............................ 41 21
Minimum pension liability adjustments.............................. (4) (4)
-------- -------
Total common stock equity.................................. 7,617 8,334
Preference stock......................................................... 300 --
Preferred stock of subsidiaries:
Not subject to mandatory redemption................................ 190 190
Subject to mandatory redemption.................................... 21 21
Preferred securities of subsidiary perpetual trust of TXU Europe......... 150 --
Mandatorily redeemable, preferred securities of subsidiary trusts, each holding
solely junior subordinated debentures of the obligated company:
TXU Corp. obligated............................................. 368 368
Subsidiary obligated............................................ 976 971
Long-term debt, less amounts due currently............................... 15,369 16,325
-------- -------
Total capitalization....................................... 24,991 26,209
-------- -------
CURRENT LIABILITIES
Note payable:
Commercial paper.................................................... 1,809 1,903
Banks............................................................... 1,312 1,385
Long-term debt due currently............................................ 1,716 1,288
Accounts payable........................................................ 2,289 1,442
Energy marketing risk management liabilities............................ 951 525
Dividends declared...................................................... 152 172
Taxes accrued........................................................... 596 474
Interest accrued........................................................ 302 310
Other current liabilities............................................... 900 898
-------- -------
Total current liabilities................................. 10,027 8,397
-------- -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes........................................ 3,615 3,936
Investment tax credits................................................... 507 524
Energy marketing risk management liabilities............................. 114 12
Other deferred credits and noncurrent liabilities........................ 2,198 1,820
-------- -------
Total deferred credits and other noncurrent liabilities.... 6,434 6,292
-------- -------
CONTINGENCIES (Note 6)
-------- -------
Total ............................................... $41,452 $40,898
======== =======
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
TXU CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS, ACQUISITIONS AND DISPOSITIONS
In May 2000, Texas Utilities Company changed its corporate name to TXU
Corp. TXU Corp., a Texas corporation, is a holding company whose principal
United States (US) operations are conducted through TXU Electric Company (TXU
Electric), TXU Gas Company (TXU Gas) and TXU Energy Industries Company (TEI).
TXU Corp.'s principal international operations are conducted through TXU
International Holdings Limited (TXU International Holdings), which in turn
indirectly owns TXU Europe Limited (TXU Europe) and TXU Australia Holdings
(Partnership) Limited Partnership (TXU Australia).
TXU Corp. engages in the generation, purchase, transmission, distribution
and sale of electricity; the purchase, transmission, distribution and sale of
natural gas; energy marketing, energy services; telecommunications; and other
businesses.
In February 1999, TXU Australia acquired from the Government of Victoria,
Australia, the gas retail business of TXU Pty. Ltd., formerly known as Kinetik
Energy Limited (TXU Australia Gas Retail), and the gas distribution operations
of TXU Networks (Gas) Pty. Ltd., formerly known as Westar Pty. Ltd. (TXU
Australia Gas Networks) (together, TXU Australia Gas). Since the acquisition of
TXU Australia Gas was a purchase business combination for accounting purposes,
no financial or other information is presented for periods prior to the date of
acquisition. Consolidated pro forma income and earnings per share for the
nine-month period ended September 30, 1999, assuming the acquisition of TXU
Australia Gas had occurred at the beginning of that period, would not have
differed significantly from reported results.
TXU Europe and EDF London Investments plc, a subsidiary of Electricite de
France, received final approval from the Office of Gas and Electricity Markets
covering England, Scotland and Wales (OFGEM) in March 2000, and created an
equally held joint venture company, named "24seven", for the management,
operation and maintenance of their subsidiaries' respective electricity
distribution networks. The new joint venture began operations on April 7, 2000.
TXU Europe accounts for its investment in 24seven by the equity method of
accounting. 24seven serves over five million electricity customers in London and
the eastern counties of England. Employees of the joint venturers' subsidiaries,
Eastern Electricity plc (Eastern Electricity) and London Electricity plc, have
been transferred to 24seven. The physical distribution system assets, as well as
all operating licenses, continue to be owned separately by Eastern Electricity
and London Electricity plc.
In March 2000, TXU Europe (Espana) S.L., a subsidiary of TXU Europe,
announced its intention to make a cash offer to acquire all of the shares of
Hidroelectrica del Cantabrico, S.A. (Hidrocantabrico) that TXU Europe did not
then own. Later in March 2000, after a competing bid had been subsequently
issued, TXU Europe announced that it would not pursue its offer. In a series
of private transactions since that date, TXU Europe acquired additional
shares in Hidrocantabrico and directly or indirectly holds approximately
19.2% of the outstanding shares. TXU Europe has a purchase option to acquire
an additional 4.9% of the stock in Hidrocantabrico currently held by
Electrabel SA (Electrabel), an electricity company in Belgium, if Electrabel
elects to sell its interest in Hidrocantabrico to another company during a
one year period beginning July 4, 2000. TXU Europe is subject to a
conditional put option by which it can be required to purchase the 10.0%
interest in Hidrocantabrico held by Electrabel to the extent Electrabel is
required to dispose of its holding in Hidrocantabrico by European Union or
Spanish Competition Authorities during a one year period beginning July 4,
2000. The conditions of this put option include a reasonable notice period
before execution. TXU Europe's shareholding would not consequently hold 25%
or more of Hidrocantabrico as a result. Results of operations for the nine
months ended September 30, 2000 include approximately (pound)7 million ($11
million) of costs incurred in connection with the offer for Hidrocantabrico.
TXU Europe has indicated that if the Hidrocantabrico Board of Directors acted
to suspend TXU Europe's political rights (including voting rights) in the
Hidrocantabrico shares, TXU Europe would likely contest such suspension. TXU
Europe has also indicated that it would support a full offer for
Hidrocantabrico by a third party that has the support of Hidrocantabrico's
Board of Directors and that, given terms favorable to TXU Europe would sell
its interest in Hidrocantabrico.
8
<PAGE>
In May 2000, TXU Corp. acquired all of the outstanding stock of Fort Bend
Communications, Inc. (FBCC) for approximately $161 million in cash plus
liabilities assumed. In August 2000, TXU Corp. formed a joint venture with
investors by contributing the stock of its telecommunications subsidiaries,
including FBCC, to Pinnacle One Partners, L.P. (Pinnacle or the joint venture)
for a 50% voting interest and a distribution of approximately $600 million in
cash. The investors contributed $150 million for the remaining 50% voting
interest. These transactions, together, are referred to as the Pinnacle
Transactions. TXU Corp.'s telecommunications subsidiaries contributed to the
joint venture are no longer consolidated, and TXU Corp.'s investment in the
joint venture is accounted for on the equity method. The non-cash impact of
these transactions is summarized below:
<TABLE>
<S> <C>
Assets contributed (including goodwill of $353 million)..... $ (741)
Liabilities assumed by Pinnacle ............................ 264
Equity investment .......................................... (122)
-------
Net cash distribution from equity investee ................. $ 599
======
</TABLE>
On May 4, 2000, TXU Australia acquired certain assets and liabilities of
Optima Energy Pty Ltd from the government of South Australia. The purchase
included a 100-year lease to operate a 1,280-megawatt natural gas powered
generating station. Funding for the $177 million project was provided from
internal sources and bank borrowings.
On July 13, 2000, TXU Europe agreed to purchase 51% of Stadtwerke Kiel AG,
a German municipal utility, for approximately (pound)143 million ($215 million).
The state parliament of Kiel and European Union regulators have approved the
sale. The city government of Kiel, the state capital, will retain the other 49%
of the utility. The closing date of the acquisition will be in January 2001.
On August 31, 2000, TXU Europe completed the sale of its interest in
Severomoravska energetika, a.s. (SME), for total proceeds of approximately
(pound)51 million ($75 million). TXU Europe recognized a pre-tax gain of
(pound)20 million ($30 million) from the sale, which has been recorded in Other
Income (Deductions) - Net.
On August 3, 2000, TXU Europe announced its unconditional purchase of
United Utilities plc's retail energy supply business, Norweb Energi (a division
of Norweb plc) for (pound)310 million ($453 million). Total consideration,
including direct costs of the acquisition, was (pound)353 million ($516
million). Financing was provided through existing bank lines and cash balances
on hand. The transaction also includes the assumption of certain of Norweb
Energi's obligations, including its power purchase agreements, which will be
integrated into TXU Europe's energy portfolio. The agreements provide for
purchase of power by TXU Europe at prices that are currently above market. On
October 13, 2000, the Secretary of State for Trade and Industry announced it
would not refer the acquisition to the Competition Commission, thereby granting
regulatory approval for the acquisition.
The acquisition of Norweb Energi (Norweb) was accounted for as a purchase
business combination. The assets and liabilities of Norweb at the acquisition
date have been adjusted to their estimated fair values. The process of
determining the fair value of assets and liabilities of Norweb has not been
completed; however, the excess of the purchase consideration plus acquisition
costs over a preliminary estimate of net fair value of tangible and identifiable
intangible assets acquired and liabilities assumed resulted in goodwill of
(pound)634 million ($927 million) which is being amortized over 20 years. This
amount is subject to revision as additional information about the fair value of
Norweb's assets acquired and liabilities assumed is evaluated. The final
determination of the purchase accounting adjustments requires additional
information and analysis, which is ongoing and is expected to be completed
within one year of the acquisition date. The results of operations of Norweb are
reflected in the consolidated financial statements of TXU Corp. from the August
3, 2000 effective date of the acquisition.
9
<PAGE>
The following summary of unaudited pro forma consolidated results of TXU
Corp.'s operations reflect the acquisition of Norweb as though it had occurred
at the beginning of the respective periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- ------
<S> <C> <C>
Revenues ................................................... 16,124 13,772
Operating Income ........................................... 2,120 2,124
Net Income ................................................. 795 693
Earnings per share of common stock:
Basic .................................................. $2.99 $2.48
Diluted ................................................ $2.99 $2.48
</TABLE>
These pro forma results are not necessarily indicative of what the actual
results would have been had the acquisition occurred at the beginning of these
periods. Further, the pro forma results are not intended to be a projection of
future results of the combined companies. The non-cash impact of this
transaction is summarized below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
<S> <C>
Fair value of assets acquired ............................ $228
Goodwill ................................................. 947
Liabilities assumed ...................................... (705)
----
Cash used ......................................... $470
====
</TABLE>
On August 3, 2000, TXU Europe announced it had contracted its customer
services operation to Vertex Data Science Limited (Vertex), United Utilities
plc's customer services business. Customer services include the call centers,
billing, credit management and debt collection. TXU Europe's 1,335 customer
services staff transferred to Vertex on September 1, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The condensed consolidated financial statements
of TXU Corp. and its subsidiaries have been prepared on the same basis as those
in its 1999 Form 10-K and, in the opinion of management, all adjustments
(constituting only normal recurring accruals) necessary for a fair presentation
of the results of operations and financial position have been included therein.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain previously reported amounts have been reclassified to conform to current
classifications. The cumulative effect of the change in accounting principle for
depreciation of $14 million (pretax) recorded by TXU Europe was not material to
TXU Corp. and is reported in Other Income (Deductions) - Net. 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.
CHANGES IN ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as extended by SFAS No. 137 (June 1999) and amended by SFAS No. 138
(June 2000), is effective for TXU Corp. beginning January 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires the recognition of derivatives as either
assets or liabilities in the statement of financial position and the measurement
of those instruments at fair value.
10
<PAGE>
The process relating to implementation of SFAS No. 133 has been ongoing
since July 1999. To date, all derivatives within TXU Corp. have been identified
pursuant to SFAS No. 133 requirements. TXU Corp. is in the process of
designating, documenting and assessing hedging relationships, the majority of
which are expected to result in cash-flow hedges that require TXU Corp. to
record the derivative assets or liabilities at fair value on its statement of
financial position with an offset in Other Comprehensive Income to the extent
the hedge is effective. Hedge ineffectiveness will be recorded in earnings. TXU
Corp. globally accounts for its trading activities on a mark-to-market basis,
which, for the most part, will not be affected by the implementation of SFAS No.
133.
TXU Corp. continues to evaluate the impact of SFAS No. 133, as well as the
ongoing implementation issues currently being addressed by the Derivatives
Implementation Group. As a result, the direct financial impact of the
application of hedge accounting and the transition adjustment on TXU Corp.'s
financial position and results of operations has yet to be determined.
EARNINGS PER SHARE -- Basic earnings per share applicable to common stock
are based on the weighted average number of common shares outstanding during the
period reported. Diluted earnings per share include the effect of potential
common shares resulting from the assumed exercise of all outstanding stock
options and settlement of forward stock purchase agreements. TXU Corp. has
outstanding certain instruments that are convertible into common stock or that
may be settled with common stock but do not qualify as dilutive securities for
computation of earnings per share. The following table details the number of
shares of common stock added to the average shares outstanding for the purpose
of calculating diluted earnings per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares of common stock
(in thousands).............................. 240 87 443 99
</TABLE>
3. SHORT-TERM FINANCING
In April 2000, the holders of $340 million of TXU Electric's Floating Rate
Debentures due April 24, 2000 agreed to extend the maturity date of those
debentures to December 1, 2000. In connection with the extension, the quarterly
interest rate formula, based on LIBOR plus a margin, was changed. The interest
rate through July 23, 2000 was 6.68%, and was then reset at 7.11%.
In June 2000, TXU Europe renegotiated the terms and amounts it could
borrow under a short-term facility. The amended facility allows for aggregate
borrowings of (euro)506 million ($445 million) which can be borrowed by TXU
Europe (up to (euro)200 million expiring November 30, 2000) and TXU Europe Group
plc. (up to (euro)306 million expiring May 1, 2001) at variable interest rates
based on LIBOR plus a margin. The amount outstanding at September 30, 2000 was
(euro)506 million ($445 million) at a weighted average annual interest rate of
5.30%.
TXU Europe and TXU Finance (No. 2) Limited (TXU Finance), 90% owned by TXU
Europe, have a joint sterling-denominated line of credit with a group of banking
institutions under a credit facility agreement (Sterling Credit Agreement). In
March 2000, the Tranche A 364-day revolving credit facility under the Sterling
Credit Agreement expired. In May 2000, TXU Europe entered into a six-month
(pound)200 million revolving credit facility with a commercial bank to serve as
a temporary replacement for the former Tranche A facility. Borrowings could be
made in any available currency and interest was based on LIBOR plus a margin. As
of September 30, 2000, (euro)267 million ($214 million) was outstanding at an
annual interest rate of 5.28% and 1.452 billion Czech koruna ($36 million) was
outstanding at an annual interest rate of 6.10%. The facility expired on October
30, 2000. The euro borrowings were paid with borrowings under the Tranche B
revolving credit facility of the Sterling Credit Agreement and the Czech koruna
borrowings were paid down with cash proceeds on hand from the sale of SME and
with borrowings of 1.275 billion Czech koruna ($32 million) from a new 1.5
billion Czech koruna facility which expires in April 2001.
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On August 23, 2000, TXU Europe entered into a new (pound)300 million
364-day revolving credit facility that expires August 22, 2001. In connection
with this facility, Eastern Electricity reduced the limits under its separate
revolving credit facility from (pound)250 million to (pound)150 million. There
were no borrowings outstanding under either of these facilities at September 30,
2000.
In March 2000, TXU Australia established a A$750 million unsecured note
program. The program was increased to A$1,500 million in August 2000. Short-term
notes issued under this program replaced commercial paper previously issued by
TXU Australia Electricity (formerly, Eastern Energy Limited). The short-term
borrowings under the program are restricted to the amount available under
qualifying support facilities which comprise A$455 million plus any undrawn
amounts under the bank facilities, which vary from time to time. At September
30, 2000, the outstanding short-term note balance was approximately A$279
million ($152 million) at an annual interest rate of 6.53%. At September 30,
2000, the amount restricted under this program was A$537 million ($292 million).
ACCOUNTS RECEIVABLE -- Eastern Electricity continually sells additional
receivables under its receivable financing program to replace those collected.
At September 30, 2000, accounts receivable of Eastern Electricity of (pound)193
million ($282 million) had been sold under the program. A further (pound)95
million ($139 million) of Future receivables collateralize short-term loans.
These borrowings bear interest at an annual rate, based on commercial paper
rates plus a margin, which was 6.10% at September 30, 2000. TXU Electric and TXU
Gas also have facilities which provide financing through sales of receivables,
the amounts and terms of which have not changed from December 31, 1999.
4. CAPITALIZATION
COMMON STOCK -- During the nine months ended September 30, 2000, TXU Corp.
repurchased approximately 18.6 million shares of its common stock for $600
million. The cost of the repurchased shares, to the extent it exceeded the
amount received upon issuance, has been charged to retained earnings. Additional
purchases may occur from time to time, as $522 million remains authorized for
purchase under the common stock repurchase program.
PREFERENCE STOCK -- On June 15, 2000, TXU Corp. issued 3,000 shares of
Series B preference stock for $300 million. The preference stock has a dividend
rate of 7.24% until June 15, 2005. The dividend rate for subsequent periods will
be determined according to periodic auctions. The Series B preference stock has
a liquidation preference of $100,000 per share. TXU Corp. may not redeem the
shares before June 15, 2005. The proceeds were used to repay short-term debt,
including commercial paper, and for general corporate purposes. TXU Corp. is
authorized to issue up to 50 million shares of preference stock in one or more
series.
In connection with the Pinnacle Transactions, TXU Corp. issued 810,000
shares of its Mandatorily Convertible Single Reset Preference Stock, Series C
(Series C Preference Stock) to Pinnacle One Share Trust, a consolidated trust
(Share Trust). The Series C Preference Stock has a liquidation preference of
$1,000 per share. Remarketing of the Series C Preference Stock held by the Share
Trust or the issuance of additional TXU Corp. common stock to the Share Trust
could occur in the event of a default by Pinnacle or a significant market
decline in TXU Corp.'s common stock coupled with a decline in the credit ratings
for TXU Corp.'s unsecured, senior long-term obligations. The Series C Preference
Stock held by the Pinnacle One Share trust does not currently accrue dividends.
PREFERRED SECURITIES OF SUBSIDIARY PERPETUAL TRUST OF TXU EUROPE -- In
March 2000, TXU Europe Capital I, a statutory business trust, established as a
financing subsidiary for TXU Europe, issued to investors $150 million of 9 3/4%
Trust Originated Preferred Securities (Preferred Trust Securities), in 6,000,000
units. The proceeds from this issuance were invested in Preferred Partnership
Securities issued by TXU Europe
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Funding I, L.P., a limited partnership of which TXU Europe is the general
partner. The Preferred Trust Securities have a liquidation preference of $25 per
unit. The only assets of the trust are the Preferred Partnership Securities. The
Trust has a perpetual existence, subject to certain termination events as
provided in its Amended and Restated Trust Agreement. The Preferred Trust
Securities are subject to mandatory redemption upon payment of the Preferred
Partnership Securities which may be redeemed at the option of TXU Europe, in
whole, or in part, at any time on or after March 2, 2005. TXU Europe has issued
certain limited guarantees of the Preferred Trust Securities, the Preferred
Partnership Securities and the junior subordinated debentures held by TXU Europe
Funding I, L.P. The trust uses distributions it receives on the Preferred
Partnership Securities to make cash distributions on the Preferred Trust
Securities.
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<PAGE>
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:
<TABLE>
<CAPTION>
TRUST SECURITIES TRUST ASSETS MATURITY
---------------------------------------------------------- ---------------------------- --------
UNITS (000'S) AMOUNT AMOUNT
--------------------------- --------------------------- ----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2000 1999 2000 1999 2000 1999
------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TXU CORP.
TXU Capital I
(7.25% Series)...... 9,200 9,200 $ 223 $ 223 $ 237 $ 237 2029
TXU Capital II
(8.7% Series)....... 6,000 6,000 145 145 155 155 2034
------- ------- ------- ------- ------- -------
Total TXU Corp...... 15,200 15,200 368 368 392 392
------- ------- ------- ------- ------- -------
TXU ELECTRIC
TXU Electric Capital I
(8.25% Series)...... 5,871 5,871 141 141 155 155 2030
TXU Electric Capital III
(8.00% Series)...... 8,000 8,000 194 194 206 206 2035
TXU Electric Capital IV
(Floating Rate Trust
Securities)(a)...... 100 100 98 97 103 103 2037
TXU Electric Capital V
(8.175% Trust
Securities)......... 400 400 396 392 412 412 2037
------- ------- ------- ------- ------- -------
Total TXU Electric.. 14,371 14,371 829 824 876 876
------- ------- ------- ------- ------- -------
TXU GAS
TXU Gas Capital I
(Floating Rate Trust
Securities)(b)...... 150 150 147 147 155 155 2028
------- ------- ------- ------- ------- -------
Total............... 29,721 29,721 $1,344 $1,339 $1,423 $1,423
======= ======= ======= ======= ======= =======
</TABLE>
(a) Floating rate is determined quarterly based on LIBOR. A related
interest rate swap, expiring 2002, effectively fixes the rate at
7.183%.
(b) Floating rate is determined quarterly based on LIBOR. Related
interest rate swaps, expiring 2003, effectively fix the rates at
6.629% on $100 million and at 6.444% on $50 million.
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.
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<PAGE>
LONG-TERM DEBT
US -- In connection with the Pinnacle Transactions, TXU
Corp. issued a $336 million, 6.0% note payable due 2004 to Pinnacle with
principal repayments of approximately $42 million each February and August
beginning in 2001. Proceeds received from the debt issuance and the
approximately $600 million cash distribution received from Pinnacle in
connection with the contribution of its telecommunications subsidiaries were
used to repay approximately $936 million of commercial paper.
On October 17, 2000, TXU Gas issued $200 million aggregate principal
amount of Putable Asset Term Securities due October 15, 2012. The securities
have a fixed rate of 7-5/8% from the date of issuance through October 14, 2002.
TXU Gas also assigned to a third party the right to call the securities. On
October 15, 2002, the securities will be either mandatorily tendered to and
purchased by the callholder or mandatorily redeemed by TXU Gas. If the
callholder chooses to purchase the securities, TXU Gas may elect to have the
securities remarketed for a floating rate period of up to one year, in which
case the callholder must purchase the securities at the end of the floating rate
period. If the callholder exercises its right to call the securities on October
15, 2002, or at the end of the floating rate period if applicable, the
securities will be remarketed at a fixed rate for a ten year period. If the
callholder does not purchase the securities on October 15, 2002, TXU Gas will be
required to redeem all of the securities for 100% of the aggregate principal
amount outstanding plus accrued interest, if any. Proceeds from the debt
issuance and the assignment of the call option were used by TXU Corp. to repay
commercial paper.
EUROPE -- As of September 30, 2000, the amended Sterling Credit Agreement
provides for borrowings of up to (pound)1.075 billion and has two facilities: a
(pound)750 million term facility and a (pound)325 million revolving credit
facility (Tranche B), both of which terminate on March 2, 2003. The Sterling
Credit Agreement allows for borrowings in various currencies with interest rates
based on the prevailing rates in effect in the countries in which the borrowings
originate. As of September 30, 2000, (pound)750 million ($1.1 billion) of
borrowings were outstanding under the term facility at an interest rate of 6.89%
per annum. The outstanding Tranche B borrowing and interest rate in effect at
September 30, 2000 consisted of 744 million Norwegian koruna ($82 million) at
7.76% per annum.
TXU Europe has a (euro)2.0 billion Euro Medium Term Note (EMTN) program.
Under the EMTN program, TXU Europe may from time to time issue notes to one or
more dealers in an aggregate principal amount of up to (euro)2.0 billion. On
September 4, 2000, (pound)100 million ($146 million) of EMTN notes were issued
that are due September 4, 2001 and have an interest rate of 6.88%. As of
September 30, 2000, (pound)225 million ($329 million) of 7.25% Sterling
Eurobonds due March 8, 2030, were also outstanding. In September 2000, an
interest rate swap relating to the Sterling Eurobond borrowings was closed and a
replacement swap was entered into which converts the fixed interest rate to a
floating rate based on LIBOR. The effective interest rate of the swap was 6.43%
at September 30, 2000. On October 12, 2000, TXU Europe issued an additional
(pound)50 million ($73 million) as an extension of the 7.25% Sterling Eurobonds
due March 8, 2030 and on October 25, 2000, issued (pound)50 million ($73
million) of other EMTN notes due October 25, 2007 at 7.25%.
TXU Europe has various interest rate and currency swaps in effect on the
US$1.5 billion Senior notes that in effect change the interest rate on the
borrowings from fixed to variable based on LIBOR payable in sterling and fix the
principal amount to be repaid in sterling. In August 2000, TXU Europe entered
into additional interest rate swaps on the Senior Notes that effectively convert
the interest rate on the borrowings from variable back to a fixed rate payable
in sterling. The weighted average rate in effect at September 30, 2000 was
6.61%. The fair value of these swaps was (pound)11 million ($16 million) at
September 30, 2000.
AUSTRALIA -- In February 2000, TXU Australia restructured its senior bank
debt. The terms of all senior bank debt previously borrowed by TXU Australia and
TXU Australia Electricity were renegotiated and maturity dates extended, so that
all senior bank debt, aggregating approximately A$2.0 billion ($1.1 billion),
now ranks equally to senior debt of TXU Australia. In June 2000, the maturity
date was extended from June 30, 2000 to June 29, 2001 for the A$413 million
subordinated acquisition facility, which is reported in Notes Payable-Banks on
the balance sheet. Also in June 2000, a new A$120 million facility maturing
December 29, 2000 was added. In September 2000, the A$200 million syndicated
loan facility and the A$275 million Senior Acquisition facility were repaid in
full and cancelled.
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In July 2000, TXU Australia made an offer to exchange any and all issued
and outstanding 6.75% notes due 2006 and 7.25% notes due 2016 of TXU Australia
Electricity notes of TXU Australia with comparable terms plus a cash component.
As of September 30, 2000, the exchange offer had expired and $92.25 million of
6.75% notes and $50 million of 7.25% notes of TXU Australia were outstanding and
$157.75 million of 6.75% notes and $40 million of 7.25% notes of TXU Australia
Electricity were outstanding.
On September 22, 2000, TXU Australia issued two tranches of medium-term
notes on which payments were issued under a policy issued by MBIA Insurance
Corporation. Totalling A$475 million ($259 million), the tranches consisted of
A$200 million of fixed rate notes due September 2005 and A$275 million of
floating rate notes due September 2007. The fixed rate notes bear interest
semi-annually at a rate of 7.00% per annum, and the floating rate notes pay
interest at a rate that is currently 7.02%. Proceeds from the issuance were used
to repay the syndicated loan facility and the senior acquisition facility.
5. REGULATION AND RATES
US -- DOCKET NO. 21527 -- In October 1999, TXU Electric filed a petition
with the Public Utility Commission of Texas (PUC) for a financing order (Docket
No. 21527) to permit the issuance by a special purpose entity of $1.65 billion
of transition bonds secured by payments designed to enable TXU Electric to
recover its generation-related regulatory assets and other qualified costs in
accordance with the legislation passed in 1999 to restructure the electric
utility industry in Texas (1999 Restructuring Legislation). The proceeds
received by TXU Electric are to be used solely for the purpose of retiring
utility debt and equity. On May 1, 2000, the PUC signed a final order rejecting
TXU Electric's request for the $1.65 billion and authorized only $363 million.
TXU Electric filed an appeal on May 2, 2000 with the Travis County, Texas
District Court.
On September 7, 2000, the Travis County, Texas District Court issued a
final judgment reversing that part of the PUC's financing order that utilized
regulated asset life (up to 40 years) for purposes of present-valuing the
benefits of securitization. Instead, the District Court ruled that a
present-value period based upon stranded cost and regulatory asset recovery
periods authorized under the 1999 Restructuring Legislation should have been
used by the PUC. The District Court also ruled that the PUC statements in its
financing order concerning the future impact of securitization of loss on
reacquired debt were only an advisory opinion. The judgment affirmed other
aspects of the PUC's financing order and ordered the case remanded to the PUC
for further proceedings consistent with the judgment. TXU Electric and various
other parties have appealed this judgment directly to the Texas Supreme Court.
TXU Electric expects that any difference between the $1.65 billion and the
amount finally authorized will continue to be deferred until recovery of
generation-related assets is again addressed by the PUC, most likely in 2001.
TXU Electric is unable to predict the outcome of these proceedings.
The constitutionality of the securitization provisions of the 1999
Restructuring Legislation under the Texas constitution has been challenged in
connection with a securitization request made by Central Power and Light
Company. In July 2000, the Travis County, Texas District Court issued its
judgment denying this appeal and finding that the securitization provisions are
constitutional. This judgment has been appealed directly to the Texas Supreme
Court. TXU Electric is unable to predict the outcome of such proceedings.
DOCKET NO. 21950 -- In January 2000, TXU Electric filed with the PUC its
business separation plan as required by the 1999 Restructuring Legislation. The
plan described how TXU Electric proposed to separate, by September 1, 2000, the
provision of competitive energy services from its regulated business activities,
and how it proposes to unbundle its business by January 1, 2002 in accordance
with the 1999 Restructuring Legislation. Only the transmission and distribution
(T&D) functions will continue to be regulated. An independent organization
certified by the PUC will oversee transmission system planning and reliability
in the State of Texas. Beginning January 1, 2002, retail electric customers in
Texas will be able to select their electricity providers. The portion of this
plan that describes how TXU Electric proposed to separate the provision of
competitive energy services from its regulated business activities has been
severed by the PUC from Docket No. 21950 and assigned Docket No. 21987. On April
3, 2000, TXU Electric and certain other parties to Docket No. 21987 filed
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<PAGE>
with the PUC a nonunanimous stipulation concerning matters at issue in that
proceeding. In June 2000, the PUC issued an order in Docket No. 21987 approving
this stipulation and the TXU Electric plan, as modified by this stipulation. The
remainder of Docket No. 21950 has been merged with Docket No. 22350 described
below.
DOCKET NO. 22350 -- As required by the 1999 Restructuring Legislation, in
March 2000, TXU Electric filed its transition to competition plan with the PUC.
This plan lays the foundation for retail competition to begin in the Texas
electricity market. Under the plan as filed, the generation business unit and
the retail business unit of TXU Electric will become unregulated entities and
will be allowed to compete for customers. The T&D business units of TXU Electric
will be separated into regulated entities and will together represent the
regulated part of the business. The filing also includes proposed T&D delivery
rates to be charged to retail electric providers. In addition to the actual T&D
charges for delivering electricity, these rates include nuclear decommissioning
fund charges, system benefit fund charges and stranded cost recovery charges. In
that March 2000 filing, TXU Electric's stranded costs were estimated to be
approximately $3.7 billion, including the regulatory assets that were part of
the Docket No. 21527 proceedings and amounts related to the remand of Docket No.
9300, addressed below. TXU Electric filed an updated stranded cost estimate on
August 28, 2000 to reflect various PUC decisions made since Docket No. 22350 was
filed. In the August 28, 2000 filing, TXU Electric's stranded costs were
estimated to be $2.8 billion. Subsequent to the August 2000 filing, the PUC has
required TXU Electric to revise the stranded cost estimate to remove amounts
related to regulatory assets, certain environmental expenditures and the remand
of Docket No. 9300, which resulted in a revised stranded cost estimate of $14
million. TXU Electric has appealed certain of the PUC's decisions related to
this matter to the Travis County, Texas District Court. Various parties to
Docket No. 22350 have presented stranded cost estimates ranging from negative
$1.5 billion to negative $3.5 billion along with recommendations that these
amounts be returned to customers beginning in 2002. The estimate established in
Docket No. 22350 is subject to a future "true-up" in 2004. TXU Electric is
unable to predict the outcome of these proceedings.
DOCKET NO. 9300/DOCKET NO. 22652 -- The PUC's final order (Order) in
connection with TXU Electric's January 1990 rate increase request (Docket No.
9300) was ultimately reviewed by the Texas Supreme Court. As a result, an
aggregate of $909 million of disallowances with respect to TXU Electric's
reacquisitions of minority owners' interests in Comanche Peak, which had
previously been recorded as a charge to TXU Electric's earnings, was remanded to
the District Court with instructions that it be remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC also was required to reevaluate the appropriate level of TXU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing. In connection with the settlement
of Docket No. 18490, proceedings in the remand of Docket No. 9300 had been
stayed through December 31, 1999. In April 2000, TXU Electric requested that the
District Court enter an order remanding Docket No. 9300 to the PUC. On June 9,
2000, the District Court's order of remand was filed with the PUC, and the PUC
has assigned the remand proceeding Docket No. 22652. Pursuant to an order
entered on August 31, 2000, this docket will be held in abeyance until March 20,
2001. TXU Electric cannot predict the outcome of the reconsideration of the
Order on remand by the PUC.
DOCKET NO. 22344 -- In a generic issues docket held in August 2000, the
PUC issued orders that impacted US Electric's recovery of restructuring expenses
and certain other regulatory assets. Accordingly, in September 2000, such
unrecovered regulatory assets totaling $52 million were written off. This
reduced earnings in excess of the earnings cap by $49 million.
DOCKET NO. 22880 -- On August 4, 2000, TXU Electric filed a request with
the PUC to surcharge the cumulative under-collection of fuel cost revenues that
existed as of June 30, 2000, together with interest through November 2000, in
the amount of $167 million, and to increase its current fuel factors by 27.6%.
On August 31, 2000, the Administrative Law Judge entered an Interim Order,
implementing an agreement of the parties, providing for an interim increase in
fuel factors of 13.8%, effective September 2000, and a surcharge of TXU
Electric's cumulative under-recovery of fuel cost revenues that existed as of
July 31, 2000, together with interest through November 2000, in the amount of
$315 million to be collected over the fourteen-month period beginning November
2000. On October 13, 2000, TXU Electric filed a Supplemental Application with
the PUC requesting its initial 27.6% fuel factor increase request instead of the
interim increase.
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<PAGE>
DOCKET NO. 23153 -- On October 13, 2000, TXU Electric filed with the PUC a
request for a surcharge to recover a $230 million under-collection of fuel cost
revenues for the months of August and September, 2000. The proposed surcharge
would be collected from January 2001 through December 2001. TXU Electric cannot
predict the outcome of this proceeding.
GAS -- TXU Gas employs a continuing program of rate review for all
classes of customers in its regulatory jurisdictions. Rate relief amounting to
about $3.5 million in annualized revenue increases, exclusive of changes in gas
costs, has been granted in 2000 in addition to about $7.5 million granted in
1999. Rate cases supporting $15.4 million in annualized revenue increases were
pending in 52 cities as of September 30, 2000. Additionally, an appeal to the
Railroad Commission of Texas (RRC) of actions taken by three cities in the
Dallas Distribution System seeks to recover $8 million in annualized revenue
deficiencies. A proposal for decision in this matter would grant $5.1 million of
this request. A final decision on this matter is expected in the fourth quarter
of 2000.
In October 1999, TXU Lone Star Pipeline filed with the RRC a Statement of
Intent to change the city gate rate for gas transported for subsequent
distribution to residential and commercial customers. The filing requested a
general increase in annual revenues of approximately $20 million. In June 2000,
the RRC issued a final ruling on TXU Lone Star Pipeline's requested gate rate
increase that denied the increase and resulted in a $1.5 million reduction in
the city gate rate, but granted certain changes to its tariff structure between
demand and commodity rates which should stabilize its revenues. TXU Lone Star
Pipeline and the intervenors in the proceeding filed with the RRC motions for
rehearing concerning the final ruling. All motions for rehearing have been
denied, and no appeals will be filed seeking further review of the RRC final
ruling.
6. CONTINGENCIES
LEGAL PROCEEDINGS -- In February 1997, the official government
representative of pensioners in the UK, the Pensions Ombudsman, made a final
determination against the National Grid Company plc (National Grid) and its
group trustees with respect to complaints by two pensioners in National Grid's
section of the Electricity Supply Pension Scheme (ESPS). The determination
related to the use of the pension fund surplus resulting from the March 31, 1992
actuarial valuation of the National Grid section to meet certain costs arising
from the payment of pensions on early retirement upon reorganization or
downsizing. These determinations were set aside by the High Court on June 10,
1997, and the arrangements made by National Grid and its group trustees in
dealing with the surplus were confirmed. The two pensioners appealed this
decision to the Court of Appeal and judgment was received. The judgment endorsed
the Pensions Ombudsman's determination that the corporation was not entitled to
unilaterally deal with any surplus. National Grid has made an appeal to the
House of Lords, although the case is not likely to be heard until the first
quarter of 2001. If a similar complaint were to be made against TXU Europe Group
in relation to its use of actuarial surplus in its section of the ESPS, it would
vigorously defend the action, ultimately through the courts. However, if a
determination were finally to be made against it and upheld by the courts, TXU
Europe Group could have a potential liability to repay to its section of the
ESPS an amount estimated by TXU Europe Group to be up to (pound)45 million ($66
million), exclusive of any applicable interest charges.
In January 1999, the Hindustan Development Corporation issued arbitration
proceedings in the Arbitral Tribunal in Delhi, India against The Energy Group
PLC (TEG), now known as Energy Holdings (No. 3) Limited, claiming damages of
(pound)255 million ($373 million) for breach of contract following the
termination of a Joint Development Agreement dated March 20, 1997 relating to
the construction, development and operation of a lignite based thermal power
plant at Barsingsar, Rajasthan. TXU Europe is vigorously defending this claim
and cannot predict the outcome of these proceedings. Arbitration has been
completed and the decision of the arbitrators is expected imminently.
In August 1998, the Gracy Fund, L.P. (Gracy Fund) filed suit in the United
States District Court for the Northern District of Texas against EEX Corporation
(EEX), formerly Enserch Exploration, Inc., TXU Corp., David W. Biegler, Gary J.
Junco, Erle Nye, Thomas Hamilton and J. Phillip McCormick. The Gracy Fund sought
to represent a class of certain purchasers of the common stock of ENSERCH
Corporation (now TXU Gas) and EEX based upon claims of various violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Also in August
1998, Stan C. Thorne (Thorne) filed suit in the United States District Court for
the
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<PAGE>
Southern District of Texas against EEX, TXU Gas, DeGolyer & MacNaughton, David
W. Biegler, Gary J. Junco, Fredrick S. Addy and B. K. Irani and sought to
represent a certain class of purchasers of common stock of EEX. In December
1998, the United States District Court for the Northern District of Texas issued
an Order consolidating the Gracy Fund and the Thorne suits (Consolidated
Action). In January 1999, the Gracy Fund ET AL. filed an amended class action
complaint in the Consolidated Action against EEX, TXU Gas, David W. Biegler,
Gary J. Junco, Thomas Hamilton, J. Philip McCormick, Fredrick S. Addy and B. K.
Irani. TXU Corp. and Erle Nye were omitted as defendants pursuant to a tolling
agreement. The individual named defendants are current or former officers and/or
directors of EEX, and Mr. Biegler has been an officer and director of TXU Gas.
The amended complaint alleges violations of provisions of the Securities Act and
the Exchange Act. The plaintiff in the Consolidated Action represents a class of
persons acquiring stock of ENSERCH Corporation and/or EEX between August 3, 1995
and August 5, 1997, inclusive. The parties to the Consolidated Action entered
into an agreement that TXU Gas expects to form the basis of the settlement of
this litigation, subject to the completion of confirmatory discovery by the
plaintiffs and approval of the Court. The terms of this agreement required TXU
Gas to pay $5 million into escrow.
In August 2000, the Spanish Stock Market Commission (CNMV) announced it
was opening an investigation as to whether TXU Corp. and Electrabel acted in
concert over share purchases of Hidrocantabrico in order to avoid making a
formal takeover bid. TXU Corp. was originally named as a party but is seeking
its removal from these proceedings. If the two utilities are found to be in
violation of Spanish securities law, they could face a substantial fine and
other restrictions. The investigation is expected to last twelve to eighteen
months. TXU Europe is unable to determine what impact there may be, if any, as a
result of the investigation. TXU Europe and TXU Corp. believe there has been no
violation of Spanish securities laws and are fully cooperating with the
investigation.
FINANCIAL GUARANTEES -- TXU Electric 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, $23 million at
September 30, 2000, and interest on bonds issued to finance the reservoirs from
which the water is supplied. The bonds mature at various dates through 2011 and
have interest rates ranging from 5-1/2% to 7%. TXU Electric has assigned to a
municipality all contract rights and obligations of TXU Electric in connection
with $53 million principal amount of bonds outstanding at September 30, 2000,
that had been issued for similar purposes and previously guaranteed by TXU
Electric. TXU Electric is, however, contingently liable in the unlikely event of
default by the municipality.
TXU Europe has guaranteed up to $110 million at September 30, 2000 of
certain liabilities that may be incurred and payable by the purchasers of its
former US and Australian coal business and US Energy marketing operations sold
in 1998 with respect to the Peabody Holding Company Retirement Plan for Salaried
Employees, the Powder River Coal Company Retirement Plan and the Peabody Coal
UMWA Retirement Plan, subject to certain specified conditions.
GENERAL -- In addition to the above, TXU Corp. and its subsidiaries are
involved in various other legal and administrative proceedings which, in the
opinion of management, should not have a material effect upon TXU Corp.'s
financial position, results of operations or cash flows.
7. SEGMENT INFORMATION
TXU Corp. has five reportable operating segments. In 2000, TXU Corp.
renamed its US Energy Marketing Segment to US Energy and included its retail
energy services and related businesses in that segment.
(1) US ELECTRIC - operations involving the generation, purchase,
transmission, distribution and sale of electric energy primarily in the north
central, eastern and western portions of Texas;
(2) US GAS - operations involving the purchase, transmission, distribution
and sale of natural gas in Texas;
(3) US ENERGY - operations involving purchasing and selling natural gas
and electricity and providing risk management services for the energy industry
throughout the US and parts of Canada, retail energy services and related
businesses;
19
<PAGE>
(4) EUROPE - operations involving the generation, purchase, distribution,
marketing and sale of electricity and the purchase and sale of natural gas
primarily in the UK, with additional energy interests throughout the rest of
Europe; and
(5) AUSTRALIA - operations involving the generation, purchase,
distribution, trading and retailing of electricity, the retailing of natural gas
and the storage of natural gas needed in the States of South Australia and
Victoria.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Trade Revenues -
US Electric...................... $ 2,462 $ 2,077 $ 5,523 $ 4,892
US Gas........................... 141 141 613 577
US Energy........................ 1,485 822 3,739 2,188
Europe........................... 1,494 1,132 4,602 4,355
Australia........................ 202 210 559 494
All Other........................ 50 53 166 126
------ ------ ------- -------
Consolidated............. $ 5,834 $ 4,435 $15,202 $ 12,632
====== ====== ======= =======
Affiliated Revenues -
US Gas........................... $ 8 $ 14 $ 25 $ 29
US Energy........................ 2 -- (1) --
All Other........................ 116 87 297 250
Eliminations..................... (126) (101) (321) (279)
------ ------ ------- -------
Consolidated........... $ -- $ -- $ -- $ --
====== ====== ======= =======
Net Income (Loss) -
US Electric...................... $ 394 $ 435 $ 725 $ 699
US Gas........................... (11) (13) 32 (20)
US Energy........................ (29) (16) (40) (40)
Europe........................... 18 (3) 134 137
Australia........................ 21 5 58 --
All Other........................ (59) (47) (155) (134)
------ ------ ------- -------
Consolidated............. $ 334 $ 361 $ 754 $ 642
====== ====== ======= =======
</TABLE>
8. RESTRUCTURING CHARGES AND OTHER COSTS
During the nine months ended September 30, 2000, TXU Europe recorded
restructuring charges and other costs of approximately $102 million pre-tax ($75
million after-tax). Of this amount, $91 million pre-tax ($64 million after-tax)
of restructuring costs have been charged to operation and maintenance expense.
Approximately $11 million of nondeductible costs incurred in connection with the
offer for Hidrocantabrico have been included in Other Income (Deductions) - Net.
The restructuring costs consisted of asset writedowns and other exit and
redundancy costs (severance benefits paid to staff under voluntary retirement
programs and related pension benefits) primarily as a result of the creation of
the 24seven joint venture and for certain other staff reorganizations. As of
September 30, 2000, TXU Europe had recognized pre-tax redundancy costs of
approximately $40 million related to voluntary termination benefits for 476
employees that have accepted the voluntary benefits. In addition, other pre-tax
restructuring charges consisting of $24 million of asset writedowns and $27
million of other exit costs have been recorded. Further restructuring charges
are expected to be incurred through the end of 2000. These costs are separate
from the redundancy costs associated with the voluntary termination benefits for
the employees of the recently acquired Norweb Energi. Those costs have been
included in the allocation of the purchase price as liabilities assumed in the
acquisition.
As of September 30, 2000, $29 million of redundancy costs and $14 million
of other exit costs charged during the nine months then ended have been paid.
20
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
TXU Corp.:
We have reviewed the accompanying condensed consolidated balance sheet of TXU
Corp. and subsidiaries as of September 30, 2000, and the related condensed
statements of consolidated income and of comprehensive income for the
three-month and nine-month periods ended September 30, 2000 and 1999, and the
condensed statements of consolidated cash flows for the nine-month periods ended
September 30, 2000 and 1999. These financial statements are the responsibility
of TXU Corp.'s management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of TXU
Corp. as of December 31, 1999, and the related statements of consolidated
income, comprehensive income, cash flows and common stock equity for the year
then ended (not presented herein); and in our report, dated February 16, 2000,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 10, 2000
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following exchange rates have been used to convert foreign currency
denominated amounts into US dollars:
<TABLE>
<CAPTION>
INCOME STATEMENT
(AVERAGE RATES)
--------------------------------------------
BALANCE SHEET THREE MONTHS NINE MONTHS
--------------------------- --------------------- -------------------
SEPTEMBER 30, DECEMBER 31, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------ ------------ --------------------- -------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UK pounds sterling (pound) $1.4629 $1.6165 $1.4786 $1.6159 $1.5392 $1.6188
Australian dollars (A$) $0.5450 $0.6507 $0.5751 $0.6500 $0.5987 $0.6432
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Net income available for common stock for the third quarter of 2000 was
$328 million ($1.25 per share) compared with $361 million ($1.31 per share) for
the third quarter of 1999. The 2000 quarter results benefited from improved
contributions from TXU Australia due to the addition of the generation business
during 2000, increased income from trading activities in Europe, and the
acquisition in August 2000 of the retail electricity and natural gas business,
Norweb Energi, by TXU Europe. Additionally, a $30 million pre-tax ($21 million
after-tax) gain was realized from the sale of TXU Europe's interest in
Severomoravska energetika, a.s., (SME). Offsetting these positive contributions
was a loss recorded by the US Energy segment due partially to costs incurred to
prepare the trading and retail operations for the opening of the Texas
electricity market in 2002.
Revenue of $5.8 billion for the third quarter of 2000 increased 32% from
$4.4 billion for the third quarter of 1999. The increase in revenue was driven
by the US Electric segment's increase in fuel revenues, customer growth and
warmer-than-normal weather related sales, increased revenues from the US Energy
segment and a 32% increase in revenues from TXU Europe, which includes the
contribution by Norweb Energi since the date of acquisition. Mitigation as a
result of the US Electric earnings cap reduced revenues by $147 million and net
income by $95 million in the 2000 third quarter compared to a reduction of $59
million in revenues and $32 million of net income for the 1999 third quarter.
Since January 1998, regular nuclear depreciation and additional nuclear
mitigation totals approximately $1.9 billion.
Energy purchased for resale and fuel consumed for the third quarter of
2000 were 59% greater than the prior-year third quarter due to higher prices and
sales volumes in the US Electric, US Energy and Europe segments and the Norweb
acquisition . Operation and maintenance expense was higher in the third quarter
of 2000 than the same period of 1999. The 2000 period includes a $52 million
write-off of unrecovered regulatory assets, which reduced over-earnings
mitigation by $49 million, pursuant to a PUC generic issues docket. Also
contributing to the higher operation and maintenance expenses are the additional
expenditures in the US Energy segment necessary to prepare the trading and
retail operations for the opening of the Texas electricity market in 2002.
Partially offsetting the higher operation and maintenance expense was a 13%
decrease in depreciation and amortization in the third quarter of 2000 compared
to the same period in 1999 due primarily to a change in depreciation methods
from an accelerated method to straight line coupled with a change in depreciable
lives used by TXU Europe.
22
<PAGE>
Differences in effective tax rates are primarily attributable to benefits
from the discontinuation of amortization of prior-period flow-through amounts
and other tax-related regulatory assets and liabilities of TXU Electric as a
result of the 1999 Restructuring Legislation, foreign tax credits and other tax
benefits associated with non-US operations, partially offset by the effect of
non-deductible goodwill amortization.
NINE MONTHS ENDED SEPTEMBER 30, 2000
Net income available for common stock for the nine months ended September
30, 2000 was $748 million ($2.81 per share) compared with $642 million ($2.30
per share) for the prior nine-month period, an increase of 17%. Net income for
the nine months ended September 30, 2000 reflects continued strong results from
the US Electric segment, improved results from TXU Australia, and improvement in
US Gas operations in spite of very mild winter weather. TXU Europe provided
strong earnings contribution in spite of lower wholesale electricity prices in
the first quarter and the network rate reduction implemented in April 2000. The
2000 period reflects the acquisition in August of the retail electricity and
natural gas business, Norweb Energi, by TXU Europe. Mitigation as a result of
the earnings cap at TXU Electric reduced net income by $160 million in the 2000
period and $69 million in the 1999 period.
Results for the 2000 period include a $53 million pre-tax ($34 million
after-tax) gain from the sale of substantially all of the assets of the natural
gas processing business and $74 million in pre-tax ($52 million after-tax) gains
from the selective sale of TXU Europe's assets, including its metering business
and other investments. Partially offsetting were after-tax restructuring charges
related to the 24seven joint venture of $64 million and bid-related costs
associated with Hidroelectrica del Cantabrico, S.A. (Hidrocantabrico) at TXU
Europe of $11 million. Earnings for the 1999 period included a $52 million
pre-tax ($31 million after-tax) charge for a fuel reconciliation settlement and
other charges totaling $17 million after-tax in Australia, primarily for
integration and acquisition-related costs.
Revenues for the 2000 nine-month period were 20% higher than the prior
nine-month period of 1999, primarily due to higher revenues from the US Energy
and US Electric segments. Fuel and purchased power were 36% higher for the nine
months ended September 30, 2000 compared to the same period in 1999, primarily
due to the factors discussed for the quarter period.
Differences in effective tax rates are primarily attributable to benefits
from the discontinuation of amortization of prior-period flow-through amounts
and other tax-related regulatory assets and liabilities of TXU Electric as a
result of the 1999 Restructuring Legislation, foreign tax credits and other tax
benefits associated with non-US operations, partially offset by the effect of
non-deductible goodwill amortization.
23
<PAGE>
SEGMENTS
Revenues and net income by operating segment are shown in Note 7 to
Financial Statements.
US ELECTRIC
SEGMENT HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (millions):
Base rate........................... $1,565 $1,479 $ 3,678 $3,492
Transmission service................ 42 34 126 102
Fuel................................ 986 605 1,917 1,309
Earnings in excess of earnings cap.. (147) (59) (247) (59)
Other............................... 16 18 49 48
------ ------ ------ ------
Total operating revenues.... $2,462 $2,077 $5,523 $4,892
====== ====== ====== ======
Electric energy sales (gigawatt-hours--GWh).. 33,504 31,364 81,554 77,996
Degree days (% of normal):
Cooling............................. 119% 115% 118% 113%
Heating............................. -- -- 66% 73%
</TABLE>
Comparisons of net income for both periods were impacted by a rate
settlement agreement that became effective in 1998 and was modified by the 1999
Restructuring Legislation, which reduced customer rates and introduced an
earnings cap. The nine months ended September 30, 1999 results reflect a fuel
reconciliation settlement that reduced net income by $31 million.
Net income of $394 million for the three months ended September 30, 2000
was 9% lower than the same period of 1999. This reflects higher earnings
mitigation and increased operation and maintenance expenses, primarily due to
write-off of certain regulatory assets as discussed below. For the nine months
ended September 30, 2000, net income increased 4% from the same period of 1999.
The current nine-month period reflects continued retail revenue growth and
interest cost reductions.
From January 1, 1998 through June 30, 1999, earnings in excess of TXU
Electric's earnings cap were recorded as additional depreciation of nuclear
production assets. Effective July 1, 1999, following the 1999 Restructuring
Legislation, earnings in excess of the earnings cap were recorded as a reduction
of revenues, with a corresponding regulatory liability recorded. Additionally,
from January 1, 1998 through June 30, 1999, depreciation expense was
reclassified from transmission and distribution (T&D) to nuclear production
assets. Effective July 1, 1999, following the 1999 Restructuring Legislation,
T&D depreciation expense was no longer transferred to nuclear production assets;
instead an amount equivalent to T&D depreciation was recorded as a regulatory
asset, with an offsetting amount recorded as a regulatory liability. The
regulatory asset will be amortized as it is recovered through the distribution
portion of the business, while the regulatory liability will be applied against
stranded generation assets.
In a generic issues docket held in August 2000, the PUC issued
orders that impacted US Electric's recovery of restructuring expenses and
certain other regulatory assets. Accordingly, in September 2000, such
unrecovered regulatory assets totaling $52 million were written off. This
reduced earnings in excess of the earnings cap by $49 million.
24
<PAGE>
TXU Electric has announced plans to sell six of its eighteen natural
gas-fired electricity generating plants in Texas. Due to action by the Texas
Natural Resource Conservation Commission, which would require emission
reductions for TXU Electric power plants, TXU Electric has extended the bid
process to allow prospective buyers time to evaluate this action. TXU Electric
anticipates completion of the plant sales in 2001.
US GAS
SEGMENT HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gas distribution:
Sales volumes (billion cubic feet--Bcf)........ 14 13 82 82
Margin (millions).............................. $66 $49 $245 $218
Pipeline transportation:
Transportation volumes (Bcf)................... 168 155 442 426
Revenues (millions)............................ $28 $24 $87 $86
Heating degree days (% of normal).................... -- -- 66% 73%
</TABLE>
For the three months ended September 30, 2000, the US Gas segment had a
net loss of $11 million compared with a net loss of $13 million for the three
months ended September 30, 1999. Results for the 2000 period reflected improved
gas distribution and pipeline margins combined with operating cost reductions
while the 1999 period included pre-tax gains of $10 million from the sale of
assets.
For the nine months ended September 30, 2000, the segment had net income
of $32 million compared with a net loss of $20 million for the comparable 1999
nine-month period. Results for the 2000 nine-month period reflect improved
margin and cost reductions in gas distribution operations and the $34 million
after-tax gain on sale of gas processing assets while results for the 1999
period included after-tax gains of $6 million from the sale of other assets.
US ENERGY
SEGMENT HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Trading and marketing volumes:
Gas (Bcf)..................................... 327 213 953 805
Electric (GWh) ............................... 4,358 3,522 14,898 5,352
</TABLE>
The US Energy segment includes TXU Corp.'s US energy trading, retail
energy services, development activities and related businesses.
The US Energy segment had a net loss of $29 million for the three months
ended September 30, 2000 compared with a net loss of $16 million for the three
months ended September 30, 1999. Results were negatively impacted by a $13
million increase in operation and maintenance expenses and a $5 million decrease
in margin. The increase in operation and maintenance expenses reflects costs to
prepare the trading and retail operations for the opening of the Texas
electricity market to competition in 2002.
25
<PAGE>
The segment had a net loss of $40 million for the nine months ended
September 30, 2000 and 1999. A $45 million increase in margin was partially
offset by a $37 million increase in operation and maintenance expenses. The
increase in operation and maintenance expenses reflects costs associated with
the relocation of energy trading operations to Dallas in addition to the trading
and retail operations development costs discussed for the three-month period.
EUROPE
SEGMENT HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales volumes:
Electric (GWh).......................... 9,300 8,330 23,464 27,665
Gas (Bcf)............................... 15 17 74 87
Units distributed (GWh)................. 7,274 7,103 24,099 24,309
Wholesale energy sales:
Electricity (GWh).................. 51,787 15,527 109,485 57,286
Gas (Bcf).......................... 316 106 777 314
Revenues (millions):
Electric................................ $ 654 $ 642 $1,826 $2,238
Gas..................................... 67 74 344 381
Distribution............................ 109 135 411 480
Wholesale energy sales.................. 675 333 2,083 1,483
Intra-segment eliminations and other.... (11) (52) (62) (227)
------- ------- ------ ------
Total ....................... $ 1,494 $ 1,132 $4,602 $4,355
======= ======= ====== ======
</TABLE>
*Includes results of Norweb Energi from date of acquisition of August 3, 2000.
Net income for the three months ended September 30, 2000 was $18 million
compared with a net loss of $3 million for the same period in 1999. The
improvement for the three months period was a result of the strong performance
from continental European operations, in particular increased energy trading
activities, with net flat results from the UK and other business units, results
for Norweb Energi since the August 3, 2000 date of acquisition and an after-tax
gain of $21 million from the sale of the investment in SME. These factors were
partially offset by higher amortization of goodwill and approximately $10
million in restructuring charges associated with the implementation of the
24seven joint venture and other corporate reorganizations, the effects of the
OFGEM Distribution Price Review ($33 million) which became effective from April
1, 2000 and difficult UK wholesale electricity market conditions.
In the quarter ended September 30, 2000, TXU Europe implemented a change
in the depreciation method for its distribution system assets from an
accelerated method to a straight line method as of December 31, 1999. The
straight line depreciation method has been implemented to better recognize the
cost of the assets over the anticipated useful life of the assets. The
cumulative effect of this change in accounting principle of $14 million was not
material to TXU Corp. and is reported in Other Income (Deductions) - Net.
Also in the quarter ended September 30, 2000, TXU Europe revised the
estimated useful economic lives of its distribution system assets. Such assets
are now depreciated over a composite period of 50 years. The effect of the
change in estimate is not significant for the quarter ended September 30, 2000
and is not expected to be significant on an annual basis.
26
<PAGE>
Net income for the nine months ended September 30, 2000 was $134 million
compared with $137 million for the same period in 1999. The nine months period
benefited from the strong performance of continental European operations, in
particular increased energy trading activities, with nearly stable results from
the UK and other business units. These factors were partially offset by higher
amortization of goodwill and restructuring costs, the effects of the OFGEM
Distribution Price Review ($66 million) and difficult UK wholesale electricity
market conditions. Ongoing steps taken to further mitigate these factors include
the acquisition of Norweb Energi to increase the customer base, renewed retail
marketing efforts, review of selective disposal of assets to maximize asset
value and continued cost reduction programs and organizational changes in the UK
aimed at lowering operating costs. Results for the 2000 period included the gain
from the sale of the metering business and other investments, including SME,
offset by after-tax restructuring and other costs of $64 million and costs
associated with the offer for Hidrocantabrico and reflect an approximately $8
million decrease in the exchange rate of the pound sterling to the US dollar
from the prior year.
AUSTRALIA
SEGMENT HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales volumes:
Electric (Gwh)................ 1,420 1,441 4,203 4,101
Gas (Bcf)..................... 20 17 55 36
Degree days:
Cooling...................... -- 6 216 166
Heating...................... 568 498 1,062 993
Revenues (millions):
Electric...................... $ 89 $ 97 $ 268 $266
Gas........................... 55 51 141 98
Other......................... 58 62 150 130
---- ---- ---- -----
Total................ $202 $210 $559 $ 494
==== ==== ==== =====
</TABLE>
*Includes results of TXU Australia Gas from date of acquisition of February 24,
1999.
Net income for the quarter ended September 30, 2000 was $21 million
compared with $5 million for the same period in 1999. The increase in net income
is due primarily to the addition of the generation business during 2000 and
increased income from trading activities.
Electric revenues decreased in the third quarter of 2000 compared to the
same period in 1999 due to competitive pressures experienced with customer
contract renewals in July 2000. The decline in other revenues for the third
quarter of 2000 compared to the third quarter of 1999 is due to the sale of the
Enetech business in early 2000.
Net income for the nine months ended September 30, 2000 was $58 million
versus a break-even amount for the 1999 period. Year-to-date net income for the
current year includes the results of TXU Australia Gas operations for the full
nine months, while the same period last year included their results from date of
acquisition and acquisition-related costs totalling $17 million after-tax. Net
income for the current nine-month period was favorably impacted by trading
activities and an after-tax gain of $6 million from the sale of Enetech, the
former construction and engineering business.
27
<PAGE>
COMPREHENSIVE INCOME
The losses from currency translation adjustments for all periods
principally reflect the substantial movement in exchange rates between the US
dollar and the UK pound sterling and the Australian dollar. The net unrealized
holding gains (losses) on investments are primarily related to market changes on
investments held by TXU Europe and TXU Communications Company.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Corp.'s 1999 Form 10-K. Results for the three-month and
nine-month periods presented herein are not necessarily indicative of
expectations for a full year's operations because of seasonal and other factors,
including variations in maintenance and other operating expense patterns. No
significant changes or events that might affect the financial condition of TXU
Corp. have occurred subsequent to year-end other than as disclosed in other
reports of TXU Corp. or included herein.
CASH FLOWS -- Cash flows provided by operating activities before changes
in operating assets and liabilities for the nine months ended September 30, 2000
were $1,752 million compared with $1,899 million for the comparable period in
1999. Changes in operating assets and liabilities for the nine months ended
September 30, 2000 used $429 million compared with $50 million provided in the
same period of 1999. For the 2000 period, this is primarily due to an increase
in under-recovered fuel revenue to TXU Electric of $501 million. A surcharge has
been approved by the PUC for recovery of $315 million of under-collections
through July 2000 to be collected over a fourteen-month period beginning
November 2000. A request for a surcharge totaling $230 million for August and
September under-collections is pending approval from the PUC. The change in
accounts receivable for the nine months of 2000 reflects the impact of higher
fuel costs. Additionally, $110 million of deposits were required on US Energy's
over-the-counter and exchange trading margin accounts. The 1999 period included
$413 million from the sale of (pound)255 million of accounts receivable by TXU
Europe.
Cash flows used in investing activities for the nine months ended
September 30, 2000 and 1999 were $740 million and $2.4 billion, respectively.
The 2000 period benefited from the receipt of net proceeds from the sale of
assets totalling $785 million, including $350 million from the December 1999
PrimeCo partnership sale, $105 million from the TXU Processing asset sale and
approximately $189 million from the sale of the metering business, other
investments and interest in SME at TXU Europe. The 2000 period also benefited
from the cash distribution received from the contribution of TXU Corp.'s
telecommunications subsidiaries to Pinnacle. Cash of $808 million was used in
2000 for acquisitions versus $1.0 billion used in the 1999 period for the TXU
Australia Gas acquisition. Construction expenditures were $957 million for the
current nine-month period compared with $1.2 billion for the comparable period
in 1999.
In March 2000, TXU Europe (Espana) S.L., a subsidiary of TXU Europe,
announced its intention to make a cash offer to acquire all of the shares of
Hidroelectrica del Cantabrico, S.A. (Hidrocantabrico) that TXU Europe did not
then own. Later in March 2000, after a competing bid had been subsequently
issued, TXU Europe announced that it would not pursue its offer. In a series
of private transactions since that date, TXU Europe acquired additional
shares in Hidrocantabrico and directly or indirectly holds approximately
19.2% of the outstanding shares. TXU Europe has a purchase option to acquire
an additional 4.9% of the stock in Hidrocantabrico currently held by
Electrabel SA (Electrabel), an electricity company in Belgium, if Electrabel
elects to sell its interest in Hidrocantabrico to another company during a
one year period beginning July 4, 2000. TXU Europe is subject to a
conditional put option by which it can be required to purchase the 10.0%
interest in Hidrocantabrico held by Electrabel to the extent Electrabel is
required to dispose of its holding in Hidrocantabrico by European Union or
Spanish Competition Authorities during a one year period beginning July 4,
2000. The conditions of this put option include a reasonable notice period
before execution. TXU Europe's shareholding would not consequently hold 25%
or more of Hidrocantabrico as a result. Results of operations for the nine
months ended September 30, 2000 include approximately (pound)7 million ($11
million) of costs incurred in connection with the offer for Hidrocantabrico.
TXU Europe has indicated that if the Hidrocantabrico Board of Directors acted
to suspend TXU Europe's political rights (including voting rights) in the
Hidrocantabrico shares, TXU Europe would likely contest such suspension. TXU
Europe has also indicated that it would support a full offer
28
<PAGE>
for Hidrocantabrico by a third party that has the support of Hidrocantabrico's
Board of Directors and that, given terms favorable to TXU Europe would sell its
interest in Hidrocantabrico.
On July 13, 2000, TXU Europe agreed to purchase 51% of Stadtwerke Kiel
AG, a German municipal utility, for approximately (pound)143 million ($215
million). The state parliament of Kiel and European Union regulators have
approved the sale. The city government of Kiel, the state capital, will
retain the other 49% of the utility. The closing date of the acquisition will
be in January 2001.
In connection with the Pinnacle Transactions, TXU Corp. issued a $336
million, 6.0% note payable due 2004 to Pinnacle with principal repayments of
approximately $42 million each February and August beginning in 2001. Proceeds
received from the debt issuance and the approximately $600 million distribution
received from Pinnacle for the contribution of its telecommunications
subsidiaries were used to repay commercial paper.
On May 4, 2000, TXU Australia acquired certain assets and liabilities of
Optima Energy Pty Ltd from the government of South Australia. The purchase
included a 100-year lease to operate a 1,280-megawatt natural gas powered
generating station. Funding for the $177 million project was provided from
internal sources and bank borrowings.
On August 3, 2000, TXU Europe announced its unconditional purchase of
United Utilities' retail energy supply business, Norweb Energi (a division of
Norweb plc) for (pound)310 million ($463 million). Total consideration,
including direct costs of the acquisition, was (pound)353 million ($527
million). Financing was provided through existing bank lines and cash balances
on hand. The transaction also includes the assumption of certain of Norweb
Energi's obligations, including its power purchase agreements, which will be
integrated into TXU Europe's energy portfolio. The agreements provide for
purchase of power by TXU Europe at prices that are currently above market. On
October 13, 2000, the Secretary of State for Trade and Industry announced it
would not refer the acquisition to the Competition Commission, thereby granting
regulatory approval for the acquisition.
TXU Europe has disclosed over the last twelve months that its strategy in
the UK market is to rebalance its energy portfolio through retail growth,
long-term wholesale sales and, possibly, physical plant disposal. TXU Europe
continues consideration of its energy portfolio within the UK. During the
year-to-date 2000, TXU Europe has completed the acquisition of Norweb Energi and
announced it would seek bids for its UK power and North Sea gas assets, in order
to evaluate whether value is maximized through retention or disposal of these
assets. There has been no impairment of these assets. Divestment processes
continue and it is expected that a further update will be made in the fourth
quarter of 2000 or in early 2001. However, no decisions have yet been made as to
whether disposals will actually take place.
TXU Corp. will pursue potential investment opportunities from time to time
when it concludes that such investments are consistent with its business
strategies and will dispose of nonstrategic assets to allow redeployment of
resources into faster growing opportunities in an effort to enhance the
long-term return to its shareholders.
COMMON STOCK -- During the nine months ended September 30, 2000, TXU Corp.
repurchased approximately 18.6 million shares of its common stock for $600
million. The cost of the repurchased shares, to the extent it exceeded the
amount received upon issuance, has been charged to retained earnings. Additional
purchases may occur from time to time, as $522 million remains authorized for
purchase under the common stock repurchase program.
External funds of a permanent or long-term nature are obtained through the
issuance of common stock, preference and preferred stock, trust securities and
long-term debt by TXU Corp. and subsidiaries. The capitalization ratios of TXU
Corp. at September 30, 2000 consisted of approximately 62% long-term debt, 6%
preferred securities of subsidiary trusts, 2% preference and preferred stock and
30% common stock equity. Restricted cash of $1.1 billion pledged against TXU
Europe lease obligations is included in other investments. Applying the cash
pledged against related lease obligations, the capitalization ratios consisted
of 60% long term
29
<PAGE>
debt, 6% preferred securities of subsidiary trusts, 2% preference and preferred
stock and 32% common stock equity.
ISSUANCES AND RETIREMENTS -- During the nine months ended September 30,
2000, TXU Corp. issued, redeemed, reacquired or made scheduled principal
payments on preference stock, acquisition facilities, other long-term debt and
trust securities, as follows:
<TABLE>
<CAPTION>
ISSUANCES RETIREMENTS
<S> <C> <C>
TXU Corp:
Preference Stock............................... $ 300 $ --
Senior Notes................................... -- 125
Other.......................................... 336 --
TXU Electric:
First Mortgage Bonds........................... -- 85
Other.......................................... 65 76
TXU Europe:
Euro Medium Term Notes......................... 503 --
Preferred Securities of Subsidiary Perpetual Trust 150 --
Revolving Credit Facility (Tranche B).......... 492 780
Other.......................................... 119 566
TXU Australia:
Medium Term Notes.............................. 256 --
Other.......................................... -- 10
All Other Subsidiaries............................... 3 248
------ ------
Total......................................... $2,224 $1,890
====== ======
</TABLE>
At September 30, 2000, TXU Corp., TXU Electric and TXU Gas had no
borrowings outstanding under the US Credit Agreements described in Note 4 of TXU
Corp.'s 1999 Form 10-K. Letters of credit drawn under the agreement were $182
million as of September 30, 2000. The US Credit Agreements primarily support
commercial paper borrowings. At September 30, 2000, outstanding commercial paper
borrowings supported by both facilities totaled $1.7 billion.
No other substantive changes to financing arrangements have occurred
subsequent to December 31, 1999 except as described in Note 3 to Financial
Statements. See Notes 3 and 4 to Financial Statements for further details
concerning short-term financing and capitalization.
REGULATION AND RATES
UK -- NEW ELECTRICITY TRADING ARRANGEMENTS (NETA) -- Following a
comprehensive reassessment of the timetable for completion of all the necessary
testing, the implementation of NETA is now scheduled to commence on March 27,
2001, although this may be revised at year end based on the progress in the
ability of participants to communicate with the central systems being installed.
Under NETA, for those companies wishing to buy and sell electricity, the
arrangements provide the freedom to enter into directly negotiated contracts
instead of having to trade through a central electricity pool. It is expected
that under the new arrangements bulk electricity will be traded on one or more
exchanges and through a variety of bilateral and multilateral contracts and that
market participants will include not only generators and suppliers but also
traders with physical positions, i.e. energy wholesalers. TXU Europe is unable
to determine at this time, what impact the implantation of NETA will have on its
financial position, results of operations or cash flow.
30
<PAGE>
AUSTRALIA -- TXU Australia is subject to regulation by the Office of the
Regulator General (ORG). The ORG has the power to issue licenses for the supply,
distribution and sale of electricity within Victoria and regulates tariffs for
the use of the distribution system. The Australian Competition and Consumer
Commission is responsible for regulating transmission system tariffs. The
electricity distribution tariffs applying to TXU Australia Electricity are
effective until December 31, 2000.
On September 21, 2000, the ORG published its final decision in the 2001
Electricity Distribution Price Review. The decision will cause TXU Australia
Electricity's distribution revenue for 2001 to be approximately A$27 million
(US$16 million) lower than for 2000. TXU Australia appealed the decision to the
ORG Appeal Panel on October 2, 2000. On October 16, 2000, the Appeal Panel
upheld the ORG's original decision. TXU Australia is now considering an appeal
against this decision to the Victorian Supreme Court. If any such appeal is
made, it is unlikely to be decided before the new tariffs are due to commence on
January 1, 2001. In anticipation of such an appeal, the Victorian government is
in the process of enacting legislation, which will enable it to set transitional
distribution tariffs that will apply in the event of such an appeal. These new
tariffs will apply from January 1, 2001 until either the Supreme Court upholds
the ORG determination, or the date on which the tariffs as redetermined by the
ORG in accordance with the Supreme Court's decision take effect.
Although TXU Corp. cannot predict future regulatory or legislative actions
or any changes in economic and securities market conditions, no changes are
expected in trends or commitments, other than those discussed in the 1999 Form
10-K and this Form 10-Q, which might significantly alter its financial position,
results of operations or cash flows. See Note 5 to Financial Statements for
discussion of rates and regulation related to US Electric Segment.
CHANGES IN ACCOUNTING STANDARDS
CHANGES IN ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as extended by SFAS No. 137 (June 1999) and amended by SFAS No. 138
(June 2000), is effective for TXU Corp. beginning January 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires the recognition of derivatives as either
assets or liabilities in the statement of financial position and the measurement
of those instruments at fair value.
The process relating to implementation of SFAS No. 133 has been ongoing
since July 1999. To date, all derivatives within TXU Corp. have been identified
pursuant to SFAS No. 133 requirements. TXU Corp. is in the process of
designating, documenting and assessing hedging relationships, the majority of
which are expected to result in cash-flow hedges that require TXU Corp. to
record the derivative assets or liabilities at fair value on its statement of
financial position with an offset in Other Comprehensive Income to the extent
the hedge is effective. Hedge ineffectiveness will be recorded in earnings. TXU
Corp. globally accounts for its trading activities on a mark-to-market basis,
which, for the most part, will not be affected by the implementation of SFAS No.
133.
TXU Corp. continues to evaluate the impact of SFAS No. 133, as well as the
ongoing implementation issues currently being addressed by the Derivatives
Implementation Group. As a result, the direct financial impact of the
application of hedge accounting and the transition adjustment on TXU Corp.'s
financial position and results of operations has yet to be determined.
31
<PAGE>
FORWARD-LOOKING STATEMENTS
This report and other presentations made by TXU Corp. contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Corp. believes that in making
such statement its expectations are based on reasonable assumptions, any such
statement involves uncertainties and is qualified in its entirety by reference
to factors contained in the Forward-Looking Statements section of Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Corp.'s 1999 Form 10-K, as well as general industry trends;
implementation of the Texas electricity deregulation legislation; power costs
and availability; changes in business strategy, development plans or vendor
relationships; availability of qualified personnel; changes in, or the failure
or inability to comply with, governmental regulations, including, without
limitation, environmental regulations; changes in tax laws; and access to
adequate transmission facilities to meet changing demands, among others, that
could cause the actual results of TXU Corp. to differ materially from those
projected in such forward-looking statements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Corp. undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for TXU
Corp. to predict all of such factors, nor can it assess the impact of each such
factor or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking
statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder is not significantly different from the
information set forth in Item 7A. Quantitative and Qualitative Disclosures About
Market Risk included in TXU Corp.'s 1999 Form 10-K and is therefore not
presented herein.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 2000, the Spanish Stock Market Commission (CNMV) announced it
was opening an investigation as to whether TXU Corp. and Electrabel acted in
concert over share purchases in order to avoid making a formal takeover bid. TXU
Corp. was originally named as a party but is seeking its removal from these
proceedings. If the two utilities are found to be in violation of Spanish
securities law, they could face a substantial fine and other restrictions. The
investigation is expected to last twelve to eighteen months. TXU Europe is
unable to determine what impact there may be, if any, as a result of the
investigation. TXU Europe and TXU Corp. believe there has been no violation of
Spanish securities laws and are fully cooperating with the investigation.
For material developments relating to legal matters since December 31,
1999, refer to Item 1. Legal Proceedings included in the Form 10-Q of TXU Corp.
for the Quarter Ended June 30, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 11, 2000, TXU Corp. issued, in a private placement pursuant to
Section 4(2) of the Securities Act of 1933, 810,000 shares of its Mandatorily
Convertible Single Reset Preference Stock, Series C, $1,000 liquidation
preference per share (Series C Preference Stock) to Pinnacle One Share trust, a
consolidated trust (Share Trust). Initially, the Series C Preference Stock is
convertible into TXU Corp. common stock at a rate equal to the quotient of
$1,000 divided by the average trading price for the TXU Corp. common stock for
the 10 trading days prior to August 10, 2000. The mandatory and optional
conversion rates subsequent to a sale by the Share Trust will be determined at
the time of such sale.
33
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
<TABLE>
<CAPTION>
With
File As
Exhibits Number Exhibit
-------- ------ -------
<S> <C> <C>
3 333-49434 (4)(d) Statement of Resolution establishing TXU Corp.'s
333-49434-01 Mandatorily Convertible Single Reset Preference
333-49434-02 Stock, Series C.
4(a) 001-15709 4(a) Pricing Supplement with respect to (pound)100,000,000 6.88%
Form 10-Q Notes due 2001 pursuant to the (euro)2,000,000,000 Euro
(Quarter ended Medium Term Note Program (EMTN Program).
September 30, 2000)
4(b) 001-15709 4(b) Pricing Supplement with respect to (pound)50,000,000 7.25%
Form 10-Q Notes due 2030 issued pursuant to the EMTN Program.
(Quarter ended
September 30, 2000)
4(c) 001-15709 4(c) Pricing Supplement with respect to (pound)50,000,000 7.25%
Form 10-Q Notes due 2007 issued pursuant to the EMTN Program.
(Quarter ended
September 30, 2000)
4(d) 1-3183 4 Officer's certificate dated as of October 17, 2000,
Form 10-Q establishing the terms of the Putable Asset Term
(Quarter ended Securities.
September 30, 2000)
10(a) 001-15709 10(a) Agreement dated August 23, 2000, supplemental to a
Form 10-Q Facilities Agreement for (pound)1,275,000,000 Credit Facilities,
(Quarter ended dated March 24, 1999, among TXU Europe Limited, TXU
September 30, 2000) Finance (No.2) Limited, TXU Acquisitions Limited, Chase
Manhattan Bank plc, Lehman Brothers International (Europe),
Merrill Lynch Capital Corporation and the other banks named
therein.
10(b) 001-15709 10(b) 364-day Revolving Credit Agreement for (pound)300,000,000
Form 10-Q dated August 23, 2000, among TXU Europe Limited,
(Quarter ended Chase Manhattan plc, Chase Manhattan International
September 30, 2000) Limited and the other banks named therein.
15 Letter from independent accountants as to unaudited
interim financial information
27 Financial Data Schedules
99 Condensed Statements of Consolidated Income -- Twelve
Months Ended June 30, 2000 and 1999.
(b) Reports on Form 8-K filed since June 30, 2000:
DATE OF REPORT ITEM REPORTED
August 3, 2000 Item 5. Other Events
September 7, 2000 Item 5. Other Events
</TABLE>
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TXU CORP.
By /s/ JERRY W. PINKERTON
---------------------------
Jerry W. Pinkerton
Controller and Principal
Accounting Officer
Date: November 10, 2000
35
