Report to Shareholders
July 1, 2003 www.txucorp.com
I am pleased to report that with solid first-quarter financial results and
Offered for Sale
continued operational progress we are on track to achieve our 2003 initia-
TXU is selling its interests in the
tives. Our key priorities are to strengthen our balance sheet and enhance
telecommunications business. The
credit, reduce costs, deliver on earnings, and aggressively defend and build
decision to sell TXU Communica-
on our leadership positions in Texas and Australia.
tions is part of a continued focus on
A number of key achievements demonstrate our progress this year.
the company’s core energy business
On May 1, we reported first-quarter earnings that were above expectations.
in Texas and Australia. The pro-
We also announced our plan to sell TXU Communications to continue our
ceeds will be used to repay debt,
focus on the core energy business in Texas and Australia.
including the Pinnacle One senior
TXU has also been successful in accessing the capital markets. We have
secured notes, which mature in
added permanent financing to our operations and reduced our reliance
August 2004. Pinnacle One is the
on bank facilities. This year, we have successfully issued $1.25 billion of
joint venture formed in 2000 to
notes in a debt offering and refinanced $220 million of pollution-control
hold the telecom assets. It is now a
revenue bonds. We have also repaid all our cash borrowings from banks in
wholly owned subsidiary of TXU.
North America, some $2.3 billion, and replaced expiring bank facilities.
TXU Communications includes
We are on track to deliver significant cost reductions as well. Regret-
two rural telephone companies,
tably, employee layoffs have been necessary to help TXU return to
Lufkin-Conroe Telephone Exchange
financial viability, but the majority of these staff reductions have been
and Fort Bend Communications, in
southeast Texas. TXU acquired
TXU continues to perform well in its Texas and Australia regions. We
Lufkin-Conroe in 1997 and Fort
are competing strongly in newly deregulated retail energy markets, retain-
Bend in 2000. The sale’s completion
ing and attracting customers ahead of plan. And our energy delivery oper-
is expected by mid-2004.
ations continue to provide reliable, low-cost service.
National Large C&I Gas
Through the dedication and commitment of employees, we have stabi-
lized TXU financially, and we are now focused on enhancing operations
and delivering on our 2003 initiatives.
As part of the company’s focus
I am grateful for your continued support of TXU.
to reduce costs and allow greater
concentration on its leading posi-
tion in the Texas energy markets,
TXU Energy has sold its large com-
mercial and industrial (C&I) retail
natural gas business in the North-
east, Midwest, and West. This oper-
Chairman of the Board and Chief Executive
ation provided natural gas and
related services to businesses
throughout the United States. TXU
Annual Meeting Held vice president; H. Dan Farell, Energy continues to serve C&I retail
executive vice president and chief
At the annual meeting on May customers in Texas. TXU Gas, the
financial officer; Michael J.
16, shareholders elected the follow- regulated retail business that serves
McNally, executive vice president;
ing directors: Derek C. Bonham, almost 1.5 million residential cus-
Eric H. Peterson, executive vice
Jerry S. Farrington, William M. tomers in Texas, is a separate busi-
president and general counsel;
Griffin, Kerney Laday, Jack E. Little, ness and is not affected by the sales.
Kirk R. Oliver, treasurer and assis-
Margaret N. Maxey, Erle Nye, James
TXU Gas Files Rate Case
tant secretary; Peter B. Tinkham,
E. Oesterreicher, Michael W. Ranger,
secretary and assistant treasurer;
and Herbert H. Richardson. Share- TXU Gas has filed a systemwide
Diane J. Kubin, assistant secretary;
holders also approved Deloitte & gas rate case with the Railroad
and Stanley J. Szlauderbach, assis-
Touche, LLP, as TXU’s auditors. Commission of Texas and the 437
Shareholders voted against share- incorporated cities and towns served
The board also declared a quar-
holder proposals related to indexed by TXU Gas. The request represents
terly dividend of $0.125 per share
options and a new environmental an annual revenue increase of
on common stock of the company.
report. For those interested, a $69.5 million, which represents an
The dividend will be paid on July
recording of the meeting is available 11.5 percent return on equity and
1, 2003, to shareholders of record
on the company’s website at an 8.99 percent return on invested
on June 6, 2003. If you are not
participating in the Direct Stock
In other company action, the TXU Gas has invested about
Purchase and Dividend Reinvest-
board of directors elected the fol- $721 million in its pipeline and
ment Plan or in the direct deposit
lowing officers: Erle Nye, chairman distribution systems in the last five
option and your shares are not
of the board and chief executive; years to continue providing safe
being held in a brokerage account,
Thomas L. Baker, executive vice and reliable natural gas service.
your dividend check is enclosed.
president; Brian N. Dickie, executive A successful outcome of the rate
case will improve TXU Gas’s rate of experience in accounting, internal
return and its ability to continue to audit, and customer operations.
provide safe, reliable and reasonably Hogan is a certified public account-
TXU has made a number of man-
priced natural gas to almost ant and will also report
agement changes this year designed
1.5 million customers across Texas. to Farell.
to strengthen its executive team.
Legislative Session Ends TXU Honored with Awards
The board of directors elected H.
The 78th session of the Texas TXU has been honored with two
Dan Farell executive vice president
Legislature ended June 2, 2003, awards recently for its environmen-
and chief financial officer of TXU
with passage of three bills that tal accomplishments. The U.S.
Corp. Farell, a certified public
affected TXU. Two of the bills Environmental Protection Agency
accountant, has over 30 years of
favored by TXU affect the com- has selected Oncor as the ENERGY
diverse experience in the energy
pany’s Comanche Peak nuclear STAR Partner of the Year for 2003.
industry. In 1994, he was appointed
power plant. One bill increases the Oncor was chosen from more than
principal accounting officer for
authority of nuclear plant security 7,000 organizations for contribut-
Texas Utilities Company and princi-
officers, allowing the state’s two ing to the reduction of nearly
pal financial officer of its main sub-
nuclear plants to comply with 30 million pounds of greenhouse-
sidiary, TU Electric. He was made
heightened security measures gas emissions.
managing director of TXU Australia
recently issued by the Nuclear Regu- TXU Mining has once again
following acquisition of that sub-
latory Commission. The second bill received the Mining Reclamation
sidiary in 1995. He returned to lead
establishes disposal sites for low- Award from the Railroad Commis-
TXU’s electric and gas distribution
level radioactive waste. The facili- sion of Texas for its overall efforts
unit in 1998 and assumed his most
ties will be environmentally sound, in planting more than 20 million
recent position as president of TXU
permitted, and monitored. They trees since 1975 at the company’s
Gas in 2002.
will allow Comanche Peak and mining sites. Since 1991, TXU’s
Mike McCall, formerly vice presi-
other entities in Texas that produce commercial pine stands have
dent of regulatory affairs, is now
such waste to relocate it to a perma- sequestered an estimated 92,000
president of TXU Gas. He replaces
nent storage site. tons of carbon dioxide. The com-
Dan Farell. McCall has held a vari-
The other bill, Texas GRIP (Texas pany also plants a large variety of
ety of management positions over
Gas Reliability Infrastructure Pro- hardwood trees and shrubs for
his 20-year career at TXU, including
gram), will stimulate investment in wildlife habitat.
director of public policy. He also
the natural gas delivery system and In the past decade, TXU has
held positions in finance and
help the company recover regulated voluntarily reduced, avoided, or
accounting, strategy, and planning.
costs more quickly. Infrastructure sequestered over 193 million tons
McCall began his career at TXU
investments are needed to meet the of greenhouse gases. This effort is
Mining Company, where he served
growing demands of the Texas econ- the largest achievement of any
as manager of two of the company’s
omy and to maintain a safe and investor-owned energy company
reliable gas delivery network. in the nation.
David H. Anderson, formerly vice
TXU opposed several bills that president of investor relations, has
would have changed the rules gov- been appointed senior vice presi- This report contains forward-looking statements,
erning the new competitive market which are subject to various risks and uncertainties.
dent and principal accounting
Discussion of risks and uncertainties that could cause
to favor various market participants. officer. In his new role, Anderson is actual results to differ materially from management’s
TXU believes the market needs to responsible for accounting policies, current projections, forecasts, estimates and expecta-
tions is contained in the company’s SEC filings. The
continue with clear and consistent financial reporting, and financial risks and uncertainties set forth in the company’s SEC
rules to develop to its fullest poten- planning. He continues to report filings include TXU’s ability to negotiate satisfactory
tial. Ultimately, the legislature terms and obtain all necessary governmental and
to Farell. Anderson is a certified
other approvals and consents for the sale of TXU
agreed and allowed those bills to public accountant and joined the Communications, prevailing government policies on
expire in committee. The legislature company in 1988. He has held environmental, tax or accounting matters, regulatory
and rating agency actions, weather conditions, unan-
is expected to take a closer look at numerous financial and manage- ticipated population growth or decline and changes
laws affecting the electric industry ment positions in the TXU system. in market demand and demographic patterns,
during the Public Utility Commis- changing competition for customers including the
Tim Hogan is now director of
deregulation of the U.S. electric utility industry and
sion sunset process in its 2005 investor relations, assuming Ander- the entry of new competitors, pricing and transporta-
session. The Texas Legislature meets son’s role. Hogan, who came to tion of crude oil, natural gas and other commodities,
financial and capital market conditions, unantici-
every other year, although special investor relations in 1997, joined pated changes in operating expenses and capital
sessions can be called. TXU in 1982. He has extensive expenditures, legal and administrative proceedings
and settlements, inability of the various counterpar-
ties to meet their obligations with respect to financial
instruments, and changes in technology used and
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annual environmental report details a tradition of environmental excellence through
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