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  • 1. B U IL D IN GANNUAL REPORT 2004

2. TA B L E O F C O N T E N T S 1 Managements Letter 6 At A Glance 12 TXU Board Of Directors 14 TXU Leadership 15 Form 10-K Shareholder Information (Inside Back Cover)W H O W E A R E A N D W H AT W E D O TXU Corp., based in Dallas, is one of the nations largest electric companies. With $9.3 billion in operating revenues in 2004, TXU ranks in the top half of the Fortune 500. TXU has grown with Texas and helped power its development since 1882. Today the Texas electricity market is the nations fastest growing, and TXU is well into its second century of producing, marketing, selling and delivering an essential service that enhances peoples lives. TXU conducts its operations primarily through three core businesses. TXU Energy markets and sells electricity and related services to more than 2.5 million retail customers and the wholesale markets. Its retail electric provider is the largest competitive electricity retailer in the state and nation. Its wholesale business buys power and schedules TXUs generating plants to serve customers with dependable, economical power. Additionally, TXU Energy is a leading purchaser of wind-generated electricity in North America. TXU Power is the largest producer of electricity in Texas and the second-largest unregulated generator in the U.S. It owns or leases over 18,300 megawatts of generation, including 2,300 MW of nuclear capacity and 5,837 MW of lignite/coal capacity. TXU Power supplies 70% of the fuel used at its lignite/coal plants through one of the nations largest surface coal-mining operations. TXU Electric Delivery provides reliable delivery of electricity to approximately three million consumers, or about a third of the states population, across 92 counties and 370 incorporated municipalities. It is the largest electric transmission and distribution business in the state and the sixth largest in the nation, with a network of 14,200 miles of transmission lines and 99,600 miles of distribution lines. Visit www.txucorp.com for more information about TXU.S E L E C T E D F I N A N C I A L A N D O P E R AT I N G M E T R I C S 1$ millions unless otherwise noted2004220033% change4 Financial Consolidated Revenues $ 9,308$ 8,6008 Income from continuing operations$ 81 $ 566(86) Income from continuing operations per diluted share$0.27$1.63(83) Operational earnings $ 887$ 544 63 Operational earnings per diluted share $2.82$1.58 78 Dividends declared per share $ 0.938$ 0.500 88 Cash from operations $ 1,758$ 2,413(27) Normalized operating cash flow $ 2,166$ 1,477 47 Normalized free cash flow$ 1,167$ 712 64 ROIC (on operational earnings) percent8.45.650 EBITDA/interest ratio 4.03.033 Debt/EBITDA ratio4.2 5.1 (18) Operating Businesses TXU Energy Customer serviceAverage speed to answer (December) seconds10 76 (87)Average speed to answer (12 months) seconds 39 268(85)Integrated voice recognition system (average handle time) seconds 79 116(32) Change in total mass market customers5 percent2.74.1 (34) Retail bad-debt expense95 121(21) TXU Power Capacity factor percentNuclear94.3 88.1 7Lignite/coal 86.2 84.7 2 Gas plant commercial availability percent 96.7 97.5(1) Safety (lost time incidents) incidents per 200,000 hours0.05 0.08(38) TXU Electric Delivery System Average Interruption Duration Index (SAIDI) minutes75.5 74.2 2 System Average Interruption Frequency Index (SAIFI) interruptions 1.10 1.17(6) Safety (lost time incidents) incidents per 200,000 hours0.21 0.22(5) 1 This annual report includes certain non-GAAP (Generally Accepted Accounting Principles) financial measures that management uses to measure perfor- mance. Reconciliation of these measures to the most directly comparable GAAP measures and financial definitions are included on page 11. See Managements Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K. 2 Results for 2004 are significantly impacted by charges related to the comprehensive restructuring plan as described in Managements Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K. 3 Results for 2003 have been reclassified to reflect certain operations as discontinued operations. See Note 4 to Financial Statements in Form 10-K. 4 Blue indicates improvement. 5 Mass market customers represent TXU Energys total retail customers, excluding large-business customers. 3. T XU AN N U AL R E P O R T 2 0 0 4 DEAR FELLOW SHAREHOLDERS, 2004 was a strong turnaround year for TXU. We implemented a restructuring program that brought immediate rewards as we sold underperforming businesses and refocused on the core companies, rebuilt the balance sheet, settled billions of dollars of costly and risky litigation and improved the companys nancial strength. But 2004 wasnt just quick xes. We also began the ambitious work to drive excellence deep into TXU Energy, TXU Power and TXU Electric Delivery, our three core electric businesses. All of our efforts must be directed at improving the value of what we provide the customer. Our businesses are good at whatto return over $5.5 billion of good results in 2004. Shareholder they do mining lignite coalvalue to shareholders through returns improved, as the and manufacturing electricity, dividends and share repurchases restructuring program generated serving more than 2.5 millionover the 2004 to 2005 period. $10 billion in market value retail electricity customers and With generation of significant for TXUs owners. TXUs stock delivering electric energy toincremental free cash ow after outperformed the S&P electric three million consumers. But tocapital expenditures, TXUs cash- index by almost eight times and compete in todays commodity producing power is at or near was the third-best performer markets, each business must getthe top of the industry. in the S&P 500, bettering that better. We want our customers toindex by over 19 times. EarningFinancial Flexibility be delighted by their interactionspower also improved. WhileAnother goal is to signicantly with TXU, not just satised.the reported loss reected thestrengthen TXUs nancial We want our production plants cost of the major restructuring,exibility, which means the to be world-class manufacturing operational earnings per shareability to withstand downside facilities, not just excellent powerrose almost 80%. They aremarket swings and capitalize on plants. We want our transmissionprojected to more than doublenewly emerging opportunities. and distribution business to rivalthis year, boosting TXU intoCompared with 2003, we top transportation companies, the top of the industry. Reportedmade progress last year against not just the best utilities. Ourcash from operations of $1.8three important measures of aspiration is to transform TXUbillion was lower compared withcredit quality. Interest coverage, its mindset, culture, processes 2003, primarily because of aas measured by the ratio of and performance ethic into2003 tax refund, but normalizedEBITDA to interest expense, a high-performance industrial operating cash ow increasedimproved by one-third. Following company within ve years. Wealmost 50% to $2.2 billion.the success of our 2004 liability face a hard climb to achieveReturn on invested capital, upand capital management the performance levels we desire, 50% in 2004, is projected toprogram, interest coverage is but coming out of 2004, I increase by almost 150% by 2005expected to continue to improve believe TXU is ahead of pacefrom 2003 levels and wouldin 2005. This is a signicant on its transformation.rank No. 2 in the industry.change relative to 2003, when In light of the companys Market Value TXUs EBITDA-to-interest improved financial strength, Measured against the assessmentratio ranked near the bottom of TXUs board of directors criteria of returns, earning power the industry. Debt to EBITDA increased the annual dividendalso improved by nearly 20% in and nancial exibility, our350%, with an expectation of restructuring program achieved 2004, and we expect ongoing 5% annual growth. We expectNote: This annual report includes certain non-GAAP financial measures that management uses to measure performance. Reconciliation of these measures to the most directly comparable GAAP measures and financial definitions are included on page 11.PAGE #1 4. man ag e me n t s l e t t e r TXUS 2004 COMMON STOCK PERFORMANCE VS. THE INDUSTRY250% 200%150%100%50%0%-50% 3404 04 0404 0404 04044 04 4.01.0.0 .02. 3.4.5.6. 7.8.9.11.1210 12END OF MONTHTXU S& P El e ctri c S &P M ul ti - S & P 50 0 I n d ex Uti l i ti e s improvement in this key metric.industrial companies are on environment, caretakers of their At the end of 2004, availablerelentless self-improvement communities and aboveboard liquidity (cash and credit-facilityprograms. While the customerin their business practices. The capacity) stood at $2.8 billionalways rules, these companies leading companies keep it simple and is projected to remain arent content with anything simple organization, simple above a $1.5 billion threshold except top-quartile earning prot plans, clear objectives, throughout 2005. power and shareholder returns.real accountability and anThey never cease to striveunderstandable business model. TXUs Enduring Legacyfor higher eciency, leaner This is the kind of company While we had a good turnaround production and lower costs, and TXU aspires to be. year, were building TXU to last they employ technology to theirRestructuring Success over the long haul because whatadvantage. They earn the rightBecoming a high-performance we do is important. We liketo grow rst; then they seizeindustrial company is not as knowing that our service keeps a growth opportunities with highsimple as it sounds, but we childs nightlight burning toreturns and prompt payback.made real progress in 2004. Our chase away the darkness andTheir work culture is disciplined,restructuring program turned the super store