Download Liability Management And Dividend Policy

Liability Management And Dividend Policy
We Divested Disadvantaged Businesses, Deploying
Proceeds To Improve Financial Flexibility…
…By Reducing Debt…
04E-05E; $ billions
Debt Reduction Plan
Uses of funds
Sources of funds
03-05; $ billions
Cash on balance sheet
(including restricted cash)
1.0
Scheduled retirements of debt
(including CEUs)
Operating cash flow
3.0
Repurchase of Exchangeable Preferred
Membership Interests
Divestment of assets
 Debt transferred with assets
1.8
 Cash proceeds1
4.7
Issuance of Securitization Bonds
0.8
Short Term Borrowings
5.0
Total sources of funds
16.3
5.4
13.9
Debt transferred with divested assets
(1.8)
 Portion accounted for as debt
0.8
Settlement of corporate equity units
(0.4)
 Premium
1.1
Retirement of corporate equity units and convertible senior notes2
(1.5)
Repurchase of equity preferred membership interest
(0.6)
Scheduled retirement of debt
(0.7)
Early retirement of other debt
(2.3)
Debt transferred with divested assets
1.8
Stock repurchases
4.0
Common dividends
0.8
Cash used in investing
2.1
Discontinued Ops and other
0.3
Total uses of funds
Additional borrowing and amortizations
16.3
1
1
Includes net cash proceeds of $475 million from sale of TXU Communications
5.0
Total Debt 05E
Key focus of liability management strategy will be to simplify, clarify and
reduce the cost of financing our activities
1
Total Debt 031
11.6
Excluding securitization debt
100% success rate of tender offer
2
2 Assumes
…And Repurchasing Stock…
…Resulting In Top Quartile Financial Flexibility…
Period end diluted shares
04-05; Number of shares
Financial metrics for SPELEC1 (n=20)
03-052; Various measures
Top
1st Quartile
TXU 05E
Average diluted shares
04-05; Number of shares
27
6
EBITDA/Interest
(X)
319
50
6.7
240
241
2.1
Q2
Q3
Q4E
04E
03
04E
4.7
4.3
4th Quartile
3.3
0.5
4.8
#18
3.2
#4
Total debt/EBITDA
(X)
Q104
3rd Quartile
TXU 03
3.0
#16
4.8
#5
379
324
Median
3.3
3.6
4.1
6.9
05E
Total debt/
enterprise value2
(%)
 Repurchased exchangeable preferred membership interest
 Bought back shares on the open market
42.8
#8
29.3
41.3
64.4
#19
46.0
50.2
73.1
1 S&P
3
Electric Utility Index
based on LTM as of June 04 performance; TXU 05 performance based on current guidance; updated for balance sheet restructuring
through Sep 04; TXU 03 includes discontinued operations; 2 Total Capitalization uses market value of equity
2 Quartile
4
Liability Management And Dividend Policy
Based On Our Disciplined Capital Allocation Process…
Retained For
Investment
…We Will Issue A Conservative Dividend With A High
Performance Growth Rate
Dividend payout (TTM)
03-04; % of earnings
TXU Business Units
1st Quartile
Oper/
Divest
Cash
Flow
Excess
“Customer”
Capital
Excess
Reinvest
-ment
Yes
Excess
Yes, if
 50% of cash
returned within
3 years
 Minimum ROI
of 15%
Excess
Debt
Reduction
Yes, until
Top Quartile Credit
Metrics
 Debt/EV1
 Coverage ratio
 Debt/EBITDA
87
Dividend
Payout
 Payout of
30-40%
Repurchases
or Distributions
4th Quartile
75%
Total
Payout
Cap
70
62
59
56
55
51
45
43
39
39
35
27
19
TXU
05E
19
1st Quartile
2nd Quartile
TXU
LTM
3rd Quartile
4th Quartile
16
5
Holders
3
3
2
1
1
0
0
(1)
TXU
05E
(3)
(5)
(10)
(13)
(13)
TXU
(94-03)
5
(14)
(20)
6
…And Is Sustainable Under Multiple Stress Scenarios
Total payout ratio vs credit quality
8
8
TXU
(Average
05E-07E)
7
6
7
Total payout ratio
04-06; % of net income
TXU
(Average
05E-07E)
6
5
5
EBITDA /
interest
4
3
2
2
1
1
0
100
0
100
80
60
40
60% threshold
4
3
20
Dividend payout ratio
80
60
40
Stress case:
 Low gas ($4.50)
 High churn (10%)
 Extended baseload
plant shutdown
20
Total payout ratio
Dividend payout ratio vs credit quality
Total payout ratio vs credit quality
0
40
43
29
0
TXU
(Average
05E-07E)
1
2
TXU
(Average
05E-07E)
1
2
3
39
Plan
3
Total debt /
EBITDA
4
5
6
6
7
7
80
60
40
Dividend payout ratio
Deutsche Bank, June 30 2004
20
35
4
5
8
100
71
9
The Decision Is Supported By A Strong Credit Profile…
Total debt
/ EBITDA
76
Dividend growth rate
1994-2003; %
Equity
Enterprise value (EV) defined as market value of equity + total debt
EBITDA /
interest
79
0
Given cash flow expectations, we must determine our long-term capital allocation policy:
 How much cash should we re-invest?
 What are the big growth opportunities that can provide excess return over our cost of capital?
 How much cash should we return to our shareholders?
Dividend payout ratio vs credit quality
81
Yes
Debt
Holders
Source :
3rd Quartile
105
 Quality service
 Production
reliability
1
2nd Quartile
8
100
04E
80
60
Total payout ratio
40
05E
06E
20
7
8