EUROPE. We have completed several key transactions in the strategic repositioning of TXU Europe’s operations: On January 18, 2002, TXU Europe completed the sale of its UK electricity distribution (networks) business and its 50 percent interest in the related 24seven joint venture for approximately $1.9 billion, consisting of a cash payment of $801 million and the assumption by the buyer of approximately $1.1 billion aggregate principal amount of debt; During 2001, TXU Europe realigned its UK power generating portfolio, resulting in the sale of its 1,000-MW coal-fired Rugeley generating station, the transfer of its 380-MW Peterborough and 325-MW King’s Lynn gas-fired generating stations through leasing arrangements, and the sale of its 2,000-MW coal-fired West Burton power station, for total proceeds of $1.1 billion ($883 million received in 2001 and the rest in January 2002); In April 2001, TXU Europe received net cash proceeds of approximately $469 million from the sale of its 19.2 percent interest in a Spanish power company; In February 2001, TXU Europe finalized the sale of its interest in the North Sea gas fields for approximately $196 million; and In January 2001, TXU Europe completed the acquisition of 51 percent of Stadtwerke Kiel AG, a German municipal utility, for approximately $217 million. TXU Europe’s operating revenues increased by $5.7 billion, or 81 percent, to $12.7 billion in 2001. On a pound sterling basis, the increase in revenues was 89 percent. This increase was primarily the result of the continued expansion of wholesale trading activity in the UK, Nordic, and Central European markets. Wholesale electricity and gas physical sales volumes in 2001 increased 33 percent and 50 percent, respectively, over 2000. Acquisitions of a retail business in the UK in 2000 and a utility and retail business in Germany in 2001 provided $1 billion of the revenue growth. Revenues from TXU Europe’s networks business, which was sold in January 2002, were $454 million in 2001 and $535 million in 2000. Gross margin increased $196 million, or 9 percent, to $2.3 billion in 2001, primarily reflecting the impact of acquisitions. The increased trading activity did not significantly affect gross margin growth. Revenues and gross margin in 2001 were favorably impacted by a $58 million net effect of mark-to-market valuations of trading positions. Net income decreased $57 million, or 27 percent, to $158 million in 2001. Results for 2001 included a $125 million ($88 million after-tax) loss, after transaction costs, on the sale of the networks business; $80 million ($56 million after-tax) in restructuring charges related primarily to outsourcing retail customer service operations and establishing the 24seven joint venture to manage UK networks operations; and a $31 million ($22 million after-tax) net charge related to the Enron bankruptcy. Other activity in 2001 related to TXU Europe’s power portfolio and related investments included a $206 million ($15 million after-tax) loss on disposals and transfers of UK generation plants, a $65 million ($45 million after-tax) benefit from renegotiating a power supply contract, and a $73 million ($51 million after-tax) gain on the sale of an investment in a Spanish power company. There was an income tax benefit of $263 million in 2001 that included $152 million of foreign tax credits for US tax purposes associated with generation plant dispositions. Results for 2000 included $120 million ($85 million after-tax) in restructuring charges primarily related to the retail and networks operations discussed above and a $44 million ($31 million after-tax) gain on the sale of the UK metering business. 2000 results also included a $30 million ($21 million after-tax) gain on the sale of an investment in an Eastern European power company. In addition to the effects of the above items, the decline in net income from 2000 reflected less volatility in wholesale power prices, which reduced profit opportunities in the UK trading operations; competitive pressures in the UK retail operations; lower profits in the networks business due to lower regulated rates; and the unfavorable translation impact of a stronger US dollar. AUSTRALIA. Operating revenues decreased $17 million, or 2 percent, to $700 million in 2001, reflecting the effect of the stronger US dollar. Australian dollar revenues increased 9 percent in 2001. This improvement reflected an increase in the number of customers, a full year of revenue in 2001 from a power generation plant acquired in May 2000, and favorable wholesale trading results. Partially offsetting this increase was lower electricity distribution revenue due to lower tariffs. Gross margin decreased by $17 million, or 4 percent, to $368 million in 2001. Australian dollar gross margin increased 7 percent, largely in line with the revenue growth. Net income decreased $4 million, or 7 percent, to $53 million in 2001. Australian dollar net income increased 6 percent reflecting the revenue growth and lower interest rates, partially offset by a $16 million gain on the sale of certain operations in 2000.