these expectations, we will capitalize on leadership positions in Texas and Australia, reduce costs, and pay down debt to strengthen our balance sheet and improve credit. I believe the disciplined actions TXU is taking today will allow us to deliver on expectations and build a solid platform for the future.



Cost reduction is key. In 2003, we will lower expenses $250 million below 2002 levels. The 2002 cost increase was largely related to the goal of creating a global company and the transition to retail competition in Texas and growth in North America. Changes already implemented are delivering savings in these areas. An even more vigorous set of actions across the enterprise, including a major restructuring and streamlining, is achieving significant and sustainable staff and cost reductions.

Debt reduction and strengthening credit are also key 2003 priorities. Using the strong cash flows generated by our businesses, we

will pay down approximately $1.5 billion of debt, with similar levels of debt reduction planned in 2004. We will also maintain strong liquidity to bolster the confidence of the capital markets, credit-rating agencies, and investors.

For the immediate future, we will continue to watch and encourage the progress of deregulation in new markets around the country. But our unwavering focus will be on achieving excellent operations in Texas and Australia while reducing costs and strengthening credit.

Decisive actions establish a clean slate

While I remain disappointed with the loss of the European business and the effect on shareholders, I am proud of the prompt, decisive actions taken last fall under exceedingly difficult circumstances to ensure liquidity, strengthen credit, and reassure investors.

TXU Europe’s operations are now discontinued and have been written off. TXU Europe was organized as a totally separate corporate entity from the parent, TXU Corp. We adhered strictly to consistent corporate governance in every aspect of our dealings with TXU Europe.