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 company's financial strength. But 2004 wasn't just quick fixes. 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 what they do - mining lignite coal and manufacturing electricity, serving more than 2.5 million retail electricity customers and delivering electric energy to three million consumers. But to compete in today's commodity markets, each business must get better. We want our customers to be delighted by their interactions with TXU, not just satisfied. We want our production plants to be world-class manufacturing facilities, not just excellent power plants. We want our transmission and distribution business to rival top transportation companies, not just the best utilities. Our aspiration is to transform TXU - its mindset, culture, processes and performance ethic - into a high-performance industrial company within five years. We face a hard climb to achieve the performance levels we desire, but coming out of 2004, I believe TXU is ahead of pace on its transformation.

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Market Value
Measured against the assessment criteria of returns, earning power and financial flexibility, our restructuring program achieved good results in 2004. Shareholder returns improved, as the restructuring program generated $10 billion in market value for TXU's owners. TXU's stock outperformed the S&P electric index by almost eight times and was the third-best performer in the S&P 500, bettering that index by over 19 times. Earning power also improved. While the reported loss reflected the cost of the major restructuring, operational earnings per share rose almost 80%. They are projected to more than double this year, boosting TXU into the top of the industry. Reported cash from operations of $1.8 billion was lower compared with 2003, primarily because of a 2003 tax refund, but normalized operating cash flow increased almost 50% to $2.2 billion. Return on invested capital, up 50% in 2004, is projected to increase by almost 150% by 2005 from 2003 levels and would rank No. 2 in the industry.

In light of the company's improved financial strength, TXU's board of directors increased the annual dividend 350%, with an expectation of 5% annual growth. We expect to return over $5.5 billion of value to shareholders through dividends and share repurchases over the 2004 to 2005 period. With generation of significant incremental free cash flow after capital expenditures, TXU's cash-producing power is at or near the top of the industry.