10-K 1 form10k-0325.txt FORM 10-K; ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 -- OR-- |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER; ADDRESS OF STATE OR OTHER COMMISSION PRINCIPAL EXECUTIVE OFFICES; I.R.S. EMPLOYER JURISDICTION OF FILE NUMBER AND TELEPHONE NUMBER IDENTIFICATION NO. INCORPORATION -------------------------------------------------------------------------------- 001-15709-01 TXU Europe Capital I 75 - 6578216 Delaware Energy Plaza 1601 Bryan Street Dallas, Texas 75201-3411 (214) 812-4600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON REGISTRANT TITLE OF EACH CLASS WHICH REGISTERED ---------- ------------------- ---------------- TXU Europe Capital I 9 3/4% Trust Originated New York Stock Preferred Securities Exchange -------------------------------------------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of common equity held by non-affiliates: None DOCUMENTS INCORPORATED BY REFERENCE: : PROSPECTUS, DATED FEBRUARY 24, 2000, FILED PURSUANT TO RULE 424(B) (3) IN CONNECTION WITH REGISTRATION STATEMENT ON FORM S-1 (NOS. 333-93509, 333-93509-01, 333-93509-02 AND 333-93509-03) FILED BY THE REGISTRANT, TXU EUROPE FUNDING I, L. P., TXU EASTERN FUNDING COMPANY AND TXU EUROPE LIMITED, INCORPORATED IN PART BY REFERENCE IN PART I. TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS ............................................................1 SUMMARY CORPORATE STRUCTURE..........................................1 TXU EUROPE CAPITAL I ................................................1 TXU EUROPE LIMITED...................................................1 ITEM 2. PROPERTIES...........................................................2 ITEM 3. LEGAL PROCEEDINGS....................................................2 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................2 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................................2 ITEM 6. SELECTED FINANCIAL DATA..............................................2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................2 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT.......................3 MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................4 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................11 ITEM 11. EXECUTIVE COMPENSATION...............................................11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......11 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......12 SIGNATURES .................................................................14 i PART I ITEM 1. BUSINESS SUMMARY CORPORATE STRUCTURE TXU Corp. TXU Europe Limited TXU Europe CP, Inc. TXU Europe Capital I TXU Europe Capital I TXU Europe Capital I (TXU Europe Capital or the Trust) is a statutory business trust created under the Delaware Business Trust Act pursuant to a trust agreement (Trust Agreement) and the filing of a certificate of trust with the Secretary of State of the State of Delaware on November 22, 1999. The Trust Agreement was subsequently amended by an Amended and Restated Trust Agreement dated as of March 2, 2000. TXU Europe CP, Inc. (the Control Party), a Delaware corporation, retains administrative and appointment powers with respect to the trust by virtue of its ownership of the trust's control certificate. The control certificate does not provide any economic interest in the trust to the Control Party. The trust exists for the exclusive purpose of (i) issuing the control certificate and 9 3/4% Trust Originated Preferred Securities (Preferred Trust Securities) representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the gross proceeds from the issuance of the Preferred Trust Securities in 9.75% Preferred Partnership Securities of TXU Europe Funding I, L.P. (Partnership), representing the limited partnership interests of the Partnership and (iii) engaging in only those other activities necessary or incidental thereto. The Trust has a perpetual existence, subject to certain termination events as provided in its Amended and Restated Trust Agreement. The Trust has no employees. TXU EUROPE LIMITED TXU Europe Limited is the sole general partner of the Partnership. In addition, the Control Party is a wholly-owned subsidiary of TXU Europe Limited. TXU Europe Limited is a private limited company incorporated under the laws of England and Wales on February 5, 1998 and is an indirect wholly-owned subsidiary of TXU Corp. TXU Corp. is a global energy services company that engages in electricity generation, wholesale energy trading, retail energy marketing, energy delivery, other energy related services and, through a joint venture, telecommunications services. TXU Europe Limited is a holding company for TXU Corp.'s United Kingdom (UK) and other European operations. Almost all of TXU Europe Limited's operating income is derived from TXU Europe Group plc (TXU Europe Group) and TXU Europe Group's subsidiaries, and almost all of TXU Europe Limited's consolidated assets are held by TXU Europe Group and TXU Europe Group's subsidiaries. TXU Europe Limited owns 90% of the outstanding ordinary shares of TXU Finance (No. 2) Limited, (TXU Finance). The remaining 10% of TXU Finance's outstanding ordinary shares are owned by a wholly-owned US subsidiary of TXU Corp. 1 TXU Eastern Funding is a private unlimited company incorporated under the laws of England and Wales and is a wholly-owned indirect subsidiary of TXU Europe Limited. TXU Eastern Funding was organized solely to provide funding for the operations of TXU Europe Limited and its subsidiaries by issuing debt securities and lending the proceeds to TXU Europe Limited. ITEM 2. PROPERTIES None ITEM 3. LEGAL PROCEEDINGS TXU Europe Capital knows of no material legal or arbitration proceedings which could have a material adverse effect upon TXU Europe Capital's business or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The control certificate of the Trust and the general partnership interest in the Partnership are owned directly or indirectly by TXU Europe Limited and ultimately held indirectly by TXU Corp. ITEM 6. SELECTED FINANCIAL DATA The Trust has been in existence from formation (November 22, 1999). The financial condition and results of operations as of and for the years ended December 31, 2001 and 2000 for the Trust are presented elsewhere herein. As there were no changes in the financial condition or results of operations for the period from formation through December 31, 1999, a table of selected financial data was not considered necessary and has not been provided herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Registrants' activities are limited to issuing securities and investing the proceeds as follows: The Trust exists for the exclusive purpose of (i) issuing a control certificate, which entitles the holder to administrative and appointment powers with respect to the Trust, and Preferred Trust Securities representing undivided beneficial ownership interest in the assets of the Trust, (ii) investing the gross proceeds from the issuance of the Preferred Trust Securities in Preferred Partnership Securities representing the limited partnership interests of the Partnership and (iii) engaging in only those other activities necessary or incidental thereto. The Trust has a perpetual existence, subject to certain termination events as provided in its Amended and Restated Trust Agreement. The Partnership is managed by the general partner and exists for the exclusive 2 purpose of (i) issuing its Partnership interests, (ii) purchasing certain eligible debt instruments of TXU Eastern Funding Company and TXU Europe Group plc with the proceeds from (a) the sale of its Preferred Partnership Securities, representing limited partnership interests in the Partnership, to the Trust and (b) a capital contribution from TXU Europe Limited in exchange for the general partnership interest in the Partnership (collectively, the Partnership Proceeds). Since the Trust was organized on November 22, 1999, its activities, as specified in its Amended and Restated Trust Agreement, have been limited to the issuance of $150 million of Preferred Trust Securities and the investing of the proceeds in the Preferred Partnership Securities, and the accrual and payment of distributions on the Preferred Trust Securities in accordance with their terms. Distributions on the Preferred Trust Securities, cumulative from the March 2, 2000 issuance date, were declared and paid to the respective holders of those securities on June 30, 2000. Additional quarterly distributions were made on October 2, 2000, December 29, 2000, March 30, 2001, July 2, 2001, September 28, 2001 and December 31, 2001. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership initially invested the Partnership Proceeds in subordinated debentures of TXU Eastern Funding Company and TXU Europe Group plc, both subsidiaries of TXU Europe Limited, and in short-term commercial paper securities. The subordinated debentures held by the Partnership are guaranteed by TXU Europe Limited on a subordinated basis. On May 11, 2001, TXU Europe Group plc deposited cash with the trustee under the indenture pursuant to which its subordinated debentures were issued in order to satisfy its obligations with respect to the payment of principal and interest on the subordinated debentures and to discharge the indenture. TXU Europe Group plc also irrevocably authorized the trustee to redeem the subordinated debentures on March 2, 2005. The trustee will hold the cash deposited in trust to pay principal and interest when due through the redemption date. TXU Europe Group plc has agreed to pay to the trustee any shortfall if the deposited cash, together with any earnings thereon, is insufficient to pay any principal, interest or other amounts that may become due on the subordinated debentures. On March 2, 2000, the Trust invested the gross proceeds from the sale of the Preferred Trust Securities in the Preferred Partnership Securities (the Trust Assets). The Partnership, in turn, invested the proceeds from the sale of the Preferred Partnership Securities and a $26 million capital contribution from TXU Europe Limited in junior subordinated debentures of TXU Eastern Funding Company and TXU Europe Group plc and eligible debt securities (the Partnership Assets). To the extent the Partnership has funds available from the Partnership Assets, the general partner of the Partnership (TXU Europe Limited) may declare distributions to the Trust, as holder of the Preferred Partnership Securities. The Trust's ability to pay distributions to the holders of the Preferred Trust Securities is dependent upon its receipt of distributions on the Trust Assets from the Partnership. Therefore, upon the receipt by the Partnership of payments from the Partnership Assets and the distribution thereof to the Trust, the Trust will pass through such payments to the holders of the Preferred Trust Securities. Interest rate market risk is not significant to the Trust as all of the securities and investments involved, except for the eligible debt securities, are at fixed rates. A change in market interest rate has no effect on interest accrued or on cash flows. Investments in eligible debt securities during the year ended December 31, 2001 were in the form of US Treasury bills or commercial paper, which are of short-term duration and earn interest at current market rates. The carrying value of these securities approximates their fair value. Earnings on these securities previously invested in through December 31, 2001 are being accumulated and rolled over into principal as the securities mature as the general partner has not yet declared a distribution of those earnings. There is a currency risk associated with the payment of funds as the earnings of TXU Europe Limited and TXU Europe Group plc are in UK pounds sterling but the payments on the Preferred Trust Securities are in US dollars. 3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 4 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Trustees of TXU Europe Capital I We have audited the accompanying balance sheets of TXU Europe Capital I (the "Trust") as of December 31, 2001 and 2000, and the related statements of income and cash flows for the years then ended. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years ended December 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE January 31, 2002 London, England 5 TXU EUROPE CAPITAL I STATEMENTS OF INCOME Year Ended December 31, ----------------------- 2001 2000 ------- ------ Income on preferred partnership securities..... $14,625,000 $12,187,500 Distribution expense on preferred trust ....... (14,625,000) (12,187,500) securities Net income .................................... $ - $ - =========== =========== See Notes to Financial Statements. 6 TXU EUROPE CAPITAL I STATEMENT OF CASH FLOWS

See Notes to Financial Statements. 7 TXU EUROPE CAPITAL I BALANCE SHEETS December 31, ----------------------------------- 2001 2000 ---------------- --------------- ASSETS Investment in preferred partnership securities................... $150,000,000 $150,000,000 -------------- -------------- Total assets .............................................. $150,000,000 $150,000,000 ============== ============== CAPITALIZATION AND LIABILITIES Stockholders equity Preferred trust securities (93/4% Trust Originated Preferred Securities; 6,900,000 authorized, 6,000,000 issued and outstanding; $25 liquidation amount per security) ....... $150,000,000 $150,000,000 Total stockholders' equity .......................... 150,000,000 150,000,000 -------------- -------------- Total capitalization and liabilities ................ $150,000,000 $150,000,000 ============== ==============

See Notes to Financial Statements. 8 NOTES TO FINANCIAL STATEMENTS OF TXU EUROPE CAPITAL I 1. DESCRIPTION OF BUSINESS TXU Europe Capital I (the Trust) is a statutory business trust formed on November 22, 1999 under the laws of the State of Delaware for the exclusive purpose of (i) issuing 9 3/4% Trust Originated Preferred Securities (Preferred Trust Securities) representing undivided beneficial ownership interest in the assets of the Trust, (ii) purchasing 9.75% Preferred Partnership Securities (Preferred Partnership Securities) representing the limited partnership interests of TXU Europe Funding I, L.P. (the Partnership) with the proceeds from the sale of the Preferred Trust Securities, and (iii) engaging in only those other activities necessary or incidental thereto. The Trust has a perpetual existence, subject to certain termination events as provided in its Amended and Restated Trust Agreement. The proceeds from the Trust's sale of the Preferred Trust Securities were used to purchase the Preferred Partnership Securities from the Partnership. Holders of the Preferred Trust Securities have limited voting rights and are not entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Trustees, which voting rights are vested exclusively in the holder of a control certificate. TXU Europe Limited, the ultimate parent of the Trust and the general partner of the Partnership, has paid compensation to the underwriters of the offering of the Preferred Trust Securities. TXU Europe Limited will pay all fees and expenses related to the organization and operations of the Trust (including any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other domestic taxing authority upon the Trust) and the offering of the Preferred Trust Securities and is responsible for all debts and other obligations of the Trust (other than the Preferred Trust Securities). TXU Europe Limited has also agreed to indemnify the trustees and certain other persons. During the year ended December 31, 2000, TXU Europe Limited paid approximately $6.3 million for costs associated with the formation of the Trust, for the issuance of the Preferred Trust Securities and for other expenses on behalf of the Trust. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP). USE OF ESTIMATES - The preparation of the Trust's financial statements requires management to make estimates and assumptions about future events that affect the reporting and disclosure of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense during the periods covered by the financial statements. In the event estimates and/or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. INVESTMENTS - The investment in Preferred Partnership Securities represents a limited partnership interest in the Partnership and is recorded at cost. As of December 31, 2001, the fair value of the investment approximates its carrying value. Income on the Preferred Partnership Securities is accrued when earned. COMPREHENSIVE INCOME - Comprehensive income consists only of net income. INCOME TAXES - The Trust does not incur any income tax liabilities. Such liabilities are incurred directly by the security holders. Therefore no provision for income taxes has been provided. 9 3. INVESTMENT IN PREFERRED PARTNERSHIP SECURITIES The Trust holds $150 million of Preferred Partnership Securities, $25 liquidation preference per security. The distribution payment dates and redemption provisions of the Preferred Partnership Securities, which are redeemable after March 2, 2005 at the option of TXU Europe Limited, the general partner of the Partnership, correspond to the distribution payment dates and redemption provisions of the Preferred Trust Securities. Upon any redemption of the Preferred Partnership Securities, the Preferred Trust Securities will be redeemed. TXU Europe Limited has guaranteed, on a subordinated basis, the payment of distributions by the Partnership on the Preferred Partnership Securities if, as, and when declared out of funds legally available and payments upon liquidation of the Partnership or the redemption of the Preferred Partnership Securities to the extent of funds legally available. 4. STOCKHOLDERS' EQUITY On March 2, 2000, the Trust issued to investors 6,000,000 units of Preferred Trust Securities for an aggregate of $150 million. The Preferred Trust Securities have a liquidation preference of $25 per unit. The Preferred Trust Securities are subject to mandatory redemption upon payment of the Preferred Partnership Securities. Distributions on the Preferred Trust Securities are cumulative from the date of original issue (March 2, 2000) and are payable quarterly in arrears on each March 31, June 30, September 30 and December 31, commencing June 30, 2000, at an annual rate of 9.75% of the stated liquidation amount per annum. Distributions not paid on the scheduled payment date will accumulate and compound quarterly at a rate per annum equal to 9.75%. Holders of the Preferred Trust Securities have no voting rights. The Trust will use distributions it receives on the Preferred Partnership Securities to make cash distributions on the Preferred Trust Securities. Distributions on the Preferred Trust Securities were made on June 30, October 2, and December 29, 2000. Additional quarterly distributions were made on March 30, 2001, July 2, 2001, September 28, 2001 and December 31, 2001. TXU Europe Limited has guaranteed, on a limited basis, the payment in full of all distributions and other payments on the Preferred Trust Securities to the extent that the Trust has funds legally available. TXU Europe Limited has also issued guarantees of the Preferred Partnership Securities and the junior subordinated debentures held by the Partnership. These guarantees are subordinated to all other unsubordinated liabilities of TXU Europe Limited. 5. OTHER On May 11, 2001, TXU Europe Group plc deposited cash with the trustee under the indenture pursuant to which its subordinated debentures were issued in order to satisfy its obligations with respect to the payment of principal and interest on the subordinated debentures and to discharge the indenture. TXU Europe Group plc also irrevocably authorized the trustee to redeem the subordinated debentures on March 2, 2005. The trustee will hold the cash deposited in trust to pay principal and interest when due through the redemption date. TXU Europe Group plc has agreed to pay to the trustee any shortfall if the deposited cash, together with any earnings thereon, is insufficient to pay any principal, interest or other amounts that may become due on the subordinated debentures. 10 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Trust has no directors or officers. The Trustees of the Trust are as follows: Administrative Trustees: Kirk R. Oliver Tony Horton Michael Perkins Philip S. Toler Property Trustee: The Bank of New York Delaware Trustee: The Bank of New York (Delaware) Mr. Oliver is the Treasurer of TXU Corp. and Senior Vice President and Treasurer of certain other TXU Corp. subsidiaries. Mr. Horton is Director of Finance for TXU Business Services Company. Mr. Perkins is Manager of Compliance and Analysis for TXU Business Services Company. Mr. Toler is Manager of Finance for TXU Business Services Company. ITEM 11. EXECUTIVE COMPENSATION None of the Administrative Trustees of the Trust receives any compensation for serving as an Administrative Trustee or acting in any capacity for the Trust separate from his or her compensation as an employee of TXU Corp. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The control certificate of the Trust is owned directly or indirectly by TXU Europe Limited and ultimately held indirectly by TXU Corp. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TXU Europe Limited has agreed to pay all fees and expenses related to the organization and operations of the Trust. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K: None (c) Exhibits: a) Exhibits filed as a part of Part II are:

----------------------- * Incorporated herein by reference. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, TXU Europe Capital I has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Title Date ----- ---- Signatures ---------- /s/ Kirk Oliver Administrative Trustee | ------------------------------------ | (Kirk Oliver) | | | /s/ Tony Horton Administrative Trustee | ------------------------------------ | (Tony Horton) | | | /s/ Michael Perkins Administrative Trustee | March 25, 2002 ------------------------------------ | (Michael Perkins) | | | /s/ Philip Toler Administrative Trustee | ------------------------------------ | (Philip Toler) | TXU Europe Capital I has no principal executive officer, principal financial officer, principal accounting officer or board of directors. The Trustees of the Trust (which include the Administrative Trustees, the Property Trustee and the Delaware Trustee) together exercise all powers and perform all functions with respect to the Trust.

TXU EUROPE CAPITAL I 10-K