ITC Holdings Reports Increased Fourth Quarter and Year End Results

Feb 24, 2010

NOVI, Mich., Feb 24, 2010 /PRNewswire via COMTEX News Network/ -- Highlights

  • Fourth quarter net income of $33.6 million, or $0.66 per diluted common share
  • 2009 year end net income of $130.9 million, or $2.58 per diluted common share
  • Capital investments of $361.6 million for the twelve months ended December 31, 2009
  • Reaffirmed 2010 EPS guidance of $2.60 to $2.70 per common share and capital expenditure guidance of $405 million to $460 million



                            Three months ended       Twelve months ended
                               December 31,              December 31,
    (in thousands, except   ------------------       -------------------
     per share data)        2009           2008       2009           2008
                            ----           ----       ----           ----

    OPERATING REVENUES    $156,508       $152,068   $621,015       $617,877

    NET INCOME             $33,564        $26,981   $130,900       $109,208

    DILUTED EPS (1)          $0.66          $0.53      $2.58          $2.18


ITC Holdings Corp. (NYSE: ITC) today announced its fourth quarter and year-end results for the period ended December 31, 2009. Net income for the quarter was $33.6 million, or $0.66 per diluted common share, compared to $27.0 million, or $0.53 per diluted common share for the fourth quarter of 2008. Net income for the twelve months ended December 31, 2009 was $130.9 million, or $2.58 per diluted common share, compared to $109.2 million, or $2.18 per diluted common share for the same period last year. Full year diluted earnings per share results for 2009 include $0.12 associated with the recognition of regulatory assets at ITC Great Plains.

For the twelve months ended December 31, 2009, ITC invested $361.6 million in capital projects at its operating companies, including $87.2 million, $132.7 million, $140.1 million and $1.6 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

"We are proud of our continued strong financial results and operational performance," said Joseph L. Welch, chairman, president and CEO of ITC. "These results are particularly impressive given our efforts during 2009 to mitigate the impact of the challenging economic environment and significantly reduced loads to ensure that we were producing quality earnings and minimizing our potential true-ups."

"Our investments in transmission infrastructure benefit our customers by improving energy delivery, reliability and efficiency," continued Welch. "It's important to note that while we have invested over $1.1 billion in the transmission system in Michigan and considerably improved reliability, the transmission component of the end-use consumer bill is only approximately 4% - 5% for both ITCTransmission and METC. This is well below the national average of 7%."

Reported net income for the fourth quarter of 2009 increased $6.6 million, or $0.13 per diluted common share, compared to the same period in 2008. For the twelve months ended December 31, 2009, net income increased $21.7 million, or $0.40 per diluted common share, compared to the same period in 2008. Full year 2009 diluted earnings per share includes $0.12 associated with the recognition of regulatory assets at ITC Great Plains.

Key drivers that contributed to these results include:

  • An increase in net income for the quarter and full year due to higher rate base at ITCTransmission, METC and ITC Midwest.
  • The full year net income results benefited from higher AFUDC at ITCTransmission and ITC Midwest; however, for the quarter, the increase in net income resulting from higher rate base was partially offset by lower AFUDC at METC and ITC Midwest.
  • An increase in net income for the full year due to the recognition of regulatory assets at ITC Great Plains which included the reversal of $8.2 million of costs that were previously recorded as expenses, including certain expenses from prior periods.
  • The increases in net income for the full year were partially offset by higher non-recoverable G&A expenses including development expenses at ITC Great Plains, ITC Grid Development and Green Power Express.
  • For the full year the increase in EPS was partially offset by higher weighted average diluted shares outstanding in 2009.

EPS and Capital Expenditure Guidance

For 2010, ITC is maintaining its earnings per diluted common share guidance of $2.60 to $2.70 as previously disclosed. Capital investment guidance for 2010 is also being maintained at approximately $405 to $460 million, including $50 to $60 million, $140 to $155 million, $205 to $225 million and $10 to $20 million for ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

Fourth Quarter 2009 Financial Results Detail

ITC's operating revenues for the quarter increased to $156.5 million from $152.1 million last year. This increase was primarily a result of higher regional cost sharing revenues, partially offset by lower network revenues and lower point-to-point revenues.

Regional cost sharing revenues increased due primarily to capital projects placed in-service in 2007, 2008 or 2009 that have been identified by the Midwest Independent Transmission System Operator, Inc. (MISO) as eligible for regional cost sharing.

Network revenues were lower mainly due to lower net revenue requirements resulting from our cost mitigation efforts, largely in response to the challenging economic environment, as well as reductions to operating expenses from higher capitalization rates and the impact of the depreciation studies for ITCTransmission and METC which reduced depreciation rates, as discussed below. Partially offsetting these decreases in net revenue requirements was an increase due to higher rate base primarily associated with higher balances of property, plant and equipment in-service.

In addition, point-to-point and control and dispatch revenues decreased due to fewer point to point reservations and lower network peak load at ITCTransmission.

Operation & maintenance (O&M) expenses of $27.9 million were $1.7 million higher during the fourth quarter of 2009 compared to the same period in 2008. O&M expenses increased mainly due to higher field maintenance expenses consisting primarily of higher vegetation management and site maintenance activities.

General and administrative (G&A) expenses of $19.6 million were $1.7 million lower during the fourth quarter of 2009 compared to the same period in 2008 mainly due to our cost mitigation efforts. G&A expenses for the quarter include $3.5 million of development costs at ITC Grid Development and its subsidiaries which were $0.5 million higher than the same period in 2008 as a result of increased development activities.

Depreciation and amortization expenses decreased by $11.5 million during the fourth quarter of 2009 compared to the same period in 2008. This decrease was due primarily to the Federal Energy Regulatory Commission (FERC) approval in September 2009 and December 2009 of depreciation studies for ITCTransmission and METC, respectively, which revised depreciation rates used to calculate depreciation expense for the entire 2009 calendar year for both operating companies. These changes resulted in a reduction of depreciation expense of $7.2 million in the quarter for ITCTransmission and $5.3 million for METC. The effect of the changes in depreciation rates on net income and earnings per share amounts in the quarter is insignificant. Partially offsetting these reductions were increases primarily related to a higher depreciable asset base resulting from property, plant and equipment additions.

Interest expense increased by $2.6 million for the three months ended December 31, 2009 compared to the same period in 2008 due primarily to higher borrowing levels to finance capital expenditures. This increase was partially offset by lower interest expense as a result of lower interest rates under our revolving credit agreements.

The effective income tax rate for the three months ended December 31, 2009 was 36.4 percent compared to 37.2 percent in the fourth quarter of 2008. The rate is lower mainly due to the tax effects of Allowance for Equity Funds Used During Construction (AFUDC equity) which is not included in the income tax provision.

Full Year 2009 Financial Results Detail

ITC's operating revenues for the twelve months ended December 31, 2009 increased to $621.0 million from $617.9 million last year. This increase was primarily a result of higher regional cost sharing revenues that were partially offset by lower network and point-to-point revenues.

Regional cost sharing revenues increased due primarily to capital projects placed in-service in 2007, 2008 or 2009 that have been identified by MISO as eligible for regional cost sharing.

Network revenues were lower mainly due to lower net revenue requirements resulting from our expense mitigation efforts, largely in response to the challenging economic environment, as well as reductions to operating expenses from higher capitalization rates, and the impact of the depreciation studies for ITCTransmission and METC which reduced depreciation rates, as discussed above. Partially offsetting these decreases in net revenue requirements was an increase due to higher rate base primarily associated with higher balances of property, plant and equipment in-service.

In addition, point-to-point and control and dispatch revenues decreased due to fewer point to point reservations and lower network peak load at ITCTransmission.

O&M expenses of $95.7 million were $18.1 million lower for the twelve months ended December 31, 2009, compared to the same period in 2008. O&M expenses were lower mainly due to our cost mitigation efforts in 2009.

G&A expenses of $69.2 million were $12.1 million lower than the same period in 2008 in part due to our cost mitigation efforts in 2009. G&A expenses decreased by $8.0 million due to the recognition of regulatory assets relating to development activities of ITC Great Plains and pre-construction costs for the KETA Project. G&A expenses for the twelve month period include $8.1 million of development costs at ITC Grid Development and its subsidiaries, which were $2.0 million higher than the same period in 2008 as a result of increased development activities.

Depreciation and amortization expenses decreased by $8.8 million during the twelve months ended December 31, 2009 compared to the same period in 2008. Depreciation and amortization decreased due primarily to the implementation of new depreciation rates for ITCTransmission and METC as described above, which reduced depreciation expenses by $14.2 million and $5.3 million, respectively. Partially offsetting these reductions were increases due primarily to a higher depreciable rate base resulting from property, plant and equipment additions.

Interest expense increased $8.0 million in 2009, due primarily to additional interest expense associated with the $186.1 million of additional indebtedness incurred since December 2008. This increase was partially offset by lower interest expense as a result of lower interest rates under our revolving credit agreements.

The effective income tax rate for the twelve months ended December 31, 2009 was 37.2 percent compared to 38.1 percent in 2008. The rate is lower mainly due to the tax effects of AFUDC Equity which is not included in the income tax provision.

Fourth Quarter Conference Call

ITC will conduct a conference call to discuss fourth quarter and full year 2009 earnings results at 11:00 a.m. ET on February 25, 2010. Joseph L. Welch, chairman, president and CEO, will provide a business overview and Cameron M. Bready, senior vice president, treasurer and CFO, will discuss the financial results of the fourth quarter and full year of 2009. Individuals wishing to participate in the conference call may dial toll-free (877) 644-1296 (domestic) or (914) 495-8555 (international); there is no passcode. The conference call replay, available through March 11, 2010 can be accessed by dialing toll-free (800) 642-1687 (domestic) or (706) 645-9291 (international), passcode 55654705. Investors, the news media and the public may listen to a live internet broadcast of the meeting at http://investor.itc-holdings.com. The webcast also will be archived on the ITC website at http://investor.itc-holdings.com.

Other Available Information

More detail about the 2009 results may be found in ITC's Form 10-K filing. Once filed with the Securities and Exchange Commission, an electronic copy of our 10-K can be found at our website, http://investor.itc-holdings.com. Written copies can also be made available by contacting us either through our website or the phone listings below.

About ITC Holdings Corp.

ITC Holdings Corp. (NYSE: ITC) invests in the electricity transmission grid to improve electric reliability, improve access to markets, and lower the overall cost of delivered energy. ITC is the largest independent electricity transmission company in the country. Through its subsidiaries, International Transmission Company dba ITCTransmission, Michigan Electric Transmission Company, LLC (METC) and ITC Midwest LLC, ITC operates contiguous, regulated, high-voltage transmission systems in Michigan's Lower Peninsula and portions of Iowa, Minnesota, Illinois and Missouri, serving a combined peak load in excess of 25,000 megawatts. ITC is also focused on new areas where significant transmission system improvements are needed through subsidiaries ITC Grid Development, LLC, ITC Great Plains, LLC and ITC Panhandle Transmission, LLC. For more information, please visit: http://www.itc-holdings.com. (itc-ITC)

Safe Harbor Statement

This press release contains certain statements that describe our management's beliefs concerning future business conditions, plans and prospects, growth opportunities and the outlook for our business and the electricity transmission industry based upon information currently available. Such statements are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as "will," "may," "anticipates," "believes," "intends," "estimates," "expects," "projects" and similar phrases. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward looking statements are subject to risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among others, the risks and uncertainties disclosed in our annual report on Form 10-K and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission from time to time.

Because our forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong. Forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this release and in our annual and quarterly reports will be important in determining future results. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Actual future results may vary materially. Except as required by law, we undertake no obligation to publicly update any of our forward-looking or other statements, whether as a result of new information, future events, or otherwise.

(1) During 2009, ITC computed earnings per share using the two-class method in accordance with guidance set forth by the Financial Accounting Standards Board ("FASB"), formerly FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The retroactive application required under the two-class method resulted in a decrease in both dilutive and basic earnings per share by $0.01 per share as compared to the earnings per share calculation used and disclosed for the three months ended December 31, 2008. The retroactive application of the two-class method resulted in a decrease in dilutive and basic earnings per share of $0.01 and $0.03, respectively, disclosed for the twelve months ended December 31, 2008.




    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF OPERATIONS

                                      Three months ended  Twelve months ended
                                          December 31,        December 31,
                                          ------------        ------------
    (in thousands, except per share)     2009      2008      2009      2008
                                         ----      ----      ----      ----
    OPERATING REVENUES                $156,508  $152,068  $621,015  $617,877

    OPERATING EXPENSES
    Operation and maintenance           27,938    26,190    95,730   113,818
    General and administrative          19,578    21,313    69,231    81,296
    Depreciation and amortization       13,624    25,130    85,949    94,769
    Taxes other than income taxes       11,146     9,430    43,905    41,180
    Other operating income and
     expense - net                        (660)      121      (667)     (809)
                                          ----       ---      ----      ----
    Total operating expenses            71,626    82,184   294,148   330,254
                                        ------    ------   -------   -------

    OPERATING INCOME                    84,882    69,884   326,867   287,623

    OTHER EXPENSES (INCOME)
    Interest expense                    33,543    30,971   130,209   122,234
    Allowance for equity funds
     used during construction           (3,441)   (3,558)  (13,203)  (11,610)
    Loss on extinguishment of debt       1,263         -     1,263         -
    Other income                          (306)   (1,502)   (2,792)   (3,415)
    Other expense                        1,070     1,012     2,918     3,944
                                         -----     -----     -----     -----
    Total other expenses (income)       32,129    26,923   118,395   111,153
                                        ------    ------   -------   -------

    INCOME BEFORE INCOME TAXES          52,753    42,961   208,472   176,470

    INCOME TAX PROVISION                19,189    15,980    77,572    67,262
                                        ------    ------    ------    ------

    NET INCOME                         $33,564   $26,981  $130,900  $109,208
                                       =======   =======  ========  ========

    Basic earnings per common share      $0.67     $0.54     $2.62     $2.22
    Diluted earnings per common share    $0.66     $0.53     $2.58     $2.18

    Dividends declared per common share $0.320    $0.305    $1.250    $1.190



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF FINANCIAL
     POSITION
                                                December        December
                                                   31,             31,
    (in thousands, except share data)             2009            2008
                                                  ----            ----
    ASSETS
    Current assets
      Cash and cash equivalents                  $74,853         $58,110
      Accounts receivable                         72,352          57,638
      Inventory                                   36,834          25,077
      Deferred income taxes                       23,859               -
        Regulatory assets - revenue accrual
         (including accrued interest of $2,652
         and $1,637, respectively)                82,871          22,301
      Other                                        3,244           4,147
                                                   -----           -----
      Total current assets                       294,013         167,273
    Property, plant and equipment (net of
     accumulated depreciation and amortization
     of $1,051,045 and $925,890, respectively) 2,542,064       2,304,386
    Other assets
      Goodwill                                   950,163         951,319
      Intangible assets (net of accumulated
       amortization of $9,095 and $6,050,
       respectively)                              51,987          52,357
      Regulatory assets - revenue accrual
       (including accrued interest of $75 and
       $1,512, respectively)                      20,406          81,643
      Other regulatory assets                    134,924         120,513
      Deferred financing fees (net of
       accumulated amortization of $9,616 and
       $8,048, respectively)                      21,672          21,410
      Other                                       14,487          15,664
                                                  ------          ------
      Total other assets                       1,193,639       1,242,906
                                               ---------       ---------
    TOTAL ASSETS                              $4,029,716      $3,714,565
                                              ==========      ==========

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Accounts payable                           $43,508         $79,403
      Accrued payroll                             13,648          10,331
      Accrued interest                            39,099          37,779
      Accrued taxes                               21,188          18,104
      Deferred income taxes                            -           6,476
      Refundable deposits from generators
       for transmission network upgrades          25,891           8,701
      Other                                        3,344           5,384
                                                   -----           -----
      Total current liabilities                  146,678         166,178
    Accrued pension and postretirement
     liabilities                                  31,158          24,295
    Deferred income taxes                        255,516         144,889
    Regulatory liabilities - revenue deferral
     (including accrued interest of $186)         10,238               -
    Regulatory liabilities - accrued asset
     removal costs                               112,430         196,656
    Refundable deposits from generators
     for transmission network upgrades            17,664           1,500
    Other                                         10,111           3,731
    Long-term debt                             2,434,398       2,248,253
    Commitments and contingent liabilities
    STOCKHOLDERS' EQUITY
        Common stock, without par value,
         100,000,000 shares authorized,
         50,084,061 and 49,654,518 shares
         issued and outstanding at December 31,
         2009 and 2008, respectively             862,512         848,624
      Retained earnings                          149,776          81,268
      Accumulated other comprehensive loss          (765)           (829)
                                                    ----            ----
      Total stockholders' equity               1,011,523         929,063
                                               ---------         -------
    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                   $4,029,716      $3,714,565
                                              ==========      ==========



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     Twelve months ended
                                                         December 31,
                                                     -------------------
    (in thousands)                                   2009            2008
                                                     ----            ----
    CASH FLOWS FROM OPERATING
     ACTIVITIES
      Net income                                   $130,900        $109,208
      Adjustments to reconcile net income
       to net cash provided by operating activities:
      Depreciation and amortization expense          85,949          94,769
      Revenue accrual and deferral - including
       accrued interest                              10,912         (83,390)
      Deferred income tax expense                    75,001          65,054
      Allowance for equity funds used during
       construction                                 (13,203)        (11,610)
      Recognition of ITC Great Plains
       regulatory assets                             (8,191)              -
      Other                                          13,820          10,370
      Changes in assets and liabilities,
       exclusive of changes shown separately:
        Accounts receivable                         (12,986)        (14,455)
        Inventory                                   (14,599)        (10,237)
        Other current assets                            903            (629)
        Accounts payable                             (6,097)         14,948
        Accrued payroll                               2,003             778
        Accrued interest                              1,320          14,693
        Accrued taxes                                 3,073           3,600
        Other current liabilities                    (2,049)          1,191
        Other non-current assets and liabilities,
         net                                          1,179           1,131
                                                      -----           -----
         Net cash provided by operating activities  267,935         195,421

    CASH FLOWS FROM INVESTING
     ACTIVITIES
      Expenditures for property, plant
       and equipment                               (404,514)       (401,840)
      ITC Midwest's asset acquisition purchase
       price                                              -          (4,714)
      ITC Midwest's asset acquisition direct fees         -          (1,008)
      Other                                          (4,448)          6,242
                                                     ------           -----
         Net cash used in investing activities     (408,962)       (401,320)

    CASH FLOWS FROM FINANCING ACTIVITIES
      Issuance of long-term debt                    333,670         782,782
      Repayment of long-term debt                  (100,000)       (765,000)
      Borrowings under revolving credit agreements  623,966         657,733
      Repayments of revolving credit agreements    (671,834)       (670,999)
      Issuance of common stock                        3,575         310,543
      Dividends on common stock                     (62,408)        (58,935)
      Refundable deposits from generators for
       transmission network upgrades                 40,279          15,661
      Repayment of refundable deposits from
       generators for transmission network
       upgrades                                      (5,228)         (2,352)
      Other                                          (4,250)         (8,040)
                                                     ------          ------
         Net cash provided by financing activities  157,770         261,393
                                                    -------         -------

    NET INCREASE IN CASH AND CASH EQUIVALENTS        16,743          55,494

    CASH AND CASH EQUIVALENTS - Beginning of period  58,110           2,616
                                                     ------           -----

    CASH AND CASH EQUIVALENTS - End of period       $74,853         $58,110
                                                    =======         =======




SOURCE ITC Holdings Corp.

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