ITC Holdings Corp. Reports Fourth Quarter 2006 and Full Year Results

Mar 07, 2007

NOVI, Mich., March 7, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- ITC Holdings Corp. (NYSE: ITC) today announced its fourth quarter results for the period ended December 31, 2006. Net income for the quarter was $3.6 million, or $0.08 per diluted share, compared to $1.7 million, or $0.05 per diluted share for the fourth quarter of 2005. Net income for the year ended December 31, 2006 was $33.2 million, or $0.92 per diluted share, compared to $34.7 million, or $1.06 per diluted share for the same period last year. Excluding expenses associated with the acquisition of Michigan Electric Transmission Company, LLC ("METC"), the Company would have reported earnings of $0.14 and $0.99 per diluted share for the fourth quarter and full year, respectively. The expenses include loss on extinguishment of debt and other expenses related to the METC acquisition.

"During the fourth quarter we continued to rebuild and strengthen the transmission grid in Michigan." said Joseph L. Welch, president and CEO of ITC Holdings Corp. "On October 10, 2006 we completed the acquisition of METC, a privately-held company and the neighboring transmission system to ITCTransmission. Further, FERC's approval of Forward-Looking Attachment O for METC on December 21, 2006 better positions us to be able to invest in transmission for the benefit of our customers through improved reliability and enhanced access to the competitive energy marketplace, and demonstrates FERC's continued support of transmission infrastructure investments. At METC, we plan to leverage our expertise and continue our efforts to rebuild the transmission grid in the lower peninsula of Michigan."

ITCTransmission invested $46.7 million and $171.5 million for the fourth quarter and year ended December 31, 2006, respectively, in its transmission system. Additionally, METC invested $7.0 million in its transmission system from October 11, 2006 to December 31, 2006.

"Capital expenditures were higher than previous expectations mainly due to work pulled ahead from 2007. Other financial results for the fourth quarter were in line with our expectations," said Edward Rahill, senior vice president and CFO.

ITC Holdings reported operating revenues of $73.1 million for the fourth quarter 2006, an increase of $27.0 million over the comparable period last year. Operating revenues for the twelve month period were $223.6 million, an increase of $18.3 million over the same period ended December of 2005. The increases in revenues for the fourth quarter of 2006 and for the full year 2006 were primarily due to the acquisition of METC in the fourth quarter of 2006 and higher network transmission revenues for ITCTransmission, as a result of a network rate increase for ITCTransmission. The increase in revenues for full year 2006 was partially offset by lower ITCTransmission point-to-point revenues compared to full year 2005.

Operation & Maintenance (O&M) expenses of $16.1 million during the fourth quarter of 2006 were $0.9 million lower than the same period in 2005. O&M expenses of $35.4 million for the full year were $12.9 million lower than the same period in 2005. The decreases in O&M expenses were largely due to the accelerated completion of a backlog of necessary, multi-year, planned activities in 2005 which helped to improve the reliability of ITCTransmission's system as well as decreases in equipment inspections and repairs and contractor training costs. These decreases in O&M expenses were partially offset by the acquisition of METC in 2006, which resulted in approximately $10.1 million of additional maintenance expense in the fourth quarter of 2006.

General and administrative (G&A) expenses of $15.3 million for the fourth quarter of 2006 were $6.9 million higher than the same period in 2005. For the twelve months ended December 31, 2006, G&A expenses of $40.6 million were $15.4 million higher than 2005. G&A expenses increased mainly due to higher compensation and benefits, professional advisory and consulting services and business expenses to support the increased level of activities in 2006.

Depreciation and amortization expenses increased in the three and twelve month periods ended December 31, 2006 compared to the same periods in 2005 due to a higher depreciable asset base as a result of property, plant and equipment additions during 2006 and 2005. The acquisition of METC also resulted in an additional $3.3 million of depreciation expense recognized in the fourth quarter of 2006.

Taxes other than income taxes increased in the fourth quarter of 2006 and the full year, mainly due to higher property taxes due to ITCTransmission's 2005 capital additions, which are included in the assessments for 2006 personal property taxes. Additionally, METC incurred $1.5 million in property tax expense subsequent to the acquisition in October of 2006. Michigan Single Business Tax expense increased $0.4 million and $1.4 million for the fourth quarter, and the full year, respectively, compared to the same periods in 2005.

The full year 2005 results include $6.7 million of fees incurred in connection with ITC's initial public offering completed in July 2005 to terminate certain management agreements.

Interest expense increased primarily due to higher borrowing levels to finance our capital expenditures and to finance the acquisition of METC.

ITC Holdings Confirms Guidance for 2007

For 2007 earnings per diluted share are expected to be between $1.50 and $1.60, as previously disclosed. Capital expenditures for 2007 are expected to be approximately $190 million and $25 million for ITCTransmission and METC, respectively.

Fourth quarter Conference Call

ITC Holdings Corp. will conduct a conference call to discuss fourth quarter and full year 2006 earnings results at 11:00 a.m. EST Thursday, March 8, 2007. Joseph L. Welch, president and CEO, will provide a business overview for the year and Edward M. Rahill, senior vice president and CFO, will provide a financial update of the fourth quarter of 2006 and the year. Individuals wishing to participate in the conference call may dial toll-free (800) 289- 0544 (domestic) or (913) 981-5533 (international); there is no passcode. The conference call replay, available through March 17, 2007 can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 4488703. Investors, the news media and the public may listen to a live internet broadcast of the meeting at https://www.itc-holdings.com/itc/about-us/fixed-income-investors. The webcast also will be archived on the ITC website at https://www.itc-holdings.com/itc/about-us/fixed-income-investors.

Other Available Information

More detail about the 2006 fourth quarter and full year results may be found in ITC Holdings Corp.'s Form 10-K filing. Once filed with the SEC, an electronic copy of the 10-K can be found at ITC Holdings Corp.'s website, https://www.itc-holdings.com/itc/about-us/fixed-income-investors. 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. is in the business of electricity transmission infrastructure improvements as a means to improve electric reliability, reduce congestion and lower the overall cost of delivered energy. Through our operating subsidiaries, ITCTransmission and METC, we are the only publicly traded company engaged exclusively in the transmission of electricity in the United States. We are also the largest independent electric transmission company and the eighth largest electric transmission company in the country based on transmission load served. Our business strategy is to operate, maintain and invest in our transmission infrastructure in order to enhance system integrity and reliability and to reduce transmission constraints. By pursuing this strategy, we seek to reduce the overall cost of delivered energy for end-use consumers by providing them with access to electricity from the lowest cost electricity generation sources. ITCTransmission and METC operate contiguous, fully- regulated, high-voltage systems in Michigan's Lower Peninsula, an area with a population of approximately 9.8 million people, that transmit electricity to local electricity distribution facilities from generating stations throughout Michigan and surrounding areas. Subsidiary ITC Grid Development, LLC expects to focus on partnering with local entities and utilities in regions where significant transmission improvements are needed. The first region in which ITC Grid Development, LLC expects to focus its efforts is the Great Plains region, specifically in Kansas, through the formation of its subsidiary ITC Great Plains, LLC. For more information on ITC Holdings Corp., please visit http://www.itc-holdings.com. For more information on ITCTransmission or METC, please visit http://www.itctransco.com or http://www.metcllc.com, respectively. For more information on ITC Great Plains, please visit http://www.itcgreatplains.com. (itc-ITC)

Safe Harbor Statement

This press release contains certain statements that describe our management's beliefs concerning future business conditions 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 "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 other things 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. They 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, unless required by law.

 

    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



    (in thousands, except

     share and per share          Three months ended        Year ended

     data)                          December 31,            December 31,

                                 2006         2005        2006         2005



    OPERATING REVENUES         $73,074      $46,049    $223,622     $205,274



    OPERATING EXPENSES



      Operation and

       maintenance              16,124       17,028      35,441       48,310

      General and

       administrative           15,340        8,464      40,632       25,198

      Depreciation and

       amortization             12,943        8,590      40,156       33,197

      Taxes other than income

       taxes                     6,417        3,759      22,156       13,982

      Termination of management

       agreements                    -            -           -        6,725

      Gain on sale of assets      (842)           -        (842)           -

         Total operating

          expenses              49,982       37,841     137,543      127,412



    OPERATING INCOME            23,092        8,208      86,079       77,862



    OTHER EXPENSES (INCOME)



      Interest expense          18,409        7,114      42,049       28,128

      Allowance for equity

       funds used during

       construction             (1,367)        (612)     (3,977)      (2,790)

      Loss on extinguishment

       of debt                   1,874            -       1,874            -

      Other income              (1,860)      (1,012)     (2,348)      (1,700)

      Other expense              1,221          134       1,629          615

         Total other expenses

          (income)              18,277        5,624      39,227       24,253



    INCOME BEFORE INCOME

     TAXES                       4,815        2,584      46,852       53,609



    INCOME TAX PROVISION         1,222          892      13,658       18,938



    INCOME BEFORE CUMULATIVE

     EFFECT OF A CHANGE IN

     ACCOUNTING PRINCIPLE        3,593        1,692      33,194       34,671



    CUMULATIVE EFFECT OF A

     CHANGE IN ACCOUNTING

     PRINCIPLE (NET OF

     TAX OF $16)                     -            -          29            -



    NET INCOME                  $3,593       $1,692     $33,223      $34,671



    Basic earnings per share     $0.09        $0.05       $0.95        $1.10

    Diluted earnings per

     share                       $0.08        $0.05       $0.92        $1.06



    Weighted-average basic

     shares                 41,110,371   32,956,707  35,048,049   31,455,065

    Weighted-average

     diluted shares         42,470,802   33,989,834  36,236,944   32,729,842



    Dividends or

     distributions

     declared per

     common share              $0.2750       $0.2625     $1.0750      $0.5250









    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  (UNAUDITED)

    (in thousands, except share data)



    ASSETS                                                 December 31,

    Current assets                                    2006             2005

      Cash and cash equivalents                     $13,426          $24,591

      Restricted cash                                 4,565                -

      Accounts receivable                            35,325           19,661

      Inventory                                      25,408           19,431

      Deferred income taxes                          21,023            6,732

      Other                                           9,926            2,188

               Total current assets                 109,673           72,603



    Property, plant and equipment (net of

     accumulated depreciation and

     amortization of $608,956 and $414,852,

     respectively)                                1,197,862          603,609

    Other assets

      Goodwill                                      624,385          174,256

      Intangible assets                              58,407                -

      Regulatory assets - acquisition adjustment     91,443           52,017

      Other regulatory assets                        26,183            6,120

    Deferred financing fees (net of accumulated

     amortization of $4,817 and $2,564,

     respectively)                                   14,490            5,629

      Other                                           6,354            2,405

              Total other assets                    821,262          240,427

    TOTAL ASSETS                                 $2,128,797         $916,639



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

      Accounts payable                              $33,295          $27,618

      Accrued payroll                                 5,192            3,889

      Accrued interest                               18,915           10,485

      Accrued taxes                                  14,152            7,378

      METC rate case accrued liability               20,000                -

      Other                                           8,012            3,288

               Total current liabilities             99,566           52,658

    Accrued pension liability                         7,782            5,168

    Accrued postretirement liability                  3,268            2,299

    Deferred income taxes                            75,730           21,334

    Regulatory liabilities                          138,726           45,644

    Asset retirement obligation                       5,346            4,725

    Other                                             3,857            4,195

    Long-term debt                                1,262,278          517,315



    STOCKHOLDERS' EQUITY

      Common stock, without par value,

       100,000,000 shares authorized,

       42,395,760 and 33,228,638 shares

       issued and outstanding at

       December 31, 2006 and December 31, 2005,

      respectively                                  526,485          251,681

    Retained earnings                                 6,714           11,792

    Accumulated other comprehensive loss               (955)            (172)

               Total stockholders' equity           532,244          263,301

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $2,128,797         $916,639









    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    (in thousands)                                         Year ended

                                                           December 31,

                                                         2006          2005

    CASH FLOWS FROM OPERATING ACTIVITIES

    Net income                                         $33,223       $34,671

      Adjustments to reconcile net income

       to net cash provided by

       operating activities:

         Depreciation and amortization expense          40,156        33,197

         Amortization of deferred financing fees and

          debt discount                                  1,400         1,401

         Stock-based compensation expense                3,006         1,801

         Gain on sale of assets                           (842)            -

         Loss on extinguishment of debt                  1,874             -

         Deferred income taxes                          17,292        17,473

         Other long-term liabilities                     3,245        (1,675)

         Amortization of regulatory assets               1,933         1,933

         Other regulatory assets                        (6,396)            -

         Allowance for equity funds used in

          construction                                  (3,977)       (2,790)

         Other                                          (1,936)          547

         Changes in current assets and

          liabilities, exclusive

          of changes shown separately                  (27,110)      (24,884)

                  Net cash provided by operating

                   activities                           61,868        61,674



    CASH FLOWS FROM INVESTING ACTIVITIES

        Expenditures for property, plant and

         equipment                                    (167,496)     (118,586)

        Insurance proceeds on property, plant and

         equipment                                           -         4,900

        Acquisition of MTH and METC, net of cash

         acquired                                     (484,189)            -

        Acquisition-related transaction costs          (11,456)            -

        Other                                            1,697           750

                  Net cash used in investing

                   activities                         (661,444)     (112,936)



    CASH FLOWS FROM FINANCING ACTIVITIES

        Issuance of long-term debt                     609,627             -

        Repayments of long-term debt                  (123,541)          (46)

        Borrowings under revolving credit facilities   128,400        74,300

        Repayments of revolving credit facilities     (178,200)      (40,500)

        Issuance of common stock                       202,253        54,187

        Common stock issuance costs                     (2,321)       (7,083)

        Dividends on common stock                      (38,307)      (17,433)

        Repurchase and retirement of common stock       (1,040)         (804)

        Debt issuance costs                             (6,969)         (842)

        Interest rate lock settlement                   (1,491)            -

                  Net cash provided by financing

                   activities                          588,411        61,779



    NET (DECREASE) INCREASE IN CASH AND CASH

     EQUIVALENTS                                       (11,165)       10,517



    CASH AND CASH EQUIVALENTS - Beginning of period     24,591        14,074



    CASH AND CASH EQUIVALENTS - End of period          $13,426       $24,591







 

Reconciliation of net income and diluted earnings per share excluding expenses relating to the METC acquisition:

 

                          Three months ended             Year ended

                           December 31, 2006           December 31, 2006

    (in thousands,

     except share

     and per share

     data)                Net Income      EPS (1)     Net Income      EPS (1)

    Net income and

     earnings per

     share as reported      $3,593        $0.08         $33,223        $0.92

    After tax impact of

     expenses for the

     METC acquisition        2,670        $0.06           2,670        $0.07

    Pro forma net income

     excluding expenses

     for the METC

     acquisition            $6,263        $0.14         $35,893        $0.99



    2006 weighted-average

     diluted shares

     outstanding        42,470,802                   36,236,944



    (1) EPS= Diluted earnings per share





 

SOURCE ITC Holdings Corp.

 

Investor or Analyst contact: Pat Wenzel, +1-248-374-7200, pwenzel@itc-holdings.com,

or Media contact: Lisa Aragon, +1-248-835-9300, laragon@itc-holdings.com

http://www.itc-holdings.com

 

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