ITC Holdings Corp. Reports Second Quarter 2006 Results

Aug 09, 2006

NOVI, Mich., Aug 09, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- ITC Holdings Corp. (NYSE: ITC) today announced its results for the second quarter ended June 30, 2006. Net income for the quarter was $8.0 million, or $0.23 per diluted share, compared to $11.6 million, or $0.37 per diluted share, for the second quarter of 2005. Net income for the first six months of 2006 was $10.7 million, or $0.31 per diluted share, compared to $19.5 million, or $0.62 per diluted share, for the same period last year.

"Positioning ourselves for significant growth was the hallmark of ITC's second quarter this year," said Joseph L. Welch, president and CEO of ITC Holdings Corp. "ITC signed a definitive agreement to acquire Michigan Electric Transmission Company, which is expected to make us the 10th largest transmission company in the nation (based on transmission load). In addition, ITCTransmission sought and received FERC authorization to recover its expenses and investments on a current rather than lagging basis beginning in 2007. This adjustment to the implementation of our Attachment O formula rate enhances our ability to continue to rebuild and strengthen the transmission grid in Southeast Michigan. ITCTransmission also continued to make important infrastructure improvements during the second quarter."

ITCTransmission invested $38.6 million in infrastructure improvements and upgrades to its transmission system during the second quarter. For the six months ended June 30, 2006, the company invested $73.4 million in property, plant and equipment and currently it expects to invest approximately $145.0 million in capital additions in 2006.

Another noteworthy event for the second quarter was a new rate of $1.744 per kW/month that went into effect on June 1, 2006 for ITCTransmission based on 2005 cost year data under its Attachment O rate making mechanism.

"Financial results were in line with our expectations," Mr. Welch continued. As discussed on our previous conference calls, point-to-point revenues in 2006 are expected to be significantly lower than last year. We believe these revenues will be approximately $15 to $17 million lower than last year, primarily due to improved efficiency in the power markets first introduced by MISO in 2005. Point-to-point revenues are a reduction in the calculation of our network transmission rates. Under forward looking Attachment O, the amount of point to-point revenues in any given year will have no impact on earnings.

Also as expected, we are experiencing higher general and administrative expenses compared to last year's second quarter, mainly due to higher compensation and benefit expenses as a result of additional employees hired to support ITC's growth. Looking ahead to the remainder of 2006, the record breaking peak network loads we experienced in July of 12,392 MW and in August of 12,745 (through August 9, 2006) will have a positive impact on our revenues in the third quarter."

ITC Holdings reported operating revenues of $48.5 million for the second quarter 2006, a decrease of $2.2 million over the comparable period last year. Operating revenues for the six month period were $87.5 million, a decrease of $5.6 million over the first six months of 2005. This anticipated drop in revenues was primarily due to lower point-to-point revenues as Mr. Welch noted.

General and administrative (G&A) expenses of $8.0 million during the second quarter of 2006 were $3.3 million higher than the same period in 2005. This increase was principally due to higher compensation and benefits expense. Partially offsetting the effect of higher G&A expenses on total operating expenses were lower operation and maintenance (O&M) expenses of $7.1 million, which were $2.8 million lower, compared to the same period in 2005. For the six months ended 2006, G&A expenses of $15.5 million were $5.5 million higher than 2005. O&M expenses of $13.8 million were $2.6 million lower than the same period in 2005.

Depreciation and amortization expenses increased in the three and six months ended June 30, 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.

Interest expense in the three and six months ended June 30, 2006 was higher than the same periods in 2005 due to the increased levels of borrowings to fund capital expenditures.

ITCTransmission is a public utility regulated by the FERC and operates under an approved annual rate setting mechanism known as "Attachment O." Attachment O enables ITCTransmission to generate predictable revenues. Under forward-looking Attachment O, which will implement a new rate each year beginning January 1, 2007, a projection is made of each year's revenue requirement. The projected revenue requirement and projected network load will be used to establish the rate for that year, and a true-up adjustment will be implemented such that after incorporating the adjustment, ITCTransmission will recover its revenue requirement relating to any given year.

ITCTransmission is focused on best in class operations, maintenance, improving reliability and reducing congestion to lower the overall cost of delivered energy to end-use consumers.

ITC Holdings Corp. will conduct a conference call to discuss Second Quarter 2006 earnings results at 11:00 a.m. EDT Thursday, August 10, 2006. 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 second quarter of 2006. Individuals wishing to participate in the conference call may dial toll-free (800) 811-8845 (domestic) or (913) 981-4905 (international); there is no passcode. The conference call replay, available through August 17, 2006 can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 8222430. 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.

More detail about the 2006 Second Quarter results may be found in ITC Holdings Corp.'s Form 10-Q filing. Once filed with the SEC, an electronic copy of the 10-Q can be found at ITC Holdings Corp.'s 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. (itc-ITC)

About ITC Holdings Corp.

ITC Holdings Corp. is in the business of investing in electricity transmission infrastructure improvements as a means to improve electric reliability, reduce congestion and lower the overall cost of delivered energy. ITCTransmission, an ITC subsidiary, is the first independently owned and operated electricity transmission company in the United States. ITCTransmission owns, operates and maintains a fully-regulated, high-voltage system that transmits electricity to local electric distribution facilities from generating stations in Michigan, other Midwestern states and Ontario, Canada. The local distribution facilities connected to the ITCTransmission system serve an area comprised of 13 southeastern Michigan counties, including the Detroit metropolitan area. For more information on ITC Holdings Corp., please visit http://www.itc-holdings.com. For more information on ITCTransmission, please visit http://www.itctransco.com.

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

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

    (in thousands, except share and per share data)



                                     Three months ended     Six months ended

                                           June 30,              June 30,

                                       2006       2005       2006       2005



    OPERATING REVENUES               $48,475    $50,718    $87,544    $93,178



    OPERATING EXPENSES

      Operation and maintenance        7,118      9,869     13,775     16,391

      General and administrative       7,988      4,725     15,465     10,011

      Depreciation and amortization    9,084      8,154     17,954     16,172

      Taxes other than income taxes    4,984      3,820     10,330      8,119



        Total operating expenses      29,174     26,568     57,524     50,693



    OPERATING INCOME                  19,301     24,150     30,020     42,485



    OTHER EXPENSES (INCOME)

      Interest expense                 7,894      7,154     15,134     14,008

      Allowance for equity funds

       used during construction         (838)      (891)    (1,360)    (1,471)

      Other income                      (249)      (163)      (550)      (468)

      Other expense                      111         82        261        258



        Total other expenses (income)  6,918      6,182     13,485     12,327



    INCOME BEFORE INCOME TAXES        12,383     17,968     16,535     30,158



    INCOME TAX PROVISION               4,384      6,352      5,883     10,672



    INCOME BEFORE CUMULATIVE

     EFFECT OF A CHANGE IN

     ACCOUNTING PRINCIPLE              7,999     11,616     10,652     19,486



    CUMULATIVE EFFECT OF A CHANGE IN

     ACCOUNTING PRINCIPLE

     (NET OF TAX OF $16)                   -          -         29          -



    NET INCOME                        $7,999    $11,616    $10,681    $19,486



    Basic earnings per share           $0.24      $0.38      $0.32      $0.64

    Diluted earnings per share         $0.23      $0.37      $0.31      $0.62



    Weighted-average

     basic shares                 33,006,790 30,341,967 32,995,858 30,341,967

    Weighted-average

     diluted shares               34,050,589 31,243,808 33,971,975 31,262,592



    Dividends declared

     per common share                $0.2625         $-    $0.5250         $-







    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

    (in thousands, except share data)



    ASSETS                                           June 30,     December 31,

    Current assets                                     2006           2005

      Cash and cash equivalents                      $46,604        $24,591

      Accounts receivable                             24,164         19,661

      Inventory                                       24,284         19,431

      Deferred income taxes                            9,288          6,732

      Other                                            2,476          2,188

        Total current assets                         106,816         72,603



    Property, plant and equipment (net of

     accumulated depreciation and amortization

     of $421,452 and $414,852, respectively)         661,126        603,609

    Other assets

      Goodwill                                       174,256        174,256

      Regulatory assets- acquisition adjustment       50,502         52,017

      Other regulatory assets                          5,154          6,120

      Deferred financing fees (net of accumulated

       amortization of  $3,177 and $2,564,

       respectively)                                   7,087          5,629

      Other                                            5,438          2,405

        Total other assets                           242,437        240,427

    TOTAL ASSETS                                  $1,010,379       $916,639



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

      Accounts payable                               $31,490        $27,618

      Accrued payroll                                  2,167          3,889

      Accrued interest                                11,874         10,485

      Accrued taxes                                    9,552          7,378

      Other                                            4,163          3,288

        Total current liabilities                     59,246         52,658

    Accrued pension liability                          5,322          5,168

    Accrued postretirement liability                   3,042          2,299

    Deferred compensation liability                      756            530

    Deferred income taxes                             29,586         21,334

    Regulatory liabilities                            45,782         45,644

    Asset retirement obligation                        4,873          4,725

    Deferred payables                                  2,444          3,665

    Long-term debt                                   600,971        517,315



    STOCKHOLDERS' EQUITY

    Common stock, without par value, 100,000,000

     shares authorized, 33,301,308 and 33,228,638

     shares issued and outstanding at June 30, 2006

     and December 31, 2005, respectively             253,522        251,681

    Retained earnings                                  5,007         11,792

    Accumulated other comprehensive loss                (172)          (172)

        Total stockholders' equity                   258,357        263,301

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $1,010,379       $916,639







    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    (in thousands)

                                                          Six months ended

                                                               June 30,

                                                         2006           2005

    CASH FLOWS FROM OPERATING ACTIVITIES

    Net income                                         $10,681        $19,486

    Adjustments to reconcile net income to net cash

     provided by operating activities:

      Depreciation and amortization expense             17,954         16,172

      Amortization of deferred financing

       fees and discount                                   679            727

      Stock-based compensation expense                   1,294            519

      Deferred income taxes                              5,696         10,581

      Other long-term liabilities                        1,124          1,439

      Amortization of regulatory assets                    966            966

      Allowance for equity funds used

       during construction                              (1,360)        (1,471)

      Other                                               (640)        (1,546)

      Changes in current assets and liabilities        (12,140)       (32,533)

        Net cash provided by operating activities       24,254         14,340



    CASH FLOWS FROM INVESTING ACTIVITIES

      Expenditures for property, plant and equipment   (66,077)       (61,928)

      METC acquisition costs                              (534)             -

      Other                                                  -            296

        Net cash used in investing activities          (66,611)       (61,632)



    CASH FLOWS FROM FINANCING ACTIVITIES

      Issuance of long-term debt                        99,890              -

      Repayments of long-term debt                           -            (46)

      Borrowings under revolving credit facilities      70,700         55,300

      Repayments of revolving credit facilities        (87,000)       (18,700)

      Dividends paid                                   (17,470)             -

      Debt issuance costs                               (2,031)          (673)

      Issuance of common stock                             304              -

      Common stock issuance costs                          (23)          (477)

        Net cash provided by financing activities       64,370         35,404



    NET INCREASE (DECREASE) IN CASH

     AND CASH EQUIVALENTS                               22,013        (11,888)



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



    CASH AND CASH EQUIVALENTS - End of period          $46,604         $2,186





SOURCE ITC Holdings Corp.

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

Lisa Aragon, +1-248-835-9300, laragon@itc-holdings.com

http://www.prnewswire.com

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