ITC Holdings Corp. Reports Second Quarter 2007 Results

Aug 01, 2007

NOVI, Mich., Aug 01, 2007 /PRNewswire-FirstCall via COMTEX News Network/ --

ITC Holdings Corp. (NYSE: ITC) today announced its second quarter results for the period ended June 30, 2007. Net income for the quarter was $20.0 million, or $0.46 per diluted share, compared to $8.0 million, or $0.23 per diluted share for the second quarter of 2006. Net income for the first six months of 2007 was $36.9 million, or $0.85 per diluted share, compared to $10.7 million, or $0.31 per diluted share for the same period last year.

"We are very pleased by our second quarter results," said Joseph L. Welch, president and CEO of ITC. "The tremendous progress we are making to upgrade the transmission grid is paying off not only in terms of increased energy reliability for our customers, as demonstrated by our ability to meet new record monthly peak demands nine times over the last three years while achieving top quartile outage performance, but also by increasing value for our shareholders. ITC will continue to follow a growth path that involves bringing our energy expertise to other regions of the country."

In the second quarter of 2007, ITCTransmission invested $51.8 million and METC invested $20.3 million in property plant and equipment in their respective transmission systems. For the six months period, ITCTransmission invested $99.3 million and METC invested $40.3 million.

ITC reported operating revenues of $106.3 million for the second quarter 2007, an increase of $57.8 million over the comparable period last year. Network revenues billed increased by $31.6 million as a result of the October 2006 acquisition of METC. In addition, network revenues billed increased by $12.8 million due to increased billed network rates and $2.0 million owing to higher loads at ITCTransmission in the second quarter of 2007 compared to the same period last year. Point-to-point, scheduling, control and dispatch revenues increased by $5.0 million primarily due to the acquisition of METC. Operating revenues increased $6.4 million due to the Attachment O revenue accrual for both ITCTransmission and METC. Effective January 1, 2007, under Forward-Looking Attachment O, expenses are recovered and return on rate base is earned on a current rather than lagging basis.

Operating revenues for the six months ended June 30, 2007, were $207.6 million, an increase of $120.0 million compared to the first six months of 2006. Network revenues billed increased by $59.2 million as a result of the October 2006 acquisition of METC. Network revenues billed also increased by $24.6 million due to increased billed network rates and $3.3 million owing to higher loads at ITCTransmission in the six months ended June 30, 2007, compared to the same period last year. Point-to-point, scheduling, control and dispatch revenues increased by $9.2 million; primarily due to the acquisition of METC. In addition, the Attachment O revenue accrual for both ITCTransmission and METC increased revenues by $23.5 million for the six month period.

Operation & Maintenance (O&M) expenses of $21.5 million were $14.4 million higher in the second quarter of 2007 than the same period in 2006. This increase was mainly due to $11.4 million of O&M expenses incurred at METC in the second quarter of 2007 for labor, transmission structure maintenance, vegetation management, site and general support costs and easement payments. O&M expenses increased at ITCTransmission by $2.6 million primarily as a result of additional tower painting, transmission structure maintenance, inspections, general site maintenance and support costs. Furthermore, ITCTransmission and METC incurred an additional $0.6 million for transmission system monitoring and control.

For the six months ended June 30, 2007 O&M expenses of $40.0 million were $26.3 million higher than the same period in 2006. This increase was mainly due to $21.8 million of O&M expenses incurred at METC in the first six months of 2007 for labor, transmission structure maintenance, vegetation management, site and general support costs and easement payments. O&M expenses increased at ITCTransmission by $3.3 million primarily as a result of additional tower painting, transmission structure maintenance, inspections, general site maintenance and support costs. Furthermore, ITCTransmission and METC incurred an additional $1.1 million for transmission system monitoring and control.

General and administrative (G&A) expenses of $12.2 million for the second quarter of 2007 were $4.2 million higher than the same period in 2006. G&A expenses increased by $3.2 million due primarily to higher compensation and benefits, professional advisory and consulting services and business expenses mainly as a result of the acquisition of METC. Additionally, G&A expenses increased by $0.4 million primarily due to expenses at ITC Grid Development and ITC Great Plains subsidiaries for salaries, benefits and general business expenses incurred during the second quarter of 2007.

For the six months ended June 30, 2007, G&A expenses of $27.2 million were $11.8 million higher than for the same period in 2006. G&A expenses increased $9.5 million due primarily to higher compensation and benefits, professional advisory and consulting services and business expenses mainly as a result of the acquisition of METC. Also, G&A expenses increased by $0.6 million due to costs associated with the securities offering by International Transmission Holdings Limited Partnership and by $0.7 million at ITC Grid Development and ITC Great Plains subsidiaries for salaries, benefits and general business expenses incurred during the six months ended June 30, 2007.

Depreciation and amortization expenses increased by $7.6 million in the second quarter of 2007 compared to the same period in 2006 mainly due to the acquisition of METC, which resulted in an additional $4.4 million of depreciation expense related to property, plant and equipment and $1.5 million due to the amortization of METC's regulatory assets and intangible assets associated with the METC ADIT deferral and regulatory asset deferral. In addition, depreciation expense increased by $1.6 million at ITCTransmission owing to a higher depreciable asset base as a result of property, plant and equipment additions.

For the six month period ended June 30, 2007, depreciation and amortization expenses increased by $14.9 million compared to the same period in 2006 mainly due to the acquisition of METC, which resulted in an additional $8.4 million of depreciation expense related to property, plant and equipment and $3.1 million due to the amortization of METC's regulatory assets and intangible assets associated with the METC ADIT deferral and regulatory asset deferral. Additionally, depreciation expense increased by $3.3 million at ITCTransmission owing to a higher depreciable asset base as a result of property, plant and equipment additions during the first six months of 2007 compared to same period last year.

Taxes other than income taxes of $8.1 million in the second quarter of 2007 increased by $3.1 million compared to the same period in 2006. At ITCTransmission property taxes increased by $0.9 million in the second quarter of 2007 mainly due to 2006 capital additions, which are included in the assessments for 2007 personal property taxes. Additionally, METC incurred $1.9 million of property tax expense in the second quarter of 2007, which were not included in the same period in 2006. Taxes other than income taxes also increased by $0.2 million due to higher payroll taxes resulting from personnel additions.

For the six month period ended June 30, 2007 taxes other than income taxes of $16.8 million were $6.5 million higher compared to the same period in 2006. At ITCTransmission property taxes increased by $1.5 million in the first six months of 2007 mainly due to 2006 capital additions, which are included in the assessments for 2007 personal property taxes. Additionally, METC incurred $4.0 million of property tax expense in the first six months of 2007, which were not included in the same period in 2006. Taxes other than income taxes also increased by $0.8 million due to higher payroll taxes resulting from personnel additions.

In the second quarter and six months ended June 30, 2007, interest expense increased compared to the same period in 2006 primarily due to higher borrowing levels to finance our capital expenditures and the acquisition of METC.

Guidance for 2007

For full year 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 $50 million for ITCTransmission and METC, respectively.

Second Quarter Conference Call

ITC will conduct a conference call to discuss second quarter 2007 earnings results at 11:00 a.m. ET Thursday, August 2, 2007. Joseph L. Welch, president and CEO, will provide a business overview and Edward M. Rahill, senior vice president and CFO, will provide a financial update of the second quarter of 2007. 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 August 17, 2007, can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 6175814. Investors, the news media and the public may listen to a live internet broadcast of the call 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 2007 second quarter results may be found in ITC'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, 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. (NYSE: ITC) 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 Michigan Electric Transmission Company ("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. (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 "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 other factors, the risks factors listed in Part I, Item 1A - Risk Factors of our Form 10-K for the fiscal year ended December 31, 2006 (as updated in our Quarterly Report on Form 10-Q for the period ended March 31, 2007).

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 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.

 

    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,

                                 2007         2006        2007         2006





    OPERATING REVENUES         $ 106,303    $ 48,475   $ 207,577    $ 87,544



    OPERATING EXPENSES



     Operation and maintenance    21,503       7,118      40,043      13,775

     General and administrative   12,203       7,988      27,226      15,465

     Depreciation and

      amortization                16,711       9,084      32,833      17,954

     Taxes other than income taxes 8,066       4,984      16,836      10,330

      Total operating expenses

   58,483      29,174     116,938      57,524



    OPERATING INCOME              47,820      19,301      90,639      30,020



    OTHER EXPENSES (INCOME)



     Interest expense             19,940       7,894      39,072      15,134

     Allowance for equity

      funds used during

      construction                (1,613)       (838)     (2,853)     (1,360)

     Loss on extinguishment of

      debt                             -           -         349           -

     Other income                 (1,018)       (249)     (1,720)       (550)

     Other expense                   336         111         669         261

      Total other expenses

       (income)                   17,645       6,918      35,517      13,485



    INCOME BEFORE INCOME TAXES    30,175      12,383      55,122      16,535



    INCOME TAX PROVISION          10,176       4,384      18,268       5,883



    INCOME BEFORE CUMULATIVE

     EFFECT OF A CHANGE IN

     ACCOUNTING PRINCIPLE         19,999       7,999      36,854      10,652



    CUMULATIVE EFFECT OF A CHANGE

     IN ACCOUNTING PRINCIPLE

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



    NET INCOME                   $19,999      $7,999     $36,854     $10,681





    Basic earnings per share       $0.47      $ 0.24      $ 0.87      $ 0.32

    Diluted earnings per share     $0.46      $ 0.23      $ 0.85      $ 0.31



    Weighted-average basic

     shares                   42,269,646  33,006,790  42,180,993  32,995,858

    Weighted-average diluted

     shares                   43,424,029  34,050,589  43,432,526  33,971,975



    Dividends declared per

     common share                $0.2750     $0.2625     $0.5500     $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                                      2007           2006

     Cash and cash equivalents                         $8,498        $13,426

     Restricted cash                                    4,704          4,565

     Accounts receivable                               50,028         35,325

     Inventory                                         35,726         25,408

     Deferred income taxes                              4,734         21,023

     Other                                              4,033          9,926

      Total current assets                            107,723        109,673



    Property, plant and equipment

     (net of accumulated depreciation and

     amortization of $627,444 and $608,956,

     respectively)                                  1,317,624      1,197,862

    Other assets

     Goodwill                                         623,565        624,385

     Intangible assets (net of accumulated

      amortization of $1,512 and $0,

      respectively)                                    56,895         58,407

     Regulatory assets - acquisition adjustments       88,748         91,443

     Other regulatory assets                           26,798         26,183

     Attachment O revenue accrual                      23,541              -

     Deferred financing fees (net of accumulated

      amortization of $3,953 and $4,817,

      respectively)                                    13,487         14,490

     Other                                              8,597          6,354

      Total other assets                              841,631        821,262

    TOTAL ASSETS                                  $ 2,266,978    $ 2,128,797



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

     Accounts payable                                 $42,207        $33,295

     Accrued payroll                                    3,805          5,192

     Accrued interest                                  19,642         18,915

     Accrued taxes                                     15,017         14,152

     METC rate case accrued liability                  20,000         20,000

     Term loan                                         25,000              -

     Other                                              4,631          8,012

      Total current liabilities                       130,302         99,566

    Accrued pension liability                           8,701          7,782

    Accrued postretirement liability                    3,878          3,268

    Deferred income taxes                              79,047         75,730

    Regulatory liabilities                            141,524        138,726

    Asset retirement obligation                         5,534          5,346

    Other                                               4,252          3,857

    Long-term debt                                  1,346,051      1,262,278



    STOCKHOLDERS' EQUITY

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

     shares authorized, 42,589,529 and 42,395,760

     shares issued and outstanding at June 30, 2007

     and December 31, 2006, respectively              528,407        526,485

    Retained earnings                                  20,205          6,714

    Accumulated other comprehensive loss                 (923)          (955)

      Total stockholders' equity                      547,689        532,244

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 2,266,978    $ 2,128,797







    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (UNAUDITED)

    (in thousands)                                       Six months ended

                                                             June 30,

                                                        2007         2006

    CASH FLOWS FROM OPERATING ACTIVITIES

    Net income                                       $36,854        $10,681

    Adjustments to reconcile net income to net cash

     provided by operating

    activities:

      Depreciation and amortization expense           32,833         17,954

      Attachment O revenue accrual                   (23,541)             -

      Amortization of deferred financing fees and

       discount on long-term debt                        815            679

      Stock-based compensation expense                 1,622          1,294

      Loss on extinguishment of debt                     349              -

      Deferred income taxes                           19,998          5,696

      Other long-term liabilities                      1,924          1,124

      Other regulatory assets                           (524)           966

      Allowance for equity funds used during

       construction                                   (2,853)        (1,360)

      Other                                             (892)          (640)

      Changes in current assets and liabilities,

       exclusive of changes shown separately          (7,503)       (12,140)

         Net cash provided by operating activities    59,082         24,254



    CASH FLOWS FROM INVESTING ACTIVITIES

      Expenditures for property, plant and

        equipment                                   (148,162)       (66,077)

      Acquisition-related transaction costs           (1,459)          (534)

      Other                                              926              -

         Net cash used in investing activities      (148,695)       (66,611)



    CASH FLOWS FROM FINANCING ACTIVITIES

      Issuance of long-term debt                           -         99,890

      Borrowings under ITC Holdings' Term Loan

       Agreement                                      25,000              -

      Borrowings under revolving credit agreements   293,300         70,700

      Repayments of revolving credit agreements     (209,600)       (87,000)

      Issuance of common stock                         1,759            304

      Common stock issuance costs                         (5)           (23)

      Dividends on common stock                      (23,363)       (17,470)

      Repurchase and retirement of common stock       (1,841)             -

      Debt issuance costs                               (565)        (2,031)

           Net cash provided by financing activities  84,685         64,370



    NET INCREASE IN CASH AND CASH EQUIVALENTS         (4,928)        22,013



    CASH AND CASH EQUIVALENTS - Beginning of period   13,426         24,591



    CASH AND CASH EQUIVALENTS - End of period         $8,498        $46,604





 

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.itc-holdings.com

 

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