ITC Holdings Corp. Reports Second Quarter 2008 Results

Aug 06, 2008

NOVI, Mich., Aug 06, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- ITC Holdings Corp. (NYSE: ITC) today announced its second quarter results for the period ended June 30, 2008. Net income for the quarter was $28.7 million, or $0.57 per diluted share, compared to $20.0 million, or $0.46 per diluted share for the second quarter of 2007. Net income for the first six months of 2008 was $54.2 million, or $1.10 per diluted share, compared to $36.9 million, or $0.85 per diluted share for the same period last year.

"We are extremely pleased with our second quarter results, having posted strong growth in both revenues and net income," said Joseph L. Welch, chairman, president and CEO of ITC. "These positive results were primarily driven by ITC Midwest's acquisition of Interstate Power and Light Company's (IPL) electric transmission assets and growth in rate base at ITCTransmission and METC. Our first six month results further validate the strength of our growth strategy, and we have updated our 2008 earnings guidance to reflect our better than expected results. We are continuing in our efforts to further expand our footprint and remain committed to building the infrastructure and supporting policies that will improve electric reliability, facilitate access to renewable resources and provide customers equal access to wholesale energy markets."

In the second quarter of 2008, ITCTransmission invested $20.2 million, METC invested $27.9 million, and ITC Midwest invested $31.8 million in their respective transmission systems. For the six month period, ITCTransmission, METC and ITC Midwest's respective investments were $72.3 million, $54.1 million and $49.6 million.

In June the Cedar River in Cedar Rapids, Iowa, the location of ITC Midwest's headquarters, crested to 19 feet above flood stage, flooding hundreds of city blocks in and around Cedar Rapids and causing the evacuation of our employees as well as damage to two of our substations. ITC responded quickly and continues to work closely with IPL and Alliant Energy to restore reliable electrical service in and around the flood-affected areas. ITC Midwest suffered approximately $2 million in losses of protective relay and monitoring equipment. The majority of the damage is expected to be covered by insurance after a $1 million deductible. "We are very proud of our employees' and contractors' response and hard work in restoring electric service as soon as possible," said Jon E. Jipping, executive vice president and chief operating officer. "Their efforts demonstrate the strong teamwork and customer focus that is part of the ITC culture."

ITC reported operating revenues of $160.6 million for the second quarter 2008, an increase of $54.3 million over the comparable period last year. Network revenues increased by $32.5 million due to the December 2007 acquisition by ITC Midwest of the electric transmission assets of IPL, for which no revenues were included in our results of operations for the three months ended June 30, 2007. Additionally, METC and ITCTransmission recognized additional network revenues of $8.9 million and $5.8 million, respectively, mainly due to higher net revenue requirement as a result of higher rate base, operating expenses and taxes, among other items. Point-to-point, scheduling, control and dispatch revenues increased primarily due to $1.8 million of ITC Midwest revenues. Regional cost sharing revenues became applicable during 2008 and were $3.7 million for the three months ended June 30, 2008.

Operating revenues for the six months ended June 30, 2008, were $302.5 million, an increase of $95.0 million compared to the first six months of 2007. Network revenues billed increased by $60.7 million as a result of the acquisition by ITC Midwest of the IPL transmission assets. Additionally, METC and ITCTransmission recognized additional network revenues of $12.9 million and $7.8 million, respectively, due to higher net revenue requirement as a result of higher rate base, operating expenses and taxes, among other items. Point-to-point, scheduling, control and dispatch revenues increased primarily due to the addition of $3.4 million of ITC Midwest revenues. Regional cost sharing revenues became applicable during 2008 and were $7.4 million for the six months ended June 30, 2008.

Operation & maintenance (O&M) expenses of $32.9 million were $11.4 million higher in the second quarter of 2008 than the same period in 2007. O&M expenses increased primarily due to expenses incurred by ITC Midwest of $6.6 million that were not included in our results of operations for the three months ended June 30, 2007. In addition to the increases in O&M expenses relating to ITC Midwest, METC incurred additional vegetation management expenses of $4.7 million.

For the six months ended June 30, 2008, O&M expenses of $54.4 million were $14.3 million higher than for the same period in 2007. O&M expenses increased by $9.7 million due to amounts incurred by ITC Midwest, for which no amounts were included in our results of operations for the six months ended June 30, 2007. In addition to the increases in O&M expenses relating to ITC Midwest, METC incurred additional vegetation management expenses of $5.1 million.

General and administrative (G&A) expenses of $21.4 million for the second quarter of 2008 were $9.2 million higher than the same period in 2007. G&A expenses increased primarily due to personnel additions and higher business expenses, all of which include incremental costs incurred by ITC Midwest.

For the six months ended June 30, 2008, G&A expenses of $39.3 million were $12.1 million higher than for the same period in 2007. G&A expenses increased $10.2 million primarily due to personnel additions and higher business expenses, mainly as a result of the acquisition of IPL transmission assets. Also, G&A expenses increased by $1.1 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, 2008.

Depreciation and amortization expenses increased by $6.7 million in the second quarter of 2008, compared to the same period in 2007. ITC Midwest recognized depreciation expenses of $4.4 million for the three months ended June 30, 2008. Depreciation and amortization expenses also increased at ITCTransmission and METC due to a higher depreciable asset base resulting from property, plant and equipment additions.

Depreciation and amortization expenses increased $12.9 million in the six months ended June 30, 2008, compared to the same period in 2007. ITC Midwest recognized depreciation expenses of $8.5 million for the six months ended June 30, 2008. Depreciation and amortization expenses also increased at ITCTransmission and METC primarily due to a higher depreciable asset base resulting from property, plant and equipment additions.

Taxes other than income taxes increased due to property tax expenses at ITC Midwest of $1.6 million for the three months ended June 30, 2008. Additionally, property tax expenses at ITCTransmission and METC increased by $1.1 million primarily due to ITCTransmission and METC's capital additions, which are included in the assessments for 2008 personal property taxes. Partially offsetting these increases was a decrease of $0.4 million as a result of the replacement of the Michigan Single Business Tax.

For the six months ended June 30, 2008, taxes other than income taxes increased due to property tax expenses at ITC Midwest of $3.2 million. Additionally, property tax expenses at ITCTransmission and METC increased by $2.1 million primarily due to ITCTransmission and METC's capital additions, which are included in the assessments for 2008 personal property taxes. Partially offsetting these increases was a decrease of $1.0 million as a result of the replacement of the Michigan Single Business Tax.

During the three and six months ended June 30, 2008, ITCTransmission sold a permanent easement of land for a gain of $1.4 million.

For three and six months ended June 30, 2008, compared to three and six months ended June 30, 2007, interest expense increased primarily due to higher borrowing levels to finance our capital expenditures and to finance the ITC Midwest acquisition.

Guidance for 2008

For 2008, earnings per diluted share are expected to be between $2.00 and $2.05. This increase, compared to prior EPS guidance of $1.90 to $2.00, is mainly due to higher projected rate base, higher load dispatch and ancillary revenues and a gain on the sale of a permanent easement in the second quarter of 2008. Investments in property, plant & equipment for 2008 are expected to be approximately $95-110 million, $105-130 million and $85-100 million for ITCTransmission, METC and ITC Midwest, respectively, as previously disclosed.

Second Quarter Conference Call

ITC will conduct a conference call to discuss second quarter 2008 earnings results at 11 a.m. ET August 7, 2008. Joseph L. Welch, chairman, president and CEO, will provide a business overview and Edward M. Rahill, senior vice president and CFO, will discuss the financial results of the second quarter of 2008. Individuals wishing to participate in the conference call may dial toll- free (877) 440-5787 (domestic) or (719) 325-4863 (international); there is no passcode. The conference call replay, available through Thursday, August 14, 2008 can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 1924427. 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 2008 second quarter results may be found in ITC's Form 10-Q filing. Once filed with the Securities and Exchange Commission, an electronic copy of the 10-Q can be found at ITC'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) 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, ITCTransmission, Michigan Electric Transmission Company, LLC (METC) and ITC Midwest LLC, ITC operates 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, ITC Great Plains and ITC Panhandle Transmission. 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 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,
                               2008         2007         2008         2007

    OPERATING REVENUES       $160,616     $106,303     $302,530     $207,577


    OPERATING EXPENSES

      Operation and
       maintenance             32,902       21,503       54,357       40,043
      General and
       administrative          21,361       12,203       39,343       27,226
      Depreciation and
       amortization            23,446       16,711       45,770       32,833
      Taxes other than
       income taxes            10,313        8,066       21,198       16,836
      Gain on sale of asset    (1,445)           -       (1,445)           -
        Total operating
         expenses              86,577       58,483      159,223      116,938

    OPERATING INCOME           74,039       47,820      143,307       90,639

    OTHER EXPENSES (INCOME)

      Interest expense         29,946       19,940       60,716       39,072
      Allowance for
       equity funds used
       during construction     (2,284)      (1,613)      (5,380)      (2,853)
      Loss on extinguishment
       of debt                      -            -            -          349
      Other income               (552)      (1,018)      (1,062)      (1,720)
      Other expense               597          336        1,434          669
        Total other
         expenses (income)     27,707       17,645       55,708       35,517

    INCOME BEFORE
     INCOME TAXES              46,332       30,175       87,599       55,122

    INCOME TAX PROVISION       17,671       10,176       33,417       18,268

    NET INCOME                $28,661      $19,999      $54,182      $36,854


    Basic earnings
     per share                 $ 0.58       $ 0.47       $ 1.13       $ 0.87
    Diluted earnings
     per share                 $ 0.57        $0.46       $ 1.10       $ 0.85

    Weighted-average
     basic shares          49,002,365   42,269,646   48,153,011   42,180,993
    Weighted-average
     diluted shares        50,205,625   43,424,029   49,355,024   43,432,526

    Dividends declared
     per common share          $0.290       $0.275       $0.580       $0.550



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
    (in thousands, except share data)

                                                       June 30,   December 31,
                                                         2008          2007
    ASSETS
    Current assets
      Cash and cash equivalents                        $13,400        $2,616
      Accounts receivable                               55,854        40,919
      Inventory                                         22,786        26,315
      Deferred income taxes                             12,910         2,689
      Other                                              5,876         3,518
          Total current assets                         110,826        76,057

    Property, plant and equipment (net of
     accumulated depreciation and amortization
     of $898,729 and $879,843, respectively)         2,114,617     1,960,433
    Other assets
      Goodwill                                         960,071       959,042
      Intangible assets (net of accumulated
       amortization of $4,537 and $3,025,
       respectively)                                    53,870        55,382
      Regulatory assets - acquisition adjustments       83,359        86,054
      Regulatory assets - Attachment O revenue
       accrual (including accrued interest of
       $1,141 and $552, respectively)                   72,492        20,537
      Other regulatory assets                           29,732        29,449
      Deferred financing fees (net of
       accumulated amortization of $6,981
       and $5,138, respectively)                        20,656        14,201
      Other                                             21,441        12,142
          Total other assets                         1,241,621     1,176,807
    TOTAL ASSETS                                   $ 3,467,064    $3,213,297

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Accounts payable                                 $63,493       $47,627
      Accrued payroll                                    7,915         8,928
      Accrued interest                                  37,970        23,088
      Accrued taxes                                     22,647        15,065
      ITC Midwest's asset acquisition
       additional purchase price accrual                 4,960         5,402
      Refundable deposits from generators
       for transmission network upgrades                 9,902         2,352
      Other                                              3,811         3,965
          Total current liabilities                    150,698       106,427

    Accrued pension and postretirement
     liabilities                                        16,515        13,934
    Deferred income taxes                              135,917        90,617
    Regulatory liabilities                             193,500       189,727
    Other                                                4,490         6,093
    Long-term debt                                   2,065,652     2,243,424

    STOCKHOLDERS' EQUITY
      Common stock, without par value,
       100,000,000 shares authorized,
       49,463,885 and 42,916,852 shares
       issued and outstanding at June 30, 2008
       and December 31, 2007, respectively             843,777       532,103
      Retained earnings                                 57,375        31,864
      Accumulated other comprehensive loss                (860)         (892)
          Total stockholders' equity                   900,292       563,075
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 3,467,064    $3,213,297



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (in thousands)
                                                        Six months ended
                                                             June 30,
                                                        2008          2007
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                         $54,182       $36,854
    Adjustments to reconcile net income to
     net cash provided by operating activities:
      Depreciation and amortization expense             45,770        32,833
      Attachment O revenue accrual -
       including accrued interest                      (51,946)      (23,541)
      Deferred income tax expense                       32,564        18,268
      Allowance for equity funds used
       during construction                              (5,380)       (2,853)
      Stock-based compensation expense                   3,220         1,622
      Amortization of loss on reacquired debt,
       deferred financing fees and debt discounts        3,075         2,190
      Other                                             (1,435)          (76)
      Changes in assets and liabilities,
       exclusive of changes shown separately            21,094        (6,215)
          Net cash provided by operating activities    101,144        59,082

    CASH FLOWS FROM INVESTING ACTIVITIES
      Expenditures for property, plant
       and equipment                                  (193,793)     (148,162)
      ITC Midwest's asset acquisition direct fees         (981)       (1,459)
      Other                                              1,445           926
          Net cash used in investing activities       (193,329)     (148,695)

    CASH FLOWS FROM FINANCING ACTIVITIES
      Issuance of long-term debt                       657,782             -
      Borrowings under ITC Holdings'
       Term Loan Agreement                                   -        25,000
      Repayment of long-term debt                     (765,000)            -
      Borrowings under revolving
       credit agreements                               282,500       293,300
      Repayments of revolving credit agreements       (353,200)     (209,600)
      Issuance of common stock                         309,427         1,759
      Common stock issuance costs                         (755)           (5)
      Dividends on common stock                        (28,662)      (23,363)
      Repurchase and retirement of common stock              -        (1,841)
      Debt issuance costs                               (5,409)         (565)
      Refundable deposits from generators for
       transmission network upgrades                     6,286             -
          Net cash provided by financing
           activities                                  102,969        84,685

    NET INCREASE IN CASH AND CASH EQUIVALENTS           10,784        (4,928)

    CASH AND CASH EQUIVALENTS - Beginning of period      2,616        13,426

    CASH AND CASH EQUIVALENTS - End of period          $13,400        $8,498


SOURCE ITC Holdings Corp.

http://www.itc-holdings.com/

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