ITC Holdings Corp. Reports Third Quarter 2006 Results

Nov 01, 2006

NOVI, Mich., Nov 01, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- ITC Holdings Corp. (NYSE: ITC) today announced its results for the third quarter ended September 30, 2006. Net income for the quarter was $16.5 million, or $0.48 per diluted share, compared to $13.5 million, or $0.40 per diluted share, for the third quarter of 2005. Net income for the first nine months of 2006 was $27.2 million, or $0.80 per diluted share, compared to $33.0 million, or $1.03 per diluted share, for the same period last year.

"The third quarter was a most eventful one for ITC as we further positioned our Company for significant future growth," said Joseph L. Welch, president and CEO of ITC Holdings Corp. "On October 10, 2006, ITC Holdings Corp. completed the acquisition, announced in May 2006, of all of the outstanding equity interests in Michigan Electric Transmission Company, LLC ("METC"), a privately-held company and the neighboring transmission system to ITCTransmission, in a transaction valued at approximately $863 million. In addition we completed successful common equity and debt offerings required to fund the acquisition. This represents a very important milestone for us that supports our growth strategy. This transaction will increase ITC Holdings' size and scale and provides us with incremental opportunities to deploy capital investments going forward."

Mr. Welch continued, "Our ability to rebuild and strengthen the transmission grid in Southeast Michigan was further enhanced by the FERC's approval of an adjustment to the implementation of ITCTransmission's Attachment O formula rate on July 14th. This adjustment authorizes the recovery of ITCTransmission's expenses and investments on a current rather than lagging basis beginning in January 2007. The order also reaffirmed our regulatory structure including our 13.88% return on equity, our capital structure and the fact that there is no expiration of Attachment O, our formulaic rate making mechanism."

ITCTransmission, a wholly-owned subsidiary of ITC Holdings Corp., also continued to make important infrastructure improvements during the third quarter. The company invested $51.4 million in rebuilding and upgrading its transmission system during the quarter. In the first nine months of 2006, ITCTransmission invested $124.8 million in property, plant and equipment and currently it expects to invest approximately $145.0 million in capital additions in 2006.

The Company is also exploring future growth opportunities through the creation of ITC Grid Development, LLC ("ITC Grid Development"). This subsidiary was formed to bring improvements to the U.S. electricity transmission system through partnerships with entities in regions where we believe transmission investment is needed to improve reliability and address local energy needs. ITC Great Plains, LLC ("ITC Great Plains"), a subsidiary of ITC Grid Development, was formed to focus on regulated transmission investment in the Great Plains region of the United States beginning with Kansas as the first area of focus.

"Financial results were in line with expectations," said Edward Rahill, senior vice president and CFO. "As discussed on our previous conference calls, point-to-point revenues in 2006 are expected to be approximately $15 to $17 million lower than last year, primarily due to improved efficiency in the power markets first introduced by the Midwest Independent Transmission System Operator ("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."

ITC Holdings reported operating revenues of $63.0 million for the third quarter 2006, a decrease of $3.0 million over the comparable period last year. Operating revenues for the nine month period were $150.5 million, a decrease of $8.7 million over the first nine months of 2005. As noted, this anticipated drop in revenues was primarily due to lower point-to-point revenues, slightly offset by higher network revenues.

General and administrative (G&A) expenses of $9.8 million during the third quarter of 2006 were $3.1 million higher than the same period in 2005. This increase was principally due to higher compensation and benefits expense and lower G&A capitalized. More than offsetting the effect of higher G&A expenses on total operating expenses was lower operation and maintenance (O&M) expenses of $5.5 million, which were $9.3 million lower, compared to the same period in 2005. For the nine months ended September 30, 2006, G&A expenses of $25.3 million were $8.6 million higher than the same period in 2005. O&M expenses of $19.3 million were $12.0 million lower than the same period in 2005.

Depreciation and amortization expenses increased in the three and nine month periods ended September 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.

ITC Holdings Provides Guidance for 2006 and 2007

In 2006 fully diluted earnings per share is expected to be in the range of $0.90 to $0.95 with a net income range of $31 to $34 million and adjusted EBITDA of $131 to $135 million. This includes results for METC from October 11 through December 31, 2006. In 2007 earnings per diluted share is expected to be between $1.50 and $1.60, which includes $13.4 million of pre-tax non- cash amortization ($8.9 million after-tax and $0.20 per diluted share) of an intangible asset recognized as a result of the acquisition of METC.

Third Quarter Conference Call

ITC Holdings Corp. will conduct a conference call to discuss third quarter 2006 earnings results at 11:00 a.m. EST Thursday, November 2, 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 third quarter of 2006. Individuals wishing to participate in the conference call may dial toll-free (888) 802-2279 (domestic) or (913) 312-1265 (international); there is no passcode. The conference call replay, available through Sunday, November 12, 2006, can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 1813644. 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 third 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, 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 investing in 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 tenth 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. Recently announced subsidiary ITC Grid Development, LLC will 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 will 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

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



    (in thousands, except

    share and per share         Three months ended        Nine months ended

     data)                         September  30,           September  30,

                                 2006         2005        2006         2005



    OPERATING REVENUES         $63,004      $66,047    $150,548     $159,225



    OPERATING EXPENSES



      Operation and maintenance  5,542       14,891      19,317       31,282

      General and administrative 9,827        6,723      25,292       16,734

      Depreciation and

       amortization              9,259        8,435      27,213       24,607

      Taxes other than income

       taxes                     5,409        2,104      15,739       10,223

      Termination of management

       agreements                    -        6,725           -        6,725

         Total operating

          expenses              30,037       38,878      87,561       89,571



    OPERATING INCOME            32,967       27,169      62,987       69,654



    OTHER EXPENSES (INCOME)



      Interest expense           8,506        7,006      23,640       21,014

      Allowance for equity

       funds used in

       construction             (1,250)        (707)     (2,610)      (2,178)

      Other income                 (47)        (220)       (488)        (688)

      Other expense                256          223         408          481

         Total other expenses

          (income)               7,465        6,302      20,950       18,629



    INCOME BEFORE INCOME

     TAXES                      25,502       20,867      42,037       51,025



    INCOME TAX PROVISION         9,005        7,374      14,888       18,046



    INCOME BEFORE CUMULATIVE

     EFFECT OF A CHANGE IN

     ACCOUNTING PRINCIPLE       16,497       13,493      27,149       32,979



    CUMULATIVE EFFECT OF A

     CHANGE IN ACCOUNTING

     PRINCIPLE (NET OF TAX

     OF $16)                         -            -          29            -



    NET INCOME                 $16,497      $13,493     $27,178      $32,979





    Basic earnings per share     $0.50        $0.42       $0.82        $1.07

    Diluted earnings per share   $0.48        $0.40       $0.80        $1.03



    Weighted-average basic

     shares                 33,023,187   32,095,482  33,005,068   30,932,887

    Weighted-average diluted

     shares                 34,386,991   33,375,482  34,081,968   32,132,161



    Dividends declared per

     common share              $0.2750      $0.2625     $0.8000      $0.2625











    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

    (in thousands, except share data)



    ASSETS                                        September 30,   December 31,

    Current assets                                     2006            2005

      Cash and cash equivalents                       $8,016         $24,591

      Accounts receivable                             22,341          19,661

      Inventory                                       22,627          19,431

      Deferred income taxes                            9,442           6,732

      Other                                            7,860           2,188

               Total current assets                   70,286          72,603



    Property, plant and equipment (net of

     accumulated depreciation and amortization

     of $411,571 and $414,852, respectively)         721,204         603,609

    Other assets

      Goodwill                                       174,256         174,256

      Regulatory assets - acquisition adjustment      49,744          52,017

      Other regulatory assets                          4,671           6,120

      Deferred financing fees (net of accumulated

       amortization of $3,455 and $2,564,

       respectively)                                   6,835           5,629

      Other                                           13,160           2,405

              Total other assets                     248,666         240,427

    TOTAL ASSETS                                  $1,040,156        $916,639



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

      Accounts payable                               $27,857         $27,618

      Accrued payroll                                  3,325           3,889

      Accrued interest                                 5,204          10,485

      Accrued taxes                                    3,940           7,378

      Other                                            7,447           3,288

               Total current liabilities              47,773          52,658

    Accrued pension liability                          6,100           5,168

    Accrued postretirement liability                   3,414           2,299

    Deferred compensation liability                      929             530

    Deferred income taxes                             39,180          21,334

    Regulatory liabilities                            62,878          45,644

    Asset retirement obligation                        4,947           4,725

    Deferred payables                                  2,444           3,665

    Long-term debt                                   604,904         517,315



    STOCKHOLDERS' EQUITY

      Common stock, without par value,

       100,000,000 shares authorized, 33,370,460

       and 33,228,638 shares issued and

       outstanding at September 30, 2006 and

       December 31, 2005, respectively               254,622         251,681

      Retained earnings                               12,327          11,792

      Accumulated other comprehensive income (loss)      638            (172)

               Total stockholders' equity            267,587         263,301

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $1,040,156        $916,639









    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    (in thousands)

                                                         Nine months ended

                                                           September 30,

                                                         2006         2005

    CASH FLOWS FROM OPERATING ACTIVITIES

    Net income                                          $27,178      $32,979

    Adjustments to reconcile net income to

     net cash provided by operating activities:

         Depreciation and amortization expense           27,213       24,607

         Amortization of deferred financing fees and

          discount on long term debt                        990        1,030

         Stock-based compensation expense                 2,212        1,084

         Deferred income taxes                           15,136       17,910

         Other long-term liabilities                      2,445       (1,204)

         Amortization of regulatory assets                1,450        1,450

         Allowance for equity funds used in

          construction                                   (2,610)      (2,178)

         Other                                           (3,942)      (1,567)

         Changes in current assets and liabilities,

          exclusive of changes shown separately         (27,062)     (44,390)

                    Net cash provided by operating

                     activities                          43,010       29,721



    CASH FLOWS FROM INVESTING ACTIVITIES

         Expenditures for property, plant and

          equipment                                    (117,422)     (87,294)

         Insurance proceeds on property, plant

          and equipment                                       -        4,900

         METC direct acquisition costs                     (624)           -

         Other                                                -          334

                    Net cash used in investing

                     activities                        (118,046)     (82,060)



    CASH FLOWS FROM FINANCING ACTIVITIES

         Issuance of long-term debt                      99,890            -

         Repayments of long-term debt                         -          (46)

         Borrowings under revolving credit facilities    91,600       65,500

         Repayments of revolving credit facilities     (104,000)     (40,500)

         Dividends paid                                 (26,648)      (8,713)

         Debt issuance costs                             (2,328)        (672)

         Issuance of common stock                           403       54,062

         Common stock issuance costs                       (456)      (1,649)

                    Net cash provided by financing

                     activities                          58,461       67,982



    NET INCREASE (DECREASE) IN CASH AND CASH

     EQUIVALENTS                                        (16,575)      15,643



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



    CASH AND CASH EQUIVALENTS - End of period            $8,016      $29,717



 

SOURCE ITC Holdings Corp.

 

Investors & Analysts: Pat Wenzel, +1-248-374-7200, pwenzel@itc-holdings.com, or

Media: Lisa Aragon, +1-248-835-9300, laragon@itc-holdings.com, both of ITC Holdings

Corp.

http://www.itc-holdings.com

 

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