ITC Holdings Corp. Reports Third Quarter 2007 Results

Oct 31, 2007

NOVI, Mich., Oct 31, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- ITC Holdings Corp. (NYSE: ITC) today announced its third quarter results for the period ended September 30, 2007. Net income for the quarter was $20.8 million, or $0.48 per diluted share, compared to $18.9 million, or $0.55 per diluted share for the third quarter of 2006. Net income for the first nine months of 2007 was $57.7 million, or $1.33 per diluted share, compared to $29.6 million, or $0.87 per diluted share for the same period last year.

Diluted earnings per share in the third quarter are lower than the third quarter of 2006 mainly due to the impact of Forward-Looking Attachment O in the quarter and the additional shares outstanding as a result of the METC acquisition in October of 2006. Forward-Looking Attachment O which became effective January 1, 2007, results in more consistent net income for each quarterly period within a given year, compared to the historical Attachment O method. Third quarter of 2006 under historical Attachment O included higher revenues based on the higher actual load experienced in the quarter.

"Our strong year-to-date financial results demonstrate the continued success we are achieving in our business objectives," said Joseph L. Welch, president and CEO of ITC. "The order from the Iowa Utilities Board approving the acquisition of the Interstate Power and Light transmission assets in September was an important milestone toward our commitment to improving electric reliability, reducing power congestion, providing access to regional energy markets and expanding market participation by renewable resources."

In the third quarter of 2007, ITCTransmission invested $55.7 million and METC invested $15.1 million in property plant and equipment in their respective transmission systems. For the nine- month period, ITCTransmission invested $155.0 million and METC invested $55.4 million.

ITC reported operating revenues of $109.3 million for the third quarter 2007, an increase of $46.3 million over the comparable period last year. Network revenues increased by $38.6 million in the third quarter as a result of the acquisition of METC. Point-to-point, scheduling, control and dispatch revenues increased by $5.8 million primarily due to the acquisition of METC.

Operating revenues for the nine months ended September 30, 2007, were $316.9 million, an increase of $166.3 million compared to the first nine months of 2006. Network revenues increased by $111.2 million as a result of the October 2006 acquisition of METC. Network revenues also increased by $39.7 million at ITCTransmission mainly due to higher rates. Point-to-point, scheduling, control and dispatch revenues increased by $15.0 million primarily due to the acquisition of METC.

Operation & Maintenance (O&M) expenses of $22.5 million were $16.9 higher in the third quarter of 2007 than the same period in 2006. This increase was mainly due to $10.9 million of O&M expenses incurred at METC in the third quarter of 2007 for contractor expenses for substation operations and coordinating shutdowns, transmission structure maintenance, vegetation management, inspections, general site maintenance, general support costs, easement payments, ancillary services and asset mapping activities. O&M expenses increased at ITCTransmission by $4.6 million primarily as a result of additional tower painting, transmission structure maintenance, inspections, general site maintenance and maintenance support costs. Furthermore, ITCTransmission and METC incurred an additional $1.1 million for transmission system monitoring and control due to the increased activity at our operations facility needed to operate both ITCTransmission's and METC's transmission systems during the three months ended September 30, 2007, as compared to only ITCTransmission's system during the same period 2006.

For the nine months ended September 30, 2007, O&M expenses of $62.5 million were $43.2 million higher than the same period in 2006. This increase was mainly due to $32.9 million of O&M expenses incurred at METC in the first nine months of 2007 for contractor expenses for substation operations and coordinating shutdowns, transmission structure maintenance, vegetation management, inspections, general site maintenance, general support costs, easement payments, ancillary services and asset mapping activities. O&M expenses increased at ITCTransmission by $7.9 million primarily as a result of additional tower painting, transmission structure maintenance, inspections, general site maintenance and maintenance support costs. Furthermore, ITCTransmission and METC incurred an additional $2.3 million for transmission system monitoring and control due to the increased activity at our operations facility needed to operate both ITCTransmission's and METC's transmission systems during the three months ended September 30, 2007 as compared to only ITCTransmission's system during the same period 2006.

General and administrative (G&A) expenses of $13.4 million for the third quarter of 2007 were $3.5 million higher than the same period in 2006. G&A expenses increased by $2.9 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 $0.5 million primarily due to expenses at ITC Grid Development and ITC Great Plains subsidiaries for salaries, benefits and general business expenses incurred during the third quarter of 2007.

For the nine months ended September 30, 2007, G&A expenses of $40.6 million were $15.3 million higher than for the same period in 2006. G&A expenses increased $12.6 million due primarily to higher compensation and benefits, professional advisory and consulting services, business expenses and higher insurance premiums 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 $1.2 million at ITC Grid Development and ITC Great Plains subsidiaries for salaries, benefits and general business expenses incurred during the first nine months of 2007.

Depreciation and amortization expenses of $17.1 million increased by $7.8 million in the third quarter of 2007 compared to the same period in 2006 mainly due to the acquisition of METC, which resulted in an additional $4.6 million of depreciation and amortization 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 and amortization expenses increased by $1.8 million at ITCTransmission owing to a higher depreciable asset base as a result of property, plant and equipment additions.

For the nine-month period ended September 30, 2007, depreciation and amortization expenses of $49.9 million increased by $22.7 million compared to the same period in 2006 mainly due to the acquisition of METC, which resulted in an additional $13.0 million of depreciation expense related to property, plant and equipment and $4.6 million due to the amortization of METC's regulatory assets and intangible assets associated with the METC ADIT deferral and regulatory asset deferral. Furthermore, depreciation expense increased by $4.9 million at ITCTransmission owing to a higher depreciable asset base as a result of property, plant and equipment additions during the first nine months of 2007 compared to same period last year.

Taxes other than income taxes of $8.3 million in the third quarter of 2007 increased by $2.8 million compared to the same period in 2006. METC incurred $2.0 million of property tax expense in the third quarter of 2007, which was not included in the same period in 2006. Additionally, ITCTransmission property taxes increased by $0.7 million in the third quarter of 2007 mainly due to 2006 capital additions, which are included in the assessments for 2007 personal property taxes.

For the nine-month period ended September 30, 2007, taxes other than income taxes of $25.1 million were $9.4 million higher compared to the same period in 2006. METC incurred $6.1 million of property tax expense in the first nine months of 2007, which were not included in the same period in 2006. At ITCTransmission property taxes increased by $2.2 million in the first nine months of 2007 mainly due to 2006 capital additions, which are included in the assessments for 2007 personal property taxes. Taxes other than income taxes also increased by $0.9 million due to higher payroll taxes.

In the third quarter and nine months ended September 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. While year-to-date results might indicate higher earnings per share for the year, there are some one-time expenditures and transaction costs that could impact the year-end results. Capital expenditures for 2007 are expected to be approximately $200 million and $60 million for ITCTransmission and METC, respectively, which is a $10 million increase over prior guidance for each company.

Third Quarter Conference Call

ITC will conduct a conference call to discuss third quarter 2007 earnings results at 11:00 a.m. ET Thursday, November 1, 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 third quarter of 2007. Individuals wishing to participate in the conference call may dial toll-free (888) 389-5986 (domestic) or (719) 325-2329 (international); there is no passcode. The conference call replay, available through November 7, 2007, can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 3474516 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 third 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) 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 and Michigan Electric Transmission Company (METC), ITC operates contiguous, regulated, high-voltage transmission systems in Michigan's Lower Peninsula serving a combined peak load in excess of 22,000 megawatts. ITC is also focused on new areas where significant transmission system improvements are needed through subsidiaries ITC Midwest, 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 "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 Reports on Form 10-Q).

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      Nine months ended

                                      September 30,           September 30,

                                    2007        2006        2007        2006



    OPERATING REVENUES          $ 109,272     $63,004   $ 316,850   $ 150,548





    OPERATING EXPENSES



     Operation and maintenance     22,451       5,542      62,494      19,317

     General and administrative    13,376       9,827      40,603      25,292

     Depreciation and amortization 17,060       9,259      49,893      27,213

     Taxes other than income taxes  8,253       5,409      25,089      15,739

      Total operating expenses     61,140      30,037     178,079      87,561



    OPERATING INCOME               48,132      32,967     138,771      62,987



    OTHER EXPENSES (INCOME)



      Interest expense             20,084       8,506      59,156      23,640

      Allowance for equity funds

       used during construction    (2,339)     (1,250)     (5,192)     (2,610)

      Loss on extinguishment of

       debt                             -           -         349           -

      Other income                 (1,128)        (47)     (2,847)       (488)

      Other expense                   175         256         844         408

      Total other expenses

       (income)                    16,792       7,465      52,310      20,950



    INCOME BEFORE INCOME TAXES     31,340      25,502      86,461      42,037



    INCOME TAX PROVISION           10,540       6,553      28,807      12,436



    INCOME BEFORE CUMULATIVE EFFECT

     OF A CHANGE IN ACCOUNTING

     PRINCIPLE                     20,800      18,949      57,654      29,601



    CUMULATIVE EFFECT OF A CHANGE

     IN ACCOUNTING PRINCIPLE

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



    NET INCOME                    $20,800     $18,949     $57,654     $29,630





    Basic earnings per share        $0.49      $ 0.57      $ 1.36      $ 0.90

    Diluted earnings per share      $0.48      $ 0.55      $ 1.33      $ 0.87



    Weighted-average basic

     shares                    42,369,352  33,023,187  42,244,470  33,005,068

    Weighted-average diluted

     shares                    43,592,868  34,386,991  43,474,222  34,081,968



    Dividends declared per

     common share                  $0.290      $0.275      $0.840      $0.800







    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

    (in thousands, except share data)



    ASSETS                                      September 30,   December 31,

    Current assets                                      2007           2006

     Cash and cash equivalents                        $2,362        $13,426

     Restricted cash                                   4,776          4,565

     Accounts receivable                              42,442         35,325

     Inventory                                        18,331         25,408

     Deferred income taxes                            15,506         21,023

     Other                                             4,221          9,926

      Total current assets                            87,638        109,673



    Property, plant and equipment

     (net of accumulated depreciation and

      amortization of $642,524 and $608,956,

      respectively)                                1,389,648      1,197,862

    Other assets

     Goodwill                                        628,757        624,385

     Intangible assets (net of accumulated

      amortization of $2,269 and $0, respectively)    56,138         58,407

     Regulatory assets- acquisition adjustments       87,401         91,443

     Regulatory assets- Attachment O revenue accrual

     (including accrued interest of $168)             12,810              -

     Other regulatory assets                          26,701         26,183

     Deferred financing fees

     (net of accumulated amortization of

      $4,327 and $4,817, respectively)                13,654         14,490

     Other                                            10,525          6,354

      Total other assets                             835,986        821,262

    TOTAL ASSETS                                 $ 2,313,272    $ 2,128,797



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities

     Accounts payable                                $52,510        $33,295

     Accrued payroll                                   6,029          5,192

     Accrued interest                                  7,576         18,915

     Accrued taxes                                     4,421         14,152

     METC rate case accrued liability                 20,000         20,000

     Other                                             5,064          8,012

      Total current liabilities                       95,600         99,566

    Accrued pension liability                          5,161          7,782

    Accrued postretirement liability                   3,923          3,268

    Deferred income taxes                             92,683         75,730

    Regulatory liabilities-

     Attachment O revenue deferral

     (including accrued interest of $95)               2,879              -

    Other regulatory liabilities                     142,982        138,726

    Asset retirement obligation                        5,627          5,346

    Other                                              4,603          3,857

    Long-term debt                                 1,401,687      1,262,278

    STOCKHOLDERS' EQUITY

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

      shares authorized, 42,764,859 and 42,395,760

      shares issued and outstanding at September 30,

      2007 and December 31, 2006, respectively       530,417        526,485

    Retained earnings                                 28,617          6,714

    Accumulated other comprehensive loss               (907)          (955)

      Total stockholders' equity                     558,127        532,244

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 2,313,272    $ 2,128,797







    ITC HOLDINGS CORP. AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

    (in thousands)

                                                         Nine months ended

                                                           September 30,

                                                        2007           2006

    CASH FLOWS FROM OPERATING ACTIVITIES

    Net income                                       $57,654        $29,630

    Adjustments to reconcile net income to

     net cash provided by operating activities:

     Depreciation and amortization expense            49,893         27,213

     Attachment O revenue accrual-

      net, including accrued interest                 (9,931)             -

     Amortization of deferred financing fees and

      discount on long-term debt                       1,226            990

     Stock-based compensation expense                  2,402          2,212

     Loss on extinguishment of debt                      349              -

     Deferred income taxes                            31,433         16,456

     Other long-term liabilities                      (1,220)         2,445

     Other regulatory assets                            (620)        (2,322)

     Allowance for equity funds used during

      construction                                    (5,192)        (2,610)

     Other                                            (2,243)        (3,942)

     Changes in current assets and liabilities,

      exclusive of changes shown separately          (23,111)       (27,062)

       Net cash provided by operating activities     100,640         43,010



    CASH FLOWS FROM INVESTING ACTIVITIES

     Expenditures for property, plant and

      equipment                                     (214,319)      (117,422)

     Acquisition-related transaction costs            (1,818)          (624)

     Other                                               926              -

       Net cash used in investing activities        (215,211)      (118,046)



    CASH FLOWS FROM FINANCING ACTIVITIES

     Issuance of long-term debt                      100,000         99,890

     Borrowings under ITC Holdings' Term Loan

      Agreement                                       25,000              -

     Repayment of ITC Holdings' Term Loan Agreement  (25,000)             -

     Borrowings under revolving credit agreements    455,400         91,600

     Repayments of revolving credit agreements      (416,100)      (104,000)

     Issuance of common stock                          2,860            403

     Common stock issuance costs                          (5)          (456)

     Dividends on common stock                       (35,751)       (26,648)

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

     Debt issuance costs                              (1,056)        (2,328)

       Net cash provided by financing activities     103,507         58,461



    NET INCREASE IN CASH AND CASH EQUIVALENTS        (11,064)       (16,575)



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



    CASH AND CASH EQUIVALENTS - End of period         $2,362         $8,016



 

SOURCE ITC Holdings Corp.

 

http://www.itc-holdings.com

 

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