ITC Holdings Corp. Reports Third Quarter 2008 Results

Nov 05, 2008

NOVI, Mich., Nov 05, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Highlights

- Net income for the third quarter of $28.0 million, or $0.56 per diluted share

- Net income for the first nine months of 2008 of $82.2 million, or $1.66 per diluted share

- Investments in property, plant & equipment for nine months ended September 30, 2008 for ITCTransmission, METC and ITC Midwest of $91.3 million, $85.4 million and $110.4 million, respectively

- Updated 2008 EPS guidance of $2.10 to $2.12

- Updated 2008 guidance for investments in property, plant & equipment of $115 - 120 million, $110 - 120 million and $120-140 million for ITCTransmission, METC and ITC Midwest, respectively

ITC Holdings Corp. (NYSE: ITC) today announced its third quarter results for the period ended September 30, 2008. Net income for the quarter was $28.0 million, or $0.56 per diluted share, compared to $20.8 million, or $0.48 per diluted share for the third quarter of 2007. Net income for the first nine months of 2008 was $82.2 million, or $1.66 per diluted share, compared to $57.7 million, or $1.33 per diluted share for the same period last year.

"ITC has had another strong quarter and continues to deliver on its financial commitments," said Joseph L. Welch, chairman, president and CEO of ITC. "Our positive results continue to be driven primarily 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.

"We have updated our 2008 earnings guidance to reflect our better than expected results, which are mainly due to higher projected rate base, partially offset by a ramp-up of ITC Grid Development expenses. The turmoil in the financial markets is not impacting our capital expenditure plans," Welch continued, "and we continue to focus on our strategic efforts to grow beyond our current footprint by building regional transmission."

In the third quarter of 2008, ITCTransmission invested $19.0 million, METC invested $31.3 million and ITC Midwest invested $60.8 million in their respective transmission systems. For the nine month period, ITCTransmission, METC and ITC Midwest's respective investments were $91.3 million, $85.4 million and $110.4 million.

ITC reported operating revenues of $163.3 million for the third quarter 2008, an increase of $54.0 million over the comparable period last year. Network revenues increased by $34.9 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 September 30, 2007. METC and ITCTransmission also recognized additional network revenues of $5.7 million and $6.8 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 due primarily to $1.6 million of ITC Midwest revenues. Regional cost sharing revenues which became applicable during 2008 were $4.6 million for the three months ended September 30, 2008.

Operating revenues for the nine months ended September 30, 2008, were $465.8 million, an increase of $149.0 million compared to the first nine months of 2007. Network revenues increased by $95.6 million as a result of the acquisition by ITC Midwest of the IPL electric transmission assets. METC and ITCTransmission also recognized additional network revenues of $18.6 million and $14.6 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 due primarily to the addition of $5.0 million of ITC Midwest revenues. Regional cost sharing revenues which became applicable during 2008 were $12.0 million for the nine months ended September 30, 2008.

Operation & maintenance (O&M) expenses of $33.3 million were $10.8 million higher in the third quarter of 2008 than the same period in 2007. O&M expenses increased due primarily to expenses of $8.1 million incurred by ITC Midwest that were not included in our results of operations for the three months ended September 30, 2007. As well as the increases in O&M expenses relating to ITC Midwest, METC incurred additional vegetation management expenses of $2.2 million.

For the nine months ended September 30, 2008, O&M expenses of $87.6 million were $25.1 million higher than for the same period in 2007. O&M expenses increased by $17.8 million due to amounts incurred by ITC Midwest, for which no amounts were included in our results of operations for the nine months ended September 30, 2007. Further, METC incurred additional vegetation management expenses of $7.2 million.

General and administrative (G&A) expenses of $20.6 million for the third quarter of 2008 were $7.3 million higher than the same period in 2007. G&A expenses increased due primarily to increased personnel, higher business expenses and professional advisory and consulting services, all of which include incremental costs incurred by ITC Midwest.

For the nine months ended September 30, 2008, G&A expenses of $60.0 million were $19.4 million higher than for the same period in 2007. G&A expenses increased $16.6 million due primarily to increased personnel, higher business expenses and professional advisory and consulting services, mainly as a result of the acquisition of IPL transmission assets. Also, G&A expenses increased by $1.8 million at ITC Grid Development and ITC Great Plains subsidiaries for salaries, benefits and general business expenses due to increased development activities during the nine months ended September 30, 2008.

Depreciation and amortization expenses increased by $6.8 million in the third quarter of 2008 compared to the same period in 2007. ITC Midwest recognized depreciation expenses of $4.9 million for the three months ended September 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 $19.7 million in the nine months ended September 30, 2008 compared to the same period in 2007. ITC Midwest recognized depreciation expenses of $13.3 million for the nine months ended September 30, 2008. Depreciation and amortization expenses also increased at ITCTransmission and METC due primarily 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 September 30, 2008. Additionally, property tax expenses at ITCTransmission and METC increased by $1.0 million due primarily 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 $0.6 million as a result of the replacement of the Michigan Single Business Tax.

For the nine months ended September 30, 2008, taxes other than income taxes increased due to property tax expenses at ITC Midwest of $4.8 million. Additionally, property tax expenses at ITCTransmission and METC increased by $3.1 million due primarily 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 $1.6 million as a result of the replacement of the Michigan Single Business Tax.

During the third quarter of 2008, METC sold a building for net proceeds of $4.9 million resulting in a $0.5 million loss. Additionally in the second quarter of 2008 ITCTransmission sold a permanent easement of land for a gain of $1.4 million resulting in a year to date net gain of $0.9 million.

For three and nine months ended September 30, 2008, compared to three and nine months ended September 30, 2007 interest expense increased by $10.5 million and $32.1 million respectively, due primarily to higher borrowing levels to finance our capital expenditures and to finance the ITC Midwest's asset acquisition.

Guidance for 2008

For 2008, earnings per diluted share are expected to be between $2.10 and $2.12. This increase, compared to prior EPS guidance of $2.00 to $2.05, is due mainly to higher projected rate base partially offset by a ramp up of non-recoverable development expenses at ITC Grid Development. Investments in property, plant & equipment for 2008 are expected to be approximately $115 - $120 million, $110-120 million and $120-140 million for ITCTransmission, METC and ITC Midwest, respectively.

Third quarter Conference Call

ITC will conduct a conference call to discuss third quarter 2008 earnings results at 1 p.m. ET November 6, 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 third quarter of 2008. Individuals wishing to participate in the conference call may dial toll-free (877) 440-5786 (domestic) or (719) 325-4918 (international); there is no passcode. The conference call replay, available through Thursday, November 13, 2008 can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 2772455. 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 third 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: https://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 others, 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. 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 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.

    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,
                                   2008        2007        2008        2007

    OPERATING REVENUES           $163,279    $109,272    $465,809    $316,850

    OPERATING EXPENSES

     Operation and maintenance     33,271      22,451      87,628      62,494
     General and
      administrative               20,640      13,376      59,983      40,603
     Depreciation and
      amortization                 23,869      17,060      69,639      49,893
     Taxes other than
      income taxes                 10,552       8,253      31,750      25,089
     Net (gain)/loss on
      sale of assets                  515           -        (930)          -
        Total operating expenses   88,847      61,140     248,070     178,079

    OPERATING INCOME               74,432      48,132     217,739     138,771

    OTHER EXPENSES (INCOME)

     Interest expense              30,547      20,084      91,263      59,156
     Allowance for equity
      funds used during
      construction                 (2,672)     (2,339)     (8,052)     (5,192)
     Loss on
      extinguishment of debt            -           -           -         349
     Other income                    (847)     (1,128)     (1,909)     (2,847)
     Other expense                  1,494         175       2,928         844
        Total other expenses
         (income)                  28,522      16,792      84,230      52,310

    INCOME BEFORE INCOME TAXES     45,910      31,340     133,509      86,461

    INCOME TAX PROVISION           17,865      10,540      51,282      28,807

    NET INCOME                    $28,045     $20,800     $82,227     $57,654


    Basic earnings per share        $0.57       $0.49       $1.70       $1.36
    Diluted earnings per share      $0.56       $0.48       $1.66       $1.33

    Weighted-average
     basic shares              49,035,446  42,369,352  48,449,303  42,244,470
    Weighted-average
     diluted shares            50,245,145  43,592,868  49,653,897  43,474,222

    Dividends declared
     per common share              $0.305      $0.290      $0.885      $0.840



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

                                                September 30,  December 31,
                                                    2008           2007
    ASSETS
    Current assets
      Cash and cash equivalents                    $36,012         $2,616
      Accounts receivable                           57,584         40,919
      Inventory                                     19,158         26,315
      Deferred income taxes                         27,246          2,689
      Regulatory assets   - Attachment O
       revenue accrual (including accrued
       interest of $1,364)                          16,862              -
      Other                                          4,992          3,518
               Total current assets                161,854         76,057

    Property, plant and equipment
     (net of accumulated depreciation
     and amortization of $916,632 and
     $879,843, respectively)                     2,206,072      1,960,433
    Other assets
      Goodwill                                     959,811        959,042
      Intangible assets (net of accumulated
       amortization of $5,294 and $3,025,
       respectively)                                53,113         55,382
      Regulatory assets- Attachment O
       revenue accrual (including accrued
       interest of $476 and $552, respectively)     55,306         20,537
      Other regulatory assets                      112,001        115,503
      Deferred financing fees (net of
       accumulated amortization of   $7,515
       and $5,138, respectively)                    20,122         14,201
      Other                                         27,306         12,142
              Total other assets                 1,227,659      1,176,807
    TOTAL ASSETS                                $3,595,585     $3,213,297

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Accounts payable                             $75,709        $47,627
      Accrued payroll                               11,104          8,928
      Accrued interest                              13,641         23,088
      Accrued taxes                                 10,466         15,065
      ITC Midwest's asset acquisition
       additional purchase price accrual                 -          5,402
      Refundable deposits from generators
       for transmission network upgrades            13,954          2,352
      Other                                          4,174          3,965
               Total current liabilities           129,048        106,427
    Accrued pension and postretirement
     liabilities                                    17,193         13,934
    Deferred income taxes                          169,057         90,617
    Regulatory liabilities                         195,234        189,727
    Other                                            5,838          6,093
    Long-term debt                               2,163,446      2,243,424

    STOCKHOLDERS' EQUITY
    Common stock, without par value,
     100,000,000 shares  authorized,
     49,629,489 and 42,916,852 shares
     issued and outstanding at
     September 30, 2008 and
     December 31, 2007, Respectively               846,329        532,103
    Retained earnings                               70,284         31,864
    Accumulated other comprehensive loss              (844)          (892)
                Total stockholders' equity         915,769        563,075
    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                     $3,595,585     $3,213,297



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (in thousands)

                                                          Nine months ended
                                                            September 30,
                                                            2008      2007
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                            $82,227   $57,654
    Adjustments to reconcile net income to net cash
     provided by  operating activities:
       Depreciation and amortization expense               69,639    49,893
       Attachment O revenue accrual-including accrued
        interest                                          (51,619)   (9,931)
       Deferred income tax expense                         49,644    28,807
       Allowance for equity funds used during
        construction                                       (8,052)   (5,192)
       Stock-based compensation expense                     4,671     2,402
       Amortization of loss on reacquired debt,
        deferred financing fees and debt discounts          4,234     3,144
       Other                                                 (893)     (123)
       Changes in assets and liabilities, exclusive
        of changes shown separately                       (19,821)  (26,014)
               Net cash provided by operating
                activities                                130,030   100,640

    CASH FLOWS FROM INVESTING ACTIVITIES
       Expenditures for property, plant and equipment    (288,974) (214,319)
       ITC Midwest's asset acquisition additional
        purchase price                                     (4,714)        -
       ITC Midwest's asset acquisition direct fees         (1,008)   (1,818)
       Other                                                6,194       926
               Net cash used in investing
                activities                               (288,502) (215,211)

    CASH FLOWS FROM FINANCING ACTIVITIES
       Issuance of long-term debt                         657,782   100,000
       Repayment of long-term debt                       (765,000)        -
       Borrowings under ITC Holdings' Term Loan
        Agreement                                               -    25,000
       Repayment of ITC Holdings' Term Loan Agreement           -   (25,000)
       Borrowings under revolving credit agreements       480,511   455,400
       Repayments of revolving credit agreements         (453,500) (416,100)
       Issuance of common stock                           310,237     2,860
       Common stock issuance costs                           (797)       (5)
       Dividends on common stock                          (43,793)  (35,751)
       Repurchase and retirement of common stock                -    (1,841)
       Debt issuance costs                                 (5,409)   (1,056)
       Refundable deposits from generators for
        transmission network upgrades                      14,189         -
       Repayment of refundable deposits from
        generators for transmission network upgrades       (2,352)        -
               Net cash provided by financing
                activities                                191,868   103,507

    NET INCREASE/(DECREASE)IN CASH AND
     CASH EQUIVALENTS                                      33,396   (11,064)

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

    CASH AND CASH EQUIVALENTS - End of period              36,012    $2,362


SOURCE ITC Holdings Corp.

https://www.itc-holdings.com/itc/about-us/fixed-income-investors

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