ITC Holdings Reports 2009 Second Quarter Earnings Increase of 7.4 Percent Over 2008; Raises 2009 EPS and Capital Expenditure Guidance

Jul 29, 2009

NOVI, Mich., July 29, 2009 /PRNewswire-FirstCall via COMTEX News Network/ --

    (in thousands,
     except  per
     share data)         Three months ended   Six months ended
                                June 30,            June 30,
                         ------------------  ------------------
                             2009      2008      2009      2008
                         --------  --------  --------  --------
    OPERATING REVENUES   $157,238  $160,616  $313,179  $302,530

    NET INCOME            $30,793   $28,661   $59,518   $54,182

    DILUTED EPS (1)         $0.61     $0.57     $1.17     $1.09

 

ITC Holdings Corp. (NYSE: ITC) today announced its second quarter and year-to-date results for the period ended June 30, 2009. Net income for the quarter was $30.8 million, or $0.61 per diluted common share, compared to $28.7 million, or $0.57 per diluted common share for the second quarter of 2008. Net income for the six months ended June 30, 2009 was $59.5 million, or $1.17 per diluted common share, compared to $54.2 million, or $1.09 per diluted common share for the same period last year.

"ITC experienced another quarter of strong operational and financial performance," said Joseph L. Welch, chairman, president and CEO of ITC. "Our earnings growth continues to be driven by our investments in our transmission systems which provide substantial customer benefits, such as enhanced reliability, enabling the interconnection of new renewable resources, lower system losses and reduced congestion."

For the six months ended June 30, 2009, ITCTransmission, METC and ITC Midwest's investments in their transmission systems were $42.1 million, $82.5 million and $75.8 million, respectively.

Reported net income for the second quarter of 2009 increased $2.1 million, or $0.04 per diluted common share compared to the same period in 2008. For the six months ended June 30, 2009, net income increased $5.3 million, or $0.08 per diluted common share, compared to the same period in 2008. Key drivers that contributed to these results include:

 

    --  Increases in net income in both the second quarter and year-to-date
        amounts primarily due to higher rate base at ITCTransmission, METC and
        ITC Midwest.

    --  These increases were partially offset by higher non-recoverable G&A
        expenses, including development expenses at ITC Great Plains, ITC Grid
        Development and Green Power Express and, in the second quarter, higher
        interest expense.

 

2009 Guidance

For 2009, ITC has increased expected full year earnings per diluted common share to a range of $2.32 to $2.42. The increase is primarily due to an increase in expected 2009 capital expenditures at ITC Midwest from $90-110 million to $120-130 million and the impact of recognizing $8.4 million of regulatory assets in July 2009 at ITC Great Plains for start-up, development and pre-construction costs which has the effect of reversing costs that were previously expensed. Earnings per share are as previously disclosed. The increases in earnings per share guidance are partially offset by the impact of adopting Financial Accounting Standards Board Staff Position No. EITF 03-6-1(1), which was not reflected in the original earnings guidance.

Capital investments for 2009 are now expected to be approximately $300-$345 million, including $70-$85 million, $110-$130 million and $120-$130 million for ITCTransmission, METC and ITC Midwest, respectively.

The table below identifies the impacts on diluted EPS guidance for 2009.

 

    EPS Guidance
                                                 Low        High
                                               -----       -----
    Previous Guidance                          $2.20   -   $2.30
       Impact of Updated Capital Guidance       0.03   -    0.04
                                               -----       -----
    Subtotal                                    2.23   -    2.34
       Recognition of ITC Great Plains
         Regulatory Asset
          2009 Expenses                               0.03
          Pre-2009 Incurred Expenses                  0.08
                                                      ----
                                                      0.11

    Impact of EITF 03-6-1(1)                   (0.02)   -  (0.03)
                                               -----       -----
    Updated 2009 Guidance                      $2.32    -  $2.42
                                               =====       =====

 

Second Quarter 2009 Financial Results Detail

ITC's operating revenues for the quarter decreased to $157.2 million from $160.6 million last year. Network and regional cost sharing revenues reflect increases due to the impacts of higher rate base in the quarter, but these increases were more than offset by reductions in net revenue requirements primarily due to expense mitigation efforts and the reductions to operating expenses resulting from higher expense capitalization. In addition, point-to-point and control and dispatch revenues decreased due to fewer point to point reservations and lower network peak load at ITCTransmission.

Operation & maintenance (O&M) expenses of $21.9 million were $11.0 million lower during the second quarter of 2009 compared to the same period in 2008. O&M expenses decreased by $4.2 million due to lower vegetation management expenses and $2.5 million due to lower tower painting, overhead structure maintenance and field operations and training expenses. Additionally, there was a $1.1 million decrease due to lower emergency station expenses at ITC Midwest that resulted from the 2008 floods in Iowa. O&M expenses also decreased by $2.1 million as a result of higher capitalization of O&M expenses in the second quarter of 2009 compared to the same period in 2008.

General and administrative (G&A) expenses of $20.3 million were $1.1 million lower during the second quarter of 2009 compared to the same period in 2008. G&A expenses decreased by $2.6 million due to lower business expenses primarily for information technology support and professional advisory and consulting services. In addition, there was a $3.1 million decrease as a result of higher capitalization of G&A expenses in the quarter. Partially offsetting these decreases were higher compensation and benefit related expenses of $3.3 million due in part to personnel additions and other benefit costs. G&A expenses also include $2.2 million of development costs at ITC Grid Development and its subsidiaries which were $1.2 million higher than the same period in 2008 as a result of increased development activities.

Depreciation and amortization expenses increased by $2.7 million during the second quarter of 2009 compared to the same period in 2008 due primarily to a higher depreciable asset base resulting from property, plant and equipment additions.

Interest expense increased for the three months ended June 30, 2009 compared to the same period in 2008 due primarily to additional interest expense associated with the December 2008 issuances of METC's $50.0 million Senior Secured Notes and ITC Midwest's $40.0 million and $35.0 million First Mortgage Bonds, Series B and Series C, respectively.

The effective income tax rate for the three months ended June 30, 2009 was 37.7 percent compared to 38.1 percent in the second quarter of 2008.

Second Quarter Year-To-Date 2009 Financial Results Detail

ITC's operating revenues for the six months ended June 30, 2009 increased to $313.2 million from $302.5 million last year. Network and regional cost sharing revenues increased due primarily to higher rate base resulting from higher balances of in-service property, plant and equipment and more capital projects being eligible for regional cost sharing under the Midwest ISO's tariff. These increases were partially offset by decreases in revenue requirements due to expense mitigation efforts and other reductions to operating expenses as a result of higher expense capitalization. Point-to-point and control and dispatch revenues decreased in the quarter due to fewer point to point reservations and lower network peak load at ITCTransmission. In addition, other revenues decreased due primarily to the elimination of ancillary service revenues as a result of the establishment of the Midwest ISO ancillary service market in January 2009.

O&M expenses of $45.7 million were $8.7 million lower in the first six months of 2009 compared to the same period in 2008. O&M expenses decreased by $3.3 million due to lower vegetation management expenses and $2.8 million due to lower tower painting, overhead structure and field operations and training expenses. Additionally, there was a $1.1 million decrease due to lower emergency station expenses at ITC Midwest that resulted from the 2008 floods in Iowa. O&M expenses also decreased by $3.4 million as a result of higher capitalization of O&M expenses in the period compared to the same period in 2008. These decreases were partially offset by higher information technology maintenance expenses of $2.1 million due in part to additional operating control room software and expanded financial systems and the additional labor to support those systems.

G&A expenses of $40.1 million for June year-to-date 2009 were $0.8 million higher than the same period in 2008. G&A expenses increased by $1.4 million due to higher professional advisory and consulting services and $2.8 million due to higher compensation expenses primarily resulting from personnel additions and other benefit costs. G&A expenses in the June year-to-date period include $5.1 million of development costs at ITC Grid Development and its subsidiaries which were $3.3 million higher than the same period in 2008 as a result of increased development activities. Partially offsetting these increases were lower expenses of $5.8 million as a result of higher capitalization of G&A expenses in 2009 and $0.8 million due to lower business expenses primarily for insurance expense and information technology support, resulting from our expense mitigation efforts.

Depreciation and amortization expenses increased by $7.0 million during the six months ended June 30, 2009 compared to the same period in 2008 due primarily to a higher depreciable asset base resulting from property, plant and equipment additions.

Interest expense increased in the first six months of 2009 compared to the same period in 2008 due primarily to additional interest expense associated with the April 2008 issuance of ITCTransmission's $100.0 million First Mortgage Bonds, Series D and the December 2008 issuances of METC's $50.0 million Senior Secured Notes and ITC Midwest's $40.0 million and $35.0 million First Mortgage Bonds, Series B and Series C, respectively. Interest expense also increased due to the additional interest expense associated with ITC Holdings' two year Term Loan Agreement, an unguaranteed, unsecured $100.0 million term facility, under which the entire $100.0 million was drawn at closing in April 2009.

The effective income tax rate for the six months ended June 30, 2009 was 37.4 percent compared to 38.1 percent in 2008.

Second Quarter Conference Call

ITC will conduct a conference call to discuss second quarter and year-to-date 2009 earnings results at 11:00 a.m. ET on July 30, 2009. Joseph L. Welch, chairman, president and CEO, will provide a business overview and Cameron M. Bready, senior vice president, treasurer and CFO, will discuss the financial results of the second quarter and first six months of 2009. Individuals wishing to participate in the conference call may dial toll-free (877) 419-6596 (domestic) or (719) 325-4902 (international); there is no passcode. The conference call replay, available through August 13, 2009 can be accessed by dialing toll-free (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 7604250. 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 2009 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 our 10-Q can be found at our 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, plans 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.

(1) During 2009, ITC adopted Financial Accounting Standards Board Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP EITF 03-6-1"). The retroactive application required under FSP EITF 03-6-1 resulted in a decrease in basic earnings per share by $0.02 per share and dilutive earnings per share by $0.01 per share as compared to the earnings per share calculation used and disclosed for the six months ended June 30, 2008. The retroactive application of the provisions of FSP EITF 03-6-1 did not result in a change to the basic and dilutive earnings per share amounts disclosed for the three months ended June 30, 2008.

 

    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    -----------------------------------------------------------

    (in thousands,
     except per share    Three months ended    Six months ended
     data)                    June 30,            June 30,
                              --------            --------
                            2009     2008      2009      2008
                            ----     ----      ----      ----

    OPERATING REVENUES    $157,238  $160,616  $313,179  $302,530

    OPERATING EXPENSES

     Operation and
      maintenance           21,919    32,902    45,660    54,357
     General and
      administrative        20,253    21,361    40,146    39,343
     Depreciation and
      amortization          26,187    23,446    52,735    45,770
     Taxes other than
      income taxes          10,612    10,313    21,710    21,198
     Other operating
      income and
      expense - net               -   (1,445)         -   (1,445)
                           ------    ------   -------   -------
      Total operating
       expenses             78,971    86,577   160,251   159,223
                            ------    ------   -------   -------
    OPERATING INCOME        78,267    74,039   152,928   143,307

    OTHER EXPENSES (INCOME)

     Interest expense       32,661    29,946    64,254    60,716
     Allowance for
      equity funds
      used during
      construction          (3,232)   (2,284)   (5,998)   (5,380)
     Other income           (1,065)     (552)   (1,391)   (1,062)
     Other expense             463       597       970     1,434
                             ------    ------   -------   -------
      Total other
       expenses (income)    28,827    27,707    57,835    55,708
                            ------    ------   -------   -------
    INCOME BEFORE
     INCOME TAXES           49,440    46,332    95,093    87,599

    INCOME TAX
     PROVISION              18,647    17,671    35,575    33,417
                            ------    ------   -------   -------

    NET INCOME             $30,793   $28,661   $59,518   $54,182
                           =======   =======   =======   =======
    Basic earnings
      per common share       $0.62     $0.58     $1.19     $1.11
    Diluted earnings
      per common share       $0.61     $0.57     $1.17     $1.09

    Dividends declared
      per common share      $0.305    $0.290    $0.610    $0.580



    ITC HOLDINGS CORP. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

    (in thousands, except share data)        June 30,   December 31,
                                              2009         2008
                                              ----         ----
    ASSETS
     Current assets
      Cash and cash equivalents                $61,382     $58,110
      Accounts receivable                       81,848      57,638
      Inventory                                 29,057      25,077
      Deferred income taxes                      9,727           -
      Regulatory assets-
       Attachment O revenue
        accrual (including
        accrued interest
        of $2,133 and $1,637,
        respectively)                           52,575      22,301
      Other                                      5,572       4,147
                                               -------     -------
       Total current assets                    240,161     167,273

     Property, plant and
      equipment (net of
      accumulated depreciation
      and amortization of
      $963,013 and $925,890,
      respectively)                          2,464,097   2,304,386
     Other assets
      Goodwill                                 951,319     951,319
      Intangible assets (net of
       accumulated amortization
       of $7,562 and $6,050,
       respectively)                            50,845      52,357
      Regulatory assets-
       Attachment O revenue
       accrual (including
       accrued interest
       of $1,042 and $1,512,
       respectively)                            57,129      81,643
      Regulatory assets-
       Acquisition adjustments
       (net of accumulated
       amortization of
       $25,087 and $22,393,
        respectively)                           77,971      80,665
      Other regulatory assets                   41,093      39,848
      Deferred financing fees
       (net of accumulated
       amortization of $8,038 and
       $8,048, respectively)                    21,915      21,410
      Other                                     26,393      15,664
                                            ----------  ----------
        Total other assets                   1,226,665   1,242,906
                                            ----------  ----------
    TOTAL ASSETS                            $3,930,923  $3,714,565
                                            ==========  ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities
      Accounts payable                         $61,441     $79,403
      Accrued payroll                            8,077      10,331
      Accrued interest                          37,693      37,779
      Accrued taxes                             25,347      18,104
      Deferred income taxes                          -       6,476
      Refundable deposits from
       generators for transmission
       network upgrades                         24,004       8,701
      Other                                      2,037       5,384
                                            ----------  ----------
      Total current liabilities                158,599     166,178

     Accrued pension and
       postretirement liabilities               27,262      24,295
     Deferred income taxes                     199,364     144,889
     Regulatory liabilities                    200,636     196,656
     Other                                      19,778       5,231
     Long-term debt                          2,360,820   2,248,253
     Commitments and contingent
      liabilities

    STOCKHOLDERS' EQUITY
      Common stock, without par value,
       100,000,000 shares authorized,
       49,953,791 and 49,654,518
       shares issued and outstanding
       at June 30, 2009
       and December 31, 2008,
       respectively                            854,875     848,624
      Retained earnings                        110,385      81,268
      Accumulated other comprehensive
       loss                                       (796)       (829)
                                            ----------  ----------
        Total stockholders' equity             964,464     929,063
                                            ----------  ----------
    TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                                $3,930,923  $3,714,565
                                            ==========  ==========



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

    (in thousands)                             Six months ended
                                                    June 30,
                                                    --------
                                                2009        2008
                                                ----        ----
    CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                               $59,518     $54,182
     Adjustments to reconcile net income
      to net cash provided by operating
      activities:
      Depreciation and amortization expense    52,735      45,770
      Attachment O revenue accrual and
       deferral - including accrued
       interest                               (16,240)    (51,946)
      Deferred income tax expense              34,902      32,564
      Allowance for equity funds used
       during construction                     (5,998)     (5,380)
      Other                                     4,955       4,860
      Changes in assets and liabilities,
       exclusive of changes shown separately:
        Accounts receivable                   (22,510)    (13,623)
        Inventory                              (6,822)      1,783
        Regulatory assets- Attachment O
         revenue accrual including
         accrued interest                      11,423          -
        Other current assets                   (1,425)     (2,358)
        Accounts payable                      (10,094)     15,969
        Accrued payroll                        (1,990)     (1,348)
        Accrued interest                          (86)     14,882
        Accrued taxes                           7,239       7,582
        Other current liabilities              (3,353)       (154)
        Other non-current assets
         and liabilities, net                   6,162      (1,639)
                                              --------   --------
          Net cash provided by
           operating activities               108,416     101,144

    CASH FLOWS FROM INVESTING ACTIVITIES
     Expenditures for property,
      plant and equipment                    (213,927)   (193,793)
     Other                                       (289)        464
                                             --------   --------
         Net cash used in investing
          activities                         (214,216)   (193,329)

    CASH FLOWS FROM FINANCING ACTIVITIES
     Issuance of long-term debt               100,000     657,782
     Repayment of long-term debt                    -    (765,000)
     Borrowings under revolving
      credit agreements                       276,218     282,500
     Repayments of revolving
      credit agreements                      (263,817)   (353,200)
     Issuance of common stock                   1,632     309,427
     Common stock issuance costs                    -        (755)
     Dividends on common stock                (30,394)    (28,662)
     Refundable deposits from
      generators for transmission
      network upgrades                         29,633       6,286
     Repayment of refundable deposits
      from generators for transmission
      network upgrades                          (2,291)         -
     Debt issuance costs                        (1,909)    (5,409)
                                              --------   --------
        Net cash provided by financing
         activities                            109,072    102,969
                                              --------   --------
    NET INCREASE IN CASH AND CASH EQUIVALENTS    3,272     10,784

    CASH AND CASH EQUIVALENTS -
     Beginning of period                        58,110      2,616
                                              --------   --------
    CASH AND CASH EQUIVALENTS -
     End of period                             $61,382    $13,400
                                               =======    =======

 

SOURCE ITC Holdings Corp.

 

http://www.itc-holdings.com

 

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