ITC Holdings Reports Increased Fourth Quarter and Year-End 2011 Results; Updates Stand-Alone Five-Year Capital Investment Plan

Feb 21, 2012

 

NOVI, Mich., Feb. 21, 2012 /PRNewswire/ --

Highlights

  • Full-year 2011 operating earnings of $3.35 per diluted common share; full-year 2011 reported earnings of $3.31 per diluted common share
  • Fourth quarter 2011 operating earnings of $0.86 per diluted common share; fourth quarter 2011 reported earnings of $0.82 per diluted common share
  • Full-year 2011 capital investments of $632.9 million
  • Reaffirmed 2012 operating earnings per share guidance of $3.90 to $4.05 per diluted common share, which excludes any Entergy transaction related expenses
  • Initiated 2012 capital expenditure guidance of $730 to $830 million
  • Updated stand-alone five-year capital investment plan of approximately $4.2 billion for 2012 through 2016

 

ITC Holdings Corp. (NYSE: ITC) today announced its reported fourth quarter and year-end results for the period ended December 31, 2011. Reported net income for the quarter, measured in accordance with Generally Accepted Accounting Principles (GAAP), was $42.7 million, or $0.82 per diluted common share, compared to $36.8 million, or $0.71 per diluted common share for the fourth quarter of 2010. For the year-ended December 31, 2011, reported net income was $171.7 million, or $3.31 per diluted common share, compared to $145.7 million, or $2.84 per diluted common share for the same period last year.

Operating earnings for the quarter were $44.9 million, or $0.86 per diluted common share, compared to operating earnings of $36.8 million, or $0.71 per diluted common share for the fourth quarter 2010. For the year ended December 31, 2011, operating earnings were $174.0 million, or $3.35 per diluted common share, compared to operating earnings of $145.7 million, or $2.84 for 2010. Operating earnings are non-GAAP measures that exclude the impact of after-tax expenses of approximately $7.0 million, or $0.13 per share, associated with the previously announced transaction with Entergy Corporation (Entergy) and a one-time, after-tax gain of approximately $4.6 million, or $0.09 per share, associated with the adoption of the Michigan Corporate Income Tax (CIT) as a replacement of the predecessor Michigan Business Tax.

For the year-ended December 31, 2011, ITC invested $632.9 million in capital projects at its operating companies, including $93.0 million, $156.9 million, $269.1 million and $113.9 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

"For ITC, 2011 proved to be a year of significant accomplishments and milestones," said Joseph L. Welch , chairman, president and CEO of ITC. "We completed the largest annual capital investment plan undertaken by the company, including significant investment in our development projects, continued our strong track record of operational excellence, reported solid financial results and announced a transformational transaction with Entergy Corporation. As we turn to 2012, we remain focused on continuing to implement our strategic plan, while simultaneously advancing our transaction with Entergy towards closing. I believe we are well positioned to execute on both of these initiatives."

Operating earnings for the fourth quarter of 2011 increased $8.1 million, or $0.15 per diluted common share, compared to the same period in 2010. For the year-ended December 31, 2011, operating earnings increased $28.3 million, or $0.51 per diluted common share, compared to the same period last year. Key drivers that contributed to these results include:

  • An increase in operating earnings for the quarter and the year-to-date period due to higher rate base and AFUDC at our operating companies resulting from our capital investments.
  • Partially offsetting this increase in operating earnings for the quarter and the year-to-date period was the impact of the expiration in May 2011 of the amortization of the ITCTransmission rate freeze revenue deferral.

2012 Guidance

For 2012, ITC is reaffirming its full year operating earnings guidance of $3.90 to $4.05 per share, excluding expenses associated with implementing the transaction with Entergy announced on December 5, 2011. ITC is also initiating 2012 capital guidance of $730 to $830 million, which includes $185 to $210 million, $155 to $180 million, $295 to $325 million and $95 to $115 million for ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

Five-Year Capital Investment Plan

ITC today also updated its stand-alone five-year capital investment plan for the period 2012 to 2016. The new five-year plan reflects expected investments of approximately $4.2 billion over this period, including approximately $2.45 billion in ITC's base operating companies primarily to improve reliability, replace aging infrastructure and to upgrade the network to support new generator interconnections, and approximately $1.73 billion in development projects. The stand-alone five-year plan does not, however, include any impacts associated with ITC's recently announced transaction with Entergy.

The five-year capital investment plan is projected to increase ITC's stand-alone consolidated rate base plus construction work in progress balances not included in rate base from approximately $3.2 billion at the end of 2011 to approximately $6.3 billion at the end of 2016. This increase in projected rate base is expected to result in compound annual growth in earnings per share in the range of 15 to 17 percent over this period.

Fourth Quarter 2011 Operating Earnings Financial Results Detail

ITC's operating revenues for the fourth quarter increased to $201.6 million from $189.1 million for the same period last year. This increase was primarily due to higher network revenues attributable to higher rate base at all of our regulated operating subsidiaries and higher recoverable expenses due to higher operating costs. In addition, the increase resulted from higher regional cost sharing revenues primarily due to additional capital projects being placed into service that have been identified by the Midwest Independent Transmission System Operator, Inc. (MISO) as eligible for regional cost sharing. Partially offsetting these increases was the impact of the final monthly recognition of the ITCTransmission rate freeze revenue deferral in May 2011. Increases in operating revenues were further offset by lower point-to-point revenues primarily due to fewer point-to-point reservations and lower scheduling, control and dispatch revenues resulting from a change in MISO's revenue distribution methodology for these types of revenues in 2011 as compared to 2010.

Operation and maintenance (O&M) expenses of $36.8 million were $3.8 million lower compared to the fourth quarter of 2010. This decrease was primarily due to lower vegetation management requirements and lower substation facility maintenance expenses. These decreases were partially offset by incremental expenses associated with inspections of the transmission system facilities.

General and administrative (G&A) expenses of $19.5 million, which excludes $8.4 million of pre-tax expenses related to the Entergy transaction, were $5.3 million lower compared to the same period in 2010 due to lower compensation expense and lower professional and advisory services.

Depreciation and amortization expenses of $24.6 million increased by $3.2 million during the fourth quarter of 2011 compared to the same period in 2010. This increase was primarily due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $13.8 million were $1.7 million higher than the same period in 2010. This increase was due to the impact of 2010 capital additions at our MISO regulated operating subsidiaries, which are included in the tax base for purposes of calculating 2011 personal property taxes.

Interest expense of $36.9 million was largely consistent when compared to the same period in 2010.

The effective income tax rate for the fourth quarter of 2011 was 39.9 percent, excluding the impacts of both a one-time reduction to the income tax provision of $4.6 million associated with the adoption of the CIT and a reduction to income taxes of approximately $1.6 million associated with the Entergy transaction expenses, compared to 34.1 percent the same period last year.

Year-End 2011 Operating Earnings Financial Results Detail

ITC's operating revenues for the year-ended December 31, 2011 increased to $757.4 million from $696.8 million for the same period last year. This increase was primarily due to higher network revenues attributable to higher rate base at all of our regulated operating subsidiaries and higher recoverable expenses due to higher operating costs. In addition, the increase resulted from higher regional cost sharing revenues primarily due to additional capital projects being placed into service that have been identified by MISO as eligible for regional cost sharing. Partially offsetting these increases was the impact of the final monthly recognition of the ITCTransmission rate freeze revenue deferral in May 2011 . Increases in operating revenues were further offset by lower point-to-point revenues primarily due to fewer point-to-point reservations and lower scheduling, control and dispatch revenues resulting from a change in MISO's revenue distribution methodology for these types of revenues in 2011 compared to 2010.

O&M expenses of $129.3 million were $2.8 million higher for the twelve months ended December 31, 2011 compared to the same period in 2010. This increase was a result of higher expenses associated with NERC compliance activities, higher vehicle and equipment expenses, higher operating and training expenses, and incremental expenses associated with inspections of the transmission system facilities. These increases were partially offset by lower vegetation management requirements, lower substation facility maintenance expenses and lower structure maintenance in 2011.

G&A expenses of $74.2 million, which excludes $8.6 million of pre-tax expenses related to the Entergy transaction, were $3.9 million lower compared to the same period in 2010. This decrease was primarily due to lower compensation expense and the reduction of expenses in the first quarter of 2011 in connection with the recognition of the Kansas V-Plan Project regulatory asset. These decreases were partially offset by increased information technology support for new applications.

Depreciation and amortization expenses of $95.0 million increased by $8.0 million for the twelve months ended December 31, 2011 compared to the same period in 2010. This increase was primarily due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $53.4 million were $5.2 million higher compared to the same period in 2010. This increase was due to the impact of 2010 capital additions at our MISO regulated operating subsidiaries, which are included in the tax base for purposes of calculating 2011 personal property taxes.

Interest expense of $146.9 million increased $4.3 million for the full-year 2011 compared to the same period in 2010, primarily due to higher borrowing levels to finance capital expenditures, partially offset by lower interest rates.

The effective income tax rate for the twelve months ended December 31, 2011 was 36.7 percent, excluding the impacts of both a one-time reduction to the income tax provision of $4.6 million associated with the adoption of the CIT and a reduction to income taxes of approximately $1.6 million associated with the Entergy transaction expenses, compared to 36.1 percent in 2010.

Fourth Quarter and Year-End Conference Call

ITC will conduct a conference call on Wednesday, February 22, 2012 at 11 a.m. Eastern to discuss year-end 2011 results, provide an update on the previously announced transaction with Entergy and review ITC's updated stand-alone five-year plan, including capital investment plans and related financial forecasts. Joseph L. Welch, chairman, president and CEO, will provide a business and strategy overview, and Cameron M. Bready , executive vice president and CFO, will discuss the financial results and forecasts. Individuals wishing to participate in the conference call may dial toll-free (877) 644-1296 (domestic) or (914) 495-8555 (international); there is no passcode. A listen-only live webcast of the conference call, including accompanying slides and the Earnings Release, will be available on the investor information page. The conference call replay, available through Wednesday, March 7, 2012, can be accessed by dialing (855) 859-2056 (toll free) or (404) 537-3406, passcode 46891456. The webcast will also be archived on the ITC website.

Other Available Information

More detail about the year-end 2011 results may be found in ITC's Form 10-K filing. Once filed with the Securities and Exchange Commission, an electronic copy of our 10-K 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 through our website.

About ITC Holdings Corp.

ITC Holdings Corp. (NYSE: ITC) is the nation's largest independent electric transmission company. Based in Novi, Michigan, ITC invests in the electric transmission grid to improve reliability, expand access to markets, lower the overall cost of delivered energy and allow new generating resources to interconnect to its transmission systems. ITC's regulated operating subsidiaries include ITCTransmission, Michigan Electric Transmission Company, ITC Midwest and ITC Great Plains. Through these subsidiaries, ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri and Kansas, serving a combined peak load exceeding 26,000 megawatts along 15,000 circuit miles of transmission line. Through ITC Grid Development and its subsidiaries, the company also focuses on expansion in areas where significant transmission system improvements are needed. For more information, please visit ITC's website. (itc-ITC)

GAAP v. Non-GAAP Measures

ITC's reported earnings are prepared in accordance with GAAP and represent earnings as reported to the Securities and Exchange Commission. ITC's management believes the company's operating earnings, or GAAP earnings adjusted for specific items as described in the release, provide a more meaningful representation of the company's fundamental earnings power. However, such measures should not be considered in isolation or as substitutes for results prepared in accordance with GAAP.

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.

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


 

Three months ended


Twelve months ended

 

December 31,


December 31,

 

(in thousands, except per share data)

2011


2010


2011


2010

 

OPERATING REVENUES

$

201,610



$

189,067



$

757,397



$

696,843


 

OPERATING EXPENSES








 

Operation and maintenance

36,802



40,557



129,288



126,528


 

General and administrative

27,875



24,727



82,790



78,120


 

Depreciation and amortization

24,643



21,438



94,981



86,976


 

Taxes other than income taxes

13,810



12,118



53,430



48,195


 

Other operating (income) and expense — net

(233)



365



(844)



(297)


 

Total operating expenses

102,897



99,205



359,645



339,522


 

OPERATING INCOME

98,713



89,862



397,752



357,321


 

OTHER EXPENSES (INCOME)








 

Interest expense

36,927



36,103



146,936



142,553


 

Allowance for equity funds used during construction

(4,621)



(3,249)



(16,699)



(13,412)


 

Other income

(692)



318



(2,881)



(2,340)


 

Other expense

853



863



3,962



2,588


 

Total other expenses (income)

32,467



34,035



131,318



129,389


 

INCOME BEFORE INCOME TAXES

66,246



55,827



266,434



227,932


 

INCOME TAX PROVISION

23,583



19,048



94,749



82,254


 

NET INCOME

$

42,663



$

36,779



$

171,685



$

145,678


 

Basic earnings per common share

$

0.83



$

0.73



$

3.36



$

2.89


 

Reported diluted earnings per common share

$

0.82



$

0.71



$

3.31



$

2.84


 

Operating diluted earnings per common share

$

0.86



$

0.71



$

3.35



$

2.84


 

Dividends declared per common share

$

0.353



$

0.335



$

1.375



$

1.310


 

 
                


 

RECONCILIATION OF REPORTED DILUTED EPS (GAAP) TO OPERATING DILUTED EPS (NON-GAAP MEASURE) - UNAUDITED


 

Three months ended


Twelve months ended

 

December 31,


December 31,

 

2011


2010


2011


2010

 

Reported diluted EPS

$

0.82



$

0.71



$

3.31



$

2.84


 

Pre-tax Entergy transaction related expenses


0.16




N/A




0.16




N/A


 

One-time CIT adjustment


(0.09)




N/A




(0.09)




N/A


 

Income taxes on adjustments


(0.03)




N/A




(0.03)




N/A


 

Operating diluted EPS

$

0.86



$

0.71



$

3.35



$

2.84


 

 
                


 

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


 

Twelve months ended

 

December 31,

 

(in thousands)

2011


2010

 

CASH FLOWS FROM OPERATING ACTIVITIES




 

Net income

$

171,685



$

145,678


 

Adjustments to reconcile net income to net cash provided by operating activities:




 

Depreciation and amortization expense

94,981



86,976


 

Recognition of and refund and collection of revenue accruals and deferrals — including accrued interest

56,944



121,315


 

Deferred income tax expense

30,797



76,746


 

Allowance for equity funds used during construction

(16,699)



(13,412)


 

Recognition of ITC Great Plains regulatory assets

(2,011)




 

Other

15,372



14,311


 

Changes in assets and liabilities, exclusive of changes shown separately:




 

Accounts receivable

2,434



(9,479)


 

Inventory

7,431



(5,452)


 

Other current assets

1,134



(2,049)


 

Accounts payable

12,573



2,210


 

Accrued payroll

(1,096)



4,893


 

Accrued interest

917



3,626


 

Accrued taxes

34,279



(2,071)


 

Tax benefit for excess tax deduction of share based compensation

(28,114)



(320)


 

Other current liabilities

(246)



2,770


 

Other non-current assets and liabilities, net

535



(2,409)


 

Net cash provided by operating activities

380,916



423,333


 

CASH FLOWS FROM INVESTING ACTIVITIES




 

Expenditures for property, plant and equipment

(556,931)



(388,401)


 

Proceeds from sale of securities

3,839



14,576


 

Purchases of securities

(8,136)



(14,587)


 

Other

1,033



(449)


 

Net cash used in investing activities

(560,195)



(388,861)


 

CASH FLOWS FROM FINANCING ACTIVITIES




 

Issuance of long-term debt



90,000


 

Borrowings under revolving credit agreements

1,065,215



475,627


 

Repayments of revolving credit agreements

(917,555)



(503,593)


 

Issuance of common stock

18,993



8,908


 

Dividends on common stock

(70,363)



(66,041)


 

Refundable deposits from generators for transmission network upgrades

35,768



21,618


 

Repayment of refundable deposits from generators for transmission network upgrades

(6,976)



(39,913)


 

Tax benefit for excess tax deductions of share-based compensation

28,114



320


 

Other

(10,682)



(1,142)


 

Net cash provided by (used in) financing activities

142,514



(14,216)


 

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS

(36,765)



20,256


 

CASH AND CASH EQUIVALENTS — Beginning of period

95,109



74,853


 

CASH AND CASH EQUIVALENTS — End of period

$

58,344



$

95,109


 

 
        


SOURCE ITC Holdings Corp.

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


 


December 31,


December 31,

 

(in thousands, except share data)

2011


2010

 

ASSETS




 

Current assets




 

Cash and cash equivalents

$

58,344



$

95,109


 

Accounts receivable

76,895



80,417


 

Inventory

34,855



42,286


 

Deferred income taxes

20,636




 

Regulatory assets — revenue accrual, including accrued interest

6,639



28,637


 

Other

4,159



5,293


 

Total current assets

201,528



251,742


 

Property, plant and equipment(net of accumulated depreciation and amortization of $1,193,164 and $1,129,669, respectively)

3,415,823



2,872,277


 

Other assets




 

Goodwill

950,163



950,163


 

Intangible assets (net of accumulated amortization of $15,276 and $12,176, respectively)

46,885



49,985


 

Other regulatory assets

161,987



138,152


 

Deferred financing fees (net of accumulated amortization of $14,594 and $11,750, respectively)

20,989



19,949


 

Other

25,991



25,605


 

Total other assets

1,206,015



1,183,854


 

TOTAL ASSETS

$

4,823,366



$

4,307,873


 

LIABILITIES AND STOCKHOLDERS' EQUITY




 

Current liabilities




 

Accounts payable

$

136,934



$

66,953


 

Accrued payroll

18,013



18,606


 

Accrued interest

td>

43,642



42,725


 

Accrued taxes

25,627



19,461


 

Regulatory liabilities — revenue deferral, including accrued interest

46,579



17,658


 

Refundable deposits from generators for transmission network upgrades

38,805



10,492


 

Other

5,867



6,509


 

Total current liabilities

315,467



182,404


 

Accrued pension and postretirement liabilities

44,923



35,811


 

Deferred income taxes

373,268



314,979


 

Regulatory liabilities — revenue deferral, including accrued interest

50,917



43,202


 

Regulatory liabilities — accrued asset removal costs

83,934



90,987


 

Refundable deposits from generators for transmission network upgrades

14,570



14,515


 

Other

36,373



11,646


 

Long-term debt

2,645,022



2,496,896


 

Commitments and contingent liabilities




 

STOCKHOLDERS' EQUITY




 

Common stock, without par value, 100,000,000 shares authorized, 51,323,368 and 50,715,805 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively

943,444



886,808


 

Retained earnings

330,816



229,437


 

Accumulated other comprehensive (loss) income

(15,368)



1,188


 

Total stockholders' equity

1,258,892



1,117,433


 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

4,823,366



$

4,307,873


 

 
           

 

RECONCILIATION OF REPORTED NET INCOME (GAAP) TO OPERATING EARNINGS (NON-GAAP MEASURE) - UNAUDITED


 

Three months ended


Twelve months ended

 

December 31,


December 31,

 

2011


2010


2011


2010

 

Reported net income

$

42,663



$

36,779



$

171,685



$

145,678


 

Pre-tax Entergy transaction related expenses


8,416




N/A




8,616




N/A


 

One-time CIT adjustment


(4,652)




N/A




(4,652)




N/A


 

Income taxes on adjustments


(1,564)




N/A




(1,601)




N/A


 

Operating earnings

$

44,863



$

36,779



$

174,048



$

145,678


 

 
                

 


 

(in thousands, except per share data)

Three months ended
December 31,


Twelve months ended
December 31,

 

2011


2010


2011


2010

 

OPERATING REVENUES

$ 201,610


$ 189,067


$ 757,397


$ 696,843

 








 

REPORTED NET INCOME

$ 42,663


$ 36,779


$ 171,685


$ 145,678

 








 

OPERATING EARNINGS

$ 44,863


$ 36,779


$ 174,048


$ 145,678

 








 

REPORTED DILUTED EPS

$ 0.82


$ 0.71


$ 3.31


$ 2.84

 








 

OPERATING DILUTED EPS

$ 0.86


$ 0.71


$ 3.35


$ 2.84

 

 
        

 

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