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ITC Holdings Reports Second Quarter And Year-to-Date 2012 Results

July 31, 2012

NOVI, Mich., July 31, 2012 /PRNewswire/ –

Highlights

  • Operating earnings for the second quarter of $1.05 per diluted common share; reported earnings for the second quarter of $0.81 per diluted common share
  • Operating earnings for the six months ended June 30, 2012 of $1.98 per diluted common share; reported earnings for the six months ended June 30, 2012 of $1.70 per diluted common share
  • Capital investments of $429.2 million for the six months ended June 30, 2012
  • 2012 operating earnings guidance updated to $3.95 to $4.05 per diluted common share and capital expenditure guidance updated to $750 to $820 million

    (in thousands, except per share data) Three months ended   Six months ended
                                               June 30,            June 30,
                                               --------            --------
                                               2012              2011     2012      2011
                                               ----              ----     ----      ----
    OPERATING REVENUES                     $197,375          $185,098 $394,088  $364,484

    REPORTED NET INCOME                     $42,386           $42,996  $88,437   $84,998

    OPERATING EARNINGS                      $54,795           $42,996 $103,375   $84,998

    REPORTED DILUTED EPS                      $0.81             $0.83    $1.70     $1.64

    OPERATING DILUTED EPS                     $1.05             $0.83    $1.98     $1.64

ITC Holdings Corp. (NYSE: ITC) today announced its results for the second quarter and six month period ended June 30, 2012. Reported net income for the quarter, measured in accordance with Generally Accepted Accounting Principles (GAAP), was $42.4 million, or $0.81 per diluted common share, compared to $43.0 million or $0.83 per diluted common share for the second quarter of 2011. For the six months ended June 30, 2012, reported net income was $88.4 million, or $1.70 per diluted common share, compared to $85.0 million, or $1.64 per diluted common share for the same period last year.

Operating earnings for the second quarter were $54.8 million, or $1.05 per diluted common share, compared to operating earnings of $43.0 million, or $0.83 per diluted common share for the second quarter of 2011. For the six months ended June 30, 2012, operating earnings were $103.4 million, or $1.98 per diluted common share, compared to operating earnings of $85.0 million, or $1.64 per diluted common share for the same period last year. Operating earnings are a non-GAAP measure that exclude the impact of after-tax expenses of approximately 1) $4.0 million or $0.08 per diluted common share for the second quarter and $6.6 million or $0.12 per diluted common diluted share for the six months ended June 30, 2012 associated with the Entergy Corporation (Entergy) transaction and 2) $8.4 million or $0.16 per diluted common share for both the second quarter and the six months ended June 30, 2012 associated with the estimated refund liability recorded for certain acquisition accounting adjustments for ITC Midwest, ITCTransmission and METC resulting from the FERC audit order on ITC Midwest issued in May 2012.

Operating earnings increased by $11.8 million, or $0.22 per diluted common share, for the second quarter compared to the same period in 2011. For the six months ended June 30, 2012, operating earnings increased $18.4 million, or $0.34 per diluted common share, compared to the same period last year. The increases in both periods were largely attributable to higher income associated with increased rate base and AFUDC at our operating companies and slightly lower effective tax rates, partially offset by lower revenues associated with the amortization of the ITCTransmission rate freeze revenue deferral which expired in May 2011.

For the six months ended June 30, 2012, ITC invested $429.2 million in capital projects at its operating companies, including $104.9 million, $84.6 million, $182.2 million and $57.5 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

“Our business performed very well during the second quarter of 2012 and we continue to make solid progress on our key near-term strategic objectives, including our stand-alone capital investment plans and advancing the Entergy transaction towards closing,” said Joseph L. Welch, chairman, president and CEO of ITC. “I remain pleased with our execution against our stand-alone plans, which are benefiting our customers by providing a more reliable and robust transmission system, particularly during the warm summer weather periods we have experienced. In addition, final preparations are underway to initiate our retail jurisdictional regulatory applications associated with the Entergy transaction. Based on our current anticipated timeline for the approval process, we remain confident in our ability to close the transaction in 2013.”

EPS and Capital Expenditure Guidance
For 2012, ITC is updating its full year operating earnings guidance to a range of $3.95 to $4.05 per share from the prior range of $3.90 to $4.05 per share. In addition, aggregate capital investment guidance for 2012 is also being updated to a range of $750 to $820 million from the prior range of $730 to $830 million. The updated guidance range includes $195 to $215 million, $145 to $160 million, $315 to $335 million and $95 to $110 million for ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

Second Quarter 2012 Operating Earnings Financial Results Detail
ITC’s operating revenues for the second quarter increased to $208.4 million, which excludes an $11.0 million reduction in revenues associated with the ITC Midwest FERC audit related refunds recorded for ITCTransmission, METC and ITC Midwest, compared to $185.1 million for the second quarter of 2011. This increase was primarily due to higher revenue requirements attributable to a higher rate base at our regulated operating subsidiaries and higher recoverable operating expenses. In addition, regional cost sharing revenues increased due to additional capital projects being placed in-service that have been identified by MISO as eligible for regional cost sharing. Partially offsetting these increases was the impact of the elimination of the amortization of the ITCTransmission rate freeze revenue deferral in May 2011.

Operation and maintenance (O&M) expenses of $30.1 million increased by $1.3 million compared to the same period in 2011. This increase was due to higher vegetation management activities, partially offset by a decrease in relay work and reduced substation maintenance expenses.

General and administrative (G&A) expenses of $21.9 million, which excludes $6.0 million of pre-tax expenses related to the Entergy transaction, were $2.6 million higher compared to the same period in 2011 due to higher compensation-related expenses and higher general business expenses primarily related to increased information technology support.

Depreciation and amortization expenses of $26.0 million increased by $2.6 million compared to the same period in 2011 due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $15.2 million were $1.6 million higher than the same period in 2011. This increase was due to 2011 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2012 personal property taxes.

Interest expense of $39.0 million, which excludes the impact of $1.1 million of pre-tax expenses associated with interest on the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, increased by $2.5 million compared to the same period in 2011 due primarily to higher borrowing levels to finance capital expenditures.

The effective income tax rate for the second quarter of 2012 was 33.9 percent, excluding a reduction to income taxes of approximately $6.7 million associated with the Entergy transaction expenses and the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, compared to 35.6 percent for the same period last year.

Year-To-Date 2012 Financial Results Detail
ITC’s operating revenues for the six months ended June 30, 2012 increased to $405.1, which excludes an $11.0 million reduction in revenues associated with the ITC Midwest FERC audit related refunds recorded for ITCTransmission, METC and ITC Midwest, compared to $364.5 million from 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 operating expenses. 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.

O&M expenses of $58.8 million were $3.7 million higher for the six months ended June 30, 2012 compared to the same period in 2011. This increase was a result of higher vegetation management activities and higher NERC compliance activities associated with surveying overhead transmission lines. These increases were partially offset by a decrease in relay work and reduced substation maintenance expenses.

G&A expenses of $41.1 million, which excludes $9.8 million of pre-tax expenses related to the Entergy transaction, were $5.2 million higher compared to the same period in 2011. This increase was primarily due to higher general business expenses primarily related to increased information technology support, higher compensation-related expenses and the recognition of the Kansas V-Plan Project regulatory asset which reduced expenses in 2011 and did not reoccur in 2012.

Depreciation and amortization expenses of $51.0 million increased by $4.6 million for the six months ended June 30, 2012 compared to the same period in 2011. This increase was primarily due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $29.5 million were $2.3 million higher compared to the same period in 2011. This increase was due to 2011 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2012 personal property taxes.

Interest expense of $76.9 million, which excludes the impact of $1.1 million of interest on the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, increased $4.1 million compared to the same period in 2011 due primarily to higher borrowing levels to finance capital expenditures.

The effective income tax rate for the six months ended June 30, 2012 was 35.3 percent, excluding a reduction to income taxes of $8.1 million associated with the Entergy transaction and the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, compared to 36.3 percent in 2011.

Second Quarter Conference Call
ITC will also conduct a webcast and conference call at 11 a.m. Eastern on Wednesday, August 1, 2012. Joseph L. Welch, chairman, president and CEO, will provide a business overview, and Cameron M. Bready, executive vice president and CFO, will discuss the financial results. 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 company’s investor information page. The conference call replay, available through Monday, August 6, 2012, can be accessed by dialing 855-859-2056 (toll free) or 404-537-3406, passcode 96932924. The webcast will also be archived on the ITC website.

Other Available Information
More detail about the 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, http://investor.itc-holdings.com. 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, Kansas and Oklahoma, 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 at www.itc-holdings.com. (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 Form 10-Q filed with the Securities and Exchange Commission.

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)

                                                          Three months ended                  Six months ended
                                                                    June 30,                      June 30,
                                                                    --------                      --------
    (in thousands, except per share data)                 2012                  2011      2012         2011
                                                          ----                  ----      ----         ----
    OPERATING REVENUES                                          $197,375              $185,098                  $394,088 $364,484
    OPERATING EXPENSES
    Operation and maintenance                           30,058                28,837             58,770           55,121
    General and administrative                          27,876                19,289             50,885           35,869
    Depreciation and amortization                       25,976                23,352             50,987           46,440
    Taxes other than income taxes                       15,185                13,556             29,465           27,164
    Other operating income and expense - net              (203)                 (167)              (396)            (316)
                                                          ----                  ----               ----             ----
    Total operating expenses                            98,892                84,867            189,711          164,278
                                                        ------                ------            -------          -------
    OPERATING INCOME                                    98,483               100,231            204,377          200,206
    OTHER EXPENSES (INCOME)
    Interest expense                                    40,084                36,484             77,994           72,754
    Allowance for equity funds used during construction (4,554)              (4,099)           (10,178)           (7,609)
    Other income                                        (1,226)                 (497)            (1,287)            (718)
    Other expense                                          472                 1,594              1,058            2,269
                                                           ---                 -----              -----            -----
    Total other expenses (income)                       34,776                33,482             67,587           66,696
                                                        ------                ------             ------           ------
    INCOME BEFORE INCOME TAXES                          63,707                66,749            136,790          133,510
    INCOME TAX PROVISION                                21,321                23,753             48,353           48,512
                                                        ------                ------             ------           ------
    NET INCOME                                                   $42,386               $42,996                   $88,437  $84,998
                                                                 =======               =======                   =======  =======
    Basic earnings per common share                                $0.82                 $0.84                     $1.72    $1.67
    Reported diluted earnings per common share                     $0.81                 $0.83                     $1.70    $1.64
    Operating diluted earnings per common share                    $1.05                 $0.83                     $1.98    $1.64
    Dividends declared per common share                           $0.353                $0.335                    $0.705   $0.670

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

                                                 Three months ended Six months ended
                                                         June 30,       June 30,
                                                         --------       --------
                                                 2012           2011        2012     2011
                                                 ----           ----        ----     ----
    Reported net income                               $42,386        $42,996               $88,437  $84,998
    Pre-tax Entergy transaction related expenses        6,139            N/A                10,001      N/A
    Pre-tax liability for audit related refund         12,993            N/A                12,993      N/A
    Income taxes on adjustments                        (6,723)           N/A                (8,056)     N/A
                                                       ------            ---                ------      ---
    Operating earnings                                $54,795        $42,996              $103,375  $84,998

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

                                                 Three months ended Six months ended
                                                      June 30,          June 30,
                                                      --------          --------
                                                 2012        2011 2012            2011
                                                 ----        ---- ----            ----
    Reported diluted EPS                                 $0.81          $0.83          $1.70  $1.64
    Pre-tax Entergy transaction related expenses          0.12            N/A           0.19    N/A
    Pre-tax liability for audit related refund            0.25            N/A           0.25    N/A
    Income taxes on adjustments                          (0.13)           N/A          (0.16)   N/A
                                                         -----            ---          -----    ---
    Operating diluted EPS                                $1.05          $0.83          $1.98  $1.64

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

                                                                                                                                       June 30,     December 31,
    (in thousands, except share data)                                                                                                         2012       2011
                                                                                                                                              ----       ----
    ASSETS
    Current assets
    Cash and cash equivalents                                                                                                              $38,518                 $58,344
    Accounts receivable                                                                                                                    110,458                  76,895
    Inventory                                                                                                                               35,045                  34,855
    Deferred income taxes                                                                                                                   21,503                  20,636
    Regulatory assets - revenue accruals, including accrued interest                                                                         6,163                   6,639
    Prepaid assets                                                                                                                          19,327                   4,128
    Other                                                                                                                                       37                      31
                                                                                                                                               ---                     ---
    Total current assets                                                                                                                   231,051                 201,528
    Property, plant and equipment (net of accumulated depreciation and amortization of                                                   3,798,197               3,415,823
                                                                                              $1,230,248 and $1,193,164, respectively)
    Other assets
    Goodwill                                                                                                                               950,163                 950,163
    Intangible assets ( net of accumulated amortization of $16,828 and $15,276, respectively)                                               46,113                  46,885
    Regulatory assets - revenue accruals, including accrued interest                                                                        10,940                   5,637
    Other regulatory assets                                                                                                                170,320                 161,987
    Deferred financing fees (net of accumulated amortization of $16,062 and $14,594,                                                        20,477                  20,989
       respectively)
    Other                                                                                                                                   26,963                  20,354
                                                                                                                                            ------                  ------
    Total other assets                                                                                                                   1,224,976               1,206,015
                                                                                                                                         ---------               ---------
    TOTAL ASSETS                                                                                                                        $5,254,224              $4,823,366
                                                                                                                                        ==========              ==========
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
    Accounts payable                                                                                                                       128,239                 136,934
    Accrued payroll                                                                                                                         14,300                  18,013
    Accrued interest                                                                                                                        59,844                  43,642
    Accrued taxes                                                                                                                           30,460                  25,627
    Regulatory liabilities - revenue deferrals, including accrued interest                                                                  49,206                  46,579
    Refundable deposits from generators for transmission network upgrades                                                                   59,363                  38,805
    Other                                                                                                                                   14,689                   5,867
                                                                                                                                            ------                   -----
    Total current liabilities                                                                                                              356,101                 315,467
    Accrued pension and postretirement liabilities                                                                                          41,689                  44,923
    Deferred income taxes                                                                                                                  416,521                 373,268
    Regulatory liabilities - revenue deferrals, including accrued interest                                                                  36,299                  50,917
    Regulatory liabilities - accrued asset removal costs                                                                                    80,607                  83,934
    Refundable deposits from generators for transmission network upgrades                                                                    2,296                  14,570
    Other                                                                                                                                   43,501                  36,373
    Long-term debt                                                                                                                       2,963,304               2,645,022
    STOCKHOLDERS' EQUITY
    Common stock, with par value, 100,000,000 shares authorized, 51,489,481 and 51,323,368                                                 950,383                 943,444
       shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively
    Retained earnings                                                                                                                      383,015                 330,816
    Accumulated other comprehensive loss                                                                                                   (19,492)                (15,368)
                                                                                                                                           -------                 -------
    Total stockholders' equity                                                                                                           1,313,906               1,258,892
                                                                                                                                         ---------               ---------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                          $5,254,224              $4,823,366
                                                                                                                                        ==========              ==========

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

                                                                                               Six months ended
                                                                                                   June 30,
                                                                                                   --------
    (in thousands)                                                                               2012                2011
                                                                                                 ----                ----
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                                          $88,437            $84,998
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization expense                                                      50,987              46,440
    Recognition, refund and collection of revenue accruals and deferrals - including accrued  (16,818)             18,116
       interest
    Deferred income tax expense                                                                30,728              31,421
    Allowance for equity funds used during construction                                       (10,178)             (7,609)
    Other                                                                                       6,171               7,554
    Changes in assets and liabilities, exclusive of changes shown separately:
    Accounts receivable                                                                       (24,551)            (16,036)
    Inventory                                                                                    (190)              2,537
    Prepaid assets                                                                            (15,198)             (4,034)
    Other current assets                                                                           (6)              2,432
    Accounts payable                                                                           (2,437)                969
    Accrued payroll                                                                            (2,187)             (5,143)
    Accrued interest                                                                           16,202                 304
    Accrued taxes                                                                               5,914              10,292
    Other current liabilities                                                                   8,822              (2,012)
    Other non-current assets and liabilities, net                                              (1,995)             (2,444)
                                                                                               ------              ------
    Net cash provided by operating activities                                                 133,701             167,785
    CASH FLOWS FROM INVESTING ACTIVITIES
    Expenditures for property, plant and equipment                                           (435,745)          (228,028)
    Proceeds from sale of securities                                                            5,453               3,809
    Purchases of securities                                                                   (10,105)             (7,160)
    Other                                                                                        (881)                578
                                                                                                 ----                 ---
    Net cash used in investing activities                                                    (441,278)          (230,801)
    CASH FLOWS FROM FINANCING ACTIVITIES
    Issuance of long-term debt                                                                100,000                   -
    Borrowings under revolving credit agreements                                              723,350             377,415
    Repayments of revolving credit agreements                                                (505,300)          (308,775)
    Issuance of common stock                                                                    2,831              15,025
    Dividends on common stock                                                                 (36,238)            (34,189)
    Refundable deposits from generators for transmission network upgrades                      22,114               9,054
    Repayment of refundable deposits from generators for transmission network upgrades        (13,830)             (4,876)
    Other                                                                                      (5,176)             (4,512)
                                                                                               ------              ------
    Net cash provided by financing activities                                                 287,751              49,142
                                                                                              -------              ------
    NET DECREASE IN CASH AND CASH EQUIVALENTS                                                 (19,826)            (13,874)
    CASH AND CASH EQUIVALENTS - Beginning of period                                            58,344              95,109
                                                                                               ------              ------
    CASH AND CASH EQUIVALENTS - End of period                                                           $38,518            $81,235
                                                                                                        =======            =======

SOURCE ITC Holdings Corp.


Source: PR Newswire