ITC Holdings Reports Increased Third Quarter and Year-To-Date 2013 Results; Updates 2013 Operating Earnings Per Share Guidance and 2013 Capital Guidance

Oct 31, 2013, 08:45 ET from ITC Holdings Corp.

NOVI, Mich., Oct. 31, 2013 /PRNewswire/ --

Highlights

  • Operating earnings for the third quarter of $1.26 per diluted common share; reported earnings for the third quarter of $1.12 per diluted common share
  • Operating earnings for the nine months ended September 30, 2013 of $3.57 per diluted common share; reported earnings for the nine months ended September 30, 2013 of $2.96 per diluted common share
  • Capital investments of $648.9 million for the nine months ended September 30, 2013
  • 2013 operating earnings per share guidance updated to $4.84 to $4.92 per share
  • 2013 capital investment guidance updated to a range of $810 to $860 million

(in thousands, except per share data)

Three months ended
 September 30,


Nine months ended

September 30,


2013


2012


2013


2012

OPERATING REVENUES

$   238,782


$   214,801


$   685,903


$   608,889









REPORTED NET INCOME

$     58,984


$     51,183


$   156,569


$   139,620









OPERATING EARNINGS

$    66,510


$     56,059


$   188,644


$   159,518









REPORTED DILUTED EPS

$        1.12


$         0.98


$         2.96


$         2.68









OPERATING DILUTED EPS

$        1.26


$         1.07


$         3.57


$       3.05

ITC Holdings Corp. (NYSE: ITC) today announced its results for the third quarter and nine month period ended September 30, 2013.  Reported net income for the quarter, measured in accordance with Generally Accepted Accounting Principles (GAAP), was $59.0 million, or $1.12 per diluted common share, compared to $51.2 million or $0.98 per diluted common share for the third quarter of 2012.  For the nine months ended September 30, 2013, reported net income was $156.6 million, or $2.96 per diluted common share, compared to $139.6 million, or $2.68 per diluted common share for the same period last year.

Operating earnings for the third quarter of 2013 were $66.5 million, or $1.26 per diluted common share, compared to $56.1 million, or $1.07 per diluted common share for the third quarter of 2012. For the nine months ended September 30, 2013, operating earnings were $188.6 million, or $3.57 per diluted common share, compared to $159.5 million, or $3.05 per diluted common share for the same period last year.  Operating earnings are a non-GAAP measure that exclude the impact of the following after-tax expenses associated with:

  • The Entergy Corporation (Entergy) transaction of approximately $7.5 million or $0.14 per diluted common share, and $5.0 million or $0.09 per diluted common share, for the third quarter 2013 and 2012, respectively. These expenses totaled approximately $31.9 million or $0.61 per diluted common share and $11.6 million, or $0.21 per diluted common share, for the nine months ended September 30, 2013 and 2012, respectively.
  • An estimated refund liability of approximately $0.1 million for the third quarter 2013 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. For the nine months ended September 30, 2013 and 2012, amounts recorded associated with this matter totaled $0.2 million and $8.3 million or $0.16 per diluted common share respectively.   

Operating earnings increased by $10.5 million, or $0.19 per diluted common share, for the third quarter compared to the same period in 2012. For the nine months ended September 30, 2013, operating earnings increased $29.1 million, or $0.52 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, resulting from the continued execution of our capital investment plans.

ITC invested $648.9 million in capital projects at its operating companies during the first nine months of 2013, including $170.7 million at ITCTransmission, $127.8 million at METC, $245.8 million at ITC Midwest and $104.6 million at ITC Great Plains.

"Thus far, 2013 has proven to be a demanding year for us as we seek to continue to execute on our stand-alone initiatives while also advancing the Entergy transaction towards a successful close," said Joseph L. Welch, chairman, president and CEO of ITC. "I am very pleased with how the organization has risen to meet this challenge and believe that we are well-positioned to meet our operational and financial objectives for the year.  We are also continuing to navigate the complex regulatory approval process for the Entergy transaction and hope to make meaningful progress with these efforts by year-end."

EPS and Capital Expenditure Guidance For 2013, ITC is updating its full year operating earnings per share guidance to a range of $4.84 to $4.92, from the previous range of $4.80 to $5.00.  Capital investment guidance for 2013 has also been updated to a range of $810 to $860 million, from the prior range of $760 to $860 million.  The updated guidance range includes capital forecasts at our regulated operating subsidiaries of $215 to $230 million for ITCTransmission, $170 to $180 million for METC, $285 to $300 million for ITC Midwest and $140 to $150 million for ITC Great Plains.

Third Quarter 2013 Operating Earnings Financial Results Detail ITC's operating revenues for the third quarter increased to $238.8 million compared to $214.8 million for the third quarter of 2012. This increase was primarily due to higher revenue requirements attributable to higher rate base at our regulated operating subsidiaries. In addition, regional cost sharing revenues increased due to additional capital projects being placed in-service that have been identified as eligible for regional cost sharing.

Operation and maintenance (O&M) expenses of $29.7 million decreased by $1.8 million compared to the same period in 2012. This decrease was primarily due to lower vegetation management requirements and lower NERC compliance activities associated with surveying overhead transmission lines.

General and administrative (G&A) expenses of $22.9 million were $2.4 million higher compared to the same period in 2012. The amounts for the third quarter 2013 and 2012 exclude approximately $9.0 million and $7.4 million, respectively, associated with adjustments to operating earnings relating to Entergy transaction costs noted previously.  This increase was primarily due to higher general business expenses, including an increase in information technology expenses and higher labor related expenses associated with personnel increases.  These increases were partially offset by lower outside legal fees. 

Depreciation and amortization expenses of $29.8 million increased by $2.3 million compared to the same period in 2012 due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $16.7 million were $2.0 million higher than the same period in 2012. This increase was due to 2012 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2013 personal property taxes.

Interest expense of $43.0 million increased by $4.3 million compared to the same period in 2012. The amounts for the third quarter 2013 and 2012 exclude approximately $1.1 million and $0.2 million, respectively, associated with adjustments to operating earnings noted previously. This increase was due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the third quarter of 2013 was 35.9 percent compared to 35.7 percent for the same period last year. The amounts for the third quarter 2013 and 2012 exclude approximately $2.6 million and $2.7 million, respectively, associated with adjustments to operating earnings noted previously.

Year-To-Date 2013 Financial Results Detail ITC's operating revenues for the nine months ended September 30, 2013 increased to $685.9 million compared to $619.9 million for the same period last year, which amount excludes an $11.0 million reduction in revenues associated with the ITC Midwest FERC audit-related refunds recorded for ITCTransmission, METC and ITC Midwest. This increase was primarily due to higher network revenues attributable to higher rate base at all of our regulated operating subsidiaries. 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 as eligible for regional cost sharing.

O&M expenses of $83.9 million were $6.4 million lower for the nine months ended September 30, 2013 compared to the same period in 2012. This decrease was primarily due to lower vegetation management requirements and lower NERC compliance activities associated with surveying overhead transmission lines.

G&A expenses of $68.9 million were $7.5 million higher compared to the same period in 2012. The amounts for 2013 and 2012 exclude approximately $41.9 million and $17.4 million, respectively, associated with adjustments to operating earnings relating to Entergy transaction costs noted previously.  This increase was due to higher labor related expenses associated with personnel increases and higher professional services associated with legal, advisory and financial service fees.

Depreciation and amortization expenses of $87.6 million increased by $9.1 million for the nine months ended September 30, 2013 compared to the same period in 2012. This increase was primarily due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $49.5 million were $5.3 million higher compared to the same period in 2012. This increase was due to 2012 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2013 personal property taxes.

Interest expense of $121.8 million increased by $6.3 million compared to the same period in 2012. The amounts for year-to-date 2013 and 2012 exclude approximately $1.7 million and $1.4 million, respectively, associated with adjustments to operating earnings noted previously. This increase was due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the nine months ended September 30, 2013 was 36.2 percent compared to 35.4 percent for the same period in 2012. The amounts for year-to-date 2013 and 2012 exclude approximately $11.6 million and $10.8 million, respectively, associated with adjustments to operating earnings noted previously.

Third Quarter Conference Call ITC will also conduct a webcast and conference call at 11 a.m. Eastern on Thursday, October 31, 2013.  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 Friday, November 8, 2013, can be accessed by dialing 855-859-2056 (toll free) or 404-537-3406, passcode 82749220. The webcast will also be archived on the ITC website.

Other Available Information More detail about the 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 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-F)

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

Nine months ended

September 30,

September 30,

(in thousands, except per share data)

2013

2012

2013

2012

OPERATING REVENUES

$

238,782

$

214,801

$

685,903

$

608,889

OPERATING EXPENSES

Operation and maintenance

29,725

31,544

83,906

90,314

General and administrative

31,902

27,906

110,767

78,791

Depreciation and amortization

29,802

27,466

87,583

78,453

Taxes other than income taxes

16,728

14,721

49,492

44,186

Other operating (income) and expense — net

(197)

(190)

(542)

(586)

Total operating expenses

107,960

101,447

331,206

291,158

OPERATING INCOME

130,822

113,354

354,697

317,731

OTHER EXPENSES (INCOME)

Interest expense - net

44,062

38,924

123,527

116,918

Allowance for equity funds used during construction

(8,290)

(5,622)

(25,315)

(15,800)

Other income

(786)

(884)

(824)

(2,171)

Other expense

2,164

1,415

5,388

2,473

Total other expenses (income)

37,150

33,833

102,776

101,420

INCOME BEFORE INCOME TAXES

93,672

79,521

251,921

216,311

INCOME TAX PROVISION

34,688

28,338

95,352

76,691

NET INCOME

$

58,984

$

51,183

$

156,569

$

139,620

Basic earnings per common share

$

1.12

$

0.99

$

2.99

$

2.72

Reported diluted earnings per common share

$

1.12

$

0.98

$

2.96

$

2.68

Operating diluted earnings per common share

$

1.26

$

1.07

$

3.57

$

3.05

Dividends declared per common share

$

0.4250

$

0.3775

$

1.1800

$

1.0825

 

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

Three months ended

Nine months ended

September 30,

September 30,

2013

2012

2013

2012

Reported net income

$

58,984

$

51,183

$

156,569

$

139,620

Pre-tax Entergy transaction related expenses

9,997

7,533

43,385

17,667

Pre-tax liability for audit related refund

103

54

308

13,047

Income taxes on adjustments

(2,574)

(2,711)

(11,618)

(10,816)

Operating earnings

$

66,510

$

56,059

$

188,644

$

159,518

 

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

Three months ended

Nine months ended

September 30,

September 30,

2013

2012

2013

2012

Reported diluted EPS

$

1.12

$

0.98

$

2.96

$

2.68

Pre-tax Entergy transaction related expenses

0.19

0.14

0.82

0.33

Pre-tax liability for audit related refund

0.00

0.00

0.01

0.25

Income taxes on adjustments

(0.05)

(0.05)

(0.22)

(0.21)

Operating diluted EPS

$

1.26

$

1.07

$

3.57

$

3.05

 

ITC HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

September 30,

December 31,

(in thousands, except share data)

2013

2012

ASSETS

Current assets

Cash and cash equivalents

$ 50, 704

26,187

Accounts receivable

103,585

72,192

Inventory

36,282

37,357

Deferred income taxes

18,925

23,014

Regulatory assets — revenue accruals, including accrued interest

6,620

7,489

Prepaid and other current assets

18,053

31,987

   Total current assets

234,169

198,226

Property, plant and equipment (net of accumulated depreciation and amortization of    $1,319,710 and $1,269,810, respectively)

4,687,581

4,134,579

Other assets

Goodwill

950,163

950,163

Intangible assets ( net of accumulated amortization of $20,801 and $18,397, respectively)

49,431

48,492

Other regulatory assets

186,926

180,378

Deferred financing fees (net of accumulated amortization of $14,390 and $17,838,    respectively)

26,279

19,293

Other

37,851

33,678

   Total other assets

1,250,650

1,232,004

TOTAL ASSETS

$

6,172,400

$

5,564,809

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

105,285

$

123,022

Accrued payroll

17,738

20,740

Accrued interest

30,170

44,708

Accrued taxes

17,650

28,117

Regulatory liabilities — revenue deferrals, including accrued interest

38,296

53,763

Refundable deposits from generators for transmission network upgrades

29,656

40,745

Debt maturing within one year

210,000

651,929

Other

16,759

40,287

   Total current liabilities

465,554

1,003,311

Accrued pension and postretirement liabilities

58,395

53,243

Deferred income taxes

555,038

460,072

Regulatory liabilities — revenue deferrals, including accrued interest

74,223

28,613

Regulatory liabilities — accrued asset removal costs

70,226

75,477

Refundable deposits from generators for transmission network upgrades

15,392

7,623

Other

20,139

26,317

Long-term debt

3,364,900

2,495,298

STOCKHOLDERS' EQUITY

Common stock, without par value, 100,000,000 shares authorized, 52,471,354 and 52,248,514 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively.

1,003,709

989,334

Retained earnings

538,317

443,569

Accumulated other comprehensive income (loss)

6,507

(18,048)

   Total stockholders' equity

1,548,533

1,414,855

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

6,172,400

$

5,564,809

 

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

Nine months ended

September 30,

(in thousands)

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

156,569

$

139,620

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

  Depreciation and amortization expense

87,583

78,453

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

30,369

25,748

  Deferred income tax expense

69,733

44,921

  Allowance for equity funds used during construction

(25,315)

(15,800)

  Other

13,113

9,030

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

    Accounts receivable

(31,115)

(12,182)

    Inventory

1,075

979

    Prepaid and other current assets

11,208

(5,776)

    Accounts payable

4,044

(10,637)

    Accrued payroll

(1,707)

(1,865)

    Accrued interest

(14,538)

(247)

    Accrued taxes

(10,467)

(5,773)

    Other current liabilities

7,979

11,474

    Other non-current assets and liabilities, net

(6,328)

410

  Net cash provided by operating activities

292,203

258,355

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures for property, plant and equipment

(630,485)

(637,386)

Proceeds from sale of securities

42,174

5,935

Purchases of securities

(43,398)

(10,786)

Other

(3,340)

(747)

  Net cash used in investing activities

(635,049)

(642,984)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of long-term debt

933,025

100,000

Borrowings under revolving credit agreements

890,400

1,073,550

Borrowings under term loan credit agreements

535,000

200,000

Retirement of long-term debt

(452,000)

Repayments of revolving credit agreements

(1,004,100)

(960,350)

Repayments of term loan credit agreements

(475,000)

Issuance of common stock

8,213

4,929

Dividends on common stock and restricted stock

(61,821)

(55,677)

Refundable deposits from generators for transmission network upgrades

26,898

31,157

Repayment of refundable deposits from generators for transmission network upgrades

(30,279)

(31,186)

Other

(2,973)

(6,112)

  Net cash provided by  financing activities

367,363

356,311

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

24,517

(28,318)

CASH AND CASH EQUIVALENTS — Beginning of period

26,187

58,344

CASH AND CASH EQUIVALENTS — End of period

$

50,704

$

30,026

 

SOURCE ITC Holdings Corp.



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