ITC Holdings Corp. Reports Third Quarter 2006 Results

NOVI, Mich., Nov. 1 /PRNewswire-FirstCall/ -- ITC Holdings Corp. today announced its results for the third quarter ended September 30, 2006. Net income for the quarter was $16.5 million, or $0.48 per diluted share, compared to $13.5 million, or $0.40 per diluted share, for the third quarter of 2005. Net income for the first nine months of 2006 was $27.2 million, or $0.80 per diluted share, compared to $33.0 million, or $1.03 per diluted share, for the same period last year.

"The third quarter was a most eventful one for ITC as we further positioned our Company for significant future growth," said Joseph L. Welch, president and CEO of ITC Holdings Corp. "On October 10, 2006, ITC Holdings Corp. completed the acquisition, announced in May 2006, of all of the outstanding equity interests in Michigan Electric Transmission Company, LLC ("METC"), a privately-held company and the neighboring transmission system to ITCTransmission, in a transaction valued at approximately $863 million. In addition we completed successful common equity and debt offerings required to fund the acquisition. This represents a very important milestone for us that supports our growth strategy. This transaction will increase ITC Holdings' size and scale and provides us with incremental opportunities to deploy capital investments going forward."

Mr. Welch continued, "Our ability to rebuild and strengthen the transmission grid in Southeast Michigan was further enhanced by the FERC's approval of an adjustment to the implementation of ITCTransmission's Attachment O formula rate on July 14th. This adjustment authorizes the recovery of ITCTransmission's expenses and investments on a current rather than lagging basis beginning in January 2007. The order also reaffirmed our regulatory structure including our 13.88% return on equity, our capital structure and the fact that there is no expiration of Attachment O, our formulaic rate making mechanism."

ITCTransmission, a wholly-owned subsidiary of ITC Holdings Corp., also continued to make important infrastructure improvements during the third quarter. The company invested $51.4 million in rebuilding and upgrading its transmission system during the quarter. In the first nine months of 2006, ITCTransmission invested $124.8 million in property, plant and equipment and currently it expects to invest approximately $145.0 million in capital additions in 2006.

The Company is also exploring future growth opportunities through the creation of ITC Grid Development, LLC ("ITC Grid Development"). This subsidiary was formed to bring improvements to the U.S. electricity transmission system through partnerships with entities in regions where we believe transmission investment is needed to improve reliability and address local energy needs. ITC Great Plains, LLC ("ITC Great Plains"), a subsidiary of ITC Grid Development, was formed to focus on regulated transmission investment in the Great Plains region of the United States beginning with Kansas as the first area of focus.

"Financial results were in line with expectations," said Edward Rahill, senior vice president and CFO. "As discussed on our previous conference calls, point-to-point revenues in 2006 are expected to be approximately $15 to $17 million lower than last year, primarily due to improved efficiency in the power markets first introduced by the Midwest Independent Transmission System Operator ("MISO") in 2005. Point-to-point revenues are a reduction in the calculation of our network transmission rates. Under forward looking Attachment O, the amount of point to-point revenues in any given year will have no impact on earnings."

ITC Holdings reported operating revenues of $63.0 million for the third quarter 2006, a decrease of $3.0 million over the comparable period last year. Operating revenues for the nine month period were $150.5 million, a decrease of $8.7 million over the first nine months of 2005. As noted, this anticipated drop in revenues was primarily due to lower point-to-point revenues, slightly offset by higher network revenues.

General and administrative (G&A) expenses of $9.8 million during the third quarter of 2006 were $3.1 million higher than the same period in 2005. This increase was principally due to higher compensation and benefits expense and lower G&A capitalized. More than offsetting the effect of higher G&A expenses on total operating expenses was lower operation and maintenance (O&M) expenses of $5.5 million, which were $9.3 million lower, compared to the same period in 2005. For the nine months ended September 30, 2006, G&A expenses of $25.3 million were $8.6 million higher than the same period in 2005. O&M expenses of $19.3 million were $12.0 million lower than the same period in 2005.

Depreciation and amortization expenses increased in the three and nine month periods ended September 30, 2006 compared to the same periods in 2005 due to a higher depreciable asset base as a result of property, plant and equipment additions during 2006 and 2005.

ITC Holdings Provides Guidance for 2006 and 2007

In 2006 fully diluted earnings per share is expected to be in the range of $0.90 to $0.95 with a net income range of $31 to $34 million and adjusted EBITDA of $131 to $135 million. This includes results for METC from October 11 through December 31, 2006. In 2007 earnings per diluted share is expected to be between $1.50 and $1.60, which includes $13.4 million of pre-tax non- cash amortization ($8.9 million after-tax and $0.20 per diluted share) of an intangible asset recognized as a result of the acquisition of METC.

Third Quarter Conference Call

ITC Holdings Corp. will conduct a conference call to discuss third quarter 2006 earnings results at 11:00 a.m. EST Thursday, November 2, 2006. Joseph L. Welch, president and CEO, will provide a business overview for the year and Edward M. Rahill, senior vice president and CFO, will provide a financial update of the third quarter of 2006. Individuals wishing to participate in the conference call may dial toll-free [phone] (domestic) or [phone] (international); there is no passcode. The conference call replay, available through Sunday, November 12, 2006, can be accessed by dialing toll-free [phone] (domestic) or [phone] (international), passcode 1813644. Investors, the news media and the public may listen to a live internet broadcast of the meeting at http://investor.itc-holdings.com/. The webcast also will be archived on the ITC website at http://investor.itc-holdings.com/.

Other Available Information

More detail about the 2006 third quarter results may be found in ITC Holdings Corp.'s Form 10-Q filing. Once filed with the SEC, an electronic copy of the 10-Q can be found at ITC Holdings Corp.'s website, http://investor.itc-holdings.com/. 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. is in the business of investing in electricity transmission infrastructure improvements as a means to improve electric reliability, reduce congestion and lower the overall cost of delivered energy. Through our operating subsidiaries, ITCTransmission and Michigan Electric Transmission Company (METC), we are the only publicly traded company engaged exclusively in the transmission of electricity in the United States. We are also the largest independent electric transmission company and the tenth largest electric transmission company in the country based on transmission load served. Our business strategy is to operate, maintain and invest in our transmission infrastructure in order to enhance system integrity and reliability and to reduce transmission constraints. By pursuing this strategy, we seek to reduce the overall cost of delivered energy for end-use consumers by providing them with access to electricity from the lowest cost electricity generation sources. ITCTransmission and METC operate contiguous, fully-regulated, high-voltage systems in Michigan's Lower Peninsula, an area with a population of approximately 9.8 million people, that transmit electricity to local electricity distribution facilities from generating stations throughout Michigan and surrounding areas. Recently announced subsidiary ITC Grid Development, LLC will focus on partnering with local entities and utilities in regions where significant transmission improvements are needed. The first region in which ITC Grid Development, LLC will focus its efforts is the Great Plains region, specifically in Kansas, through the formation of its subsidiary ITC Great Plains, LLC. For more information on ITC Holdings Corp., please visit http://www.itc-holdings.com/. For more information on ITCTransmission or METC, please visit http://www.itctransco.com/ or http://www.metcllc.com/, respectively. For more information on ITC Great Plains, please visit http://www.itcgreatplains.com/. (itc-ITC)

Safe Harbor Statement

This press release contains certain statements that describe our management's beliefs concerning future business conditions and prospects, growth opportunities and the outlook for our business and the electricity transmission industry based upon information currently available. Such statements are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, we have identified these forward-looking statements by words such as "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 other things 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. They 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, unless required by law.

ITC HOLDINGS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share Three months ended Nine months ended data) September 30, September 30, 2006 2005 2006 2005 OPERATING REVENUES $63,004 $66,047 $150,548 $159,225 OPERATING EXPENSES Operation and maintenance 5,542 14,891 19,317 31,282 General and administrative 9,827 6,723 25,292 16,734 Depreciation and amortization 9,259 8,435 27,213 24,607 Taxes other than income taxes 5,409 2,104 15,739 10,223 Termination of management agreements - 6,725 - 6,725 Total operating expenses 30,037 38,878 87,561 89,571 OPERATING INCOME 32,967 27,169 62,987 69,654 OTHER EXPENSES (INCOME) Interest expense 8,506 7,006 23,640 21,014 Allowance for equity funds used in construction (1,250) (707) (2,610) (2,178) Other income (47) (220) (488) (688) Other expense 256 223 408 481 Total other expenses (income) 7,465 6,302 20,950 18,629 INCOME BEFORE INCOME TAXES 25,502 20,867 42,037 51,025 INCOME TAX PROVISION 9,005 7,374 14,888 18,046 INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 16,497 13,493 27,149 32,979 CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX OF $16) - - 29 - NET INCOME $16,497 $13,493 $27,178 $32,979 Basic earnings per share $0.50 $0.42 $0.82 $1.07 Diluted earnings per share $0.48 $0.40 $0.80 $1.03 Weighted-average basic shares 33,023,187 32,095,482 33,005,068 30,932,887 Weighted-average diluted shares 34,386,991 33,375,482 34,081,968 32,132,161 Dividends declared per common share $0.2750 $0.2625 $0.8000 $0.2625 ITC HOLDINGS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (in thousands, except share data) ASSETS September 30, December 31, Current assets 2006 2005 Cash and cash equivalents $8,016 $24,591 Accounts receivable 22,341 19,661 Inventory 22,627 19,431 Deferred income taxes 9,442 6,732 Other 7,860 2,188 Total current assets 70,286 72,603 Property, plant and equipment (net of accumulated depreciation and amortization of $411,571 and $414,852, respectively) 721,204 603,609 Other assets Goodwill 174,256 174,256 Regulatory assets - acquisition adjustment 49,744 52,017 Other regulatory assets 4,671 6,120 Deferred financing fees (net of accumulated amortization of $3,455 and $2,564, respectively) 6,835 5,629 Other 13,160 2,405 Total other assets 248,666 240,427 TOTAL ASSETS $1,040,156 $916,639 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $27,857 $27,618 Accrued payroll 3,325 3,889 Accrued interest 5,204 10,485 Accrued taxes 3,940 7,378 Other 7,447 3,288 Total current liabilities 47,773 52,658 Accrued pension liability 6,100 5,168 Accrued postretirement liability 3,414 2,299 Deferred compensation liability 929 530 Deferred income taxes 39,180 21,334 Regulatory liabilities 62,878 45,644 Asset retirement obligation 4,947 4,725 Deferred payables 2,444 3,665 Long-term debt 604,904 517,315 STOCKHOLDERS' EQUITY Common stock, without par value, 100,000,000 shares authorized, 33,370,460 and 33,228,638 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively 254,622 251,681 Retained earnings 12,327 11,792 Accumulated other comprehensive income (loss) 638 (172) Total stockholders' equity 267,587 263,301 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,040,156 $916,639 ITC HOLDINGS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine months ended September 30, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Net income $27,178 $32,979 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 27,213 24,607 Amortization of deferred financing fees and discount on long term debt 990 1,030 Stock-based compensation expense 2,212 1,084 Deferred income taxes 15,136 17,910 Other long-term liabilities 2,445 (1,204) Amortization of regulatory assets 1,450 1,450 Allowance for equity funds used in construction (2,610) (2,178) Other (3,942) (1,567) Changes in current assets and liabilities, exclusive of changes shown separately (27,062) (44,390) Net cash provided by operating activities 43,010 29,721 CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment (117,422) (87,294) Insurance proceeds on property, plant and equipment - 4,900 METC direct acquisition costs (624) - Other - 334 Net cash used in investing activities (118,046) (82,060) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 99,890 - Repayments of long-term debt - (46) Borrowings under revolving credit facilities 91,600 65,500 Repayments of revolving credit facilities (104,000) (40,500) Dividends paid (26,648) (8,713) Debt issuance costs (2,328) (672) Issuance of common stock 403 54,062 Common stock issuance costs (456) (1,649) Net cash provided by financing activities 58,461 67,982 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,575) 15,643 CASH AND CASH EQUIVALENTS - Beginning of period 24,591 14,074 CASH AND CASH EQUIVALENTS - End of period $8,016 $29,717