News Flash: ITC posts higher 3Q12 earnings

ITC Holdings (NYSE:ITC) on Oct. 23 reported 3Q12 net income of $51.2m, or 98 cents per diluted share, compared to $44m, or 85 cents per diluted share for the same period last year. 

For the nine months ended Sept. 30, the company reported net income of $139.6m, or $2.68 per diluted common share, compared to $129m, or $2.49 per diluted common share for the same period last year.

Operating earnings for the third quarter were $56m, or $1.07 per diluted common share, compared to operating earnings of $44m, or $0.85 per diluted common share for the third quarter of 2011. For the nine months ended Sept. 30, operating earnings were $159.4m, or $3.05 per diluted common share, compared to operating earnings of $129.0m, or $2.49 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) $4.8m or $0.09 per diluted common share for the third quarter and $11.3m or $0.21 per diluted common share for the nine months ended Sept. 30 associated with the Entergy (NYSE:ETR) transaction and 2) $8.4m or 16 cents per diluted share for the nine months ended Sept. 30 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 $12.0m, or $0.22 per diluted common share, for the third quarter compared to the same period in 2011. For the nine months ended Sept. 30, operating earnings increased $30.4m, or $0.56 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. For the nine months ended Sept. 30, this increase was partially offset by lower revenues associated with the final amortization of the ITCTransmission rate freeze revenue deferral which expired in May 2011.

ITC invested $626.2m in capital projects at its operating companies during the first nine months of 2012, including $173.6m, $113.6m, $266.1m and $72.9m at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

“We continued to make great strides against both our stand-alone strategic objectives and the Entergy transaction during the third quarter,” said Joseph L. Welch, chairman, president and CEO of ITC. “Our strong operational and financial performance reinforces our unwavering commitment to execution of our stand-alone plans, which benefit all of our constituents. In addition, while delivering these results, we also made significant progress during the quarter on advancing the Entergy transaction to a successful close, further demonstrating our ability to effectively balance both of these priorities.”

EPS and CapEx guidance

For 2012, ITC is raising its full year operating earnings per share guidance to a range of $4.10 to $4.15, from the previous range of $3.95 to $4.05. Capital investment guidance for 2012 has been updated to a range of $780 to $825m, from the prior range of $750 to $820m. The updated guidance range includes capital forecasts at our regulated operating subsidiaries of $210 to $220m, $150 to $160m, $320 to $335m and $100 to $110m for ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

3Q12 operating earnings financial results detail

ITC’s operating revenues for the third quarter increased to $214.8m compared to $191.3m for the 3Q11. 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.

Operation and maintenance (O&M) expenses of $31.5m decreased by $5.8m compared to the same period in 2011. This decrease was primarily due to a decrease in expenses associated with transmission overhead lines surveys, lower field and site maintenance expenses, lower tower maintenance expenses and lower relay work for certain preventative maintenance activities. These decreases were partially offset by higher vegetation management requirements.

General and administrative (G&A) expenses of $20.6m, which excludes $7.3m of pre-tax expenses related to the Entergy transaction, were $1.6m higher compared to the same period in 2011 due primarily to higher labor related expenses and higher professional services.

Depreciation and amortization expenses of $27.5m increased by $3.6m 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 $14.7m were $2.3m 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 $38.9m increased by $1.7m compared to the same period in 2011 due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the third quarter of 2012 was 35.6 percent, excluding a reduction to income taxes of approximately $2.7m associated with the Entergy transaction expenses compared to 34.0 percent for the same period last year.

YTD12 financial results detail

ITC’s operating revenues for the nine months ended Sept. 30 increased to $619.9m, excluding an $11.0m reduction in revenues associated with the ITC Midwest FERC audit related refunds recorded for ITCTransmission, METC and ITC Midwest, compared to $555.8m 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 $90.3m were $2.2m lower for the nine months ended Sept. 30 compared to the same period in 2011. This decrease was primarily a result of lower field and site maintenance expenses, lower relay work for certain preventative maintenance activities, lower substation maintenance expenses, lower tower maintenance expenses and lower expenses associated with transmission overhead lines surveys. These decreases were partially offset by higher vegetation management requirements.

G&A expenses of $61.7m, which excludes $17.1m of pre-tax expenses related to the Entergy transaction, were $6.8m higher compared to the same period in 2011. This increase was due to higher labor related expenses and higher general business expenses associated with increased information technology support and higher professional services. The increase was also attributable to 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 $78.5m increased by $8.1m for the nine months ended Sept. 30 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 $44.2m were $4.6m 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 $115.7m, which excludes the impact of $1.2m of interest on the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, increased $5.7m compared to the same period in 2011 due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the nine months ended Sept. 30 was 35.4 percent, excluding a reduction to income taxes of $10.7m associated with the Entergy transaction and the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, compared to 35.5 percent for the same period in 2011.