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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Itc Holdings Corp. | NYSE:ITC | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 45.50 | 0.00 | 01:00:00 |
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2016
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Michigan
(State or Other Jurisdiction of Incorporation or Organization)
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32-0058047
(I.R.S. Employer Identification No.)
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Page
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Exhibit Index
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•
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“ITC Great Plains” are references to ITC Great Plains, LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;
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•
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“ITC Grid Development” are references to ITC Grid Development, LLC, a wholly-owned subsidiary of ITC Holdings;
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•
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“ITC Holdings” are references to ITC Holdings Corp. and not any of its subsidiaries;
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•
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“ITC Interconnection” are references to ITC Interconnection LLC, a wholly-owned subsidiary of ITC Grid Development, LLC;
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•
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“ITC Midwest” are references to ITC Midwest LLC, a wholly-owned subsidiary of ITC Holdings;
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“ITCTransmission” are references to International Transmission Company, a wholly-owned subsidiary of ITC Holdings;
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“METC” are references to Michigan Electric Transmission Company, LLC, a wholly-owned subsidiary of MTH;
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“MISO Regulated Operating Subsidiaries” are references to ITCTransmission, METC and ITC Midwest together;
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“MTH” are references to Michigan Transco Holdings, LLC, the sole member of METC and an indirect wholly-owned subsidiary of ITC Holdings;
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“Regulated Operating Subsidiaries” are references to ITCTransmission, METC, ITC Midwest and ITC Great Plains together; and
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•
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“We,” “our” and “us” are references to ITC Holdings together with all of its subsidiaries.
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•
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“Consumers Energy” are references to Consumers Energy Company, a wholly-owned subsidiary of CMS Energy Corporation;
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•
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“DTE Electric” are references to DTE Electric Company, a wholly-owned subsidiary of DTE Energy Company;
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•
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“FERC” are references to the Federal Energy Regulatory Commission;
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“Fortis” are references to Fortis Inc.;
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“FortisUS” are references to FortisUS Inc., an indirect subsidiary of Fortis;
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•
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“FPA” are references to the Federal Power Act;
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•
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“GIC” are references to GIC Private Limited;
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“IP&L” are references to Interstate Power and Light Company, an Alliant Energy Corporation subsidiary;
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•
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“kV” are references to kilovolts (one kilovolt equaling 1,000 volts);
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•
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“kW” are references to kilowatts (one kilowatt equaling 1,000 watts);
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“LIBOR” are references to the London Interbank Offered Rate;
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•
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“Merger” are references to the merger with Fortis, whereby ITC Holdings merged with Merger Sub and subsequently became an indirect subsidiary of FortisUS;
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•
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“Merger Agreement” are references to the agreement between Fortis, FortisUS, Merger Sub and ITC Holdings for the Merger;
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•
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“Merger Sub” are references to Element Acquisition Sub, Inc., an indirect subsidiary of Fortis that merged into ITC Holdings in the Merger;
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•
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“MISO” are references to the Midcontinent Independent System Operator, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the Midwestern United States and Manitoba, Canada, and of which ITCTransmission, METC and ITC Midwest are members;
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•
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“NERC” are references to the North American Electric Reliability Corporation;
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“NYSE” are references to the New York Stock Exchange;
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•
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“RTO” are references to Regional Transmission Organizations; and
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“SPP” are references to Southwest Power Pool, Inc., a FERC-approved RTO which oversees the operation of the bulk power transmission system for a substantial portion of the South Central United States, and of which ITC Great Plains is a member.
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September 30,
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December 31,
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||||
(in thousands, except share data)
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2016
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2015
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||||
ASSETS
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||||
Current assets
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Cash and cash equivalents
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$
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8,938
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$
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13,859
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Accounts receivable
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137,942
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104,262
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Inventory
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28,564
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25,777
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Regulatory assets
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22,262
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14,736
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Prepaid and other current assets
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13,403
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10,608
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Total current assets
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211,109
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169,242
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Property, plant and equipment
(net of accumulated depreciation and amortization of $1,562,532 and $1,487,713, respectively)
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6,555,627
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6,109,639
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Other assets
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Goodwill
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950,163
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950,163
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Intangible assets (net of accumulated amortization of $30,736 and $28,242, respectively)
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43,525
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45,602
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Regulatory assets
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238,213
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233,376
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Deferred financing fees (net of accumulated amortization of $1,853 and $1,277, respectively)
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1,885
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2,498
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Other
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51,165
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44,802
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Total other assets
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1,284,951
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1,276,441
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TOTAL ASSETS
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$
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8,051,687
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$
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7,555,322
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities
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Accounts payable
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$
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139,045
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$
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124,331
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Accrued compensation
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26,788
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24,123
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Accrued interest
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45,656
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52,577
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Accrued taxes
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28,748
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44,256
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Regulatory liabilities
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137,014
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44,964
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Refundable deposits from generators for transmission network upgrades
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6,295
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2,534
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Debt maturing within one year
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185,825
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395,105
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Other
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24,030
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31,034
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Total current liabilities
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593,401
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718,924
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Accrued pension and postretirement liabilities
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65,353
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61,609
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Deferred income taxes
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964,588
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735,426
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Regulatory liabilities
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251,187
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254,788
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Refundable deposits from generators for transmission network upgrades
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32,975
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18,077
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Other
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29,738
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23,075
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Long-term debt
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4,298,329
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4,034,352
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Commitments and contingent liabilities
(Notes 4 and 11)
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STOCKHOLDERS’ EQUITY
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Common stock, without par value, 300,000,000 shares authorized, 153,432,671 and 152,699,077 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
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849,210
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829,211
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Retained earnings
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969,761
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875,595
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Accumulated other comprehensive (loss) income
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(2,855
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)
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4,265
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Total stockholders’ equity
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1,816,116
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1,709,071
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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8,051,687
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$
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7,555,322
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Three months ended
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Nine months ended
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||||||||||||
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September 30,
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September 30,
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||||||||||||
(in thousands, except per share data)
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2016
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2015
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2016
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2015
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OPERATING REVENUES
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$
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253,451
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$
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273,189
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$
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831,628
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$
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820,734
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OPERATING EXPENSES
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Operation and maintenance
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30,326
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32,721
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82,533
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88,309
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General and administrative
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35,752
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33,677
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130,922
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107,064
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||||
Depreciation and amortization
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|
39,599
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36,890
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117,840
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106,903
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||||
Taxes other than income taxes
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|
22,645
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|
20,463
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|
68,444
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|
|
61,629
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|
||||
Other operating (income) and expenses — net
|
|
(293
|
)
|
|
(206
|
)
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(839
|
)
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(675
|
)
|
||||
Total operating expenses
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|
128,029
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|
123,545
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|
398,900
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363,230
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OPERATING INCOME
|
|
125,422
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|
|
149,644
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|
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432,728
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|
457,504
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|
||||
OTHER EXPENSES (INCOME)
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||||||||
Interest expense — net
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55,843
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51,398
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158,064
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|
150,070
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|
||||
Allowance for equity funds used during construction
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|
(10,002
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)
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(6,421
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)
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(26,442
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)
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(21,434
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)
|
||||
Other income
|
|
(408
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)
|
|
(384
|
)
|
|
(1,149
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)
|
|
(804
|
)
|
||||
Other expense
|
|
1,254
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|
|
1,372
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|
|
3,635
|
|
|
2,969
|
|
||||
Total other expenses (income)
|
|
46,687
|
|
|
45,965
|
|
|
134,108
|
|
|
130,801
|
|
||||
INCOME BEFORE INCOME TAXES
|
|
78,735
|
|
|
103,679
|
|
|
298,620
|
|
|
326,703
|
|
||||
INCOME TAX PROVISION
|
|
29,097
|
|
|
38,106
|
|
|
114,019
|
|
|
121,662
|
|
||||
NET INCOME
|
|
$
|
49,638
|
|
|
$
|
65,573
|
|
|
$
|
184,601
|
|
|
$
|
205,041
|
|
Basic earnings per common share
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
|
$
|
1.21
|
|
|
$
|
1.32
|
|
Diluted earnings per common share
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
|
$
|
1.20
|
|
|
$
|
1.31
|
|
Dividends declared per common share
|
|
$
|
0.2155
|
|
|
$
|
0.1875
|
|
|
$
|
0.5905
|
|
|
$
|
0.5125
|
|
|
|
Three months ended
|
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Nine months ended
|
||||||||||||
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September 30,
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September 30,
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||||||||||||
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
NET INCOME
|
|
$
|
49,638
|
|
|
$
|
65,573
|
|
|
$
|
184,601
|
|
|
$
|
205,041
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
||||||||
Derivative instruments, net of tax (Note 7)
|
|
239
|
|
|
(2,169
|
)
|
|
(7,532
|
)
|
|
(910
|
)
|
||||
Available-for-sale securities, net of tax (Note 7)
|
|
(18
|
)
|
|
18
|
|
|
412
|
|
|
21
|
|
||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
221
|
|
|
(2,151
|
)
|
|
(7,120
|
)
|
|
(889
|
)
|
||||
TOTAL COMPREHENSIVE INCOME
|
|
$
|
49,859
|
|
|
$
|
63,422
|
|
|
$
|
177,481
|
|
|
$
|
204,152
|
|
|
Nine months ended
|
||||||
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September 30,
|
||||||
(in thousands)
|
2016
|
|
2015
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
||||
Net income
|
$
|
184,601
|
|
|
$
|
205,041
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization expense
|
117,840
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|
|
106,903
|
|
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Recognition, refund and collection of revenue accruals and deferrals — including accrued interest
|
8,450
|
|
|
1,164
|
|
||
Deferred income tax expense
|
220,309
|
|
|
76,103
|
|
||
Allowance for equity funds used during construction
|
(26,442
|
)
|
|
(21,434
|
)
|
||
Other
|
22,872
|
|
|
14,950
|
|
||
Changes in assets and liabilities, exclusive of changes shown separately:
|
|
|
|
||||
Accounts receivable
|
(34,449
|
)
|
|
(24,523
|
)
|
||
Inventory
|
(2,746
|
)
|
|
1,401
|
|
||
Prepaid and other current assets
|
(2,902
|
)
|
|
(4,317
|
)
|
||
Accounts payable
|
33,230
|
|
|
(1,120
|
)
|
||
Accrued compensation
|
3,202
|
|
|
(1,520
|
)
|
||
Accrued interest
|
(6,921
|
)
|
|
(8,896
|
)
|
||
Accrued taxes
|
(15,508
|
)
|
|
(15,566
|
)
|
||
Other current liabilities
|
(2,048
|
)
|
|
132
|
|
||
Estimated refund related to return on equity complaints
|
87,734
|
|
|
40,269
|
|
||
Other non-current assets and liabilities, net
|
(145
|
)
|
|
17,701
|
|
||
Net cash provided by operating activities
|
587,077
|
|
|
386,288
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
||||
Expenditures for property, plant and equipment
|
(560,607
|
)
|
|
(460,110
|
)
|
||
Other
|
3,898
|
|
|
(14,969
|
)
|
||
Net cash used in investing activities
|
(556,709
|
)
|
|
(475,079
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
||||
Issuance of long-term debt
|
599,460
|
|
|
225,000
|
|
||
Borrowings under revolving credit agreements
|
790,000
|
|
|
909,400
|
|
||
Net issuance of commercial paper, net of discount
|
39,487
|
|
|
218,983
|
|
||
Retirement of long-term debt
|
(139,344
|
)
|
|
—
|
|
||
Repayments of revolving credit agreements
|
(872,500
|
)
|
|
(1,053,200
|
)
|
||
Repayment of term loan credit agreements
|
(361,000
|
)
|
|
—
|
|
||
Issuance of common stock
|
12,604
|
|
|
12,322
|
|
||
Dividends on common and restricted stock
|
(90,277
|
)
|
|
(79,697
|
)
|
||
Refundable deposits from generators for transmission network upgrades
|
28,798
|
|
|
3,458
|
|
||
Repayment of refundable deposits from generators for transmission network upgrades
|
(10,140
|
)
|
|
(11,442
|
)
|
||
Repurchase and retirement of common stock
|
(9,449
|
)
|
|
(21,931
|
)
|
||
Forward contracts of accelerated share repurchase program
|
—
|
|
|
(115,000
|
)
|
||
Other
|
(22,928
|
)
|
|
(2,676
|
)
|
||
Net cash (used in) provided by financing activities
|
(35,289
|
)
|
|
85,217
|
|
||
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(4,921
|
)
|
|
(3,574
|
)
|
||
CASH AND CASH EQUIVALENTS — Beginning of period
|
13,859
|
|
|
27,741
|
|
||
CASH AND CASH EQUIVALENTS — End of period
|
$
|
8,938
|
|
|
$
|
24,167
|
|
|
Nine months ended
|
||||||
|
September 30,
|
||||||
(in thousands)
|
2016
|
|
2015
|
||||
Supplementary cash flows information:
|
|
|
|
||||
Interest paid (net of interest capitalized)
|
$
|
155,848
|
|
|
$
|
153,350
|
|
Income taxes paid (a)
|
22,743
|
|
|
49,599
|
|
||
Supplementary non-cash investing and financing activities:
|
|
|
|
||||
Additions to property, plant and equipment and other long-lived assets (b)
|
$
|
99,754
|
|
|
$
|
85,386
|
|
Allowance for equity funds used during construction
|
26,442
|
|
|
21,434
|
|
(a)
|
Amount for the nine months ended
September 30, 2016
does not include the income tax refund of
$128.2 million
received from the Internal Revenue Service (“IRS”) in August 2016, which resulted from the election of bonus depreciation as described in
Note 4
.
|
(b)
|
Amounts consist of accrued liabilities for construction, labor, materials and other costs that have not been included in investing activities. These amounts have not been paid for as of
September 30, 2016
or
2015
, respectively, but will be or have been included as a cash outflow from investing activities when paid.
|
(in thousands)
|
Reported
|
|
Adjustment
|
|
Adjusted
|
||||||
Deferred financing fees (net of accumulated amortization)
|
$
|
29,298
|
|
|
$
|
(26,800
|
)
|
|
$
|
2,498
|
|
Debt maturing within one year
|
395,334
|
|
|
(229
|
)
|
|
395,105
|
|
|||
Long-term debt
|
4,060,923
|
|
|
(26,571
|
)
|
|
4,034,352
|
|
(in thousands)
|
|
Total
|
||
Net regulatory liability as of December 31, 2015
|
|
$
|
(2,564
|
)
|
Net refund of 2014 revenue deferrals and accruals, including accrued interest
|
|
16,785
|
|
|
Net revenue deferral for the nine months ended September 30, 2016
|
|
(24,503
|
)
|
|
Net accrued interest payable for the nine months ended September 30, 2016
|
|
(732
|
)
|
|
Net regulatory liability as of September 30, 2016
|
|
$
|
(11,014
|
)
|
(in thousands)
|
|
Total
|
||
Current assets
|
|
$
|
22,262
|
|
Non-current assets
|
|
18,678
|
|
|
Current liabilities
|
|
(15,714
|
)
|
|
Non-current liabilities
|
|
(36,240
|
)
|
|
Net regulatory liability as of September 30, 2016
|
|
$
|
(11,014
|
)
|
Interest Rate Swaps
(in millions, except percentages)
|
|
Notional Amount
|
|
Weighted Average Fixed Rate
|
|
Original Term
|
|
Effective Date
|
||
July 2016 swaps
|
|
$
|
75.0
|
|
|
1.616%
|
|
10 years
|
|
January 2018
|
August 2016 swap
|
|
25.0
|
|
|
1.599%
|
|
10 years
|
|
January 2018
|
|
Total
|
|
$
|
100.0
|
|
|
|
|
|
|
|
Interest Rate Swaps
(in millions, except percentages)
|
|
Amount
|
|
Weighted Average
Fixed Rate of
Interest Rate Swaps
|
|
Comparable
Reference Rate
of Notes
|
|
Loss on
Derivatives
|
|
Settlement
Date
|
||||
10-year interest rate swaps
|
|
$
|
300.0
|
|
|
1.99%
|
|
1.37%
|
|
$
|
17.2
|
|
|
June 2016
|
(in millions)
|
Total
Available
Capacity
|
|
Outstanding
Balance (a)
|
|
Unused
Capacity
|
|
Weighted Average
Interest Rate on
Outstanding Balance
|
|
|
Commitment
Fee Rate (b)
|
|||||||
ITC Holdings
|
$
|
400.0
|
|
|
$
|
7.0
|
|
|
$
|
393.0
|
|
(c)
|
1.8%
|
(d)
|
|
0.175
|
%
|
ITCTransmission
|
100.0
|
|
|
41.6
|
|
|
58.4
|
|
|
1.4%
|
(e)
|
|
0.10
|
%
|
|||
METC
|
100.0
|
|
|
25.8
|
|
|
74.2
|
|
|
1.4%
|
(e)
|
|
0.10
|
%
|
|||
ITC Midwest
|
250.0
|
|
|
104.3
|
|
|
145.7
|
|
|
1.4%
|
(e)
|
|
0.10
|
%
|
|||
ITC Great Plains
|
150.0
|
|
|
58.7
|
|
|
91.3
|
|
|
1.4%
|
(e)
|
|
0.10
|
%
|
|||
Total
|
$
|
1,000.0
|
|
|
$
|
237.4
|
|
|
$
|
762.6
|
|
|
|
|
|
|
(a)
|
Included within long-term debt.
|
(b)
|
Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.
|
(c)
|
ITC Holdings’ revolving credit agreement may be used for general corporate purposes, including to repay commercial paper issued pursuant to the commercial paper program described above, if necessary. While outstanding commercial paper does not reduce available capacity under ITC Holdings’ revolving credit agreement, the unused capacity under this agreement adjusted for the commercial paper outstanding was
$257.1 million
as of
September 30, 2016
.
|
(d)
|
Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.
|
(e)
|
Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|||||||||
|
|
|
|
|
|
|
Other
|
|
Total
|
|||||||||
|
Common Stock
|
|
Retained
|
|
Comprehensive
|
|
Stockholders’
|
|||||||||||
(in thousands, except share and per share data)
|
Shares
|
|
Amount
|
|
Earnings
|
|
Income (Loss)
|
|
Equity
|
|||||||||
BALANCE, DECEMBER 31, 2015
|
152,699,077
|
|
|
$
|
829,211
|
|
|
$
|
875,595
|
|
|
$
|
4,265
|
|
|
$
|
1,709,071
|
|
Net income
|
—
|
|
|
—
|
|
|
184,601
|
|
|
—
|
|
|
184,601
|
|
||||
Repurchase and retirement of common stock
|
(215,791
|
)
|
|
(9,449
|
)
|
|
—
|
|
|
—
|
|
|
(9,449
|
)
|
||||
Dividends declared ($0.5905 per share)
|
—
|
|
|
—
|
|
|
(90,435
|
)
|
|
—
|
|
|
(90,435
|
)
|
||||
Stock option exercises
|
473,519
|
|
|
11,376
|
|
|
—
|
|
|
—
|
|
|
11,376
|
|
||||
Shares issued under the Employee Stock Purchase Plan
|
40,219
|
|
|
1,228
|
|
|
—
|
|
|
—
|
|
|
1,228
|
|
||||
Issuance of restricted stock (a)
|
464,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Forfeiture of restricted stock
|
(22,750
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Forfeiture of performance shares
|
(5,998
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Share-based compensation, net of forfeitures
|
—
|
|
|
16,685
|
|
|
—
|
|
|
—
|
|
|
16,685
|
|
||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,120
|
)
|
|
(7,120
|
)
|
||||
Other
|
—
|
|
|
159
|
|
|
—
|
|
|
—
|
|
|
159
|
|
||||
BALANCE, SEPTEMBER 30, 2016
|
153,432,671
|
|
|
$
|
849,210
|
|
|
$
|
969,761
|
|
|
$
|
(2,855
|
)
|
|
$
|
1,816,116
|
|
(a)
|
On
May 19, 2016
, pursuant to the 2015 Long-Term Incentive Plan, we granted
453,219
shares of restricted stock, which vested as part of the closing of the Merger on October 14, 2016 as described in
Note 2
.
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|||||||||
|
|
|
|
|
|
|
Other
|
|
Total
|
|||||||||
|
Common Stock
|
|
Retained
|
|
Comprehensive
|
|
Stockholders’
|
|||||||||||
(in thousands, except share and per share data)
|
Shares
|
|
Amount
|
|
Earnings
|
|
Income (Loss)
|
|
Equity
|
|||||||||
BALANCE, DECEMBER 31, 2014
|
155,140,967
|
|
|
$
|
923,191
|
|
|
$
|
741,550
|
|
|
$
|
4,816
|
|
|
$
|
1,669,557
|
|
Net income
|
—
|
|
|
—
|
|
|
205,041
|
|
|
—
|
|
|
205,041
|
|
||||
Repurchase and retirement of common stock
|
(667,487
|
)
|
|
(21,931
|
)
|
|
—
|
|
|
—
|
|
|
(21,931
|
)
|
||||
Dividends declared ($0.5125 per share)
|
—
|
|
|
—
|
|
|
(79,691
|
)
|
|
—
|
|
|
(79,691
|
)
|
||||
Stock option exercises (a)
|
1,165,435
|
|
|
10,599
|
|
|
—
|
|
|
—
|
|
|
10,599
|
|
||||
Shares issued under the Employee Stock Purchase Plan
|
55,905
|
|
|
1,723
|
|
|
—
|
|
|
—
|
|
|
1,723
|
|
||||
Issuance of restricted stock
|
254,711
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Forfeiture of restricted stock
|
(53,197
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Issuance of performance shares
|
287,464
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Forfeiture of performance shares
|
(6,713
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Share-based compensation, net of forfeitures
|
—
|
|
|
12,461
|
|
|
—
|
|
|
—
|
|
|
12,461
|
|
||||
Forward contracts of accelerated share repurchase program
|
—
|
|
|
(115,000
|
)
|
|
—
|
|
|
—
|
|
|
(115,000
|
)
|
||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(889
|
)
|
|
(889
|
)
|
||||
Other
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
||||
BALANCE, SEPTEMBER 30, 2015
|
156,177,085
|
|
|
$
|
811,037
|
|
|
$
|
866,900
|
|
|
$
|
3,927
|
|
|
$
|
1,681,864
|
|
(a)
|
An additional
37,941
shares of our common stock were issued during the three months ended
December 31, 2015
for stock option exercises. Total shares of
1,203,376
were issued during the year ended
December 31, 2015
due to the exercise of stock options.
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Balance at the beginning of period
|
$
|
(3,076
|
)
|
|
$
|
6,078
|
|
|
$
|
4,265
|
|
|
$
|
4,816
|
|
Derivative instruments
|
|
|
|
|
|
|
|
||||||||
Reclassification of net loss relating to interest rate cash flow hedges from AOCI to interest expense — net (net of tax of $266 and $100 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $458 and $261 for the nine months ended September 30, 2016 and 2015, respectively)
|
375
|
|
|
111
|
|
|
605
|
|
|
372
|
|
||||
Loss on interest rate swaps relating to interest rate cash flow hedges (net of tax of $98 and $1,639 for the three months ended September 30, 2016 and 2015, respectively, and net of tax of $5,865 and $920 for the nine months ended September 30, 2016 and 2015, respectively)
|
(136
|
)
|
|
(2,280
|
)
|
|
(8,137
|
)
|
|
(1,282
|
)
|
||||
Derivative instruments, net of tax
|
239
|
|
|
(2,169
|
)
|
|
(7,532
|
)
|
|
(910
|
)
|
||||
Available-for-sale securities
|
|
|
|
|
|
|
|
||||||||
Unrealized net (loss) gain on available-for-sale securities (net of tax of $13 for the three months ended September 30, 2016 and 2015, and net of tax of $296 and $15 for the nine months ended September 30, 2016 and 2015, respectively)
|
(18
|
)
|
|
18
|
|
|
412
|
|
|
21
|
|
||||
Available-for-sale securities, net of tax
|
(18
|
)
|
|
18
|
|
|
412
|
|
|
21
|
|
||||
Total other comprehensive income (loss), net of tax
|
221
|
|
|
(2,151
|
)
|
|
(7,120
|
)
|
|
(889
|
)
|
||||
Balance at the end of period
|
$
|
(2,855
|
)
|
|
$
|
3,927
|
|
|
$
|
(2,855
|
)
|
|
$
|
3,927
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands, except share, per share data and percentages)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
49,638
|
|
|
$
|
65,573
|
|
|
$
|
184,601
|
|
|
$
|
205,041
|
|
Less: dividends declared and paid — common and restricted shares
|
(32,999
|
)
|
|
(29,230
|
)
|
|
(90,277
|
)
|
|
(79,697
|
)
|
||||
Undistributed earnings
|
16,639
|
|
|
36,343
|
|
|
94,324
|
|
|
125,344
|
|
||||
Percentage allocated to common shares (a)
|
99.3
|
%
|
|
99.3
|
%
|
|
99.3
|
%
|
|
99.3
|
%
|
||||
Undistributed earnings — common shares
|
16,523
|
|
|
36,089
|
|
|
93,664
|
|
|
124,467
|
|
||||
Add: dividends declared and paid — common shares
|
32,766
|
|
|
29,036
|
|
|
89,656
|
|
|
79,136
|
|
||||
Numerator for basic and diluted earnings per common share
|
$
|
49,289
|
|
|
$
|
65,125
|
|
|
$
|
183,320
|
|
|
$
|
203,603
|
|
Denominator:
|
|
|
|
|
|
|
|
||||||||
Basic earnings per common share — weighted average common shares outstanding
|
152,028,595
|
|
|
154,836,673
|
|
|
151,754,084
|
|
|
154,348,478
|
|
||||
Incremental shares for stock options, employee stock purchase plan shares and performance shares — weighted average assumed conversion
|
1,189,049
|
|
|
687,035
|
|
|
1,126,616
|
|
|
1,104,516
|
|
||||
Diluted earnings per common share — adjusted weighted average shares and assumed conversion
|
153,217,644
|
|
|
155,523,708
|
|
|
152,880,700
|
|
|
155,452,994
|
|
||||
Per common share net income:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.32
|
|
|
$
|
0.42
|
|
|
$
|
1.21
|
|
|
$
|
1.32
|
|
Diluted
|
$
|
0.32
|
|
|
$
|
0.42
|
|
|
$
|
1.20
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
(a)
|
Weighted average common shares outstanding
|
152,028,595
|
|
|
154,836,673
|
|
|
151,754,084
|
|
|
154,348,478
|
|
|
Weighted average restricted shares (participating securities)
|
1,088,340
|
|
|
1,040,212
|
|
|
1,025,033
|
|
|
1,127,490
|
|
|
Total
|
153,116,935
|
|
|
155,876,885
|
|
|
152,779,117
|
|
|
155,475,968
|
|
|
Percentage allocated to common shares
|
99.3
|
%
|
|
99.3
|
%
|
|
99.3
|
%
|
|
99.3
|
%
|
|
2016
|
|
2015
|
||
Outstanding stock options, ESPP shares and performance shares (as of September 30)
|
3,613,464
|
|
|
4,138,180
|
|
Anti-dilutive stock options and ESPP shares (for the three and nine months ended September 30)
|
—
|
|
|
1,059,106
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
1,602
|
|
|
$
|
1,624
|
|
|
$
|
4,810
|
|
|
$
|
4,872
|
|
Interest cost
|
872
|
|
|
924
|
|
|
2,616
|
|
|
2,772
|
|
||||
Expected return on plan assets
|
(931
|
)
|
|
(960
|
)
|
|
(2,795
|
)
|
|
(2,879
|
)
|
||||
Amortization of prior service credit
|
(5
|
)
|
|
(10
|
)
|
|
(13
|
)
|
|
(31
|
)
|
||||
Amortization of unrecognized loss
|
877
|
|
|
1,061
|
|
|
2,629
|
|
|
3,182
|
|
||||
Net pension cost
|
$
|
2,415
|
|
|
$
|
2,639
|
|
|
$
|
7,247
|
|
|
$
|
7,916
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
1,855
|
|
|
$
|
2,121
|
|
|
$
|
5,565
|
|
|
$
|
6,364
|
|
Interest cost
|
631
|
|
|
620
|
|
|
1,891
|
|
|
1,858
|
|
||||
Expected return on plan assets
|
(531
|
)
|
|
(463
|
)
|
|
(1,592
|
)
|
|
(1,389
|
)
|
||||
Amortization of unrecognized loss
|
—
|
|
|
125
|
|
|
—
|
|
|
375
|
|
||||
Net postretirement cost
|
$
|
1,955
|
|
|
$
|
2,403
|
|
|
$
|
5,864
|
|
|
$
|
7,208
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
||||||
(in thousands)
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
||||||
Financial assets measured on a recurring basis:
|
|
|
|
|
|
||||||
Mutual funds — fixed income securities
|
$
|
42,231
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual funds — equity securities
|
1,049
|
|
|
—
|
|
|
—
|
|
|||
Interest rate swap derivative
|
—
|
|
|
7
|
|
|
—
|
|
|||
Financial liabilities measured on a recurring basis:
|
|
|
|
|
|
||||||
Interest rate swap derivatives
|
—
|
|
|
(240
|
)
|
|
—
|
|
|||
Total
|
$
|
43,280
|
|
|
$
|
(233
|
)
|
|
$
|
—
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant
Other Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
||||||
(in thousands)
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
||||||
Financial assets measured on a recurring basis:
|
|
|
|
|
|
||||||
Cash and cash equivalents — cash equivalents
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual funds — fixed income securities
|
35,813
|
|
|
—
|
|
|
—
|
|
|||
Mutual funds — equity securities
|
976
|
|
|
—
|
|
|
—
|
|
|||
Interest rate swap derivative
|
—
|
|
|
112
|
|
|
—
|
|
|||
Financial liabilities measured on a recurring basis:
|
|
|
|
|
|
||||||
Interest rate swap derivatives
|
—
|
|
|
(3,548
|
)
|
|
—
|
|
|||
Total
|
$
|
36,838
|
|
|
$
|
(3,436
|
)
|
|
$
|
—
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Increase (decrease) in:
|
|
|
|
|
|
|
|
||||||||
Operating revenues
|
$
|
(55.0
|
)
|
|
$
|
(18.0
|
)
|
|
$
|
(80.7
|
)
|
|
$
|
(38.8
|
)
|
Interest expense
|
3.9
|
|
|
0.5
|
|
|
7.0
|
|
|
1.4
|
|
||||
Estimated net income (a)
|
(35.7
|
)
|
|
(11.2
|
)
|
|
(53.4
|
)
|
|
(24.5
|
)
|
(a)
|
Includes an effect on net income of
$27.1 million
for the
three and nine months ended September 30, 2016
for revenue initially recognized in 2015, 2014 and 2013. There was
no
effect on net income for the
three and nine months ended September 30, 2015
for revenue initially recognized in a prior period.
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
OPERATING REVENUES:
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Regulated operations (a)
|
$
|
261,156
|
|
|
$
|
273,012
|
|
|
$
|
839,126
|
|
|
$
|
820,452
|
|
ITC Holdings and other
|
93
|
|
|
334
|
|
|
688
|
|
|
720
|
|
||||
Intercompany eliminations
|
(7,798
|
)
|
|
(157
|
)
|
|
(8,186
|
)
|
|
(438
|
)
|
||||
Total Operating Revenues
|
$
|
253,451
|
|
|
$
|
273,189
|
|
|
$
|
831,628
|
|
|
$
|
820,734
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
INCOME BEFORE INCOME TAXES:
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Regulated operations (a)
|
$
|
119,862
|
|
|
$
|
138,532
|
|
|
$
|
439,288
|
|
|
$
|
436,990
|
|
ITC Holdings and other
|
(41,127
|
)
|
|
(34,853
|
)
|
|
(140,668
|
)
|
|
(110,287
|
)
|
||||
Total Income Before Income Taxes
|
$
|
78,735
|
|
|
$
|
103,679
|
|
|
$
|
298,620
|
|
|
$
|
326,703
|
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
NET INCOME:
|
September 30,
|
|
September 30,
|
||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Regulated operations (a)
|
$
|
74,965
|
|
|
$
|
85,971
|
|
|
$
|
272,085
|
|
|
$
|
269,491
|
|
ITC Holdings and other
|
49,638
|
|
|
65,573
|
|
|
184,601
|
|
|
205,041
|
|
||||
Intercompany eliminations
|
(74,965
|
)
|
|
(85,971
|
)
|
|
(272,085
|
)
|
|
(269,491
|
)
|
||||
Total Net Income
|
$
|
49,638
|
|
|
$
|
65,573
|
|
|
$
|
184,601
|
|
|
$
|
205,041
|
|
TOTAL ASSETS:
|
September 30,
|
|
December 31,
|
||||
(in thousands)
|
2016
|
|
2015
|
||||
Regulated operations
|
$
|
7,969,771
|
|
|
$
|
7,463,557
|
|
ITC Holdings and other
|
4,253,150
|
|
|
4,147,915
|
|
||
Reconciliations / Intercompany eliminations (b)
|
(4,171,234
|
)
|
|
(4,056,150
|
)
|
||
Total Assets
|
$
|
8,051,687
|
|
|
$
|
7,555,322
|
|
(a)
|
Amount includes the results of operations from ITC Interconnection for the period June 1, 2016 through
September 30, 2016
.
|
(b)
|
Reconciliation of total assets results primarily from differences in the netting of deferred tax assets and liabilities at our subsidiaries in the regulated operations segment as compared to the classification in our condensed consolidated statements of financial position.
|
•
|
Certain elements of our Regulated Operating Subsidiaries’ formula rates can be and have been challenged, which could result in lowered rates and/or refunds of amounts previously collected and thus have an adverse effect on our business, financial condition, results of operations and cash flows.
|
•
|
Our actual capital investment may be lower than planned, which would cause a lower than anticipated rate base and would therefore result in lower revenues and earnings compared to our current expectations. In addition, we expect to invest in strategic development opportunities to improve the efficiency and reliability of the transmission grid, but we cannot provide assurance that we will be able to initiate or complete any of these investments. In addition, we expect to incur expenses related to the pursuit of development opportunities, which may be higher than forecasted.
|
•
|
The regulations to which we are subject may limit our ability to raise capital and/or pursue acquisitions, development opportunities or other transactions or may subject us to liabilities.
|
•
|
Changes in energy laws, regulations or policies could impact our business, financial condition, results of operations and cash flows.
|
•
|
If amounts billed for transmission service for our Regulated Operating Subsidiaries’ transmission systems are lower than expected, or our actual revenue requirements are higher than expected, the timing of collection of our revenues would be delayed.
|
•
|
Each of our MISO Regulated Operating Subsidiaries depends on its primary customer for a substantial portion of its revenues, and any material failure by those primary customers to make payments for transmission services could have a material adverse effect on our business, financial condition, results of operations and cash flows.
|
•
|
A significant amount of the land on which our assets are located is subject to easements, mineral rights and other similar encumbrances. As a result, we must comply with the provisions of various easements, mineral rights and other similar encumbrances, which may adversely impact their ability to complete construction projects in a timely manner.
|
•
|
We contract with third parties to provide services for certain aspects of our business. If any of these agreements are terminated, we may face a shortage of labor or replacement contractors to provide the services formerly provided by these third parties.
|
•
|
Hazards associated with high-voltage electricity transmission may result in suspension of our operations or the imposition of civil or criminal penalties.
|
•
|
We are subject to environmental regulations and to laws that can give rise to substantial liabilities from environmental contamination.
|
•
|
We are subject to various regulatory requirements, including reliability standards; contract filing requirements; reporting, recordkeeping and accounting requirements; and transaction approval requirements. Violations of these requirements, whether intentional or unintentional, may result in penalties that, under some circumstances, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
|
•
|
Acts of war, terrorist attacks, cyber attacks, natural disasters, severe weather and other catastrophic events may have a material adverse effect on our business, financial condition, results of operations and cash flows.
|
•
|
ITC Holdings is a holding company with no operations, and unless we receive dividends or other payments from our subsidiaries, we may be unable to fulfill our cash obligations.
|
•
|
We have a considerable amount of debt and our reliance on debt financing may limit our ability to fulfill our debt obligations and/or to obtain additional financing.
|
•
|
Certain provisions in our debt instruments limit our financial and operating flexibility.
|
•
|
Adverse changes in our credit ratings may negatively affect us.
|
•
|
ITC Holdings and its subsidiaries are subject to business uncertainties during the period of integration with Fortis that could adversely affect ITC Holdings’ financial results.
|
•
|
We will continue to incur substantial transaction-related costs in connection with the Merger.
|
•
|
We are the target of securities class action and derivative lawsuits, which could result in substantial costs and diversion of management’s time and resources.
|
•
|
Our capital expenditures of
$560.6 million
at our Regulated Operating Subsidiaries and ITC Interconnection during the
nine months ended September 30, 2016
as described below under “— Capital Investment and Operating Results Trends,” resulting primarily from our focus on improving system reliability, increasing system capacity and upgrading the transmission network to support new generating resources;
|
•
|
Debt issuances as described in
Note 6
to the condensed consolidated financial statements and borrowings under our revolving credit agreements in
2016
and
2015
to fund capital investment at our Regulated Operating Subsidiaries and ITC Interconnection as well as for general corporate purposes;
|
•
|
Debt maturing within one year of
$185.8 million
as of
September 30, 2016
and the potentially higher interest rates associated with the additional financing required to repay this debt;
|
•
|
Recognition of the liability for the refund and potential refund relating to the rate of return on equity (“ROE”) complaints, as described in Note
11
to the condensed consolidated financial statements, which resulted in a total estimated pre-tax reduction of revenue and additional interest of
$58.9 million
and
$87.7 million
and an estimated after-tax reduction to net income of
$35.7 million
and
$53.4 million
for the
three and nine months ended September 30, 2016
, respectively;
|
•
|
Election of bonus depreciation for tax years 2015 and 2016 as well as the simulation of ITC Midwest’s 2015 revenue requirement with the election of bonus depreciation. The total impact from these matters was lower revenues of approximately
$4.2 million
and
$13.2 million
and lower net income of approximately
$2.5 million
and
$7.9 million
, for the
three and nine months ended September 30, 2016
, respectively. These matters also resulted in additional net deferred income tax liabilities of approximately
$145.4 million
as of
September 30, 2016
, and a corresponding income tax refund of
$128.2 million
, which was received from the Internal Revenue Service (“IRS”) in August 2016;
|
•
|
Recognition of the refund liability, including interest, associated with regional cost allocation as described in
Note 4
to the condensed consolidated financial statements, which resulted in a reduction to regional cost sharing revenues and an offsetting increase to network revenues for the
three and nine months ended September 30, 2016
. This refund, including interest, was provided to New York Independent System Operator and PJM Interconnection (“other RTOs”) in October 2016. The timing for collection from our network customers of the amount refunded to the other RTOs has not yet been determined, but is expected to occur no later than 2018; and
|
•
|
As a result of the Merger with Fortis consummated on October 14, 2016, ITC Holdings became an indirect subsidiary of Fortis as described below under “— Capital Project Updates and Other Recent Developments — The Merger.” For the
three and nine months ended September 30, 2016
, we expensed external legal, advisory and financial services fees of
$2.0 million
and
$24.3 million
, respectively, and certain internal labor and associated costs of approximately
$3.1 million
and
$9.4 million
, respectively, related to the Merger, recorded within general and administrative expenses. In addition, subsequent to September 30, 2016 through the date of this filing, we have incurred external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately
$75 million
, including approximately
$41 million
of expense recognized due to the accelerated vesting of the share-based compensation awards described in
Note 2
to the condensed consolidated financial statements. Certain amounts of the external costs are not expected to be deductible for income tax purposes. The external and internal costs related to the Merger are not included as components of revenue requirement as they were incurred at ITC Holdings.
|
|
Three months ended
|
|
Nine months ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Increase (decrease) in:
|
|
|
|
|
|
|
|
||||||||
Operating revenues
|
$
|
(55.0
|
)
|
|
$
|
(18.0
|
)
|
|
$
|
(80.7
|
)
|
|
$
|
(38.8
|
)
|
Interest expense
|
3.9
|
|
|
0.5
|
|
|
7.0
|
|
|
1.4
|
|
||||
Estimated net income
|
(35.7
|
)
|
|
(11.2
|
)
|
|
(53.4
|
)
|
|
(24.5
|
)
|
|
|
Actual Capital
|
|
Forecasted
|
||||
|
|
Expenditures for the
|
|
Capital
|
||||
|
|
nine months ended
|
|
Expenditures
|
||||
(in millions)
|
|
September 30, 2016
|
|
2017 — 2021
|
||||
Expenditures for property, plant and equipment (a)
|
|
$
|
560.6
|
|
|
$
|
2,811
|
|
(a)
|
Amounts represent the cash payments to acquire or construct property, plant and equipment, as presented in the condensed consolidated statements of cash flows. These amounts exclude non-cash additions to property, plant and equipment for the allowance for equity funds used during construction as well as accrued liabilities for construction, labor and materials that have not yet been paid.
|
|
Three months ended
|
|
|
|
Percentage
|
|
Nine months ended
|
|
|
|
Percentage
|
||||||||||||||||||
|
September 30,
|
|
Increase
|
|
increase
|
|
September 30,
|
|
Increase
|
|
increase
|
||||||||||||||||||
(in thousands)
|
2016
|
|
2015
|
|
(decrease)
|
|
(decrease)
|
|
2016
|
|
2015
|
|
(decrease)
|
|
(decrease)
|
||||||||||||||
OPERATING REVENUES
|
$
|
253,451
|
|
|
$
|
273,189
|
|
|
$
|
(19,738
|
)
|
|
(7.2
|
)%
|
|
$
|
831,628
|
|
|
$
|
820,734
|
|
|
$
|
10,894
|
|
|
1.3
|
%
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operation and maintenance
|
30,326
|
|
|
32,721
|
|
|
(2,395
|
)
|
|
(7.3
|
)%
|
|
82,533
|
|
|
88,309
|
|
|
(5,776
|
)
|
|
(6.5
|
)%
|
||||||
General and administrative
|
35,752
|
|
|
33,677
|
|
|
2,075
|
|
|
6.2
|
%
|
|
130,922
|
|
|
107,064
|
|
|
23,858
|
|
|
22.3
|
%
|
||||||
Depreciation and amortization
|
39,599
|
|
|
36,890
|
|
|
2,709
|
|
|
7.3
|
%
|
|
117,840
|
|
|
106,903
|
|
|
10,937
|
|
|
10.2
|
%
|
||||||
Taxes other than income taxes
|
22,645
|
|
|
20,463
|
|
|
2,182
|
|
|
10.7
|
%
|
|
68,444
|
|
|
61,629
|
|
|
6,815
|
|
|
11.1
|
%
|
||||||
Other operating (income) and expenses — net
|
(293
|
)
|
|
(206
|
)
|
|
(87
|
)
|
|
42.2
|
%
|
|
(839
|
)
|
|
(675
|
)
|
|
(164
|
)
|
|
24.3
|
%
|
||||||
Total operating expenses
|
128,029
|
|
|
123,545
|
|
|
4,484
|
|
|
3.6
|
%
|
|
398,900
|
|
|
363,230
|
|
|
35,670
|
|
|
9.8
|
%
|
||||||
OPERATING INCOME
|
125,422
|
|
|
149,644
|
|
|
(24,222
|
)
|
|
(16.2
|
)%
|
|
432,728
|
|
|
457,504
|
|
|
(24,776
|
)
|
|
(5.4
|
)%
|
||||||
OTHER EXPENSES (INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest expense — net
|
55,843
|
|
|
51,398
|
|
|
4,445
|
|
|
8.6
|
%
|
|
158,064
|
|
|
150,070
|
|
|
7,994
|
|
|
5.3
|
%
|
||||||
Allowance for equity funds used during construction
|
(10,002
|
)
|
|
(6,421
|
)
|
|
(3,581
|
)
|
|
55.8
|
%
|
|
(26,442
|
)
|
|
(21,434
|
)
|
|
(5,008
|
)
|
|
23.4
|
%
|
||||||
Other income
|
(408
|
)
|
|
(384
|
)
|
|
(24
|
)
|
|
6.3
|
%
|
|
(1,149
|
)
|
|
(804
|
)
|
|
(345
|
)
|
|
42.9
|
%
|
||||||
Other expense
|
1,254
|
|
|
1,372
|
|
|
(118
|
)
|
|
(8.6
|
)%
|
|
3,635
|
|
|
2,969
|
|
|
666
|
|
|
22.4
|
%
|
||||||
Total other expenses (income)
|
46,687
|
|
|
45,965
|
|
|
722
|
|
|
1.6
|
%
|
|
134,108
|
|
|
130,801
|
|
|
3,307
|
|
|
2.5
|
%
|
||||||
INCOME BEFORE INCOME TAXES
|
78,735
|
|
|
103,679
|
|
|
(24,944
|
)
|
|
(24.1
|
)%
|
|
298,620
|
|
|
326,703
|
|
|
(28,083
|
)
|
|
(8.6
|
)%
|
||||||
INCOME TAX PROVISION
|
29,097
|
|
|
38,106
|
|
|
(9,009
|
)
|
|
(23.6
|
)%
|
|
114,019
|
|
|
121,662
|
|
|
(7,643
|
)
|
|
(6.3
|
)%
|
||||||
NET INCOME
|
$
|
49,638
|
|
|
$
|
65,573
|
|
|
$
|
(15,935
|
)
|
|
(24.3
|
)%
|
|
$
|
184,601
|
|
|
$
|
205,041
|
|
|
$
|
(20,440
|
)
|
|
(10.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|||||||||
|
2016
|
|
2015
|
|
Increase
|
|
increase
|
|||||||||||||
(in thousands)
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
(decrease)
|
|
(decrease)
|
|||||||||
Network revenues
|
$
|
240,215
|
|
|
94.8
|
%
|
|
$
|
205,527
|
|
|
75.2
|
%
|
|
$
|
34,688
|
|
|
16.9
|
%
|
Regional cost sharing revenues
|
55,867
|
|
|
22.0
|
%
|
|
85,616
|
|
|
31.3
|
%
|
|
(29,749
|
)
|
|
(34.7
|
)%
|
|||
Point-to-point
|
5,637
|
|
|
2.2
|
%
|
|
3,922
|
|
|
1.4
|
%
|
|
1,715
|
|
|
43.7
|
%
|
|||
Scheduling, control and dispatch
|
3,540
|
|
|
1.4
|
%
|
|
3,328
|
|
|
1.2
|
%
|
|
212
|
|
|
6.4
|
%
|
|||
Other
|
3,168
|
|
|
1.3
|
%
|
|
1,383
|
|
|
0.5
|
%
|
|
1,785
|
|
|
129.1
|
%
|
|||
Recognition of rate refund liability
|
(54,976
|
)
|
|
(21.7
|
)%
|
|
(26,587
|
)
|
|
(9.6
|
)%
|
|
(28,389
|
)
|
|
106.8
|
%
|
|||
Total
|
$
|
253,451
|
|
|
100.0
|
%
|
|
$
|
273,189
|
|
|
100.0
|
%
|
|
$
|
(19,738
|
)
|
|
(7.2
|
)%
|
•
|
Fund capital expenditures at our Regulated Operating Subsidiaries. Our plans with regard to property, plant and equipment investments are described in detail above under “— Capital Investment and Operating Results Trends.”
|
•
|
Fund business development expenses and related capital expenditures. We are pursuing development activities for transmission projects that will continue to result in the incurrence of development expenses and could result in significant capital expenditures.
|
•
|
Fund working capital requirements.
|
•
|
Fund our debt service requirements, including principal repayments and periodic interest payments. We expect our interest payments to increase each year as a result of additional debt expected to be incurred to fund our capital expenditures and for general corporate purposes.
|
•
|
Fund contributions to our retirement benefit plans, as described in
Note 9
to the condensed consolidated financial statements. We expect to make additional contributions of approximately
$1.7 million
to these plans in 2016.
|
Issuer
|
|
Issuance
|
|
Standard and Poor’s
Ratings Services (a)
|
|
Moody’s Investor
Service, Inc. (b)
|
ITC Holdings
|
|
Senior Unsecured Notes
|
|
BBB+
|
|
Baa2
|
ITC Holdings
|
|
Commercial Paper
|
|
A-2
|
|
Prime-2
|
ITCTransmission
|
|
First Mortgage Bonds
|
|
A
|
|
Al
|
METC
|
|
Senior Secured Notes
|
|
A
|
|
A1
|
ITC Midwest
|
|
First Mortgage Bonds
|
|
A
|
|
A1
|
ITC Great Plains
|
|
First Mortgage Bonds
|
|
A
|
|
A1
|
(a)
|
On June 8, 2015, Standard and Poor’s Ratings Services (“Standard and Poor’s”) assigned a short-term issuer credit rating to ITC Holdings, which applies to the commercial paper program discussed in
Note 6
to the condensed consolidated financial statements. Additionally, on October 18, 2016, Standard and Poor’s reaffirmed the senior unsecured credit rating of ITC Holdings and the secured credit ratings of the Regulated Operating Subsidiaries as well as revised the outlook of the issuer credit ratings of ITC Holdings and the Regulated Operating Subsidiaries to stable from negative, subsequent to the completion of the Merger. Refer to
Note 2
to the condensed consolidated financial statements for details on the Merger.
|
(b)
|
On June 9, 2015, Moody’s Investor Service, Inc. (“Moody’s”) assigned a short-term commercial paper rating to ITC Holdings, which applies to the commercial paper program discussed in
Note 6
to the condensed consolidated financial statements. Additionally, on April 15, 2016, Moody’s reaffirmed the credit ratings for the associated debt for ITC Holdings, ITCTransmission, ITC Midwest and ITC Great Plains. On April 26, 2016, Moody’s assigned a senior secured rating to
|
•
|
Changes in amounts borrowed under our unsecured, unguaranteed revolving credit agreements;
|
•
|
Changes in commercial paper issued under the commercial paper program for ITC Holdings;
|
•
|
The issuance of
$200.0 million
of secured
3.90%
Senior Notes, due April 26, 2046, by METC, which repaid the
$200.0 million
borrowed under METC’s term loan credit agreement;
|
•
|
The issuance of
$400.0 million
of unsecured
3.25%
Notes, due June 30, 2026, by ITC Holdings, which repaid the
$161.0 million
outstanding under ITC Holdings’ term loan credit agreement and indebtedness under ITC Holdings’ commercial paper program;
|
•
|
The repayment and retirement in September 2016 of
$139.3 million
of
5.875%
ITC Holdings Senior Notes, due September 30, 2016, with the proceeds from the issuance of commercial paper under ITC Holdings’ commercial paper program;
|
•
|
The refund of
$28.7 million
required by the FERC order issued on
September 22, 2016
associated with regional cost allocation, which was provided to the other RTOs in October 2016. See “Regional Cost Allocation” in
Note 4
to the condensed consolidated financial statements for discussion on this matter; and
|
•
|
The refund of
$117.4 million
required by the FERC order issued on September 28, 2016 for the Initial Complaint. See “Rate of Return on Equity Complaints” in
Note 11
to the condensed consolidated financial statements for a discussion of the complaint.
|
•
|
If future cash flows are insufficient, we may not be able to make principal or interest payments on our debt obligations, which could result in the occurrence of an event of default under one or more of those debt instruments.
|
•
|
We may need to increase our indebtedness in order to make the capital expenditures and other expenses or investments planned by us.
|
•
|
Our indebtedness has the general effect of reducing our flexibility to react to changing business and economic conditions insofar as they affect our financial condition. A substantial portion of the dividends and payments in lieu of taxes we receive from our subsidiaries will be dedicated to the payment of interest on our indebtedness, thereby, reducing the funds available for working capital and capital expenditures.
|
•
|
We currently have debt instruments outstanding with short-term maturities or relatively short remaining maturities. Our ability to secure additional financing prior to or after these facilities mature, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments. Additionally, the interest rates at which we might secure additional financings may be higher than our currently outstanding debt instruments or higher than forecasted at any point in time, which could adversely affect our business, financial condition, results of operations and cash flows.
|
•
|
Market conditions could affect our access to capital markets, restrict our ability to secure financing to make the capital expenditures and investments and pay other expenses planned by us which could adversely affect our business, financial condition, cash flows and results of operations.
|
•
|
incur additional indebtedness;
|
•
|
engage in sale and lease-back transactions;
|
•
|
create liens or other encumbrances;
|
•
|
enter into mergers, consolidations, liquidations or dissolutions, or sell or otherwise dispose of all or substantially all of our assets;
|
•
|
create and acquire subsidiaries; and
|
•
|
pay dividends or make distributions on our stock or on the stock or member capital of our subsidiaries.
|
Period
|
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs
|
|
Maximum Number (or Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under the Plans or Programs (in millions)
|
|||||||
July (a)
|
|
1,365
|
|
|
$
|
46.51
|
|
|
—
|
|
|
$
|
—
|
|
|
August (a)
|
|
2,710
|
|
|
46.29
|
|
|
—
|
|
|
—
|
|
|||
September (a)
|
|
1,818
|
|
|
45.69
|
|
|
—
|
|
|
—
|
|
|||
Total (b)
|
|
5,893
|
|
|
$
|
46.16
|
|
|
—
|
|
|
|
(a)
|
Shares acquired were delivered to us by employees as payment of tax withholding obligations due to us upon the vesting of restricted stock.
|
(b)
|
Amount does not include
18,683
shares deemed issued and repurchased for accounting purposes in connection with the payment of the exercise price and tax withholding obligations relating to net option exercises.
|
Exhibit No.
|
|
Description of Document
|
|
|
|
|
|
3.1
|
|
|
Restated Articles of Incorporation of ITC Holdings Corp., as corrected
|
|
|
|
|
3.2
|
|
|
Sixth Amended and Restated Bylaws of ITC Holdings Corp (filed with Registrant’s Form 8-K filed on October 12, 2016)
|
|
|
|
|
4.45
|
|
|
Third Supplemental Indenture, dated as of July 5, 2016, between the Company and Wells Fargo Bank, National Association, as trustee, together with form of 3.25% Note due 2026 (filed with Registrant’s Form 8-K filed on July 5, 2016)
|
|
|
|
|
10.167
|
|
|
Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Joseph L. Welch (filed with Registrant’s Form 8-K filed on October 12, 2016)
|
|
|
|
|
10.168
|
|
|
Letter Agreement, dated as of October 14, 2016, between ITC Holdings Corp. and Linda H. Blair (filed with Registrant’s Form 8-K filed on October 12, 2016)
|
|
|
|
|
10.169
|
|
|
Amended Employment Agreement, dated as of October 12, 2016, between ITC Holdings Corp. and Rejji P. Hayes (filed with Registrant’s Form 8-K filed on October 12, 2016)
|
|
|
|
|
10.170
|
|
|
Amended and Restated Generator Interconnection Agreement by and among Michigan Electric Transmission Company, LLC, Consumers Energy Company and the Midcontinent Independent System Operator, Inc., dated as of October 24, 2016
|
|
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
101.INS
|
|
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Database
|
|
|
|
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
ITC HOLDINGS CORP.
|
|
||
By:
|
/s/ Linda H. Blair
|
|
|
|
Linda H. Blair
|
|
|
|
President and Chief Executive Officer
(duly authorized officer)
|
|
|
|
|||
|
|
||
By:
|
/s/ Gretchen L. Holloway
|
|
|
|
Gretchen L. Holloway
|
|
|
|
Vice President, Chief Financial Officer and Treasurer
(principal financial and accounting officer)
|
|
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