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ITC Holdings Reports Higher Revenue, Net Income

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NOVI — ITC Holdings Corp. (NYSE: ITC) reported higher revenue and net income for the fourth quarter and year ended Dec. 31.

For the quarter, net income was $48.3 million or 92 cents a share, up from $42.7 million or 82 cents a share in the fourth quarter of 2011 Revenue for the quarter was $221.6 million, up from $201.6 million a year earlier.

For the full year, net income was $187.9 million or $3.60 a share, up from $171.7 million or $3.31 a share a year earlier. Revenue was $830.5 million for the year, up from $757.4 mllion a year earlier.

Operating earnings for the quarter were $56.9 million or $1.09 a share, up from $44.9 million or 86 cents a share a year earlier. For the year, operating earnings were $216.3 million or $4.14 a share, , up from $174 million or $3.35 a share a year earlier.

The company reaffirmed 2013 operating earnings per share guidance of $4.80 to $5 per share and capital expenses of $760 million or $860 million.

Operating earnings exclude the impact of after-tax expenses of the Entergy Corp. transaction of $8.6 million or 17 cents a share for the fourth quarter and $20.1 million or 38 cents a share for the year in 2012, and $7 million or 13 cents a share for the fourth quarter and year of 2011; after-tax expenses associated acquisition accounting adjustments for ITC Midwest, ITCTransmission and METC resulting from the FERC audit order on ITC Midwest issued in May 2012 of  $8.3 million or 16 cents a share for 2012; and an after-tax gain associated with the adoption of the Michigan Corporate Income Tax  of approximately $4.6 million or 9 cents a share for both the fourth quarter and year ended Dec. 31, 2011.

ITC invested $819.8 million in capital projects at its operating companies during the year ended Dec. 31, 2012, including $231.2 million, $149.0 million, $343.3 million and $96.3 million at ITCTransmission, METC, ITC Midwest and ITC Great Plains, respectively.

“As ITC marks its 10th anniversary, we are pleased to report another year of strong performance and continued success in delivering on the commitments we have made to our customers and shareholders”, said Joseph L. Welch, chairman, president and CEO of ITC. “These results are the culmination of our overarching strategy of investing in our core systems to achieve operational excellence and building on our leadership position to develop a 21st century transmission system, all while maintaining our status as an independent transmission company.  As we look further into 2013, we remain focused on completing our transaction with Entergy, which supports our strategy and represents a natural extension of our independent business model into the Mid-South region, while also building on our stand-alone plans.”

ITC said the increase in fourth quarter revenue was primarily due to higher rate base at our regulated operating subsidiaries and higher recoverable operating expenses, as well as an increase in regional cost sharing revenues due to additional capital projects being placed in-service that have been identified by the Midwest ISO (MISO) as eligible for regional cost sharing.

Operation and maintenance (O&M) expenses of $31.6 million decreased by $5.2 million compared to the same period in 2011. This decrease was due to lower vegetation management expenses and a decrease in activities associated with surveying transmission overhead lines.

General and administrative expenses of $24.2 million were $4.8 million higher compared to the same period in 2011. Amounts reported for the fourth quarter 2012 and 2011 exclude $9.1 million and $8.4 million, respectively, of pre-tax expenses related to the Entergy transaction. This increase was primarily due to higher compensation-related expenses and an increase in other professional services.

Depreciation and amortization expenses of $28.1 million increased by $3.4 million compared to the same period in 2011 due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $15.5 million were $1.7 million higher than the same period in 2011. This increase was due to 2011 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2012 personal property taxes.

Interest expense of $38.8 million increased by $1.9 million compared to the same period in 2011 due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the fourth quarter of 2012 was 36.3 percent compared to 39.9 percent for the same period last year.  Amounts reported for the fourth quarter of 2012 exclude approximately $0.5 million of income taxes associated with the Entergy transaction.  Amounts reported for the fourth quarter of 2011 exclude the impacts of a one-time reduction to the income tax provision of $4.6 million associated with the adoption of the CIT and income taxes of approximately $1.6 million associated with the Entergy transaction.

For the full year, ITC the increase in revenue was due mostly to higher rate base at our regulated operating subsidiaries and higher recoverable operating expenses, as well as an increase in regional cost sharing revenues due to additional capital projects being placed in-service that have been identified by MISO as eligible for regional cost sharing. Partially offsetting these increases was the impact of the elimination of the amortization of the ITCTransmission rate freeze revenue deferral in May 2011.

O&M expenses of $121.9 million were $7.3 million lower for the year ended Dec. 31, 2012 compared to the same period in 2011. This decrease was due to increased cost efficiencies associated primarily with substation, breaker and relay maintenance activities, partially offset by higher vegetation management expenses, a decrease in activities associated with surveying transmission overhead lines and lower operating and training expenses.

G&A expenses of $85.7 million were $11.5 million higher compared to the same period in 2011. Amounts report for the year-ended Dec. 31, 2012 and Dec. 31, 2011 exclude approximately $26.4 million and $8.6 million of pre-tax expenses associated with the Entergy transaction, respectively. The increase for the period was due to higher compensation-related expenses, higher general business expenses associated with increased information technology support and higher other 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 $106.5 million increased by $11.5 million for the year-ended Dec. 31, 2012 compared to the same period in 2011. This increase was primarily due to a higher depreciable base resulting from property, plant and equipment additions.

Taxes other than income taxes of $59.7 million were $6.3 million higher compared to the same period in 2011. This increase was due to 2011 capital additions at our regulated operating subsidiaries, which are included in the tax base for 2012 personal property taxes.

Interest expense of $154.4 million, which excludes the impact of $1.3 million of interest on the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest, increased $7.5 million compared to the same period in 2011 due primarily to higher borrowing levels to finance capital investments.

The effective income tax rate for the year ended Dec. 31, 2012 was 35.7 percent compared to 36.7 percent for the same period in 2011. Amounts reported for the year ended Dec. 31, 2012 exclude income taxes of $6.5 million associated with the Entergy transaction and income taxes of $4.8 million associated with the ITC Midwest FERC audit related refund recorded at ITCTransmission, METC and ITC Midwest. Amounts reported for the year ended Dec. 31, 2011 exclude the impacts of a one-time reduction to the income tax provision of $4.6 million associated with the adoption of the CIT and income taxes of approximately $1.6 million associated with the Entergy transaction.

ITC will conduct a webcast and conference call at 11 a.m. Eastern on Thursday, Feb. 28. 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 Tuesday, March 5, can be accessed by dialing 855-859-2056 (toll free) or 404-537-3406, passcode 93804905. The webcast will be archived on the ITC Web site.

More detail about the year-end 2012 results may be found in ITC’s Form 10-K filing. Once filed with the Securities and Exchange Commission, an electronic copy of our 10-K can be found at our Web site, http://investor.itc-holdings.com. Written copies can also be made available by contacting us through our website.

ITC Holdings Corp. (NYSE: ITC) is the nation’s largest independent electric transmission company. Based in Novi, 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 Co., 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.

More at www.itc-holdings.com.

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