NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1
.
GENERAL
These condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of and for the year ended
December 31, 2015
included in ITC Holdings’ annual report on Form 10-K for such period.
The accompanying condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (“SEC”) Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These accounting principles require us to use estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from our estimates.
The condensed consolidated financial statements are unaudited, but in our opinion include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim period. The interim financial results are not necessarily indicative of results that may be expected for any other interim period or the fiscal year.
Supplementary Cash Flows Information
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Nine months ended
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|
September 30,
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(in thousands)
|
2016
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|
2015
|
|
Supplementary cash flows information:
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|
|
|
|
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
|
|
____________________________
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|
|
(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
.
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(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.
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2
.
THE MERGER
On
February 9, 2016
, Fortis Inc. (“Fortis”), FortisUS Inc. (“FortisUS”), Element Acquisition Sub Inc. (“Merger Sub”) and ITC Holdings entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Merger Sub would merge with and into ITC Holdings with ITC Holdings continuing as a surviving corporation and becoming a majority owned indirect subsidiary of FortisUS (the “Merger”). On April 20, 2016, FortisUS assigned its rights, interest, duties and obligations under the Merger Agreement to ITC Investment Holdings Inc. (“Investment Holdings”), a subsidiary of FortisUS formed to complete the Merger. On the same date, Fortis reached a definitive agreement with GIC Private Limited (“GIC”) for GIC to acquire an indirect
19.9%
equity interest in ITC Holdings and debt securities to be issued by Investment Holdings for aggregate consideration of
$1.228 billion
in cash upon completion of the Merger. On
October 14, 2016
, ITC Holdings and Fortis completed the Merger contemplated by the Merger Agreement consistent with the terms described above. On the same date, the common shares of ITC Holdings were delisted from the New York Stock Exchange (“NYSE”) and the common shares of Fortis were listed and began trading on the NYSE. Fortis continues to have its shares listed on the Toronto Stock Exchange.
In the Merger, ITC Holdings shareholders received
$22.57
in cash and
0.7520
Fortis common shares for each share of common stock of ITC Holdings (the “Merger consideration”). Upon completion of the Merger, ITC Holdings shareholders held approximately
27%
of the common shares of Fortis. Under the Merger Agreement, outstanding options to acquire common stock of ITC Holdings vested immediately prior to closing and were converted into the right to receive the difference between the Merger consideration and the exercise price of each option in cash, restricted stock vested immediately prior to closing and was converted into the right to receive the Merger consideration in cash and performance shares vested immediately prior to closing at the higher of target or actual performance through the effective time of the Merger and were converted into the
right to receive the Merger consideration in cash. The Merger consideration for purposes of settling the share-based compensation awards was
$45.72
.
For the
three and nine months ended September 30, 2016
, we expensed external legal, advisory and financial services fees related to the Merger of
$2.0 million
and
$24.3 million
, respectively, and certain internal labor and associated costs related to the Merger of approximately
$3.1 million
and
$9.4 million
, respectively, recorded within general and administrative expenses on the condensed consolidated statement of operations. 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 above. The external and internal costs related to the Merger will not be included as components of revenue requirement at our Regulated Operating Subsidiaries as they were incurred by ITC Holdings.
See
Note 11
for legal matters associated with the Merger with Fortis.
3
.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
Amendment to the Balance Sheet Presentation of Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the balance sheet presentation of debt issuance costs. This new standard requires debt issuance costs to be shown as a direct deduction from the carrying amount of the related debt, consistent with debt discounts. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. On January 1, 2016, we adopted this guidance retrospectively and have applied this change to all amounts presented in our condensed consolidated statements of financial position. The following shows the impact of this adoption on our previously reported consolidated statement of financial position as of December 31, 2015:
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(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
|
|
We have accounted for this adoption as a change in accounting principle that is required due to a change in the authoritative accounting guidance. In connection with implementing this guidance, we adopted an accounting policy to present unamortized debt issuance costs associated with revolving credit agreements, commercial paper and other similar arrangements as an asset that is amortized over the life of the particular arrangement. In addition, we present debt issuance costs incurred prior to the associated debt funding as an asset for all other debt arrangements. This standard did not impact our consolidated statements of operations or cash flows.
Recently Issued Pronouncements
We have considered all new accounting pronouncements issued by the FASB and concluded the following accounting guidance, which has not yet been adopted by us, may have a material impact on our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five-step model to determine when a customer obtains control of a transferred good or service. The guidance is effective for annual reporting periods beginning after December 15, 2017 and may be adopted using a full or modified retrospective approach. We do not expect the guidance to have a material impact on our consolidated results of operations, cash flows or financial position. However, we are still evaluating the disclosure requirements, the impacts of the recent clarifying amendments that have been issued by the FASB and the transition method we will elect to adopt the guidance.
Classification and Measurement of Financial Instruments
In January 2016, the FASB issued authoritative guidance amending the classification and measurement of financial instruments. The guidance requires entities to carry most investments in equity securities at fair value and recognize changes in fair value in net income, unless the investment results in consolidation or equity method accounting. Additionally, the new guidance amends certain disclosure requirements associated with the fair value of financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance is required to be adopted using a modified retrospective approach, with limited exceptions. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures.
Accounting for Leases
In February 2016, the FASB issued authoritative guidance on accounting for leases, which impacts accounting by lessees as well as lessors. The new guidance creates a dual approach for lessee accounting, with lease classification determined in accordance with principles in existing lease guidance. Income statement presentation differs depending on the lease classification; however, both types of leases result in lessees recognizing a right-of-use asset and a lease liability, with limited exceptions. Under existing accounting guidance, operating leases are not recorded on the balance sheet of lessees. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and will be applied using a modified retrospective approach, with possible optional practical expedients. Early adoption is permitted. We are currently assessing the impacts this guidance will have on our consolidated financial statements, including our disclosures.
Simplification of Employee Share-Based Payment Accounting
In March 2016, the FASB issued authoritative guidance that simplifies several aspects of the accounting for employee share-based payment transactions. The new guidance (1) requires that an entity recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement, (2) allows an entity to elect as an accounting policy either to estimate forfeitures (as currently required) or account for forfeitures when they occur, (3) modifies the current exception to liability classification of an award when an employer uses a net-settlement feature to withhold shares to meet the employer’s minimum statutory tax withholding requirement to apply if the withholding amount does not exceed the maximum statutory tax rate and (4) specifies the statement of cash flow presentation for excess tax benefits and cash payments to taxing authorities when shares are withheld to meet tax withholding requirements. Though the new guidance is not effective until January 1, 2017, we expect to early adopt the guidance in the fourth quarter of 2016. The various amendments require different transition methods including modified retrospective approach through a cumulative effect adjustment to retained earnings, prospective adoption and retrospective adoption. Assuming we adopt the guidance in the fourth quarter of 2016, we expect to record an adjustment to beginning retained earnings for excess tax benefits generated in years prior to adoption that were previously unrecognized. In addition, we expect to record an income tax benefit related to stock-based compensation that vested during 2016.
Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows
In August 2016, the FASB issued authoritative guidance on the classification of certain cash receipts and cash payments in the statement of cash flows to address diversity in practice. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied retrospectively but may be applied prospectively if retrospective application would be impracticable. We are currently assessing the impacts this guidance will have on our classification of activity in our statement of cash flows.
4
.
REGULATORY MATTERS
Regional Cost Allocation Refund
In October 2010, MISO and ITCTransmission made a filing with the Federal Energy Regulatory Commission (“FERC”) under Section 205 of the FPA to revise the MISO tariff to establish a methodology to allocate and recover costs of ITCTransmission’s Phase Angle Regulating Transformers (“PARs”) among MISO and other FERC-approved Regional Transmission Organizations (“RTOs”), New York Independent System Operator and PJM Interconnection (“other RTOs”). In December 2010, the FERC accepted the proposed revisions, subject to refund, while setting them for hearing and settlement procedures. On September 22, 2016, the FERC issued an order largely affirming the presiding administrative law judge’s initial decision issued in December 2012, which stated, among other things, that MISO and ITCTransmission failed to show
that the other RTOs will benefit from the operation of ITCTransmission’s PARs. The FERC order requires ITCTransmission to provide refunds within 30 days for excess amounts collected from customers at the other RTOs. As a result of the FERC order, ITCTransmission will collect these revenues from network customers instead, resulting in an increase in network revenues and a decrease in regional cost sharing revenues and no material impact on total operating revenue or net income for the
three and nine months ended September 30, 2016
. ITCTransmission has recorded
$28.7 million
for this refund, including interest, in current liabilities on the condensed consolidated statements of financial position as of
September 30, 2016
, 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 the 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.
ITC Interconnection
ITC Interconnection was formed in 2014 by ITC Holdings to pursue transmission investment opportunities. On June 1, 2016, ITC Interconnection acquired certain transmission assets from a merchant generating company and placed a newly constructed 345 kV transmission line in service. As a result, ITC Interconnection became a transmission owner in PJM Interconnection, and is subject to rate-regulation by the FERC. The revenues earned by ITC Interconnection are based on its facilities reimbursement agreement with the merchant generating company. The financial results of ITC Interconnection are currently not material to our consolidated financial statements.
MISO Funding Policy for Generator Interconnections
On June 18, 2015, the FERC issued an order initiating a proceeding, pursuant to Section 206 of the Federal Power Act (“FPA”), to examine MISO’s funding policy for generator interconnections, which allows a transmission owner to unilaterally elect to fund network upgrades and recover such costs from the interconnection customer. In this order, the FERC suggested the MISO funding policy be revised to require mutual agreement between the interconnection customer and transmission owner to utilize the election to fund network upgrades. On January 8, 2016, MISO made a compliance filing to revise its funding policy to adopt the FERC suggestion to require mutual agreement between the customer and transmission owner (“TO”), with an effective date of June 24, 2015. ITCTransmission, METC and ITC Midwest (“MISO Regulated Operating Subsidiaries”), along with another MISO TO, are currently appealing the FERC’s orders on this issue. We do not expect the resolution of this proceeding to have a material impact on our consolidated results of operations, cash flows or financial condition.
MISO Formula Rate Template Modifications Filing
On October 30, 2015, our MISO Regulated Operating Subsidiaries requested modifications, pursuant to Section 205 of the FPA, to certain aspects of their respective FERC-approved formula rate templates (“formula rate templates”) which included, among other things, changes to ensure that various income tax items are computed correctly for purposes of determining their revenue requirements. Our MISO Regulated Operating Subsidiaries requested an effective date of January 1, 2016 for the proposed template changes. On December 30, 2015, the FERC conditionally accepted the formula rate template modifications and required a further compliance filing, which was made on February 8, 2016. On April 14, 2016, the FERC issued an order accepting the February 8, 2016 compliance filing, effective January 1, 2016. The formula rate templates, prior to any proposed modifications, include certain deferred income taxes on contributions in aid of construction in rate base that resulted in the joint applicants recovering excess amounts from customers. As of
September 30, 2016
and
December 31, 2015
, our MISO Regulated Operating Subsidiaries had recorded an aggregate refund liability of
$4.4 million
and
$10.4 million
, respectively.
Challenges Regarding Bonus Depreciation
On December 18, 2015, Interstate Power and Light Company (“IP&L”) filed a formal challenge (“IP&L challenge”) with the FERC against ITC Midwest on certain inputs to ITC Midwest’s formula rates. The IP&L challenge alleged that ITC Midwest has unreasonably and imprudently opted out of using bonus depreciation in the calculation of its federal income tax expense and thereby unduly increased the transmission charges for transmission service to customers. On March 11, 2016, the FERC granted the IP&L challenge in part by requiring ITC Midwest to recalculate its revenue requirements, effective January 1, 2015, to simulate the election of bonus depreciation for 2015. The FERC denied IP&L’s request that ITC Midwest be required to elect bonus depreciation in any past or future years; however, stakeholders will be able to challenge any decision by ITC Midwest not to take bonus depreciation in future years. On June 8, 2016, the FERC denied ITC Midwest’s request for
rehearing of the March 11, 2016 order. On August 3, 2016, ITC Midwest filed a petition for review of the FERC’s March 11, 2016 and June 8, 2016 orders in the United States Court of Appeals, District of Columbia Circuit. On September 8, 2016, ITC Midwest filed a motion to defer the petition pending the issuance of a private letter ruling from the IRS. In a separate but related matter, on April 15, 2016, Consumers Energy Company filed a formal challenge, or in the alternative, a complaint under Section 206 of the FPA, with the FERC against METC relating to METC’s historical practice of opting out of using bonus depreciation. On July 8, 2016, the FERC denied Consumers Energy Company’s formal challenge and dismissed the complaint without prejudice.
These condensed consolidated financial statements reflect the election of bonus depreciation for tax years 2015 and 2016 and the corresponding effects on 2016 revenue requirements for our Regulated Operating Subsidiaries. Additionally, as required by the March 11, 2016 FERC order, we have simulated the election of bonus depreciation for ITC Midwest’s 2015 revenue requirement and included the impact of the corresponding refund obligation in these condensed consolidated financial statements. The total impact from reflecting the election of bonus depreciation as described above was lower revenues of
$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, as compared to the same period if bonus depreciation was not reflected. 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 IRS in August 2016. We are unable to predict the final outcome of this matter; however, the election of bonus depreciation will result in higher cash flows in the year of the election and reduce our rate base and therefore decrease our revenues and net income over the tax lives of the eligible assets.
Rate of Return on Equity Complaints
See “Rate of Return on Equity Complaints” in
Note 11
for a discussion of the complaints.
Cost-Based Formula Rate Templates with True-Up Mechanism
The transmission revenue requirements at our Regulated Operating Subsidiaries are set annually, using formula rate templates, and remain in effect for a
one
-year period. By completing their formula rate templates on an annual basis, our Regulated Operating Subsidiaries are able to make adjustments to reflect changing operational data and financial performance, including the amount of network load on their transmission systems (for our MISO Regulated Operating Subsidiaries), operating expenses and additions to property, plant and equipment when placed in service, among other items. The formula rate templates do not require further action or FERC filings each year, although the template inputs remain subject to legal challenge at the FERC. Our Regulated Operating Subsidiaries will continue to use formula rate templates to calculate their respective annual revenue requirements unless the FERC determines any template to be unjust and unreasonable or another mechanism is determined by the FERC to be just and reasonable. See “Rate of Return on Equity Complaints” in
Note 11
for detail on return on equity (“ROE”) matters including incentive adders approved by the FERC in 2015.
Our formula rate templates include a true-up mechanism, whereby our Regulated Operating Subsidiaries compare their actual revenue requirements to their billed revenues for each year to determine any over- or under-collection of revenue requirements. Revenue is recognized for services provided during each reporting period based on actual revenue requirements calculated using the formula rate templates. Our Regulated Operating Subsidiaries accrue or defer revenues to the extent that the actual revenue requirement for the reporting period is higher or lower, respectively, than the amounts billed relating to that reporting period. The amount of accrued or deferred revenues is reflected in future revenue requirements and thus flows through to customer bills within
two years
under the provisions of the formula rate templates.
The net changes in regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, were as follows during the
nine months ended September 30, 2016
:
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(in thousands)
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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
|
)
|
Regulatory assets and liabilities associated with our Regulated Operating Subsidiaries’ formula rate revenue accruals and deferrals, including accrued interest, are recorded in the condensed consolidated statements of financial position at
September 30, 2016
as follows:
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|
|
|
|
|
|
|
(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
|
)
|
5
.
GOODWILL AND INTANGIBLE ASSETS
Goodwill
At
September 30, 2016
and
December 31, 2015
, we had goodwill balances recorded at ITCTransmission, METC and ITC Midwest of
$173.4 million
,
$453.8 million
and
$323.0 million
, respectively, which resulted from the ITCTransmission acquisition, the METC acquisition and ITC Midwest’s asset acquisition, respectively.
Intangible Assets
We have recorded intangible assets as a result of the METC acquisition in 2006. The carrying value of these assets was
$28.9 million
and
$31.2 million
(net of accumulated amortization of
$29.5 million
and
$27.2 million
) as of
September 30, 2016
and
December 31, 2015
, respectively.
We have also recorded intangible assets for payments made by and obligations of ITC Great Plains to certain TOs to acquire rights, which are required under the SPP tariff to designate ITC Great Plains to build, own and operate projects within the SPP region, including the KETA Project and the Kansas V-Plan Project. The carrying amount of these intangible assets was
$14.6 million
and
$14.4 million
(net of accumulated amortization of
$1.2 million
and
$1.0 million
) as of
September 30, 2016
and
December 31, 2015
, respectively.
During each of the three month periods ended
September 30, 2016
and
2015
, we recognized
$0.8 million
of amortization expense of our intangible assets, and we recognized
$2.5 million
during each of the nine month periods ended
September 30, 2016
and
2015
. For each of the next five years, we expect the annual amortization of our intangible assets that have been recorded as of
September 30, 2016
to be
$3.3 million
per year.
6
.
DEBT
Derivative Instruments and Hedging Activities
We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings
6.05%
Senior Notes, due January 31, 2018. As of
September 30, 2016
, ITC Holdings had
$384.3 million
outstanding under the
6.05%
Senior Notes.
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|
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
|
|
|
|
|
|
|
|
The 10-year term interest rate swaps call for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and pay interest semi-annually at various fixed rates effective for the 10-year period beginning January 31, 2018, after the agreements have been terminated. The agreements include a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swaps of January 31, 2018. The interest rate swaps have been determined to be highly effective at offsetting changes in the fair value of the forecasted interest cash flows associated with the expected
debt issuance, resulting from changes in benchmark interest rates from the trade date of the interest rate swaps to the issuance date of the debt obligation.
The interest rate swaps qualify for cash flow hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date for the effective portion of the hedge is recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be accumulated and amortized as a component of interest expense over the life of the forecasted debt. As of
September 30, 2016
, the fair value of the derivative instruments was an asset of less than
$0.1 million
and a liability of
$0.2 million
. None of the interest rate swaps contain credit-risk-related contingent features. Refer to
Note 10
for additional fair value information.
In June 2016, we terminated
$300.0 million
of
10
-year interest rate swap contracts that managed the interest rate risk associated with the unsecured Notes issued by ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:
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|
|
|
|
|
|
|
|
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
|
The interest rate swaps qualified for cash flow hedge accounting treatment and the loss of
$17.2 million
was recognized in June 2016 for the effective portion of the hedges and recorded net of tax in AOCI. This amount is being amortized as a component of interest expense over the life of the related debt. The ineffective portion of the hedges was recognized in the condensed consolidated statement of operations for the nine months ended September 30, 2016 and was not material.
METC
On April 26, 2016, METC issued
$200.0 million
of
3.90%
Senior Secured Notes, due April 26, 2046. The proceeds were used to repay the
$200.0 million
borrowed under METC’s term loan credit agreement. The METC Senior Secured Notes were issued under its first mortgage indenture and secured by a first mortgage lien on substantially all of its real property and tangible personal property.
ITC Holdings
Commercial Paper Program
ITC Holdings has an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed
$400.0 million
outstanding at any one time. As of
September 30, 2016
, ITC Holdings had approximately
$135.9 million
of commercial paper issued and outstanding under the program, with a weighted-average interest rate of
0.8%
and weighted average remaining days to maturity of
16 days
. The proceeds from issuances under the program during the nine months ended September 30, 2016 were used to repay and retire the
$139.3 million
of ITC Holdings’
5.875%
Senior Notes, due September 30, 2016, and for general corporate purposes, including the repayment of borrowings under ITC Holdings’ revolving credit agreement. The amount outstanding as of
September 30, 2016
was classified as debt maturing within one year in the condensed consolidated statements of financial position.
Unsecured Notes
On July 5, 2016, ITC Holdings issued
$400.0 million
aggregate principal amount of unsecured
3.25%
Notes, due
June 30, 2026
. The proceeds from the issuance were used to repay the
$161.0 million
outstanding under ITC Holdings’ term loan credit agreement and for general corporate purposes, primarily the repayment of indebtedness outstanding under ITC Holdings’ commercial paper program discussed above. These Notes were issued under ITC Holdings’ indenture, dated April 18, 2013.
Revolving Credit Agreements
At
September 30, 2016
, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:
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(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.
|
On April 7, 2016, each of ITC Holdings and its Regulated Operating Subsidiaries amended its respective unsecured revolving credit agreement to allow for the consummation of the Merger.
Covenants
Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and maintaining certain interest coverage ratios. As of
September 30, 2016
, we were not in violation of any debt covenant.
7
.
STOCKHOLDERS’ EQUITY
The changes in stockholders’ equity for the
nine months ended
September 30, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
.
|
The changes in stockholders’ equity for the
nine months ended
September 30, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
Accumulated Other Comprehensive Income
The following table provides the components of changes in AOCI for the
three and nine months ended September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The amount of net loss relating to interest rate cash flow hedges to be reclassified from AOCI to interest expense for the 12-month period ending
September 30, 2017
is expected to be approximately
$2.5 million
.
The Merger
On October 14, 2016, ITC Holdings became a wholly-owned subsidiary of Investment Holdings, which is an indirect subsidiary of Fortis and GIC, upon the closing of the Merger. On the same date, the common shares of ITC Holdings were delisted from the NYSE. Refer to
Note 2
for further details of the Merger.
8
.
EARNINGS PER SHARE
We report both basic and diluted EPS. Our restricted stock contain rights to receive nonforfeitable dividends and thus, are participating securities requiring the two-class method of computing EPS. A reconciliation of both calculations for the
three and nine months ended September 30, 2016
and
2015
is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
The incremental shares for stock options and employee stock purchase plan (“ESPP”) shares are included in the diluted EPS calculation using the treasury stock method, unless the effect of including them would be anti-dilutive. Additionally, performance shares are included in the diluted EPS calculation using the treasury stock method when the performance metric is substantively measurable as of the end of the reporting period and has been met under the assumption the end of the reporting period was the end of the performance period. The outstanding stock options, ESPP shares and performance shares and the anti-dilutive stock options and ESPP shares excluded from the diluted EPS calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The Merger
On October 14, 2016, ITC Holdings became a wholly-owned subsidiary of Investment Holdings, which is an indirect subsidiary of Fortis and GIC, upon the closing of the Merger. On the same date, the common shares of ITC Holdings were delisted from the NYSE. Refer to
Note 2
for further details of the Merger.
9
.
RETIREMENT BENEFITS AND ASSETS HELD IN TRUST
Pension Plan Benefits
We have a qualified defined benefit pension plan (“retirement plan”) for eligible employees, comprised of a traditional final average pay plan and a cash balance plan. The traditional final average pay plan is noncontributory, covers select employees, and provides retirement benefits based on years of benefit service, average final compensation and age at retirement. The cash balance plan is also noncontributory, covers substantially all employees and provides retirement benefits based on eligible compensation and interest credits. Our funding practice for the retirement plan is to contribute amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus additional amounts as we determine appropriate. During the
nine months ended September 30, 2016
, we contributed
$2.8 million
to the retirement plan. We
do not
expect to make any additional contributions to this plan in 2016.
We also have two supplemental nonqualified, noncontributory, defined benefit pension plans for selected management employees (the “supplemental benefit plans” and collectively with the retirement plan, the “pension plans”). The supplemental benefit plans provide for benefits that supplement those provided by the retirement plan. We contributed
$5.2 million
to the supplemental benefit plans during the
nine months ended September 30, 2016
. We
do not
expect to make any additional contributions to these plans in 2016.
Net periodic benefit cost for the pension plans, by component, was as follows for the
three and nine months ended September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Other Postretirement Benefits
We provide certain postretirement health care, dental and life insurance benefits for eligible employees. During the
nine months ended September 30, 2016
, we contributed
$5.6 million
to the postretirement benefit plan. We expect to make estimated additional contributions of
$1.7 million
to the postretirement benefit plan in 2016.
Net postretirement benefit plan cost, by component, was as follows for the
three and nine months ended September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Defined Contribution Plan
We also sponsor a defined contribution retirement savings plan. Participation in this plan is available to substantially all employees. We match employee contributions up to certain predefined limits based upon eligible compensation and the employee’s contribution rate. The cost of this plan was
$0.9 million
and
$0.8 million
for the three months ended
September 30, 2016
and
2015
, respectively, and
$3.4 million
and
$3.2 million
for the
nine months ended September 30, 2016
and
2015
, respectively.
10
.
FAIR VALUE MEASUREMENTS
The measurement of fair value is based on a three-tier hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. For the
nine months ended September 30, 2016
and the year ended
December 31, 2015
, there were
no
transfers between levels.
Our assets and liabilities measured at fair value subject to the three-tier hierarchy at
September 30, 2016
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
$
|
—
|
|
Our assets and liabilities measured at fair value subject to the three-tier hierarchy at
December 31, 2015
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
$
|
—
|
|
As of
September 30, 2016
and
December 31, 2015
, we held certain assets and liabilities that are required to be measured at fair value on a recurring basis. The assets included in the table consist of investments recorded within cash and cash equivalents and other long-term assets, including investments held in a trust associated with our supplemental nonqualified, noncontributory, retirement benefit plans for selected management employees. Our cash and cash equivalents consisted of money market funds that are recorded at cost plus accrued interest to approximate fair value. Our mutual funds consist of publicly traded mutual funds and are recorded at fair value based on observable trades for identical securities in an active market. Changes in the observed trading prices and liquidity of money market funds are monitored as additional support for determining fair value. Gain and losses are recorded in earnings for investments classified as trading securities and other comprehensive income for investments classified as available-for-sale.
The asset and liability related to derivatives consist of interest rate swaps discussed in
Note 6
. The fair value of our interest rate swap derivatives is determined based on a discounted cash flow (“DCF”) method using LIBOR swap rates, which are observable at commonly quoted intervals.
We also held non-financial assets that are required to be measured at fair value on a non-recurring basis. These consist of goodwill and intangible assets. We did not record any impairment charges on long-lived assets and no other significant events occurred requiring non-financial assets and liabilities to be measured at fair value (subsequent to initial recognition) during the
nine months ended September 30, 2016
. For additional information on our goodwill and intangible assets, please refer to the notes to the consolidated financial statements as of and for the
year ended December 31, 2015
included in our Form 10-K for such period and to
Note 5
of this Form 10-Q.
Fair Value of Financial Assets and Liabilities
Fixed Rate Debt
Based on the borrowing rates obtained from third party lending institutions currently available for bank loans with similar terms and average maturities from active markets, the fair value of our consolidated long-term debt and debt maturing within one year, excluding revolving and term loan credit agreements and commercial paper, was
$4,592.1 million
and
$3,879.7 million
at
September 30, 2016
and
December 31, 2015
, respectively. These fair values represent Level 2 measurements under the three-tier hierarchy described above. The total book value of our consolidated long-term debt and debt maturing within one year, net of discount and deferred financing fees and excluding revolving and term loan credit agreements and commercial paper, was
$4,110.9 million
and
$3,653.6 million
at
September 30, 2016
and
December 31, 2015
, respectively.
Revolving and Term Loan Credit Agreements
At
September 30, 2016
and
December 31, 2015
, we had a consolidated total of
$237.4 million
and
$680.9 million
, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans. The fair value of these loans approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.
Other Financial Instruments
The carrying value of other financial instruments included in current assets and current liabilities, including cash and cash equivalents, special deposits and commercial paper, approximates their fair value due to the short-term nature of these instruments.
11
.
COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We are subject to federal, state and local environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment, establish standards for the management, treatment, storage, transportation and disposal of solid and hazardous wastes and hazardous materials, and impose obligations to investigate and remediate contamination in certain circumstances. Liabilities relating to investigation and remediation of contamination, as well as other liabilities concerning hazardous materials or contamination, such as claims for personal injury or property damage, may arise at many locations, including formerly owned or operated properties and sites where wastes have been treated or disposed of, as well as properties currently owned or operated by us. Such liabilities may arise even where the contamination does not result from noncompliance with applicable environmental laws. Under some environmental laws, such liabilities may also be joint and several, meaning that a party can be held responsible for more than its share of the liability involved, or even the entire share. Although environmental requirements generally have become more stringent and compliance with those requirements more expensive, we are not aware of any specific developments that would increase our costs for such compliance in a manner that would be expected to have a material adverse effect on our results of operations, financial position or liquidity.
Our assets and operations also involve the use of materials classified as hazardous, toxic or otherwise dangerous. Many of the properties that we own or operate have been used for many years, and include older facilities and equipment that may be more likely than newer ones to contain or be made from such materials. Some of these properties include aboveground or underground storage tanks and associated piping. Some of them also include large electrical equipment filled with mineral oil, which may contain or previously have contained polychlorinated biphenyls, or PCBs. Our facilities and equipment are often situated on or near property owned by others so that, if they are the source of contamination, others’ property may be affected. For example, aboveground and underground transmission lines sometimes traverse properties that we do not own and transmission assets that we own or operate are sometimes commingled at our transmission stations with distribution assets owned or operated by our transmission customers.
Some properties in which we have an ownership interest or at which we operate are, or are suspected of being, affected by environmental contamination. We are not aware of any pending or threatened claims against us with respect to environmental contamination relating to these properties, or of any investigation or remediation of contamination at these properties, that entail costs likely to materially affect us. Some facilities and properties are located near environmentally sensitive areas such as wetlands.
Claims have been made or threatened against electric utilities for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields associated with electric transmission and distribution lines. While we do not believe that a causal link between electromagnetic field exposure and injury has been generally established and accepted in the scientific community, the liabilities and costs imposed on our business could be significant if such a relationship is established or accepted. We are not aware of any pending or threatened claims against us for bodily injury, disease or other damages allegedly related to exposure to electromagnetic fields and electric transmission and distribution lines that entail costs likely to have a material adverse effect on our results of operations, financial position or liquidity.
Litigation
We are involved in certain legal proceedings before various courts, governmental agencies and mediation panels concerning matters arising in the ordinary course of business. These proceedings include certain contract disputes, eminent domain and vegetation management activities, regulatory matters and pending judicial matters. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record provisions for claims that are considered probable of loss.
Michigan Sales and Use Tax Audit
The Michigan Department of Treasury has conducted sales and use tax audits of ITCTransmission for the audit periods April 1, 2005 through June 30, 2008 and October 1, 2009 through September 30, 2013. The Michigan Department of Treasury has denied ITCTransmission’s claims of the industrial processing exemption from use tax that it has taken beginning January 1, 2007. The exemption claim denials resulted in use tax assessments against ITCTransmission. ITCTransmission filed administrative appeals to contest these use tax assessments.
In a separate, but related case involving a Michigan-based public utility that made similar industrial processing exemption claims, the Michigan Supreme Court ruled in July 2015 that the electric system, which involves altering voltage, constitutes an exempt, industrial processing activity. However, the ruling further held the electric system is also used for other functions that would not be exempt, and remanded the case to the Michigan Court of Claims to determine how the exemption applies to assets that are used in electric distribution activities. On March 30, 2016, ITCTransmission withdrew its administrative appeals, and subsequently filed a civil action in the Michigan Court of Claims seeking to have the use tax assessments at issue canceled. This litigation is currently in the discovery stage. Given the preliminary status of this litigation, ITCTransmission cannot estimate the timing of any potential tax assessments or refunds.
The amount of use tax associated with the exemptions taken by ITCTransmission through
September 30, 2016
is estimated to be approximately
$20.2 million
, including interest. This amount includes approximately
$10.6 million
, including interest, assessed for the audit periods noted above. ITCTransmission believes it is probable that portions of the use tax assessments will be sustained upon resolution of this matter and has recorded
$9.5 million
and
$5.9 million
for this contingent liability, including interest, as of
September 30, 2016
and
December 31, 2015
, respectively, primarily as an increase to property, plant and equipment, which is a component of revenue requirement in our cost-based formula rate.
METC has also taken the industrial processing exemption, estimated to be approximately
$10.4 million
for open periods. METC has not been assessed any use tax liability and has not recorded any contingent liability as of
September 30, 2016
associated with this matter. In the event it becomes appropriate to record additional use tax liability relating to this matter, ITCTransmission and METC would record the additional use tax primarily as an increase to the cost of property, plant and equipment, as the majority of purchases for which the exemption was taken relate to equipment purchases associated with capital projects.
Rate of Return on Equity Complaints
On November 12, 2013, the Association of Businesses Advocating Tariff Equity, Coalition of MISO Transmission Customers, Illinois Industrial Energy Consumers, Indiana Industrial Energy Consumers, Inc., Minnesota Large Industrial Group and Wisconsin Industrial Energy Group (collectively, the “complainants”) filed a complaint with the FERC under Section 206 of the FPA (the “Initial Complaint”), requesting that the FERC find the current
12.38%
MISO regional base ROE rate (the “base ROE”) for all MISO TOs, including ITCTransmission, METC and ITC Midwest, to no longer be just and reasonable. The complainants sought a FERC order reducing the base ROE used in the formula transmission rates for our MISO Regulated Operating Subsidiaries to
9.15%
, reducing the equity component of our capital structure from the FERC approved
60%
to
50%
and terminating the ROE adders currently approved for certain ITC Holdings operating companies, including adders currently utilized by ITCTransmission and METC.
On June 19, 2014, in a separate Section 206 complaint against the regional base ROE rate for ISO New England TOs, the FERC adopted a new methodology for establishing base ROE rates for electric transmission utilities. The new methodology is based on a two-step DCF analysis that uses both short-term and long-term growth projections in calculating ROE rates for a proxy group of electric utilities. The previous methodology used only short-term growth projections. The FERC also reiterated that it can apply discretion in determining how ROE rates are established within a zone of reasonableness and reiterated its policy for limiting the overall ROE rate for any company, including the base and all applicable adders, at the high end of the zone of reasonableness set by the two-step DCF methodology. The new method presented in the ISO New England ROE case will be used in resolving the MISO ROE case.
On October 16, 2014, the FERC granted the complainants’ request in part by setting the base ROE for hearing and settlement procedures, while denying all other aspects of the Initial Complaint. The FERC found that the complainants failed to show that the use of actual or FERC-approved capital structures that include more than
50%
equity is unjust and unreasonable. The FERC also denied the request to terminate ITCTransmission’s and METC’s ROE incentives. The order reiterated that any TO’s total ROE rate is limited by the top end of a zone of reasonableness and the TO’s ability to implement the full amount of previously granted ROE adders may be affected by the outcome of the hearing. The FERC set the refund effective date for the Initial Complaint as November 12, 2013.
On December 22, 2015, the presiding administrative law judge issued an initial decision on the Initial Complaint. On September 28, 2016, the FERC issued an order (the “September 2016 Order”) affirming the presiding administrative law judge’s initial decision and setting the base ROE at
10.32%
, with a maximum ROE of
11.35%
, effective for the period from November 12, 2013 through February 11, 2015 (the “Initial Refund Period”). Additionally, the rates established by the September 2016 Order will be used prospectively from the date of the order until a new approved rate is established by the Second Complaint described below, which result in an ROE used currently by ITCTransmission, METC and ITC Midwest of
11.35%
,
11.35%
and
11.32%
, respectively. The September 2016 Order requires all MISO TOs, including our MISO Regulated Operating Subsidiaries, to provide refunds within 30 days for the Initial Refund Period. The estimated refund for the Initial Complaint resulting from this FERC order, including interest, is
$117.4 million
for our MISO Regulated Operating Subsidiaries, recorded in current liabilities on the condensed consolidated statements of financial position. On October 21, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for an extension of nine months to provide refunds until July 28, 2017, which was granted by the FERC on October 28, 2016. Additionally, on October 28, 2016, the MISO TOs, including our MISO Regulated Operating Subsidiaries, filed a request with the FERC for rehearing of the September 2016 Order regarding the future exclusion of certain short-term growth projections in the two-step DCF analysis.
On February 12, 2015, an additional complaint was filed with the FERC under Section 206 of the FPA (the “Second Complaint”) by Arkansas Electric Cooperative Corporation, Mississippi Delta Energy Agency, Clarksdale Public Utilities Commission, Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative, Inc., seeking a FERC order to reduce the base ROE used in the formula transmission rates of our MISO Regulated Operating Subsidiaries to
8.67%
, with an effective date of February 12, 2015. On March 11, 2015, the MISO TOs filed an answer to the Second Complaint with the FERC supporting the current base ROE as just and reasonable. On June 18, 2015, the FERC accepted the Second Complaint and set it for hearing and settlement procedures. The FERC also set the refund effective date for the Second Complaint as February 12, 2015.
On October 20, 2015, the MISO TOs filed
expert witness testimony
in the Second Complaint proceeding supporting the existing base ROE as just and reasonable. However, in the event that the FERC elects to change the base ROE, the testimony included a recommendation of a
10.75%
base ROE for the period from February 12, 2015 through May 11, 2016 (the “Second Refund Period”). Updated data to be considered in establishing any new base ROE was filed by the parties to the Second Complaint in January 2016, including a recommendation in the updated MISO TO expert witness testimony to use a
10.96%
base ROE. On June 30, 2016, the presiding administrative law judge issued an initial decision on the Second Complaint, which recommended a base ROE of
9.70%
for the Second Refund Period, with a maximum ROE of
10.68%
. The initial decision is a non-binding recommendation to the FERC on the Second Complaint, and all parties, including the MISO TOs and the complainants, have filed briefs contesting various parts of the proposed findings and recommendations. In resolving the Second Complaint, we expect the FERC to establish a new base ROE and zone of reasonable returns that will be used, along with any ROE adders, to calculate the refund liability for the Second Refund Period. We anticipate a FERC order on the Second Complaint in 2017.
In addition to the estimated refund for the Initial Complaint noted above, we believe it is probable that a refund will be required in connection with the Second Complaint. As of
September 30, 2016
, the estimated range of aggregate refunds for both the Initial Complaint and Second Complaint is expected to be from
$219.0 million
to
$255.7 million
on a pre-tax basis
for the period from November 12, 2013 through
September 30, 2016
. As of
September 30, 2016
, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of
$255.7 million
for the Initial Complaint and Second Complaint, representing the best estimate of the probable aggregate refunds based on the resolution of the Initial Complaint in the September 2016 Order. As of
December 31, 2015
, our MISO Regulated Operating Subsidiaries had recorded an aggregate estimated regulatory liability of
$168.0 million
, which represented the low end of the range of potential refunds as of that date, as there was no best estimate within the range of refunds at that time. The recognition of this estimated liability resulted in the following impacts to our condensed consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
It is possible the outcome of these matters could differ from the estimated range of losses and materially affect our consolidated results of operations due to the uncertainty of the calculation of an authorized base ROE along with the zone of reasonableness under the newly adopted two-step DCF methodology, which is subject to significant discretion by the FERC. As of
September 30, 2016
, our MISO Regulated Operating Subsidiaries had a total of approximately
$2.9 billion
of equity in their collective capital structures for ratemaking purposes. Based on this level of aggregate equity, we estimate that each
10
basis point reduction in the authorized ROE would reduce annual consolidated net income by approximately
$2.9 million
.
In a separate but related matter, in November 2014, METC, ITC Midwest and other MISO TOs filed a request with the FERC, under FPA Section 205, for authority to include a
50
basis point incentive adder for RTO participation in each of the TOs’ formula rates. On January 5, 2015, the FERC approved the use of this incentive adder, effective January 6, 2015. Additionally, ITC Midwest filed a request with the FERC, under FPA Section 205, in January 2015 for authority to include a
100
basis point incentive adder for independent transmission ownership, which is currently authorized for ITCTransmission and METC. On March 31, 2015, the FERC approved the use of a
50
basis point incentive adder for independence, effective April 1, 2015. On April 30, 2015, ITC Midwest filed a request with the FERC for rehearing on the approved incentive adder for independence and this request was subsequently denied by the FERC on January 6, 2016. An appeal of the FERC’s decision has been filed. Beginning September 28, 2016, these incentive adders have been applied to METC’s and ITC Midwest’s base ROEs in establishing their total authorized ROE rates, subject to the maximum ROE limitation in the September 2016 Order of
11.35%
.
Challenges Regarding Bonus Depreciation
See “Challenges Regarding Bonus Depreciation” in
Note 4
for discussion of these challenges.
Legal Matters Associated with the Merger
Following the announcement of the Merger, four putative state class action lawsuits were filed by purported shareholders of ITC Holdings on behalf of a purported class of ITC Holdings shareholders. Initially, the four actions (
Paolo Guerra v. Albert Ernst, et al.
,
Harvey Siegelman v. Joseph L. Welch, et al.
,
Alan Poland v. Fortis Inc., et al.
,
Sanjiv Mehrotra v. Joseph L. Welch, et al.)
were filed in the Oakland County Circuit Court of the State of Michigan. The complaints name as defendants a combination of ITC Holdings and the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub. The complaints generally allege, among other things, that (1) ITC Holdings’ directors breached their fiduciary duties in connection with the Merger Agreement, (including, but not limited to, various alleged breaches of duties of good faith, loyalty, care and independence), (2) ITC Holdings’ directors failed to take appropriate steps to maximize shareholder value and claims that the Merger Agreement contains several deal protection provisions that are unnecessarily preclusive and (3) a combination of ITC Holdings, Fortis, FortisUS and Merger Sub aided and abetted the purported breaches of fiduciary duties. The complaints seek class action certification and a variety of relief including, among other things, enjoining defendants from completing the Merger, unspecified rescissory and compensatory damages, and costs, including attorneys’ fees and expenses. The
Siegelman
case was voluntarily dismissed by the plaintiff on March 22, 2016. On March 23, 2016, the state
court entered an order directing that the related cases be consolidated under the caption
In re ITC Holdings Corporation Shareholder Litigation.
On April 8, 2016,
Poland
filed an amended complaint to add derivative claims on behalf of ITC Holdings.
On March 14, 2016, the
Guerra
state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as
Paolo Guerra v. Albert Ernst, et al
. The federal complaint names the same defendants (plus FortisUS), asserts the same general allegations and seeks the same types of relief as in the state court cases. On March 25, 2016,
Guerra
amended his federal complaint. The amended complaint dropped Fortis US, Fortis and Merger Sub as defendants and added claims alleging that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary proxy statement/prospectus, filed with the SEC in connection with the special meeting of shareholders to approve the Merger Agreement, was allegedly materially misleading and allegedly omitted material facts that were necessary to render it non-misleading.
Another lawsuit was filed on April 8, 2016 in the United States District Court, Eastern District of Michigan captioned
Harold Severance v. Joseph L. Welch et al.
against the individual members of the ITC Holdings board of directors, Fortis, FortisUS and Merger Sub, asserting the same general allegations and seeking the same type of relief as
Guerra
.
On April 22, 2016, the
Mehrotra
state court action was dismissed by the plaintiff and refiled in the United States District Court, Eastern District of Michigan, as
Sanjiv Mehrotra v. Joseph L. Welch, et al
. With the exception of Fortis, the federal complaint names the same defendants and asserts the same general allegations as the other federal complaints.
On June 8, 2016, the state court denied a motion for summary disposition filed by ITC Holdings and the individual members of the ITC Holdings board of directors. ITC Holdings voluntarily made supplemental disclosures related to the Merger in response to certain allegations, which are set forth in a Form 8-K filed with the SEC on June 13, 2016. Nothing in those supplemental disclosures shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth therein.
On July 6, 2016, the federal actions were voluntarily dismissed by the federal plaintiffs. The federal plaintiffs reserved the right to make certain other claims, and ITC Holdings and the individual members of the ITC Holdings board of directors reserved the right to oppose any such claim.
On July 8, 2016, the plaintiffs in
Poland
filed a motion for class certification. On July 13, 2016, ITC Holdings and the individual members of the ITC Holdings board of directors filed their respective answers to the amended complaint in
Poland
. On July 19, 2016, the
Poland
state court
issued a scheduling order, which, among other things, requires the parties to complete discovery by March 10, 2017, and sets a trial date for June 5, 2017. On July 25, 2016, the
Poland
state court issued an order allowing a new plaintiff, Washtenaw County Employees’ Retirement System, to intervene in the
Poland
case.
We believe the remaining lawsuit is without merit and intend to vigorously defend against it. Additional lawsuits arising out of or relating to the Merger Agreement or the Merger may be filed in the future. See
Note 2
for additional discussion on the Merger.
12
.
SEGMENT INFORMATION
We identify reportable segments based on the criteria set forth by the FASB regarding disclosures about segments of an enterprise, including the regulatory environment of our subsidiaries and the business activities performed to earn revenues and incur expenses. As discussed in
Note 4
, during the second quarter of 2016, ITC Interconnection became a transmission owner in the FERC-approved RTO, PJM Interconnection. As a result, the newly regulated transmission business at ITC Interconnection is included, along with our Regulated Operating Subsidiaries, in the regulated operations segment as of June 1, 2016. The following tables show our financial information by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|