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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 001-32576
 ITC HOLDINGS CORP.
  Michigan
    
    32-0058047(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 27175 Energy Way
Novi, MI 48377
 (248) 946-3000
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ITC Holdings Corp.
Form 10-Q for the Quarterly Period Ended March 31, 2008
 INDEX
 PagePart I. Financial Information
    
    
    4Item 1. Financial Statements
    
    
    4Condensed Consolidated Statements of Financial Position (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II. Other Information
    
    
    28Item 1A. Risk Factors
    
    
    28Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibit IndexDeferred Stock Unit Award AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification pursuant to 18 U.S.C. Section 1350
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DEFINITIONS
  ITC Holdings Corp. and its subsidiaries
 
    
    ITC Grid Development are references to ITC Grid Development, LLC, a wholly-owned
subsidiary of ITC Holdings;
    
    ITC Holdings are references to ITC Holdings Corp. and not any of its subsidiaries;
    
    ITC Midwest are references to ITC Midwest LLC, a wholly-owned subsidiary of ITC
Holdings;
    
    ITCTransmission are references to International Transmission Company, a wholly-owned
subsidiary of ITC Holdings;
    
    METC are references to Michigan Electric Transmission Company, LLC, an indirect,
wholly-owned subsidiary of ITC Holdings;
    
    Regulated Operating Subsidiaries are references to ITCTransmission, METC, and ITC
Midwest together; and
    
    We, our and us are references to ITC Holdings together with all of its
subsidiaries.
 Other definitions
 
    
    Consumers Energy are references to Consumers Energy Company, a wholly-owned subsidiary
of CMS Energy Corporation;
    
    Detroit Edison are references to The Detroit Edison Company, a wholly-owned subsidiary
of DTE Energy Company;
    
    DTE Energy are references to DTE Energy Company;
    
    FERC are references to the Federal Energy Regulatory Commission;
    
    IP&L are references to Interstate Power and Light Company, an Alliant Energy
Corporation subsidiary;
    
    IUB are references to the Iowa Utilities Board;
    
    kV are references to kilovolts (one kilovolt equaling 1,000 volts);
    
    kW are references to kilowatts (one kilowatt equaling 1,000 watts);
    
    MISO are references to the Midwest Independent Transmission System Operator, Inc., a
FERC-approved regional transmission organization, which oversees the operation of the bulk
power transmission system for a substantial portion of the midwestern United States and
Manitoba, Canada, and of which ITCTransmission, METC and ITC Midwest are members;
    
    MPUC are references to the Minnesota Public Utilities Commission;
    
    MW are references to megawatts (one megawatt equaling 1,000,000 watts);
    
    NERC are references to the North American Electric Reliability Corporation; and
    
    NOLs are references to net operating loss carryforwards for income taxes.
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
 March 31,
    
    
    December, 31,(in thousands, except share data)
    
    2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    19,305
    
    
    $
    2,616Accounts receivable
    
    
    45,021
    
    
    
    40,919Inventory
    
    
    22,459
    
    
    
    26,315Deferred income taxes
    
    
    2,828
    
    
    
    2,689Other
    
    
    6,669
    
    
    
    3,518Total current assets
    
    
    96,282
    
    
    
    76,057Property, plant and equipment(net of accumulated depreciation and amortization of $893,774
and $879,843, respectively)
    
    
    2,043,164
    
    
    
    1,960,433Other assetsGoodwill
    
    
    960,022
    
    
    
    959,042Intangible assets (net of accumulated amortization of $3,781 and $3,025, respectively)
    
    
    54,626
    
    
    
    55,382Regulatory assets- acquisition adjustments
    
    
    84,707
    
    
    
    86,054Regulatory assets- Attachment O revenue accrual (including accrued interest of $800 and
$552, respectively)
    
    
    38,764
    
    
    
    20,537Other regulatory assets
    
    
    30,126
    
    
    
    29,449Deferred financing fees (net of accumulated amortization of $6,500 and $5,138, respectively)
    
    
    19,850
    
    
    
    14,201Other
    
    
    10,321
    
    
    
    12,142Total other assets
    
    
    1,198,416
    
    
    
    1,176,807TOTAL ASSETS
    
    $
    3,337,862
    
    
    $
    3,213,297LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    53,395
    
    
    $
    47,627Accrued payroll
    
    
    5,869
    
    
    
    8,928Accrued interest
    
    
    14,153
    
    
    
    23,088Accrued taxes
    
    
    14,218
    
    
    
    15,065ITC
Midwests
asset acquisition additional purchase price accrual
    
    
    5,033
    
    
    
    5,402Other
    
    
    8,751
    
    
    
    6,317Total current liabilities
    
    
    101,419
    
    
    
    106,427Accrued pension and postretirement liabilities
    
    
    16,629
    
    
    
    13,934Deferred income taxes
    
    
    106,785
    
    
    
    90,617Regulatory liabilities
    
    
    191,741
    
    
    
    189,727Other
    
    
    9,768
    
    
    
    6,093Long-term debt
    
    
    2,027,690
    
    
    
    2,243,424STOCKHOLDERS EQUITYCommon stock, without par value, 100,000,000 shares authorized, 49,398,488 and 42,916,852
shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively
    
    
    841,644
    
    
    
    532,103Retained earnings
    
    
    43,062
    
    
    
    31,864Accumulated other comprehensive loss
    
    
    (876
    )
    
    
    (892
    )Total stockholders equity
    
    
    883,830
    
    
    
    563,075TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,337,862
    
    
    $
    3,213,297
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ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months endedMarch 31,(in thousands, except share and per share data)
    
    2008
    
    
    2007OPERATING REVENUES
    
    $
    141,914
    
    
    $
    101,274OPERATING EXPENSESOperation and maintenance
    
    
    21,455
    
    
    
    18,540General and administrative
    
    
    17,982
    
    
    
    15,023Depreciation and amortization
    
    
    22,324
    
    
    
    16,122Taxes other than income taxes
    
    
    10,885
    
    
    
    8,770Total operating expenses
    
    
    72,646
    
    
    
    58,455OPERATING INCOME
    
    
    69,268
    
    
    
    42,819OTHER EXPENSES (INCOME)Interest expense
    
    
    30,770
    
    
    
    19,132Allowance for equity funds used during construction
    
    
    (3,096
    )
    
    
    (1,240
    )Loss on extinguishment of debt
    
    
    
    
    
    
    349Other income
    
    
    (514
    )
    
    
    (702
    )Other expense
    
    
    841
    
    
    
    333Total other expenses (income)
    
    
    28,001
    
    
    
    17,872INCOME BEFORE INCOME TAXES
    
    
    41,267
    
    
    
    24,947INCOME TAX PROVISION
    
    
    15,746
    
    
    
    8,092NET INCOME
    
    $
    25,521
    
    
    $
    16,855Basic earnings per share
    
    $
    0.54
    
    
    $
    0.40Diluted earnings per share
    
    $
    0.53
    
    
    $
    0.39Weighted-average basic shares
    
    
    47,296,423
    
    
    
    42,091,356Weighted-average diluted shares
    
    
    48,497,189
    
    
    
    43,293,874Dividends declared per common share
    
    $
    0.290
    
    
    $
    0.275
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ITC HOLDINGS CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three months endedMarch 31,(in thousands)
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    25,521
    
    
    $
    16,855Adjustments
to reconcile net income to net cash provided by operating
activities:Depreciation and amortization expense
    
    
    22,324
    
    
    
    16,122Attachment O revenue accrual  including accrued interest
    
    
    (18,222
    )
    
    
    (17,140
    )Deferred income tax expense
    
    
    14,423
    
    
    
    8,092Allowance for equity funds used during construction
    
    
    (3,096
    )
    
    
    (1,240
    )Stock-based compensation expense
    
    
    1,762
    
    
    
    1,127Amortization of loss on reacquired debt, deferred financing fees and debt discounts
    
    
    1,976
    
    
    
    953Other
    
    
    117
    
    
    
    (31
    )Changes in assets and liabilities, exclusive of changes shown separately:Accounts receivable
    
    
    (2,790
    )
    
    
    (1,628
    )Inventory
    
    
    2,110
    
    
    
    (11,233
    )Other current assets
    
    
    (3,151
    )
    
    
    5,404Accounts payable
    
    
    3,369
    
    
    
    12,226Accrued interest
    
    
    (8,935
    )
    
    
    (11,497
    )Accrued taxes
    
    
    (847
    )
    
    
    (5,459
    )Other current liabilities
    
    
    (3,087
    )
    
    
    (3,448
    )Long-term assets and liabilities, net
    
    
    3,206
    
    
    
    898Net cash provided by operating activities
    
    
    34,680
    
    
    
    10,001CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for property, plant and equipment
    
    
    (94,564
    )
    
    
    (73,788
    )IP&L transmission assets direct acquisition fees
    
    
    (933
    )
    
    
    Other
    
    
    
    
    
    
    925Net cash used in investing activities
    
    
    (95,497
    )
    
    
    (72,863
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    557,895
    
    
    
    Repayment of long-term debt
    
    
    (765,000
    )
    
    
    Borrowings under revolving credit agreements
    
    
    164,500
    
    
    
    235,900Repayments of revolving credit agreements
    
    
    (173,200
    )
    
    
    (141,700
    )Issuance of common stock
    
    
    308,904
    
    
    
    341Common stock issuance costs
    
    
    (734
    )
    
    
    Dividends on common stock
    
    
    (14,319
    )
    
    
    (11,655
    )Repurchase and retirement of common stock
    
    
    
    
    
    
    (1,841
    )Debt issuance costs
    
    
    (4,123
    )
    
    
    (333
    )Refundable deposits from generators for transmission network upgrades
    
    
    3,583
    
    
    
    Net cash provided by financing activities
    
    
    77,506
    
    
    
    80,712NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    16,689
    
    
    
    17,850CASH AND CASH EQUIVALENTS  Beginning of period
    
    
    2,616
    
    
    
    13,426CASH AND CASH EQUIVALENTS  End of period
    
    $
    19,305
    
    
    $
    31,276
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. GENERAL
    Condensed Consolidated Statements of Cash Flows
 Three months endedMarch 31,(in thousands)
    
    2008
    
    2007Supplementary cash flows information:Interest paid (excluding interest capitalized)
    
    $
    37,729
    
    
    $
    29,677Income taxes paid
    
    
    
    
    
    
    150Supplementary noncash investing and financing activities:Conversion of restricted stock to ITC Holdings common stock
    
    
    
    
    
    
    1,205Additions to property, plant and equipment (a)
    
    
    38,156
    
    
    
    25,484Allowance for equity funds used during construction
    
    
    3,096
    
    
    
    1,240
 
 (a)
    
    Amounts consist primarily of current liabilities for construction labor and materials that
have not been included in investing activities. These amounts have not been paid for as of
March 31, 2008 or 2007, respectively, but have been or will be included as a cash outflow from
investing activities for expenditures for property, plant and equipment when paid. Comprehensive income
   Three months endedMarch 31,(In thousands)
    
    2008
    
    
    2007Net income
    
    $
    25,521
    
    
    $
    16,855Amortization of interest rate lock cash flow hedges, net of tax of $9 for both periods
    
    
    16
    
    
    
    16Comprehensive income
    
    $
    25,537
    
    
    $
    16,871
 Public Securities Offering
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2. RECENT ACCOUNTING PRONOUNCEMENTS
 Statement of Financial Accounting Standards No. 141(R), Business Combinations
 Business Combinations
 Statement of Financial Accounting Standards No. 157, Fair Value Measurements
 Fair Value Measurements Effective Date of FASB Statement No. 157
  Accounting for Certain
Investments in Debt and Equity Securities
  Fair Value Measurements at Reporting Date UsingQuoted prices in
    
    
    
    
    
    Significantactive markets for
    
    Significant other
    
    unobservableidentical assets
    
    observable inputs
    
    inputs(in thousands)
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Trading securities
    
    $
    5,379
    
    
    $
    
    
    
    $
    
 Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and
132(R)
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and
132(R)
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Accounting for the
Effects of Certain Types of Regulation Employers Accounting for Pensions Employers Accounting for Postretirement Benefits Other
Than Pensions
   Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133 Accounting for
Derivative Instruments and Hedging Activities
 3. ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
 ITC Midwests Acquisition of IP&L Transmission Assets
  Business Combinations
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Intangible Assets
  4. REGULATORY MATTERS
 Attachment O Network Transmission Rates
   Forward-Looking Attachment O
   Accounting by Rate-Regulated Utilities for the Effects of Certain
Alternative Revenue Programs
 10




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MISO Tariff Revisions
  Long Term Pricing
   11




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5. LONG-TERM DEBT
 ITC
Midwests Asset Acquisition Financing
 ITC Holdings Bridge Facility
   ITC Holdings Senior Notes
  ITC Midwest First Mortgage Bonds
   ITCTransmission First Mortgage Bonds
  Revolving Credit Agreements
 ITC Holdings Revolving Credit Agreement
  ITCTransmission/METC Revolving Credit Agreement
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ITC Midwest Revolving Credit Agreement
  6. EARNINGS PER SHARE
  Three months endedMarch 31,(In thousands, except share and per share data)
    
    2008
    
    
    2007Basic earnings per share:Net income
    
    $
    25,521
    
    
    $
    16,855Weighted-average shares outstanding
    
    
    47,296,423
    
    
    
    42,091,356Basic earnings per share
    
    $
    0.54
    
    
    $
    0.40Diluted earnings per share:Net income
    
    $
    25,521
    
    
    $
    16,855Weighted-average shares outstanding
    
    
    47,296,423
    
    
    
    42,091,356Incremental shares of stock-based awards
    
    
    1,200,766
    
    
    
    1,202,518Weighted-average dilutive shares outstanding
    
    
    48,497,189
    
    
    
    43,293,874Diluted earnings per share
    
    $
    0.53
    
    
    $
    0.39
   7. TAXES
 Michigan Business Tax
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Accounting for Income Taxes
 8. RETIREMENT BENEFITS AND ASSETS HELD IN TRUST
 Retirement Plan Benefits
    Three months endedMarch 31,(in thousands)
    
    2008
    
    
    2007Service cost
    
    $
    483
    
    
    $
    400Interest cost
    
    
    284
    
    
    
    250Expected return on plan assets
    
    
    (256
    )
    
    
    (150
    )Amortization of prior service cost
    
    
    (220
    )
    
    
    (275
    )Amortization of unrecognized loss
    
    
    434
    
    
    
    450Net pension cost
    
    $
    725
    
    
    $
    675
 Other Postretirement Benefits
   Three months endedMarch 31,(in thousands)
    
    2008
    
    
    2007Service cost
    
    $
    413
    
    
    $
    300Interest cost
    
    
    170
    
    
    
    100Expected return on plan assets
    
    
    (55
    )
    
    
    Amortization of prior service cost
    
    
    147
    
    
    
    Amortization of unrecognized actuarial loss
    
    
    
    
    
    
    100Net postretirement cost
    
    $
    675
    
    
    $
    500
 Defined Contribution Plans
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9. CONTINGENCIES
 Litigation
  CSX Transportation, Inc.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  
    
    certain elements of our Regulated Operating Subsidiaries cost recovery through rates can
be challenged, which could result in lowered rates and/or refunds of amounts previously
collected and thus have an adverse effect on our business, financial condition, results of
operations and cash flows. We have also made certain commitments to federal and state
regulators with respect to, among other things, our rates in connection with recent
acquisitions (including ITC Midwest's asset acquisition) that could have an adverse effect on
our business, financial condition, results of operations and cash flows;
    
    approval of ITC Midwest's asset acquisition by state regulatory authorities in Iowa and
Minnesota has been appealed. If such proceedings are decided in a manner that is unfavorable
to us, all or part of the orders approving ITC Midwest's asset acquisition in Iowa and Minnesota
could be reversed, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows;
    
    our Regulated Operating Subsidiaries actual capital expenditures may be lower than
planned, which would decrease their respective expected rate bases and therefore our
revenues;
    
    the regulations to which we are subject may limit our ability to raise capital and/or
pursue acquisitions or development opportunities or other transactions or may subject us to
liabilities;
    
    changes in federal energy laws, regulations or policies could reduce the dividends we may
be able to pay our stockholders;
    
    if the network load or point-to-point transmission service on our Regulated Operating
Subsidiaries transmission systems is lower than expected, the timing of collection of our
revenues would be delayed.
    
    each of our Regulated Operating Subsidiaries depends on its primary customer for a
substantial portion of its revenues (Detroit Edison for ITCTransmission, Consumers Energy
for METC and IP&L for ITC Midwest), and any material failure by those primary customers to
make payments for transmission services would adversely affect our revenues and our ability
to service our debt obligations;
    
    METC does not own the majority of the land on which its transmission assets are located.
A significant amount of the land on which ITCTransmissions and ITC Midwests assets are
located is subject to easements, mineral rights and other similar encumbrances and a
significant amount of ITCTransmission and ITC Midwests other property consists of
easements. As a result each of our Regulated Operating Subsidiaries must comply with the
provisions of various easements, mineral rights and other similar encumbrances, which may
adversely impact their ability to complete construction projects in a timely manner;
    
    deregulation and/or increased competition may adversely affect customers of our Regulated
Operating Subsidiaries, or customers of Detroit Edison, Consumers Energy or IP&L, which may
affect our ability to collect revenues;
    
    hazards associated with high-voltage electricity transmission, such as explosions, fires,
inclement weather, natural disasters, mechanical failure and related matters, may result in
suspension of our Regulated Operating Subsidiaries operations or the imposition of civil or
criminal penalties;
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
    
    we are subject to environmental regulations and to laws that can give rise to substantial
liabilities from environmental contamination;
    
    our Regulated Operating Subsidiaries are subject to various regulatory requirements.
Violations of these requirements, whether intentional or unintentional, may result in
penalties that, under some circumstances, could have a material adverse effect on our
results of operations, financial condition and cash flows;
    
    acts of war, terrorist attacks and threats or the escalation of military activity in
response to such attacks or otherwise may negatively affect our business, financial
condition and results of operations;
    
    the purchase price for ITC Midwests asset acquisition remains subject to adjustment and,
therefore, the final purchase price cannot be determined at this time;
    
    we may encounter difficulties consolidating IP&Ls electric transmission assets into our
business and may not fully attain or retain, or achieve within a reasonable time frame,
expected strategic objectives and other expected benefits of ITC
Midwests asset acquisition;
    
    if one or both of ITC Midwests operating agreements with IP&L and American Transmission
Company, LLC were terminated early, ITC Midwest may face a shortage of labor or replacement
contractors to provide the services formerly provided by IP&L and American Transmission
Company, LLC;
    
    unless we receive dividends or other payments from our Regulated Operating Subsidiaries,
we will be unable to pay dividends to our stockholders and fulfill our cash obligations;
    
    we are highly leveraged and our dependence on debt may limit our ability to fulfill our
debt obligations, pay dividends and/or obtain additional financing;
    
    certain provisions in our debt instruments may limit our financial flexibility;
    
    adverse changes in our credit ratings may negatively affect us;
    
    we have limitations on the amount of federal income tax NOLs that we may use to reduce
our tax liability in a given period;
    
    provisions in our Articles of Incorporation and bylaws, Michigan corporate law and our
debt agreements may impede efforts by our shareholders to change the direction or management
of our company;
    
    provisions in our Articles of Incorporation restrict market participants from voting or
owning 5% or more of the outstanding shares of our capital stock;
    
    future sales of our shares could depress the market price of our common stock; and
    
    other risk factors discussed herein and listed from time to time in our public filings
with the Securities and Exchange Commission (SEC).
  17




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OVERVIEW
      
    
    Capital investment of $52.1 million, $26.2 million and $17.8 million at ITCTransmission,
METC and ITC Midwest, respectively for the three months ended March 31, 2008, resulting from
our focus on improving system reliability;
    
    ITC Midwests acquisition of the transmission assets of IP&L on December 20, 2007 and the
related financing activities; and
    
    Debt issuances and borrowings under our revolving credit agreements in 2007 and 2008
resulting in higher interest expense.
  Recent Developments
 ITC Midwests Acquisition of Transmission Assets and Related Financing Activities
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Trends and Seasonality
 Network Revenues
   19




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Seasonality
   21




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Monthly Peak Load (in MW)
 2008
    
    2007
    
    2006ITC Midwest
    
    METC
    
    ITCTransmission
    
    ITC Midwest
    
    METC
    
    ITCTransmission
    
    METC
    
    ITCTransmissionJanuary
    
    
    2,974
    
    
    
    6,094
    
    
    
    7,889
    
    
    
    
    
    
    
    6,051
    
    
    
    7,876
    
    
    
    
    
    
    
    7,754February
    
    
    2,890
    
    
    
    6,139
    
    
    
    7,713
    
    
    
    
    
    
    
    6,227
    
    
    
    8,170
    
    
    
    
    
    
    
    7,667March
    
    
    2,733
    
    
    
    5,797
    
    
    
    7,511
    
    
    
    
    
    
    
    6,006
    
    
    
    7,739
    
    
    
    
    
    
    
    7,554April
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,473
    
    
    
    7,141
    
    
    
    
    
    
    
    7,035May
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,981
    
    
    
    9,927
    
    
    
    
    
    
    
    10,902June
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,511
    
    
    
    11,761
    
    
    
    
    
    
    
    9,752July
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,672
    
    
    
    11,706
    
    
    
    
    
    
    
    12,392August
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,955
    
    
    
    12,087
    
    
    
    
    
    
    
    12,745September
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,908
    
    
    
    11,033
    
    
    
    
    
    
    
    8,415October
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,524
    
    
    
    10,382
    
    
    
    5,642
    
    
    
    7,302November
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,200
    
    
    
    7,812
    
    
    
    6,103
    
    
    
    7,724December
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,244
    
    
    
    6,215
    
    
    
    8,022
    
    
    
    6,527
    
    
    
    8,257Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,244
    
    
    
    84,723
    
    
    
    113,656
    
    
    
    18,272
    
    
    
    107,499
 RESULTS OF OPERATIONS
 Results of Operations and Variances
 PercentageThree months ended March 31,
    
    
    Increase
    
    
    increase(In thousands)
    
    2008
    
    
    2007
    
    
    (decrease)
    
    
    (decrease)OPERATING REVENUES
    
    $
    141,914
    
    
    $
    101,274
    
    
    $
    40,640
    
    
    
    40.1
    %OPERATING EXPENSESOperation and maintenance
    
    
    21,455
    
    
    
    18,540
    
    
    
    2,915
    
    
    
    15.7
    %General and administrative
    
    
    17,982
    
    
    
    15,023
    
    
    
    2,959
    
    
    
    19.7
    %Depreciation and amortization
    
    
    22,324
    
    
    
    16,122
    
    
    
    6,202
    
    
    
    38.5
    %Taxes other than income taxes
    
    
    10,885
    
    
    
    8,770
    
    
    
    2,115
    
    
    
    24.1
    %Total operating expenses
    
    
    72,646
    
    
    
    58,455
    
    
    
    14,191
    
    
    
    24.3
    %OPERATING INCOME
    
    
    69,268
    
    
    
    42,819
    
    
    
    26,449
    
    
    
    61.8
    %OTHER EXPENSES (INCOME)Interest expense
    
    
    30,770
    
    
    
    19,132
    
    
    
    11,638
    
    
    
    60.8
    %Allowance for equity funds used during construction
    
    
    (3,096
    )
    
    
    (1,240
    )
    
    
    (1,856
    )
    
    
    149.7
    %Loss on extinguishment of debt
    
    
    
    
    
    
    349
    
    
    
    (349
    )
    
    
    (100.0
    )%Other income
    
    
    (514
    )
    
    
    (702
    )
    
    
    188
    
    
    
    (26.8
    )%Other expense
    
    
    841
    
    
    
    333
    
    
    
    508
    
    
    
    152.6
    %Total other expenses (income)
    
    
    28,001
    
    
    
    17,872
    
    
    
    10,129
    
    
    
    56.7
    %INCOME BEFORE INCOME TAXES
    
    
    41,267
    
    
    
    24,947
    
    
    
    16,320
    
    
    
    65.4
    %INCOME TAX PROVISION
    
    
    15,746
    
    
    
    8,092
    
    
    
    7,654
    
    
    
    94.6
    %NET INCOME
    
    $
    25,521
    
    
    $
    16,855
    
    
    $
    8,666
    
    
    
    51.4
    %
 22




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##### Table of Contents



Operating Revenues
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  Percentage2008
    
    
    2007
    
    
    Increase
    
    
    increase(In thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    (decrease)
    
    
    (decrease)Network revenues
    
    $
    128,049
    
    
    
    90.2
    %
    
    $
    93,950
    
    
    
    92.8
    %
    
    $
    34,099
    
    
    
    36.3
    %Point-to-point
    
    
    5,373
    
    
    
    3.8
    %
    
    
    3,648
    
    
    
    3.6
    %
    
    
    1,725
    
    
    
    47.3
    %Scheduling, control and dispatch
    
    
    4,070
    
    
    
    2.9
    %
    
    
    3,169
    
    
    
    3.1
    %
    
    
    901
    
    
    
    28.4
    %Regional cost sharing revenues
    
    
    3,672
    
    
    
    2.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    3,672
    
    
    
    n/aOther
    
    
    750
    
    
    
    0.5
    %
    
    
    507
    
    
    
    0.5
    %
    
    
    243
    
    
    
    47.9
    %Total
    
    $
    141,914
    
    
    
    100.0
    %
    
    $
    101,274
    
    
    
    100.0
    %
    
    $
    40,640
    
    
    
    40.1
    %
   Attachment O revenue accrual summary
 (In thousands)
 Line
    
    
    Item
    
    ITCTransmission
    
    
    METC
    
    
    ITC Midwest
    
    
    Total1
    
    
    Actual net revenue requirement
    
    $
    61,102
    
    
    $
    38,736
    
    
    $
    28,2112
    
    
    Network revenues billed(a)
    
    
    54,122
    
    
    
    35,987
    
    
    
    19,9623
    
    
    Attachment O revenue accrual (line 1  line 2)
    
    $
    6,980
    
    
    $
    2,749
    
    
    $
    8,249
    
    
    $
    17,978
 
 (a)
    
    Network revenues billed is calculated based on the monthly network
peak load at ITCTransmission, METC and ITC Midwest multiplied by the
monthly network rate of $2.350 per kW/month for ITCTransmission,
$1.985 per kW/month for METC and $2.564 per kW/month for ITC Midwest
during 2008, adjusted for the actual number of days in the month.    23




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##### Table of Contents



Operating Expenses
 Operation and maintenance expenses
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  General and administrative expenses
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  Depreciation and amortization expenses
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  Taxes other than income taxes
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  Other expenses (income)
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
   24




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##### Table of Contents



Income Tax Provision
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
  LIQUIDITY AND CAPITAL RESOURCES
  
    
    Fund capital expenditures. Our plans with regard to property, plant and equipment
investments are described in detail above under Trends and Seasonality. Additionally, we
are pursuing other development activities as described in Recent Developments Development
Activities in our most recent Form 10-K that could result in significant capital
expenditures.
    
    Fund additional purchase price for ITC Midwests acquisition of the transmission assets
of IP&L.
    
    Fund working capital requirements.
    
    Fund our debt service requirements, which are described in more detail under
Contractual Obligations in our Form 10-K for the
year ended December 31, 2007 and as updated in this Form 10-Q. We expect
our interest payments to increase during 2008 compared to 2007 as a result of additional
debt incurred in 2007 and 2008, primarily in connection with ITC Midwests acquisition of
IP&Ls transmission assets.
    
    Fund dividends to holders of our common stock.
    
    Fund contributions to our retirement plans, as described in Note 8 to the condensed
consolidated financial statements.
    
    Fund business development expenses, consisting primarily of forecasted expenses of $3.8
million at ITC Grid Development and its subsidiaries in 2008.
   Cash Flows From Operating Activities
  25




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##### Table of Contents



Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  CONTRACTUAL OBLIGATIONS
 October 1).
 CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Fixed Rate Long-Term Debt
  Revolving Credit Agreements
  Other
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  Approval
of ITC Midwest's asset acquisition by state regulatory authorities in Iowa and Minnesota has
been appealed. If such proceedings are decided in a manner that is unfavorable to us, all or part
of the orders approving ITC Midwest's asset acquisition in Iowa and Minnesota could be reversed, which
could have a material adverse effect on our business, financial condition, results of operations
and cash flows.
  28




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##### Table of Contents



ITEM 6. EXHIBITS
  Exhibit No.
    
    Description of Document4.18
    
    Third Supplemental Indenture, dated as of January 24, 2008,
supplemental to the Indenture dated as of July 16, 2003,
between the Registrant and The Bank of New York Trust Company,
N.A. (as successor to BNY Midwest Trust Company, as trustee
(filed with Registrants Form 8-K filed on January 25, 2008)4.19
    
    First Mortgage and Deed of Trust, dated as of January 14,
2008, between ITC Midwest LLC and The Bank of New York Trust
Company, N.A., as trustee (filed with Registrants Form 8-K
filed on February 1, 2008)4.20
    
    First Supplemental Indenture, dated as of January 14, 2008,
supplemental to the First Mortgage Indenture between ITC
Midwest LLC and The Bank of New York Trust Company, N.A., as
trustee, dated as of January 14, 2008 (filed with Registrants
Form 8-K filed on February 1, 2008)4.21
    
    Fourth Supplemental Indenture, dated as of March 25, 2008,
between International Transmission Company and The Bank of New
York Trust Company, N.A., as trustee (filed with the
Registrants Form 8-K filed on March 27, 2008)10.63
    
    Revolving Credit Agreement, dated as of January 29, 2008,
among ITC Midwest LLC, as the borrower, various financial
institutions and other persons from time to time parties
thereto, as the lenders, JPMorgan Chase Bank, N.A., as the
administrative agent, J.P. Morgan Securities Inc., as sole
lead arranger and sole bookrunner, Credit Suisse (Cayman
Islands Branch), as syndication agent and Lehman Brothers
Bank, FSB, as documentation agent (filed with Registrants
Form 8-K filed on January 31, 2008)10.68
    
    Deferred Stock Unit Award Agreement, dated February 25, 2008,
pursuant to the 2006 Long-Term Incentive Plan of ITC Holdings
Corp., between the Registrant and Joseph L. Welch31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 29




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##### Table of Contents



SIGNATURES
   ITC HOLDINGS CORP.By:
    /s/ Joseph L. WelchJoseph L. WelchDirector, President and Chief Executive Officer and Treasurer
(principal executive officer) By:
    /s/ Edward M. RahillEdward M. Rahill Senior Vice President-Finance and Chief Financial Officer
(principal financial officer and principal accounting officer) 30