Executive Summary

Q2 2016 delivered solid underlying results: Electric gross margin rose 8.2% YoY on Missouri rate increases and warmer weather; GAAP EPS was $0.21 (up from $0.15 diluted in Q2’15) despite $4.2M merger-related costs; ex-merger costs, adjusted EPS was ~$0.27 .
2016 EPS guidance of $1.26–$1.44 was reaffirmed; a Missouri rate case stipulation implies $20.4M base revenue increase (4.46%) with little margin impact due to lower fuel cost assumptions; new rates expected mid‑September 2016, pending approval .
Key moving pieces: lower O&M (−$2.9M) supported earnings; headwinds included higher D&A (+$0.7M) and interest (+$0.4M), plus merger costs (−$4.2M) .
Strategic catalyst: merger with Algonquin/Liberty progressing (FERC and Oklahoma approvals; Arkansas settlement pending; Missouri proceedings underway); Company still expects close in Q1 2017, a potential stock reaction driver as approvals advance .

What Went Well and What Went Wrong

What Went Well

Rate relief drove margin: Electric segment gross margin +$7.2M YoY on Missouri rate increase (net +$4.3M), weather/volume (+$1.8M), and customer growth (+$0.8M) .
Cost discipline: O&M and maintenance decreased by ~$2.9M in Q2, boosting earnings leverage .
Management confidence and guidance maintained: “results… continue to meet our expectations… our earnings guidance… remains unchanged,” and merger progress tracking to an expected Q1 2017 close .

What Went Wrong

Transaction drag: Merger-related costs of ~$4.2M reduced Q2 earnings; D&A (+$0.7M) and interest (+$0.4M) were additional headwinds .
Gas headwinds from prior heating season: Gas segment gross margin was flat YoY in Q2, but twelve months fell −$2.3M (−9.7%) due to mild winter reducing sales (−15.6%) .
AFUDC down in the quarter with Riverton 12 conversion completion, trimming non-operating income (equity AFUDC −$0.2M YoY) .

Financial Results

Consolidated P&L Snapshot (GAAP)

Metric ($MM, except per-share)	Q2 2015	Q1 2016	Q2 2016
Revenues	$134.56	$151.32 (H1 $290.64 − Q2 $139.32, calc.)	$139.32
Operating Income	$16.05	$23.24 (H1 $42.62 − Q2 $19.38, calc.)	$19.38
Net Income	$6.77	$14.00	$9.23
EPS (Basic)	$0.16	$0.32	$0.21
EPS (Diluted)	$0.15	$0.32	$0.21
Total Gross Margin (Company def’n)	$93.3	$105.9	$100.3

Notes: Q1 2016 revenue and operating income derived from H1 2016 minus Q2 2016 per 10‑Q; Company “Gross Margin” is non‑GAAP defined as revenue less fuel/gas costs .

Segments – Net Income Bridge

Net Income by Segment ($MM)	Q2 2015	Q2 2016
Electric	$6.63	$9.21
Gas	−$0.53	−$0.53
Other	$0.68	$0.55
Total	$6.77	$9.23

Operating Drivers (Margins and Costs)

Driver	Q2 2015	Q1 2016	Q2 2016
Electric Segment Gross Margin ($MM)	$87.1	$96.5	$94.3
Gas Segment Gross Margin ($MM)	$4.2	$7.6	$4.2
O&M + Maintenance ($MM)	$44.0 O&M; $15.6 Maint.	$39.1 O&M; $25.9 Maint.	$41.0 O&M; $12.7 Maint.
Merger Costs ($MM)	$0.0	$4.2	$4.2

KPIs

KPI	Q1 2016	Q2 2016
Total On‑System Electric Sales (MWh, MM)	1,229	1,147
Retail Gas Sales (bcf)	1.61	0.32
Electric: Residential kWh (MM)	508	365
Electric: Commercial kWh (MM)	360	394
Electric: Industrial kWh (MM)	248	278

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EPS (weather‑normalized)	FY 2016	$1.38–$1.54 (Feb 4, 2016)	$1.26–$1.44 (Feb 26 update); reaffirmed Apr 28 & Jul 28	Lowered on Feb 26 due to ~$15–$17M transaction costs; maintained thereafter
Missouri Base Revenue Increase	Ongoing	Filed +$33.4M request (Oct 2015)	Stipulation +$20.4M (4.46%), expected mid‑Sep 2016 if approved; little margin impact due to lower fuel assumption	Lower than initial request; timing clarified
Dividend	Quarterly	$0.26/share (declared Feb 4; payable Mar 15)	$0.26/share (declared Jul 28; payable Sep 15)	Maintained

Earnings Call Themes & Trends

Note: No Q2 2016 earnings call transcript was available in filings; analysis below draws from Q4 2015, Q1 2016, and Q2 2016 press releases/10‑Q .

Topic	Prior Mentions (Q4 2015)	Prior Mentions (Q1 2016)	Current (Q2 2016)	Trend
Regulatory/Rate Cases	Missouri rate case filed; prior increases detailed	Guidance unchanged; rate case assumed Oct 1 start at filed amount	Unanimous Stipulation: +$20.4M base revenues, little margin impact; mid‑Sep anticipated	Converging to resolution
Merger Progress	Strategic alternatives; no update in Q4 PR	Merger announced; shareholder meeting set; guidance includes transaction costs	FERC & Oklahoma approvals; Arkansas settlement pending; Missouri hearings scheduled; expect Q1 2017 close	Advancing approvals
Environmental/Compliance	MATS/CSAPR compliance; Asbury AQCS impacts	Riverton 12 conversion underway	Riverton 12 conversion completed and in-service May 1, 2016	Execution completed
Weather Impact	Mild Q4 2015 reduced sales/earnings	Mild winter depressed Q1 electric/gas sales	Warmer Q2 aided electric volumes; full‑year still impacted by mild winter	Normalizing in Q2
Market/Operations (SPP IM)	SPP market activity flows through fuel adj.; little margin impact	Same framework	Continued SPP IM participation; congestion hedged via TCRs	Ongoing, managed

Management Commentary

“Our second quarter results, adjusted for weather and the merger-related costs incurred during the period, continue to meet our expectations… our earnings guidance… remains unchanged.” — Brad Beecher, President & CEO .
On rate case outcome: The Missouri stipulation lowers base revenues versus request due to lower fuel/purchased power costs; offsetting effect results in little margin impact; new rates expected mid‑September, if approved .
On merger: Approvals in hand from FERC and Oklahoma; Arkansas settlement pending; Missouri proceedings scheduled; expect closing in Q1 2017 .

Q&A Highlights

No Q2 2016 earnings call transcript was located in company filings; Q1 included a scheduled call, but there was no Q2 call information in the July 28 press release. Accordingly, no Q&A highlights or clarifications to report beyond written disclosures .

Estimates Context

Wall Street consensus (S&P Global) for Q2 2016 EPS and revenue was unavailable via our SPGI/Capital IQ data interface for EDE, so we cannot provide a vs‑consensus comparison at this time. Guidance was reaffirmed at $1.26–$1.44 EPS for 2016, incorporating ~50% of $15–$17M in transaction costs expected in 2016 (assuming 2017 close), and assuming 30‑year average weather and <1% system energy growth .
Implication: With the Missouri stipulation implying little margin impact and rates potentially effective mid‑September, estimate revisions may be modest near‑term; merger cost cadence and weather remain the key variables .

Key Takeaways for Investors

Underlying operations are positive: electric margin expansion from rate relief and lower maintenance costs; reported EPS is temporarily depressed by merger costs .
2016 EPS guidance maintained at $1.26–$1.44 despite transaction costs, signaling management confidence in trajectory and regulatory outlook .
Missouri rate case appears near resolution with a +$20.4M base revenue step, minimal margin effect due to lower fuel assumptions; timing (mid‑Sep) is a near‑term catalyst if approved .
Merger milestones continue to accrue (FERC, Oklahoma approvals; Arkansas settlement pending; Missouri hearings scheduled); closing expected Q1 2017—each approval could be a stock catalyst .
Weather normalization in Q2 helped volumes; watch for trajectory into summer/fall alongside SPP market dynamics (largely margin‑neutral via fuel mechanisms) .
Dividend maintained at $0.26/share, reinforcing income profile into merger close .

Supporting Data Details:

Q2 2016 financial table and margins from press release and 10‑Q .
Q1 2016 and Q4 2015 comparatives from press releases .
Regulatory and merger updates from 10‑Q MD&A and Q2 press release .

EMPIRE DISTRICT ELECTRIC CO (EDE)·Q2 2016 Earnings Summary