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What Is The Best Valuation Metric For A Stock: P/E Ratio, EV/EBITDA Ratio, Or Price To Free Cash Flow Ratio?

The P/E ratio is quick and easy but can be inaccurate due to non cash accounting items. The price to free cash flow ratio only counts cash flow items but working capital fluctuations make it less useful. The EV/EBITDA ratio is the most comprehensive but does exclude some costs. There seems to be about as many different valuation metrics for stocks as there are stocks. You have price to sales, price to book, price to earnings, free cash flow yield, EBITDA multiples, dividend yield, and more. So which one is the best to use? In this article we’ll take a look at three of the most popular and widely used metrics: P/E, Price to Free Cash Flow (or Free Cash Flow Yield), and the EV/EBITDA ratio to uncover some hidden flaws o some of the metrics and find out which one is the best to use. P/E Ratio The P/E or Price to Earnings ratio is one of the most popular and easiest ways of valuing a stock. Unfortunately it’s also one of the most flawed ways to value stocks because of numerous accounting items that can drastically change a companies reported earnings. Let’s take a look at a few examples of some common occurrences that render the P/E ratio useless for valuing companies. For our first example we will look at the case of Lockheed Martin (NYSE: LMT ). Like all defense contractors Lockheed Martin is reimbursed by the US government for all pension costs associated with government contracts. Since over 80% of Lockheed Martin’s revenue comes from the government most of Lockheed’s pension costs will be reimbursed by the US government. As a public company Lockheed must account for pension liabilities and fund its pension plan according to Financial Accounting Standards (NYSEARCA: FAS ). However, the government reimburses Lockheed for pension costs using Cost Accounting Standards (NYSE: CAS ). This means that Lockheed’s pension costs and its pension reimbursements do not always match up. Some years these differences can be negligible but other years they can be enormous. In 2011 Lockheed Martin recognized a FAS pension expense of $1,821M and received a CAS pension reimbursement of $899M meaning the company recognized $922M in net pension expenses. Lockheed reported $2,667M in net income or $7.90 per share for FY2011. During FY2011 Lockheed’s stock traded at an average of approximately $74 per share so the company would have had a P/E ratio of 9.3. Looks pretty cheap right? Well, it was even cheaper at the time. The actual earnings power of Lockheed’s business was really the $2,667M in reported net income plus the $922M in pension expenses that would be reimbursed in the future. Lockheed actually earned around $3,589M in true net income for FY2011. With 335.9 shares outstanding Lockheed earned $10.68 per share and had a true P/E of 6.9! It’s no surprise that with Lockheed trading that cheaply its stock has more than doubled since 2011. The table below shows how the true P/E for Lockheed Martin in FY2011 was calculated. Computation of Lockheed’s True P/E in FY2011 FY2011 P/E 9.3 Net income as reported $2,667M Add: FAS/CAS pension adjustment $922M True net income $3,589M Shares outstanding 335.9M True earnings per share $10.68 FY2011 stock price $74 True P/E in FY2011 6.9 Lockheed is just one example. Many companies report onetime non cash charges that can artificially increase a P/E ratio making the stock look more expensive than it is. In our second example we will look at the case of Twenty-First Century Fox (NASDAQ: FOXA ) and an accounting item that makes the stock look cheaper than it is. As of this writing Fox trades at a TTM P/E of 7.77. The stock looks extremely cheap. However, in November of 2014 (part of Fox’s FY2015) the company sold its interest in Sky Italia and Sky Deutschland. That along with several other transactions netted Fox a onetime gain of approximately $4.2B. Fox reported net income of $8,306M for FY2015. After backing out the onetime gains Fox really earned $4,110M in net income for FY2015. With 2.04B shares outstanding and a share price of approximately $30 Fox’s true P/E is really 14.85. Fox still looks cheap, but not quite as cheap as first glance. The table below shows how the true P/E was calculated. Computation of Fox’s True P/E TTM P/E (for reference) 7.77 Net income as reported $8,306M Less: One time gain $4,200M True net income $4,110M Shares outstanding 2039 True earnings per share $2.02 Current price $30 True P/E 14.85 These are just some of the many examples of ways that the accrual accounting based earnings that companies report may not accurately reflect their true earnings and how P/E ratios widely reported by many financial data sites may be technically correct but inaccurate for assessing the true cheapness or “expensiveness” of a stock. One way to avoid some of the accounting rules based pitfalls of the P/E ratio is to use the Price to Free Cash Flow ratio. Price to Free Cash Flow The Price to Free Cash Flow ratio uses a company’s free cash flow (cash flow from operations less capital expenditures). Free cash flow offers several advantages over the P/E ratio. First and foremost it’s based on cash accounting which only counts income or expenses when cold hard cash is received or paid out. That means noncash items like restructuring charges or impairment charges are ignored. Items like onetime gains from the sale of investments such as Fox’s sale of Sky Italia and Sky Deutschland show up in cash flows from investments, not operations, and thus are not included in a company’s free cash flow number. One major disadvantage of using free cash flow is that free cash flow numbers tend to be lumpy and uneven due to timing issues surrounding the company’s cash payments and receipts and changes in a company’s working capital levels. This may make a stock look expensive some years and cheap other years solely based on a company’s working capital changes. For example the table below shows W.W. Grainger’s (NYSE: GWW ) net income, free cash flow as reported, and free cash flow before working capital changes. In $000s FY2014 FY2013 FY2012 Net Income $801,729 $797,036 $689,881 Free Cash Flow $709,954 $789,556 $689,071 Free Cash Flow Before Working Capital Changes $876,696 $850,675 $815,675 As you can see Grainger’s working capital changes produce large fluctuations in cash flows. Net income has risen each year but free cash flow has bounced around, rising and then falling. When you back out the effect of working capital changes you can see that free cash flow is far from lumpy, instead it has increased each year just like Grainger’s net income. Simply backing out all working capital fluctuations would be a quick and dirty method to produce smooth cash flows for your free cash flow calculation. However, as most companies grow they require additional working capital so we should try to do something to take that into account. The table below shows Grainger’s working capital changes for each year. In $000s FY2014 FY2013 FY2012 FY2011 Working Capital $1,705,833 $1,848,495 $1,820,637 $1,306,975 YoY Change -$142,662 $27,858 $513,662   In FY2014 and FY2013 working capital barely changed, and if you look at Grainger’s net income you will see it why. Net income barely increased so the company’s working capital needs stayed the same. In FY2012 working capital increased by more than $500M, likely to support FY2013’s large increase in net income compared to the previous year. Since Grainger is growing slowly now we do not need to make any working capital adjustments for our calculations. However, if you were producing free cash flow projections for a discounted cash flow model and projecting growing sales you would want to include a deduction to represent increasing working capital needs. I’d recommend looking at a company’s historical working capital levels and using some sort of average or median figure to model as your increase. Now back to calculating Grainger’s Price to Free Cash Flow. For our purposes we will term our working capital modified numbers “adjusted free cash flow”. Since Grainger does not have any working capital adjustments due to slowing growth the calculation is relatively simple as you can see below. We just take the current market cap divided by our adjusted free cash flow number to get the price to free cash flow ratio (and the inverse to get the free cash flow yield). Grainger’s Price to Free Cash Flow Adjusted Free Cash Flow $876.696M Market Cap $15,200M Price to Adj. Free Cash Flow 17.34 Adj. Free Cash Flow Yield 5.77% While price to free cash flow with working capital adjustments gives you a much more accurate valuation number then the P/E it’s a bit complicated to calculate and you have to make some estimates about working capital. While it fixes most of the flaws of the P/E ratio it still has one problem. It tells you nothing about a company’s debt load. Enter the EV/EBITDA ratio. EV/EBITDA Ratio The EV/EBITDA ratio is widely used because it includes the company’s debt load in the valuation as well. It also better Enterprise Value is the market value of the company’s equity plus the book value of its long term debt. EBITDA stands for E arnings B efore I nterest T axes D epreciation and A mortization. EBITDA is sometimes derisively referred to as “earnings before all the bad stuff” among accounting focused investors but there are good reasons for using it. EBITDA excludes interest charges which are not part of a company’s underlying business. Interest charges represent the financing decision of the company. Furthermore we account for debt levels by using the enterprise value rather than equity value. Taxes also do not reflect the earnings power of a business; instead taxes probably better reflect the lobbying power of the industry the business operates in. Some businesses like IBM pay almost no federal taxes while others like Paychex pay close to the statutory maximum of 35%. Depreciation and amortization are also excluded because those charges represent accounting decisions then business decisions (e.g. the accounting rules for calculating the useful life of a capital asset to compute depreciation charges). Note: Beware of “Adjusted EBITDA” Wall Street and company CFOs have taken the concept of EBITDA even further and many companies report something called “adjusted EBITDA” which varies from company to company based on what charges they want to exclude. Adjusted EBITDA usually really does resemble the accounting joke of “earnings before all the bad stuff”. When you see adjusted EBITDA I would avoid using that number like the plague unless there is a very good reason for the company adjusting the number such as a onetime gain on the sale of a business or a onetime payment such as the tobacco companies’ billion dollar settlements with the IRS a few years ago. Let’s continue with our example of W.W. Grainger to see how calculating the EV/EBITDA ratio works. As the table below shows we take the market value of the equity and add the book value of debt (I’m using FY2014 numbers for all calculations). That gives us $15.2B in equity plus $405M in debt for an enterprise value of $15.6B. To calculate EBITDA we start with Grainger’s net income of $802M and add back $8M in net interest payments, $522M in taxes, and $208M in depreciation which gives us EBITDA of $1.54B. Grainger’s EV/EBITDA Ratio Market Value of Equity $15,200M Book Value of Long term Debt $405M Enterprise Value $15,605M     Net Income (Earnings) $802M Interest $8M Taxes $522M Depreciation and Amortization $208M EBITDA $1,540M     EV/EBITDA Ratio 10.13 Now it’s worth noting that since EBITDA excludes many charges the numbers will be higher than both earnings and free cash flow and as such industry average EV/EBITDA ratios will always be lower than their respective P/E and free cash flow ratios. The Final Verdict The simple P/E ratio has too many flaws to make it useful. The EV/EBITDA ratio stands head and shoulders above the other metrics in giving investors a comprehensive valuation of a company’s underlying business. However, because it uses accrual accounting numbers from the companies income statement it can be vulnerable to manipulation and does exclude some costs. I favor using the EV/EBITDA ratio and then cross checking it with adjusted free cash flow information to make sure nothing funny is going on with a company’s numbers and to get a comprehensive look at a companies valuation. Disclosure: I am/we are long LMT. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

VCR: An ETF For Both Traders And Long-Term Investors

Summary The sector specific exposure makes the ETF a reasonable pick for investors who expect the sector to outperform. The low expense ratio makes it a viable long-term holding for the buy and hold investor. The biggest weakness for a buy and hold strategy here is that the dividend yield would be insufficient to provide retirement income without an enormous portfolio. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve risk-adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs. I’m working on building a new portfolio and I’m going to be analyzing several of the ETFs that I am considering for my personal portfolio. A substantial portion of my analysis will use modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. In this article, I’m reviewing the Vanguard Consumer Discretionary ETF (NYSEARCA: VCR ). Does VCR provide diversification benefits to a portfolio? Each investor may hold a different portfolio, but I use the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) as the basis for my analysis. I believe SPY, or another large cap U.S. fund with similar properties, represents the reasonable first step for many investors designing an ETF portfolio. The correlation is about 88%, which is low enough that I’m expecting some diversification benefits, but I would not expect it to be dramatic. Standard Deviation The standard deviation of annualized returns for VCR was 12.8% compared to SPY at 12.1%. So VCR is slightly more volatile but using it as a small part of a portfolio would get past even that problem. For instance, using VCR at 10% would have brought the annualized volatility down to 12.0%. Yield and Taxes The distribution yield is 1.11%. Simply put, the ETF doesn’t make much sense for retiring investors who want to use portfolio yields as a large part of their retirement income. Sure, they could sell shares to generate income, but that may create a temptation to change the portfolio strategy at the wrong time. Expense Ratio The ETF is posting 0.12% for an expense ratio. That is not bad compared to other ETFs, though it is slightly higher than SPY at 0.09% and higher than a few of the other more popular Vanguard ETFs. Market to NAV The ETF is trading at a 0.02% premium to NAV currently. I don’t see that as being a big enough issue to matter. A few very small ETFs may see their values deviating from NAV but this Vanguard fund should be staying very close to NAV. Largest Holdings The diversification within the ETF would be weak compared to a whole market ETF, but given that this is a specific sector allocation for consumer discretionary stocks, the diversification is better than many investors might expect. (click to enlarge) Through diversification it may be possible (just barely) to lower portfolio risk by adding the ETF due to the correlation. However, the most logical argument for adding the ETF to the portfolio is an investor believing that this sector is set to outperform based on analysis of macroeconomic factors. A belief that the sector is likely to do well would be a great rationale for holding the ETF; however, it would imply more of a short to intermediate term trading mentality rather than a long-term core holding. Does That Make it Bad for Retail Investors? I would not go that far. The volatility is reasonable and the expense ratio is low. So long as the expected returns are keeping up with the market, there is no reason to say the portfolio is unsuitable for a long-term buy and hold investor. I think it makes an ideal fit for a trader who is moving their assets based on macroeconomic analysis, but it is still a reasonable option for the buy and hold investor as well. The thing those investors should remember is to take advantage of the benefits of lower correlation by rebalancing their portfolio. If it is tax exempt, that could be accomplished easily by buying and selling. If the portfolio is not tax exempt, it may be better to adjust exposure by simply adding cash and buying the fund that has fallen below the ideal weighting. Conclusion This is a solid all-round ETF for any investor who wants to add an emphasis on the “consumer discretionary” sector to their asset allocations. As a sector ETF, it would work well for traders, but the low expense ratio and reasonable level of volatility make it a fine choice for the long-term buy and hold investor as well. The one concern for the buy and hold investor may be the weak dividend yields which would be insufficient for retirement income. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

Empire District Electric’s (EDE) CEO Brad Beecher on Q2 2015 Results – Earnings Call Transcript

Empire District Electric Company (NYSE: EDE ) Q2 2015 Earnings Conference Call July 31, 2015 01:00 pm ET Executives Dale Harrington – Corporate Secretary, Director, IR Brad Beecher – President and CEO Laurie Delano – VP, Finance and CFO Operator Good day and welcome to the Empire District Electric Company Second Quarter 2015 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Dale Harrington. Please go ahead. Dale Harrington Thank you, Cassia. And good afternoon everyone and welcome to the Empire District Electronic Company second quarter 2015 earnings conference call. Let me begin, by introducing Brad Beecher, our President and Chief Executive Officer and Laurie Delano, Vice President, Finance and Chief Financial Officer. Who in a few moments will be providing an overview of our 2015 second quarter year-to-date and 12-month ended June 30, 2015 results as well as highlights on other key matters? Our press release announcing second quarter 2015 results was issued yesterday afternoon. The press release and a live webcast of this call including our slide presentation are available on our website at www.empiredistrict.com and a replay of the call will be available on our website through October 31, 2015. Before we begin, I must remind you that our discussion today includes forward-looking statements in the use of non-GAAP financial measures. Slide 2 of our company’s slide deck and the disclosure in our SEC filings present a list of some of the risks and other factors that could cause future results to differ materially from our expectations. I will caution that these list are not exhaustive in the statements made in our discussion today are subject to risks and uncertainties that are difficult to predict. Our SEC filings are available upon request or may be obtained from our website or from the SEC. I would also direct you to our earnings press release for further information on why we believe the presentation of estimated earnings per share impact of individual items and the presentation of gross margin each of which our non-GAAP presentation is beneficial for investors in understanding our financial results. And with that I will now turn the call over to Brad Beecher. Brad Beecher Thank you, Dale. Good afternoon everyone and thank you for joining us. Today, we will discuss our financial results for the second quarter year-to-date and 12 months ended June 30, 2015 period. We will also provide an update on other recent company activities. During their meeting yesterday, the Board of Directors declared a quarterly dividend of $0.26 per share payable September 15, 2015 for shareholders of record as of September 1. On Slide 3 of our presentation, we provided highlights of the quarter year-to-date and 12 months ended periods. We’re going to discuss these more throughout the call. Yesterday, we reported consolidated second quarter 2015 earnings of $6.8 million or $0.16 per share, $0.15 per share on a diluted basis. This compares to the same period in 2014, when earnings were $11.2 million or $0.26 per share. Year-to-date earnings through June 30 are $21.4 million or $0.49 per share compared to $32.1 million or $0.74 per share in the 2014 year-to-date period. For the 12-month ended period ending June 30, 2015 earnings were $56.4 million or a $1.30 per share, $1.29 per share on a diluted basis compared to June 30, 2014 12 months ended earnings of $71.3 million or $1.66 per share. Also a $1.65 per share on a diluted basis. Laurie will provide more details on our financial results later in the discussion. On June 24, 2015 we received an order from the Missouri Public Service Commission granting new rates for Missouri customers. The order approved an annual increase in base revenues of about $17.1 million or 3.9% consistent with a non-unanimous stipulation and agreement filed April 8. You will recall the primary driver of this case with the Air Quality Control System or AQCS at our Asbury power plant. The AQCS was necessary to comply with new EPA standards. We believe the Commission order represent a fair decision that will allow us to recover the cost of this project. In addition to recovering the cost of our AQCS project, the case provides for the recovery of our updated base transmission charges. This order also allows us to track and recover a portion of future changes and transmission expenses. We estimate this recovery to be about 34% of the change in Southwest Power Pool transmission expenses above our base level. This order also grants approval to establish a tracking mechanism for expenses related to the recent Riverton 12 long-term maintenance contract and to continue tracking of pension and other post-employment benefit expenses. Tracking of operating and maintenance expenses for vegetation management. Iatan II, Iatan Common and Plum Point were discontinued. The order is also reflective of a net based fuel decrease of a $1.60 per megawatt hour realized through our participation in the SPP integrated marketplace. Rates became effective July 26, 2015. As a result of our 2015 earnings guidance of a $1.30 to $1.45 per share issued in February of this year remains unchanged. To begin recovering costs related to Asbury in Kansas and environmental rider took effect on June 1, 2015. The rider provides for an increase of approximately $780,000 in annual revenue. While we are pleased to begin recovery of our investment in Asbury, let me remind you results will continue to be impacted by the lag effect even into the third quarter. Given the July 26 affected date for the new Missouri rate. After filing a tariff with the Missouri Public Service Commission in early May. We began offering solar rebates to Missouri customers on May 16. You will recall the Missouri Supreme Court ruled our statutory exemption from the solar provisions of the Missouri Renewable Energy Standard invalid on April 2, 2015. As of June 30, we had processed 70 solar applications totaling about $1.1 million in solar rebate related cost. We have over 30 additional applications in process. These 100 plus applications represent about 1.3 megawatts of install solar generation. Rules relating to the Renewable Energy Standard provide for the recovery of costs associated with the solar revision through customer rates. These costs are currently being deferred on our balance sheet for recovery in a future rate case. Compliance measures are subject to a 1% rate cap. As you see on Slide 4, last Friday July 24, we filed a motion to withdraw our Missouri Energy Efficiency Investment Act filing or MEEIA. We will continue our current portfolio of energy efficiency programs with recovery true based rates. We will review the need for a future MEEIA filing in conjunction with our 20016 integrated resource plan. And just this morning we’ve filed a notice of Intended case filing with the Missouri Public Service Commission. This filing started a 60-day period after which we intend to file a Missouri rate case to recover our Riverton Unit 12 combined cycle investment. This is consistent in keeping with our comments on our last call to follow rate case in the fourth quarter of this year. Laurie will talk a little more in general about this filing in a few moments. I will now turn the call over to Laurie for a discussion of our financial details. Laurie Delano Thank you, Brad and good afternoon, everyone. Our second quarter results were on target with our 2015 earnings guidance. However, before I discuss the details of our second quarter results. I want to reiterate, what Brad a few moments ago about third quarter expectations. As he stated, our new customer rates went into effect July 26, which means we will still experience nearly a month of lag in the third quarter as we continue to depreciate the Asbury addition at about a 5% rate. This short period of lag in quarter three also includes the additional property tax costs associated with the Asbury project coming on line. The Riverton maintenance contract and possibly an increase at SPP transmission expenses. These items are always liked it and our guidance. Now turning back to our results. Again, our second quarter was for the most part, on target with our 2015 plan. As Slide 5, shows our basic earnings per share of $0.16 was lower than last year primarily due to increases in maintenance and depreciation expenses when compared to the same quarter last year. As a reminder the earnings per share numbers I will reference throughout the call are provided on an after tax estimated basis. Again, as shown on Slide 5, consolidated gross margin or revenues less fuel and purchased power expense was relatively flat. Increasing earnings by $0.01 per share quarter-over-quarter. Increased customer counts added slightly to margin but were upset by a slight decrease in margin resulting from weather and other volumetric factors. Lower rates due to fuel cost savings for our wholesale customers was the primary driver of a $1.2 million decrease in rate related revenues reducing margin an estimated $0.02 per share. Decreased fuel costs and changes and other fuel recovery components combined to add an estimated $0.03 per share to margin when compared to the second quarter 2014. As we experienced record low fuel costs during this quarter. A $4.2 million increase in maintenance expense was the largest negative driver of the quarter-over-quarter results, reducing earnings about $0.07 per share. Of this increase, approximately $3.1 million was related to a planned, major maintenance outage for our steam turban at our State Line combined cycle generating facility. The effect of this increased cost will be offset by lower maintenance expense throughout our system in the latter half of this year. Our new Riverton maintenance contract also added about $600,000 to the increase and maintenance expenses. We will continue to see that the added cost on a quarterly basis compared to last year. I’ll remind you that we will be recovering this contract in our new Missouri customer rates with any changes to the base amount being picked up in a new tracking mechanism. Other operating and maintenance expense changes were mostly offsetting. Continued on the Slide 5, increased depreciation and amortization expense was also a significant driver of lower results in the 2015 quarter compared to 2014 reducing earnings about $0.03 per share. Similar to last quarter, this increase in depreciation is driven primarily by the completion of our Asbury environmental project. It also reflects higher levels of plant and service since our last rate case. Increases in property and other taxes and higher interest expenses combined to reduce earnings another $0.02 per share. We will also begin recovering these higher expenses in our new majority customer rates. I want to briefly touch on our year-to-date results before moving on to our 12-month ended results. Our year-to-date or earnings are 40.49 per share on net income of $21.4 million. This was a decrease of $0.25 per share over the same period last year when we earned $0.74 per share. Again, these results are on target with our 2015 earnings guidance. As shown on Slide 6, weather and another volumetric impacts were the significant drivers of the $0.06 per share margin decrease on a year-over-year, year-to-date basis. Reflecting the colder 2014 winter weather. Gains resulting from changes in fuel cost and other fuel recovery items were largely offset by negative changes from customer rates, gas segment results and a FERC refund to our wholesale customers which we talked about on our last call. Production maintenance expenses again primarily related to the State Line combined cycle outage I just mentioned. Our new Riverton maintenance contract and an unplanned outage at our Asbury facility, drove an increase in O&M expenses that lowered earnings per share approximately $0.07 during the period. Again increased depreciation and amortization expenses reduced earnings approximately $0.04 per share. Again reflective of the completion of our Asbury project and higher levels of plant and service. Changes in property and other taxes, interest expense and AFUDC and other categories combined to reduce earnings about $0.06 per share during the year-to-date period. Turning to our 12-month ended result. Slide 7, provides a role forward of our earnings from the 12 months ended June, 2014 to the 12 months ended Jun, 2015. As Brad, indicated our net income decreased $14.8 million or $0.36 cents per share. Slide 7 details the breakdown of the various components of this year-over-year earnings per share decrease. Margin decreased $0.05 per share when comparing the two periods. Weather and other volumetric changes were the primary drivers of this decrease. Again reflecting the colder 2014 winter weather, which decreased electric margin an estimated $0.09 per share? Likewise our gas segment margin also increased an estimated $0.02 per share. These changes reflect a return to a more normal weather cycle in a 12-month ended June 2015 period. Our sales for the 12-month ended June, 2015 period were 4.97 million megawatt hours versus 5.04 million megawatt hours in the 12-month period ending June, 2014. Customer growth and rate changes added an estimated $0.04 to margin changes in fuel cost another refuel recovery items also added about $0.04 offsetting the impact of the FERC refund mentioned earlier. Slide 7 further illustrates, the details of increases in operating and maintenance expense, which decreased earnings per share by $0.17. Increased expense related to the maintenance outage at our State Line combined cycle facility, our new Riverton maintenance contract. Higher maintenance cost of our Asbury Energy Center generating facilities, higher operating costs at our jointly owned generating facilities, and increased SPP transmission expenses were the primary drivers of increased O&M expenses. Other O&M increases and decreases were largely offsetting. Higher depreciation and amortization expense is reduced earnings than estimated $0.08. Again reflecting the Asbury project completion and additional plant in service. Property and other taxes and interest expense reduce earnings per share approximately $0.02 and $0.03 per share respectively. Brad outlined the key points of the right order in our Missouri rate case in his remarks. Slide 8 provides some additional highlights of the rate of order. As indicated the $17.1 million dollar rate increase is net of a base fuel decrease of a $1.60 per megawatt hour corresponding with the savings in fuel cost realized through our participation in the SPP integrated marketplace. The order also provides for the continuation of our fuel adjustment mechanism. Therefore any changes in fuel costs from our base, will be recoverable in customer rates. The order also reflects the total company sales level of approximately 5 million megawatt hours which is consistent with our 12-month ending sales level and our previous comments regarding our sales expectations. In addition the rate recovery from the Riverton maintenance contract was reduced from our original filing. However a corresponding tracking mechanism for this expense item was added, which will allow us to recover changes above the base level allowed in our new rates. As previously indicated tracking mechanisms for vegetation management Iatan and Plum Point operation and maintenance expenses were discontinued. We will be managing those ongoing expenses through our base rates. Also as mentioned, the order not only provides for recovery of our base transmission charges. But also the tracking and recovery of approximately 34% of the future changes in SPP transmission expenses above our base level. As you’ll recall, we had asked for all future transmission changes to be included in the fuel recovery mechanism in our original filing. As indicated, we’ve made no changes to our full year 2015 weather normalized earnings guidance range of a $1.30 to $1.45 per share. Slide 9, illustrate the major drivers of our earnings through 2015 and into 2016. As we have previously disclosed, our guidance ranges assumed in August 1, effective date for the new Missouri customer rates. With the July 26 date now firmly established, we should begin to see earnings build back into our guidance range through the end of the year. As mentioned earlier, we expect maintenance costs to be lower than last year in the last six months of this year. Turning around the cost increase impact at the State Line combined cycle outage. However we will continue to see some higher maintenance costs were Riverton contract. As Brad mentioned earlier, we provided notice to the Missouri Public Service Commission that we intend to file a Missouri rate case on or after October 1, 2015 to recover our Riverton 12 combined cycle investment. This case should follow a similar timeline as the Asbury case that was just completed. We will file the case to include a true up period that will capture the Riverton 12 in-service date as we bring the Riverton project online, we will immediately begin depreciating the addition at approximately a 2% depreciation rate. Once online we will begin to see a lag effect, primarily for depreciation until we get new customer rates in place for the Riverton 12 project in the latter part of 2016. In 2017, we will have a full year of increased customer rates that capture both the Asbury and Riverton projects. On Slide 10, we have updated our trailing 12-month return on equity chart. At the end of the second quarter, our ROE was approximately 7.2%. This ROE is based on our 12-month net income of approximately $56.4 million and a common equity balance at quarter end of about $786 million. We are experiencing and ROE pattern similar to the one we saw in the period between the second quarter of 2009 and the second quarter, 2011 when we were completing our construction program surrounding our Iatan II and Plum Point additions. On our balance sheet, we have $89 million and retained earnings as of June 30. We had $97.3 million of short-term debt outstanding at the end of the quarter and we currently have about $94.5 million outstanding today. On June 11, we entered into a bond purchase agreement for the private placement of $60 million of 3.59% Series First Mortgage Bonds due 2030. The delayed settlement of these bonds is anticipated to occur on or about August 20. We expect to use the proceeds from the sale to refinance existing short-term debt and for general corporate purposes including our Riverton project. This financing combined with the addition of internal equity from our dividend reinvestment and stock purchase plans and our continue billed and retained earnings will keep us near our target 50-50 debt equity capital structure. Finally, if you’re participating on the call through our website. You may have noticed that we have enhanced our investor pages. Our new investor website accessible through www.empiredistrict.com includes the substantial amount of additional financial information, SEC filings, stock history and other analytical data. One of the most notable features is the ability for you to sign up to receive email alerts on our financial filings and press release. I hope you all take advantage of that feature and I hope you’ll be as pleased with the additional functionality and features that our new website as we are. Slide 11 provides a screenshot of this new website. I’ll now turn the discussion back over to Brad. Brad Beecher Thank you, Laurie. We continue to execute our compliance plan which is reflected in Slide 12. Steady progress is being made on the combined cycle addition at our Riverton Power Plant. The operational to provide an additional 100 megawatts of capacity with no additional natural gas fuel required. This results in the high efficient output and very low emissions. During the quarter, the new control room, stack and cooling tower were completed. We are preparing to hydro test the heat recovery steam generator and the start-up and commissioning team as mobilized through the site. Overall, 84% of construction is complete. Project cost through June, 2015 were approximately $135 million excluding AFUDC. We continue to expect the project to be complete in early to mid-2016 at a total cost between $165 million and $175 million. With the current Riverton Project schedule and as evidenced by our intent to file a rate case this morning. We anticipated fourth quarter rate filing in Missouri to begin the cost recovery process. As Laurie mentioned, the timeline of this filing will be similar to the most recent filing in terms of a true up period, operational of law date and procedural schedule. We will experience a period of lag between Riverton 12’s end service date, when we begin depreciating at about 2% rate. Until new customer rates are in place. This morning, we also filed a notice updating our most recent Integrated Resource Plant or IRP with the Missouri Public Service Commission. In the notice, we indicated that Riverton Unit 8 and 9 were retired on June 30, 2015. The unit were originally slated for retirement in 2016 upon completion of the combined cycle addition. However, [indiscernible] wasn’t in need of boiler and condenser repairs. Given the plant retirement the repair was not cost effective. Our notice also provides additional information on our MEEIA application withdrawal. In legislative news, an administrative role has been approved in Oklahoma allowing rate reciprocity to any electric company with less than 10% of its total customers within the state. The rule which is subject to Oklahoma Corporation Commission Oversight will reduce regulatory expenses for our Oklahoma customers. Pending final publication of the rule. It is our intent to file our 2015 Missouri rate pleading and final order with the Oklahoma Commission. In June, the Joplin City Council approve the plan to spend $97 million on additional tornado recovery project, primarily infrastructure improvements. The funding is provided by grants from the US Department of Housing and Urban Development. As a result in mid-September a groundbreaking will be held for a previously approved redevelopment project, a new 56,000 square foot Joplin Public Library. On the economic development front on July 10, after 14 months of discussions and hard work. Owens Corning now plans to open a new manufacturing operation in Joplin. Owens Corning will invest $90 million to establish their operation and a vacant [ph] manufacturing facility just West of Joplin. The plant will produce a type of mineral wool insulation use, most often in commercial buildings. The faculty is expected to employee at 100 workers and is slated to begin operation in June, 2016. After an initial ramp up period, full electric load is projected in the 5 to 6 megawatt range. I’ll now turn the call back to the operator for your questions.