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Significant Accounting Matters
 9 Months Ended
Sep. 30, 2016
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.
Appalachian Power Co [Member]  
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.
Indiana Michigan Power Co [Member]  
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.
Ohio Power Co [Member]  
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.
Public Service Co Of Oklahoma [Member]  
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.
Southwestern Electric Power Co [Member]  
Significant Accounting Matters
SIGNIFICANT ACCOUNTING MATTERS

The disclosures in this note apply to all Registrants unless indicated otherwise.

General

The unaudited condensed financial statements and footnotes were prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.

In the opinion of management, the unaudited condensed interim financial statements reflect all normal and recurring accruals and adjustments necessary for a fair presentation of the net income, financial position and cash flows for the interim periods for each Registrant.  Net income for the three and nine months ended September 30, 2016 is not necessarily indicative of results that may be expected for the year ending December 31, 2016.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2015 financial statements and notes thereto, which are included in the Registrant’s Annual Reports on Form 10-K as filed with the SEC on February 23, 2016.

Investment Tax Credits

Investment tax credits (ITC) were historically accounted for under the flow-through method, except where regulatory commissions reflected ITC in the rate-making process. In the third quarter of 2016, AEP and subsidiaries changed accounting for the recognition of ITC and elected to apply the preferred deferral methodology. Retrospective application is not necessary for reporting periods prior to 2016 as the financial impact to AEP and subsidiaries was immaterial.

Deferred ITC is amortized to income tax expense over the life of the asset. Amortization of deferred ITC begins when the asset is placed into service, except where regulatory commissions reflect ITC in the rate-making process, then amortization begins when the cash tax benefit is recognized.

Earnings Per Share (EPS) (Applies to AEP)

Basic EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated by adjusting the weighted average outstanding common shares, assuming conversion of all potentially dilutive stock options and awards.

The following tables present AEP’s basic and diluted EPS calculations included on the statements of operations:
 
Three Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income (Loss) from Continuing Operations
$
(764.2
)
 
 
 
$
511.8

 
 
Less: Net Income Attributable to Noncontrolling Interests
1.6

 
 
 
1.3

 
 
Earnings (Loss) Attributable to AEP Common Shareholders from Continuing Operations
$
(765.8
)
 
 

 
$
510.5

 
 

 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.7

 
$
(1.56
)
 
490.6

 
$
1.04

Weighted Average Dilutive Effect of Restricted Stock Units
0.1

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.8

 
$
(1.56
)
 
490.8

 
$
1.04

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in millions, except per share data)
 
 

 
$/share
 
 
 
$/share
Income from Continuing Operations
$
245.3

 
 
 
$
1,563.4

 
 
Less: Net Income Attributable to Noncontrolling Interests
5.3

 
 
 
4.1

 
 
Earnings Attributable to AEP Common Shareholders from Continuing Operations
$
240.0

 
 
 
$
1,559.3

 
 
 
 
 
 
 
 
 
 
Weighted Average Number of Basic Shares Outstanding
491.4

 
$
0.49

 
490.2

 
$
3.18

Weighted Average Dilutive Effect of Restricted Stock Units
0.2

 
—

 
0.2

 
—

Weighted Average Number of Diluted Shares Outstanding
491.6

 
$
0.49

 
490.4

 
$
3.18



There were no antidilutive shares outstanding as of September 30, 2016 and 2015.