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 six months ended June 30, 2018 is not necessarily indicative of results that may be expected for the year ending December 31, 2018. The condensed financial statements are unaudited and should be read in conjunction with the audited 2017 financial statements and notes thereto, which are included in the Registrants’ Annual Reports on Form 10-K as filed with the SEC on February 22, 2018.

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 income:



	Three Months Ended June 30,
	2018				2017
	(in millions, except per share data)
			$/share				$/share
Earnings Attributable to AEP Common Shareholders	$	528.4			$	375.0

Weighted Average Number of Basic Shares Outstanding	492.7		$	1.07	491.8		$	0.76
Weighted Average Dilutive Effect of Stock-Based Awards	0.8		—		0.8		—
Weighted Average Number of Diluted Shares Outstanding	493.5		$	1.07	492.6		$	0.76



	Six Months Ended June 30,
	2018					2017
	(in millions, except per share data)
			$/share					$/share
Earnings Attributable to AEP Common Shareholders	$	982.8				$	967.2

Weighted Average Number of Basic Shares Outstanding	492.5		$	2.00		491.8		$	1.97
Weighted Average Dilutive Effect of Stock-Based Awards	0.8		(0.01		)	0.5		(0.01		)
Weighted Average Number of Diluted Shares Outstanding	493.3		$	1.99		492.3		$	1.96

There were no antidilutive shares outstanding as of June 30, 2018 and 2017.

Nonconsolidated Variable Interest Entity (Applies to AEP and SWEPCo)

SWEPCo recorded prior year income tax adjustments in the second quarter of 2017 related to DHLC that impacted Equity Earnings (Loss) of Unconsolidated Subsidiary in the amount of $6 million.

Transmission Formula Rates (Applies to AEPTCo)

In the second quarter of 2018, AEPTCo management identified certain transmission assets that it believes should not have been included in AEPTCo’s SPP transmission formula rates. As a result, in the second quarter of 2018, AEPTCo recorded a $17 million out of period correction of an error related to revenue recorded from 2013 through March 31, 2018. Management has determined the effect of the correction was not material to the current period financial statements or any previously issued financial statements.

Restricted Cash (Applies to AEP, AEP Texas, APCo and OPCo)

Restricted Cash primarily includes funds held by trustees for the payment of securitization bonds.

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following tables provide a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the balance sheet that sum to the total of the same amounts shown on the statement of cash flows:



	June 30, 2018
	AEP		AEP Texas		APCo		OPCo
	(in millions)
Cash and Cash Equivalents	$	211.2	$	0.1	$	2.8	$	3.3
Restricted Cash	176.1		131.9		17.7		26.5
Total Cash, Cash Equivalents and Restricted Cash	$	387.3	$	132.0	$	20.5	$	29.8



	December 31, 2017
	AEP		AEP Texas		APCo		OPCo
	(in millions)
Cash and Cash Equivalents	$	214.6	$	2.0	$	2.9	$	3.1
Restricted Cash	198.0		155.2		16.3		26.6
Total Cash, Cash Equivalents and Restricted Cash	$	412.6	$	157.2	$	19.2	$	29.7