Significant Accounting Matters

6 Months Ended

Jun. 30, 2022

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 statement 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, 2022 is not necessarily indicative of results that may be expected for the year ending December 31, 2022.  The condensed financial statements are unaudited and should be read in conjunction with the audited 2021 financial statements and notes thereto, which are included in the Registrants’ Annual Reports on Form 10-K as filed with the SEC on February 24, 2022.

AEP System Tax Allocation

The Registrant Subsidiaries join in the filing of a consolidated tax return. Historically, the allocation of the AEP System’s current consolidated federal income tax to the AEP System companies allocated the benefit of current tax loss of the parent company (Parent Company Loss Benefit) to the AEP System subsidiaries through a reduction of current tax expense. In the first quarter of 2022, AEP and subsidiaries changed accounting for the Parent Company Loss Benefit from a reduction of current tax expense to an allocation through equity. The impact of this change was immaterial to the Registrant Subsidiaries’ financial statements.

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 awards.

The following table presents AEP’s basic and diluted EPS calculations included on the statements of income:

	Three Months Ended June 30,
	2022				2021
	(in millions, except per share data)
			$/share				$/share
Earnings Attributable to AEP Common Shareholders	$	524.5			$	578.2
Weighted-Average Number of Basic AEP Common Shares Outstanding	513.6		$	1.02	499.9		$	1.16
Weighted-Average Dilutive Effect of Stock-Based Awards	1.6		—		1.1		(0.01)
Weighted-Average Number of Diluted AEP Common Shares Outstanding	515.2		$	1.02	501.0		$	1.15

	Six Months Ended June 30,
	2022				2021
	(in millions, except per share data)
			$/share				$/share
Earnings Attributable to AEP Common Shareholders	$	1,239.2			$	1,153.2
Weighted-Average Number of Basic AEP Common Shares Outstanding	509.9		$	2.43	498.5		$	2.31
Weighted-Average Dilutive Effect of Stock-Based Awards	1.5		(0.01)		1.1		—
Weighted-Average Number of Diluted AEP Common Shares Outstanding	511.4		$	2.42	499.6		$	2.31

Equity Units are potentially dilutive securities and were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2022 and 2021, as the dilutive stock price threshold was not met. See Note 12 - Financing Activities for more information related to Equity Units.

There were no antidilutive shares outstanding as of June 30, 2022 and 2021, respectively.

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

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 sheets that sum to the total of the same amounts shown on the statements of cash flows:

	June 30, 2022
	AEP		AEP Texas		APCo
	(in millions)
Cash and Cash Equivalents	$	575.3	$	0.1	$	4.9
Restricted Cash	45.9		29.7		16.2
Total Cash, Cash Equivalents and Restricted Cash	$	621.2	$	29.8	$	21.1

	December 31, 2021
	AEP		AEP Texas		APCo
	(in millions)
Cash and Cash Equivalents	$	403.4	$	0.1	$	2.5
Restricted Cash	48.0		30.4		17.6
Total Cash, Cash Equivalents and Restricted Cash	$	451.4	$	30.5	$	20.1