9. Shares and Stockholders’ Equity

Common and Preferred Shares

The changes in our preferred and common stock (number of shares) were as follows:



	For the Three		For the Six
	Months Ended		Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Series A Preferred Stock
Balance as of beginning-of-period	9,532	9,632	9,532	10,072
Conversion of convertible preferred stock ⁽¹⁾	(5,368)	-	(5,368)	(440)
Balance as of end-of-period	4,164	9,632	4,164	9,632

Common Stock
Balance as of beginning-of-period	268,457,558	285,412,303	271,402,586	291,319,222
Conversion of convertible preferred stock ⁽¹⁾	85,888	-	85,888	7,040
Stock compensation/issued for benefit plans	96,740	230,198	524,169	334,395
Retirement/cancellation of shares	(4,323,846)	(6,473,530)	(7,696,303)	(12,491,686)
Balance as of end-of-period	264,316,340	279,168,971	264,316,340	279,168,971

Common Stock as of End-of-Period
Assuming conversion of preferred stock	264,382,964	279,323,083	264,382,964	279,323,083
Diluted basis	273,924,900	286,820,300	273,924,900	286,820,300

⁽¹⁾ Represents the conversion of Series A preferred stock into common stock.

Our common and Series A preferred stocks are without par value.

Average Shares

A reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share was as follows:



	For the Three		For the Six
	Months Ended		Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Weighted-average shares, as used in basic calculation	266,367,162	282,085,602	268,305,694	285,570,764
Shares to cover exercise of outstanding warrants	10,150,032	10,150,192	10,150,070	10,150,231
Shares to cover conversion of preferred stock	146,840	154,112	149,661	154,305
Shares to cover non-vested stock	1,351,093	1,110,662	1,316,907	1,060,676
Average stock options outstanding during the period	2,600,595	507,944	2,163,605	554,614
Assumed acquisition of shares with assumed
proceeds from exercising outstanding warrants	(2,903,393)	(4,887,102)	(3,266,708)	(4,760,822)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the period)	(1,912,155)	(346,700)	(1,592,213)	(380,239)
Shares repurchaseable from measured but
unrecognized stock option expense	(141,826)	(1,768)	(112,577)	(8,224)
Average deferred compensation shares	-	1,187,598	-	1,206,501
Weighted-average shares, as used in diluted calculation	275,658,348	289,960,540	277,114,439	293,547,806

In the event the average market price of LNC common stock exceeds the issue price of stock options and the options have a dilutive effect to our earnings per share (“EPS”), such options will be shown in the table above.

We have participants in our deferred compensation plans who selected LNC stock as the measure for the investment return attributable to their deferral amounts. For the three and six months ended June 30, 2012, the effect of settling this obligation in LNC stock (“equity classification”) was more dilutive than the scenario of settling it in cash (“liability classification”). Therefore, for our EPS calculation for these periods, we added these shares to the denominator and adjusted the numerator to present net income as if the shares had been accounted for under equity classification by removing the mark-to-market adjustment included in net income attributable to these deferred units of LNC stock. The amount of this adjustment was $4 million and $(2) million for the three and six months ended June 30, 2012, respectively.

The income used in the calculation of our diluted EPS is our net income (loss) reduced by preferred stock dividends.

Accumulated OCI (“AOCI”)

The following summarizes the components and changes in accumulated OCI (in millions):



	For the Six
	Months Ended
	June 30,
	2013		2012
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	4,066	$	2,947
Unrealized holding gains (losses) arising during the year		(4,635)		1,276
Change in foreign currency exchange rate adjustment		(16)		(6)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		1,483		(261)
Income tax benefit (expense)		1,110		(395)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(27)		(103)
Associated amortization of DAC, VOBA, DSI and DFEL		(12)		1
Income tax benefit (expense)		14		36
Balance as of end-of-period	$	2,033	$	3,627
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	(107)	$	(110)
(Increases) attributable to:
Gross OTTI recognized in OCI during the year		(7)		(79)
Change in DAC, VOBA, DSI and DFEL		1		12
Income tax benefit (expense)		2		26
Decreases attributable to:
Sales, maturities or other settlements of AFS securities		47		62
Change in DAC, VOBA, DSI and DFEL		(5)		(8)
Income tax benefit (expense)		(15)		(20)
Balance as of end-of-period	$	(84)	$	(117)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	163	$	119
Unrealized holding gains (losses) arising during the year		120		37
Change in foreign currency exchange rate adjustment		18		2
Change in DAC, VOBA, DSI and DFEL		4		4
Income tax benefit (expense)		(49)		(16)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(6)		(7)
Associated amortization of DAC, VOBA, DSI and DFEL		1		1
Income tax benefit (expense)		2		2
Balance as of end-of-period	$	259	$	150
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(4)	$	1
Foreign currency translation adjustment arising during the year		(1)		(8)
Income tax benefit (expense)		-		3
Balance as of end-of-period	$	(5)	$	(4)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(310)	$	(278)
Adjustment arising during the year		-		1
Balance as of end-of-period	$	(310)	$	(277)

The following summarizes the reclassifications out of AOCI (in millions) for the six months ended June 30, 2013, and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):



Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(27)	Total realized gain (loss)
Change in DAC, VOBA, DSI, and DFEL		(12)	Total realized gain (loss)
Reclassification before income tax benefit (expense)		(39)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		14	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(25)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	47	Total realized gain (loss)
Change in DAC, VOBA, DSI, and DFEL		(5)	Total realized gain (loss)
Reclassification before income tax benefit (expense)		42	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		(15)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	27	Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	(10)	Net investment income
Interest rate contracts		2	Interest and debt expense
Foreign currency contracts		2	Net investment income
Total gross reclassifications		(6)
Change in DAC, VOBA, DSI, and DFEL		1	Commissions and other expenses
Reclassifications before income tax benefit (expense)		(5)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		2	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(3)	Net income (loss)