14. Shares and Stockholders’ Equity

Common and Preferred Shares

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



	For the Years Ended December 31,
	2013	2012	2011
Series A Preferred Stock
Balance as of beginning-of-year	9,532	10,072	10,914
Conversion of convertible preferred stock (1)	(5,818)	(540)	(842)
Redemption of convertible preferred stock	(3,714)	-	-
Balance as of end-of-year	-	9,532	10,072

Common Stock
Balance as of beginning-of-year	271,402,586	291,319,222	315,718,554
Conversion of convertible preferred stock (1)	93,088	8,640	13,472
Stock issued for exercise of warrants	1,981,856	-	-
Stock compensation/issued for benefit plans	1,399,995	542,125	248,553
Retirement/cancellation of shares	(11,980,824)	(20,467,401)	(24,661,357)
Balance as of end-of-year	262,896,701	271,402,586	291,319,222

Common Stock as of End-of-Year
Assuming conversion of preferred stock	262,896,701	271,555,098	291,480,374
Diluted basis	272,196,891	279,087,588	298,225,244

(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 Years Ended December 31,
	2013	2012	2011
Weighted-average shares, as used in basic calculation	265,631,377	280,648,391	307,216,181
Shares to cover exercise of outstanding warrants	9,884,307	10,150,212	10,150,292
Shares to cover conversion of preferred stock	74,582	153,749	173,289
Shares to cover non-vested stock	1,491,483	1,153,178	813,905
Average stock options outstanding during the year	2,873,295	570,180	636,989
Assumed acquisition of shares with assumed
proceeds from exercising outstanding warrants	(2,630,939)	(4,685,901)	(4,658,020)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the year)	(2,036,098)	(394,241)	(427,425)
Shares repurchaseable from measured but
unrecognized stock option expense	(139,131)	(4,723)	(65,882)
Average deferred compensation shares	-	-	1,110,722
Weighted-average shares, as used in diluted calculation	275,148,876	287,590,845	314,950,051

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 EPS, such options will be shown in the table above.

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

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 year ended December 31, 2011, 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 this period, 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 $5 million for the year ended December 31, 2011.

As of December 31, 2013, we had 7,711,505 outstanding warrants. The warrants, each representing the right to purchase one share of our common stock, no par value per share, had an exercise price of $10.58 as of December 31, 2013, subject to adjustment. The warrants expire on July 10, 2019, and are listed on the New York Stock Exchange under the symbol “LNC WS.”

Accumulated OCI (“AOCI”)

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



	For the Years Ended December 31,
	2013		2012		2011
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	4,066	$	2,947	$	1,176
Unrealized holding gains (losses) arising during the year		(5,728)		2,691		3,414
Change in foreign currency exchange rate adjustment		19		14		(5)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		1,834		(1,233)		(797)
Income tax benefit (expense)		1,356		(480)		(932)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(67)		(194)		(129)
Associated amortization of DAC, VOBA, DSI and DFEL		(29)		(2)		(11)
Income tax benefit (expense)		34		69		49
Balance as of end-of-year	$	1,609	$	4,066	$	2,947
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	(107)	$	(109)	$	(134)
(Increases) attributable to:
Gross OTTI recognized in OCI during the year		(11)		(121)		(58)
Change in DAC, VOBA, DSI and DFEL		1		15		13
Income tax benefit (expense)		4		36		16
Decreases attributable to:
Sales, maturities or other settlements of AFS securities		62		129		103
Change in DAC, VOBA, DSI and DFEL		(8)		(18)		(20)
Income tax benefit (expense)		(19)		(39)		(29)
Balance as of end-of-year	$	(78)	$	(107)	$	(109)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	163	$	119	$	(11)
Unrealized holding gains (losses) arising during the year		143		55		184
Change in foreign currency exchange rate adjustment		(19)		(12)		7
Change in DAC, VOBA, DSI and DFEL		5		15		-
Income tax benefit (expense)		(45)		(21)		(67)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(15)		(15)		(10)
Associated amortization of DAC, VOBA, DSI and DFEL		1		4		1
Income tax benefit (expense)		5		4		3
Balance as of end-of-year	$	256	$	163	$	119
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(4)	$	1	$	1
Foreign currency translation adjustment arising during the year		(1)		(5)		-
Income tax benefit (expense)		-		-		-
Balance as of end-of-year	$	(5)	$	(4)	$	1
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(310)	$	(278)	$	(181)
Adjustment arising during the year		140		2		(149)
Income tax benefit (expense)		(49)		(34)		52
Balance as of end-of-year	$	(219)	$	(310)	$	(278)

The following summarizes the reclassifications out of AOCI (in millions) for the year ended December 31, 2013, and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):



Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(67)	Total realized gain (loss)
Change in DAC, VOBA, DSI, and DFEL		(29)	Total realized gain (loss)
Reclassification before income tax benefit (expense)		(96)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		34	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(62)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	62	Total realized gain (loss)
Change in DAC, VOBA, DSI, and DFEL		(8)	Total realized gain (loss)
Reclassification before income tax benefit (expense)		54	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		(19)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	35	Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	(21)	Net investment income
Interest rate contracts		3	Interest and debt expense
Foreign currency contracts		3	Net investment income
Total gross reclassifications		(15)
Change in DAC, VOBA, DSI, and DFEL		1	Commissions and other expenses
Reclassifications before income tax benefit (expense)		(14)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		5	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(9)	Net income (loss)