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 Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Series A Preferred Stock
Balance as of beginning-of-period	-		4,164		-		9,532
Conversion of convertible preferred stock (1)	-		(450	)	-		(5,818	)
Redemption of convertible preferred stock	-		(3,714	)	-		(3,714	)
Balance as of end-of-period	-		-		-		-

Common Stock
Balance as of beginning-of-period	260,831,708		264,316,340		262,896,701		271,402,586
Conversion of convertible preferred stock (1)	-		7,200		-		93,088
Stock issued for exercise of warrants	1,199,609		220,107		4,299,088		220,318
Stock compensation/issued for benefit plans	601,359		112,398		1,501,167		636,356
Retirement/cancellation of shares	(2,846,230	)	(2,313,682	)	(8,910,510	)	(10,009,985	)
Balance as of end-of-period	259,786,446		262,342,363		259,786,446		262,342,363

Common Stock as of End-of-Period
Assuming conversion of preferred stock	259,786,446		262,342,363		259,786,446		262,342,363
Diluted basis	265,527,521		272,503,337		265,527,521		272,503,337

(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 Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Weighted-average shares, as used in basic calculation	260,371,956		263,546,308		261,785,387		266,701,799
Shares to cover exercise of outstanding warrants	3,485,992		9,920,368		4,929,079		10,073,503
Shares to cover conversion of preferred stock	-		1,455		-		99,716
Shares to cover non-vested stock	1,499,529		1,601,684		1,476,448		1,411,833
Average stock options outstanding during the period	3,863,508		3,206,314		3,810,763		2,511,175
Assumed acquisition of shares with assumed proceeds
from exercising outstanding warrants	(689,803	)	(2,199,597	)	(1,026,460	)	(2,911,005	)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the period)	(2,720,155	)	(2,191,630	)	(2,657,408	)	(1,792,019	)
Shares repurchaseable from measured but
unrecognized stock option expense	(63,286	)	(190,894	)	(84,600	)	(138,683	)
Average deferred compensation shares	1,037,370		-		1,036,683		-
Weighted-average shares, as used in diluted calculation	266,785,111		273,694,008		269,269,892		275,956,319

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 nine months ended September 30, 2014, 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 $(2) million for the three and nine months ended September 30, 2014.

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 AOCI (in millions):



	For the Nine
	Months Ended
	September 30,
	2014			2013
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	1,609		$	4,066
Unrealized holding gains (losses) arising during the period		3,120			(5,145	)
Change in foreign currency exchange rate adjustment		(21	)		10
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		(983	)		1,685
Income tax benefit (expense)		(742	)		1,208
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		10			(51	)
Associated amortization of DAC, VOBA, DSI and DFEL		(25	)		(20	)
Income tax benefit (expense)		5			25
Balance as of end-of-period	$	2,993		$	1,870
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	(78	)	$	(107	)
(Increases) attributable to:
Gross OTTI recognized in OCI during the period		(11	)		(10	)
Change in DAC, VOBA, DSI and DFEL		1			1
Income tax benefit (expense)		4			3
Decreases attributable to:
Sales, maturities or other settlements of AFS securities		35			51
Change in DAC, VOBA, DSI and DFEL		(7	)		(6	)
Income tax benefit (expense)		(9	)		(16	)
Balance as of end-of-period	$	(65	)	$	(84	)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	256		$	163
Unrealized holding gains (losses) arising during the period		(92	)		161
Change in foreign currency exchange rate adjustment		25			(12	)
Change in DAC, VOBA, DSI and DFEL		2			6
Income tax benefit (expense)		23			(54	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(12	)		(11	)
Associated amortization of DAC, VOBA, DSI and DFEL		1			1
Income tax benefit (expense)		4			4
Balance as of end-of-period	$	221		$	270
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(5	)	$	(4	)
Foreign currency translation adjustment arising during the period		(5	)		(1	)
Balance as of end-of-period	$	(10	)	$	(5	)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(219	)	$	(310	)
Adjustment arising during the period		2			17
Income tax benefit (expense)		-			(8	)
Balance as of end-of-period	$	(217	)	$	(301	)

The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):



	For the Nine
	Months Ended
	September 30,
	2014			2013
Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	10		$	(51	)	Total realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(25	)		(20	)	Total realized gain (loss)
Reclassification before income
tax benefit (expense)		(15	)		(71	)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		5			25		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(10	)	$	(46	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	35		$	51		Total realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		(7	)		(6	)	Total realized gain (loss)
Reclassification before income
tax benefit (expense)		28			45		Income (loss) from continuing operations before taxes
Income tax benefit (expense)		(9	)		(16	)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	19		$	29		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	(19	)	$	(18	)	Net investment income
Interest rate contracts		3			3		Interest and debt expense
Foreign currency contracts		4			4		Net investment income
Total gross reclassifications		(12	)		(11	)
Associated amortization of DAC,
VOBA, DSI and DFEL		1			1		Commissions and other expenses
Reclassifications before income
tax benefit (expense)		(11	)		(10	)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		4			4		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(7	)	$	(6	)	Net income (loss)