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,
	2015		2014		2013
Series A Preferred Stock
Balance as of beginning-of-year	-		-		9,532
Conversion of convertible preferred stock (1)	-		-		(5,818	)
Redemption of convertible preferred stock	-		-		(3,714	)
Balance as of end-of-year	-		-		-

Common Stock
Balance as of beginning-of-year	256,551,440		262,896,701		271,402,586
Conversion of convertible preferred stock (1)	-		-		93,088
Stock issued for exercise of warrants	1,168,966		4,356,385		1,981,856
Stock compensation/issued for benefit plans	2,108,155		1,770,430		1,399,995
Retirement/cancellation of shares	(15,992,668	)	(12,472,076	)	(11,980,824	)
Balance as of end-of-year	243,835,893		256,551,440		262,896,701

Common Stock as of End-of-Year
Assuming conversion of preferred stock	243,835,893		256,551,440		262,896,701
Diluted basis	247,732,609		261,538,593		272,196,891

⁽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,
	2015		2014		2013
Weighted-average shares, as used in basic calculation	250,629,243		260,877,533		265,631,377
Shares to cover exercise of outstanding warrants	1,389,768		4,342,860		9,884,307
Shares to cover conversion of preferred stock	-		-		74,582
Shares to cover non-vested stock	1,302,859		1,522,737		1,491,483
Average stock options outstanding during the year	3,162,508		3,828,292		2,873,295
Assumed acquisition of shares with assumed proceeds
from exercising outstanding warrants	(262,709	)	(894,175	)	(2,630,939	)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the year)	(2,258,658	)	(2,679,571	)	(2,036,098	)
Shares repurchaseable from measured but
unrecognized stock option expense	(45,958	)	(75,268	)	(139,131	)
Average deferred compensation shares	1,021,059		1,041,587		-
Weighted-average shares, as used in diluted calculation	254,938,112		267,963,995		275,148,876

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.

For 2013, the income used in the calculation of our diluted EPS was 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 all or a portion of their deferral amounts. For the years ended December 2015 and 2014, the effect of settling this obligation in LNC stock (“equity classification”) was more dilutive than the scenario of settling 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 $(4) million for the years ended December 31, 2015 and 2014, respectively.

As of December 31, 2015, we had 1,066,941 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 $10.31 as of December 31, 2015, subject to adjustment. The warrants expire on July 10, 2019, and are listed on the New York Stock Exchange under the symbol “LNC WS.”

AOCI

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



	For the Years Ended December 31,
	2015			2014			2013
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	3,213		$	1,538		$	4,020
Unrealized holding gains (losses) arising during the year		(4,541	)		3,855			(5,766	)
Change in foreign currency exchange rate adjustment		(45	)		(47	)		19
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		1,294			(1,252	)		1,834
Income tax benefit (expense)		1,147			(895	)		1,369
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		145			10			(67	)
Associated amortization of DAC, VOBA, DSI and DFEL		(27	)		(32	)		(29	)
Income tax benefit (expense)		(41	)		8			34
Balance as of end-of-year	$	991		$	3,213		$	1,538
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	26		$	(7	)	$	(61	)
(Increases) attributable to:
Gross OTTI recognized in OCI during the year		(30	)		(12	)		(11	)
Change in DAC, VOBA, DSI and DFEL		4			2			1
Income tax benefit (expense)		9			4			4
Decreases attributable to:
Changes in fair value, sales, maturities or other settlements of AFS securities		43			65			100
Change in DAC, VOBA, DSI and DFEL		(17	)		(5	)		(8	)
Income tax benefit (expense)		(9	)		(21	)		(32	)
Balance as of end-of-year	$	26		$	26		$	(7	)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	139		$	256		$	163
Unrealized holding gains (losses) arising during the year		(241	)		(250	)		143
Change in foreign currency exchange rate adjustment		48			50			(19	)
Change in DAC, VOBA, DSI and DFEL		2			2			5
Income tax benefit (expense)		66			69			(45	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(183	)		(19	)		(15	)
Associated amortization of DAC, VOBA, DSI and DFEL		1			1			1
Income tax benefit (expense)		64			6			5
Balance as of end-of-year	$	132		$	139		$	256
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(3	)	$	(5	)	$	(4	)
Foreign currency translation adjustment arising during the year		(2	)		2			(1	)
Balance as of end-of-year	$	(5	)	$	(3	)	$	(5	)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(279	)	$	(219	)	$	(310	)
Adjustment arising during the year		(21	)		(96	)		140
Income tax benefit (expense)		1			36			(49	)
Balance as of end-of-year	$	(299	)	$	(279	)	$	(219	)

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 Years Ended December 31,
	2015			2014			2013
Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	145		$	10		$	(67	)	Total realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(27	)		(32	)		(29	)	Total realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		118			(22	)		(96	)	operations before taxes
Income tax benefit (expense)		(41	)		8			34		Federal income tax expense (benefit)
Reclassification, net of income tax	$	77		$	(14	)	$	(62	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	2		$	65		$	100		Total realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		-			(5	)		(8	)	Total realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		2			60			92		operations before taxes
Income tax benefit (expense)		-			(21	)		(32	)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	2		$	39		$	60		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	(190	)	$	(22	)	$	(21	)	Net investment income
Interest rate contracts		1			3			3		Interest and debt expense
Foreign currency contracts		6			-			3		Net investment income
Total gross reclassifications		(183	)		(19	)		(15	)
Associated amortization of DAC,
VOBA, DSI and DFEL		1			1			1		Commissions and other expenses
Reclassifications before income										Income (loss) from continuing
tax benefit (expense)		(182	)		(18	)		(14	)	operations before taxes
Income tax benefit (expense)		64			6			5		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(118	)	$	(12	)	$	(9	)	Net income (loss)