14. Shares and Stockholders’ Equity

Common Shares

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



	For the Years Ended December 31,
	2016		2015		2014
Common Stock
Balance as of beginning-of-year	243,835,893		256,551,440		262,896,701
Stock issued for exercise of warrants	79,397		1,168,966		4,356,385
Stock compensation/issued for benefit plans	1,732,812		2,108,155		1,770,430
Retirement/cancellation of shares	(19,312,997	)	(15,992,668	)	(12,472,076	)
Balance as of end-of-year	226,335,105		243,835,893		256,551,440

Common Stock as of End-of-Year
Basic basis	226,335,105		243,835,893		256,551,440
Diluted basis (1)	230,126,820		247,732,609		261,538,593

(1)Effective October 1, 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. We have updated certain previously reported interim results and metrics as of January 1, 2016, in accordance with the new guidance. For more information, see “Note 1 – Earnings Per Share”.

Our common stock is 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,
	2016		2015		2014
Weighted-average shares, as used in basic calculation	234,181,717		250,629,243		260,877,533
Shares to cover exercise of outstanding warrants	1,089,221		1,389,768		4,342,860
Shares to cover non-vested stock	1,109,490		1,302,859		1,522,737
Average stock options outstanding during the year	2,256,720		3,162,508		3,828,292
Assumed acquisition of shares with assumed proceeds
from exercising outstanding warrants	(248,402	)	(262,709	)	(894,175	)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the year)	(1,508,620	)	(2,258,658	)	(2,679,571	)
Shares repurchasable from measured but
unrecognized stock option expense	(49,839	)	(45,958	)	(75,268	)
Average deferred compensation shares	-		1,021,059		1,041,587
Weighted-average shares, as used in diluted calculation	236,830,287		254,938,112		267,963,995

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.

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, 2016, we had 973,383 outstanding warrants. The warrants, each representing the right to purchase one share of our common stock had an exercise price of $10.08 as of December 31, 2016, 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,
	2016			2015			2014
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	991		$	3,213		$	1,538
Unrealized holding gains (losses) arising during the year		1,600			(4,541	)		3,855
Change in foreign currency exchange rate adjustment		(99	)		(45	)		(47	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		(456	)		1,294			(1,252	)
Income tax benefit (expense)		(370	)		1,147			(895	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(158	)		145			10
Associated amortization of DAC, VOBA, DSI and DFEL		(23	)		(27	)		(32	)
Income tax benefit (expense)		63			(41	)		8
Balance as of end-of-year	$	1,784		$	991		$	3,213
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	26		$	26		$	(7	)
(Increases) attributable to:
Gross OTTI recognized in OCI during the year		(55	)		(30	)		(12	)
Change in DAC, VOBA, DSI and DFEL		12			4			2
Income tax benefit (expense)		15			9			4
Decreases attributable to:
Changes in fair value, sales, maturities or other settlements of AFS securities		54			43			65
Change in DAC, VOBA, DSI and DFEL		(12	)		(17	)		(5	)
Income tax benefit (expense)		(15	)		(9	)		(21	)
Balance as of end-of-year	$	25		$	26		$	26
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	132		$	139		$	256
Unrealized holding gains (losses) arising during the year		(215	)		(241	)		(250	)
Change in foreign currency exchange rate adjustment		96			48			50
Change in DAC, VOBA, DSI and DFEL		3			2			2
Income tax benefit (expense)		41			66			69
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		14			(183	)		(19	)
Associated amortization of DAC, VOBA, DSI and DFEL		(1	)		1			1
Income tax benefit (expense)		(5	)		64			6
Balance as of end-of-year	$	49		$	132		$	139
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(5	)	$	(3	)	$	(5	)
Foreign currency translation adjustment arising during the year		(22	)		(2	)		2
Balance as of end-of-year	$	(27	)	$	(5	)	$	(3	)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(299	)	$	(279	)	$	(219	)
Adjustment arising during the year		43			(21	)		(96	)
Income tax benefit (expense)		(9	)		1			36
Balance as of end-of-year	$	(265	)	$	(299	)	$	(279	)

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,
	2016			2015			2014
Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(158	)	$	145		$	10		Total realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(23	)		(27	)		(32	)	Total realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		(181	)		118			(22	)	operations before taxes
Income tax benefit (expense)		63			(41	)		8		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(118	)	$	77		$	(14	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	3		$	2		$	65		Total realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		-			-			(5	)	Total realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		3			2			60		operations before taxes
Income tax benefit (expense)		-			-			(21	)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	3		$	2		$	39		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	5		$	(190	)	$	(22	)	Net investment income
Interest rate contracts		(10	)		1			3		Interest and debt expense
Interest rate contracts		1			-			-		Total realized gain (loss)
Foreign currency contracts		11			6			-		Net investment income
Foreign currency contracts		7			-			-		Total realized gain (loss)
Total gross reclassifications		14			(183	)		(19	)
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)		13			(182	)		(18	)	operations before taxes
Income tax benefit (expense)		(5	)		64			6		Federal income tax expense (benefit)
Reclassifications, net of income tax	$	8		$	(118	)	$	(12	)	Net income (loss)