10. 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,
	2013	2012	2013	2012
Series A Preferred Stock
Balance as of beginning-of-period	4,164	9,632	9,532	10,072
Conversion of convertible preferred stock ⁽¹⁾	(450)	(100)	(5,818)	(540)
Redemption of convertible preferred stock	(3,714)	-	(3,714)	-
Balance as of end-of-period	-	9,532	-	9,532

Common Stock
Balance as of beginning-of-period	264,316,340	279,168,971	271,402,586	291,319,222
Conversion of convertible preferred stock ⁽¹⁾	7,200	1,600	93,088	8,640
Stock issued for exercise of warrants	220,107	-	220,318	-
Stock compensation/issued for benefit plans	112,398	60,238	636,356	394,633
Retirement/cancellation of shares	(2,313,682)	(4,157,191)	(10,009,985)	(16,648,877)
Balance as of end-of-period	262,342,363	275,073,618	262,342,363	275,073,618

Common Stock as of End-of-Period
Assuming conversion of preferred stock	262,342,363	275,226,130	262,342,363	275,226,130
Diluted basis	272,503,337	282,361,186	272,503,337	282,361,186

(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,
	2013	2012	2013	2012
Weighted-average shares, as used in basic calculation	263,546,308	277,883,878	266,701,799	282,989,766
Shares to cover exercise of outstanding warrants	9,920,368	10,150,192	10,073,503	10,150,218
Shares to cover conversion of preferred stock	1,455	153,886	99,716	154,165
Shares to cover non-vested stock	1,601,684	1,141,821	1,411,833	1,087,724
Average stock options outstanding during the period	3,206,314	513,722	2,511,175	540,976
Assumed acquisition of shares with assumed
proceeds from exercising outstanding warrants	(2,199,597)	(4,840,576)	(2,911,005)	(4,787,407)
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the period)	(2,191,630)	(352,501)	(1,792,019)	(371,115)
Shares repurchaseable from measured but
unrecognized stock option expense	(190,894)	(210)	(138,683)	(5,553)
Weighted-average shares, as used in diluted calculation	273,694,008	284,650,212	275,956,319	289,758,774

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.

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 Nine
	Months Ended
	September 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		(5,145)		2,804
Change in foreign currency exchange rate adjustment		10		9
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		1,685		(724)
Income tax benefit (expense)		1,208		(779)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(51)		(148)
Associated amortization of DAC, VOBA, DSI and DFEL		(20)		1
Income tax benefit (expense)		25		51
Balance as of end-of-period	$	1,870	$	4,353
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	(107)	$	(110)
(Increases) attributable to:
Gross OTTI recognized in OCI during the year		(10)		(96)
Change in DAC, VOBA, DSI and DFEL		1		14
Income tax benefit (expense)		3		31
Decreases attributable to:
Sales, maturities or other settlements of AFS securities		51		112
Change in DAC, VOBA, DSI and DFEL		(6)		(14)
Income tax benefit (expense)		(16)		(35)
Balance as of end-of-period	$	(84)	$	(98)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	163	$	119
Unrealized holding gains (losses) arising during the year		161		80
Change in foreign currency exchange rate adjustment		(12)		(7)
Change in DAC, VOBA, DSI and DFEL		6		9
Income tax benefit (expense)		(54)		(30)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(11)		(11)
Associated amortization of DAC, VOBA, DSI and DFEL		1		2
Income tax benefit (expense)		4		3
Balance as of end-of-period	$	270	$	177
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(4)	$	1
Foreign currency translation adjustment arising during the year		(1)		(6)
Income tax benefit (expense)		-		2
Balance as of end-of-period	$	(5)	$	(3)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(310)	$	(278)
Adjustment arising during the year		17		(2)
Income tax benefit (expense)		(8)		1
Balance as of end-of-period	$	(301)	$	(279)

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



Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(51)	Total realized gain (loss)
Change in DAC, VOBA, DSI, and DFEL		(20)	Total realized gain (loss)
Reclassification before income tax benefit (expense)		(71)	Income (loss) from continuing operations before taxes
Income tax benefit (expense)		25	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(46)	Net income (loss)

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

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