Earnings Per Share and Equity

6 Months Ended

Jun. 30, 2021

Earnings Per Share [Abstract]

Earnings Per Share and Equity

10. Earnings Per Share and Equity

Calculations of net income per common share for the dates presented were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021		2020
Net income (loss)	$	20,521	$	(8,337	)	$	45,746	$	(3,923	)
Preferred stock dividends		198		198			396		363
Net income (loss) applicable to common stockholders	$	20,323	$	(8,535	)	$	45,350	$	(4,286	)
Weighted average common shares outstanding
Shares used in calculating basic earnings per share		54,466		54,863			54,664		54,863
Stock option		489		—			449		—
Series C Preferred		16,500		—			16,500		—
Shares used in calculating diluted earnings per share	$	71,455	$	54,863		$	71,613	$	54,863
Earnings (loss) allocated to common stockholders per common share
Basic	$	0.37	$	(0.16	)	$	0.83	$	(0.08	)
Diluted	$	0.28	$	(0.16	)	$	0.63	$	(0.08	)

Basic earnings per common share is computed by dividing the net income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding assuming the conversion of the Series C Preferred into an aggregate of 16,500 shares of common stock under the if-converted method, and the conversion of a stock option granted in 2015 into 489 and 449 shares of common stock under the treasury stock method for the three and six months ended June 30, 2021, respectively. In loss periods, potentially dilutive shares associated with the stock option and Series C Preferred were not included in the calculation above, as they would have an anti-dilutive effect on the computation of earnings per share.

Series C Preferred

In January 2020, Harbor issued 4,000 shares of the Series C Preferred. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred are set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock (Certificate of Designations), which Harbor filed with the Secretary of State of the State of Delaware.

The Series C Preferred accrues dividends at the rate of 6.0% per annum, which are cumulative and compound quarterly to the extent dividends have not been declared by the Board of Directors and paid by Harbor (Preferential Dividends).

From and after December 31, 2023, upon the election of holders of a majority of the outstanding Series C Preferred, the rate of the Preferential Dividends shall be increased by an additional 1.0% per annum per share for each and every six-month period following such election (Dividend Ratchet). At the option of the Board of Directors, in lieu of paying the Preferential Dividends and the Conversion Cap Excess Dividends (as defined below) in cash, all or some of such dividends may be paid in additional shares of Series C Preferred (PIK Dividends).

Each share of Series C Preferred was initially convertible, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (Conversion Price). Pursuant to the Certificate of Designations, the Conversion Price shall be adjusted to equal the Weighted Average Price (as defined in the Certificate of Designations) of the common stock during the Reporting Adjustment Period. The “Reporting Adjustment Period” was the first 90-trading day period commencing on or after August 28, 2020 (which was the first trading day following the day that was 45 days following the date on which Harbor provided notice to its stockholders of the filing of its Annual Report on Form 10-K for the year ended December 31, 2019) during which an aggregate of at least 5.0% of the outstanding shares of common stock were traded. The Conversion Price was adjusted as of January 7, 2021 to be $0.15091.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80, plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted into common stock pursuant to the limitation described herein (Conversion Cap Excess Shares), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends in an amount per share equal to 0.5% of the Series C Liquidation Amount (as defined below) of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (Conversion Cap Excess Dividends). As of the date of this filing, 755 shares of the Series C Preferred are immediately convertible into 16,500 shares of common stock (representing 23.4% of the fully diluted shares of capital stock of Harbor), and the remaining 3,245 shares of the Series C Preferred would be deemed Conversion Cap Excess Shares.

In the event of any liquidation, dissolution or winding up of Harbor, or a sale of Harbor, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of Harbor to the common stock or other junior capital stock, an amount equal to the Series C Issue Price, plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends (Series C Liquidation Amount). 

At any time following the earliest of (a) the date that is four years after the earlier of the Reporting Date (as defined in the Certificate of Designations) or (i) any merger or consolidation to which Harbor is a constituent party and to which one or more third-party entities, unaffiliated with Harbor, are constituent parties or (ii) any transaction or series of related transactions pursuant to which Harbor shall issue or sell a number of shares of common stock greater than 5.0% of the number of shares of common stock then outstanding, (b) the date the Dividend Ratchet has been initiated, (c) any time that fewer than 800 shares of Series C Preferred are outstanding, and (d) December 31, 2024, Harbor shall have the right to redeem all, but not less than all, of the shares of Series C Preferred then outstanding at a per share price equal to the then current Series C Liquidation Amount (Redemption Price). At any time after the outstanding shares of Series C Preferred are deemed Conversion Cap Excess Shares, Harbor shall have the right to redeem all, but not less than all, of the Conversion Cap Excess Shares then outstanding at the Redemption Price.

On both March 30, 2021 and June 30, 2021, the Board of Directors declared a dividend of $198 on the Series C Preferred, which was paid on March 31, 2021 and June 30, 2021, respectively.

Based on the applicable accounting guidance, Harbor is required to apply the “if-converted” method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

The Company accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on this guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets.