Earnings Per Share and Equity

9 Months Ended

Sep. 30, 2022

10. Earnings Per Share and Equity

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	8,022	$	36,279	$	32,366	$	82,025
Preferred stock dividends		198		198		594		594

Net income applicable to common stockholders	$	7,824	$	36,081	$	31,772	$	81,431

Weighted average common shares outstanding
Shares used in calculating basic earnings per share		45,776		54,153		46,637		54,491
Stock option		—		502		131		477


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Series C Preferred		16,500		16,500		16,500		16,500

Shares used in calculating diluted earnings per share		62,276		71,155		63,268		71,468

Earnings allocated to common stockholders per common share
Basic	$	0.17	$	0.67	$	0.68	$	1.49
Diluted	$	0.13	$	0.51	$	0.50	$	1.14

Basic earnings per share of common stock 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 exercise of a stock option granted in 2015 (the “2015 Option”) into 131 shares of common stock under the treasury stock method for the nine months ended September 30, 2022. In March 2022, Harbor entered into an agreement with the holder to cancel the 2015 Option in exchange for $969. The shares underlying the 2015 Option are included in computing diluted earnings per share under the treasury stock method for the portion of the reporting period during which it was outstanding.

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.

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). The adjusted Conversion Price as of the date of this filing is $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 September 30, 2022, 755 shares of the Series C Preferred were immediately convertible into 16,500 shares of common stock, 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).

On September 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on September 30, 2022.

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 (loss) 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.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480,

Distinguishing Liabilities from Equity

. Based on the applicable accounting 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.

Excluded Stock Options

In January 2022, Harbor granted a group of affiliated stockholders options to sell additional shares of Harbor’s common stock owned by the stockholders at fixed prices. As these options were

out-of-the-money

during the three and nine months ended September 30, 2022, they would have an anti-dilutive effect on the calculation of diluted earnings per share and thus are not included in the calculation above. For additional information regarding these options, refer to Note 13,

Stock Repurchase Program.