(4) Earnings Per Share
ASC 260, “Earnings Per Share,” impacts the determination and reporting of earnings (loss) per share by requiring the inclusion of participating securities, which have the right to share in dividends, if declared, equally with common shareholders. Participating securities are allocated a proportional share of net income determined by dividing total weighted average participating securities by the sum of total weighted average common shares and participating securities (“the two-class method”). ASC 260 also impacts the determination and reporting of earnings (loss) per share by requiring inclusion of the impact of changes in fair value of warrant liabilities, such as the Oaktree warrant liability described in Note 7 to the Notes to the Consolidated Financial Statements. Including these participating securities and changes in warrant liability in the Company’s earnings per share calculation has the effect of reducing earnings and increasing losses on both basic and diluted earnings (loss) per share.
The computations for basic and diluted earnings per share are as follows:
| Year Ended July 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
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Numerator: |
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Net income (loss) |
$ | (163,232 | ) | $ | (86,336 | ) | $ | 26,567 | ||||
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Less: income allocated to participating securities |
— | — | (482 | ) | ||||||||
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Income (loss) attributable to common shareholders — basic |
(163,232 | ) | (86,336 | ) | 26,085 | |||||||
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Add: undistributed income attributable to participating securities |
— | — | 412 | |||||||||
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Less: undistributed income reallocated to participating securities |
— | — | (400 | ) | ||||||||
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Income (loss) attributable to common shareholders — diluted |
$ | (163,232 | ) | $ | (86,336 | ) | $ | 26,097 | ||||
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Denominator: |
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Weighted average shares outstanding — basic |
21,813 | 21,692 | 21,577 | |||||||||
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Dilutive shares — stock options and warrant |
— | — | 656 | |||||||||
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Weighted average shares outstanding — diluted |
21,813 | 21,692 | 22,233 | |||||||||
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Income (loss) per share attributable to common shareholders (1): |
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Basic |
$ | (7.48 | ) | $ | (3.98 | ) | $ | 1.21 | ||||
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Diluted |
$ | (7.48 | ) | $ | (3.98 | ) | $ | 1.17 | ||||
| (1) | Computations may reflect rounding adjustments. |
Options to purchase 1,457,076, 2,079,535 and 1,771,253 shares of common stock were outstanding at July 31, 2013, 2012 and 2011, respectively. Because the Company was in a loss position for fiscal 2013 and fiscal 2012 stock options and restricted stock units outstanding were excluded in the computation of diluted earnings (loss) per share because their effect would be antidilutive. Additionally, as the Company was in a loss position and the change in the fair value of the warrant liability resulted in a loss for fiscal 2013 and fiscal 2012, a numerator adjustment was not made to the diluted earnings (loss) per share calculation.
Options to purchase 978,024, 776,184, and 87,500 shares of common stock were not included in the computation of diluted earnings per share for fiscal 2013, 2012, and 2011, respectively, because their exercise prices were greater than the average market price of Diamond’s common stock and therefore their effect would be antidilutive.