Accounting Policies, by Policy (Policies) | 12 Months Ended |
Sep. 28, 2014 |
Accounting Policies [Abstract] | ' |
Consolidation, Policy [Policy Text Block] | ' |
Principles of Consolidation |
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The consolidated financial statements include the accounts of Hutchinson Technology Incorporated and its subsidiaries (“we,” “our” and “us”), all of which are wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation. |
Use of Estimates, Policy [Policy Text Block] | ' |
Use of Estimates |
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The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
New Accounting Pronouncements, Policy [Policy Text Block] | ' |
Accounting Pronouncements |
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In May 2014, the FASB issued authoritative guidance related to revenue from contracts with customers. The updated guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The updated guidance will be effective for our first quarter of 2018. We are in the process of assessing the impact, if any, this guidance will have on our consolidated financial statements. |
Fiscal Period, Policy [Policy Text Block] | ' |
Fiscal Year |
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Our fiscal year is a fifty-two/fifty-three week period ending on the last Sunday in September. The fiscal years ended September 28, 2014, and September 29, 2013, were both fifty-two week periods and the fiscal year ended September 30, 2012, was a fifty-three week period. |
Revenue Recognition, Policy [Policy Text Block] | ' |
Revenue Recognition |
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We recognize revenue from the sale of our products when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. Amounts billed to customers for shipping and handling costs associated with products sold are classified as revenue. |
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For all sales, we use a binding purchase order as evidence of an arrangement. Delivery generally occurs when the product is delivered to a common carrier. Certain of our products are delivered on an FOB destination basis. We defer our revenue associated with these transactions until the product has been delivered and accepted at the customer’s premises. |
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We also store inventory in “vendor managed inventory,” or VMI, facilities, which are warehouses located close to the customer’s manufacturing facilities. Revenue is recognized on sales from such facilities upon the transfer of title and risk of loss, following the customer’s acknowledgement of the receipt of the goods. |
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We also enter into arrangements with customers that provide us with reimbursement for engineering services and specific program capacity to partially offset the costs of our investment. We recognize the associated revenue over the estimated life of the program to which the services and capacity relate. The deferred revenue related to these reimbursements, as recorded on our consolidated balance sheets as of September 28, 2014, and September 29, 2013, was $1,135,000 and $513,000, respectively, included in the line item “Accrued expenses and other” and $1,891,000 and $524,000, respectively, included in the line item “Other long-term liabilities.” |
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash and Cash Equivalents |
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Cash equivalents consist of all highly liquid investments with original maturities of three months or less. |
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The cash and cash equivalents that were restricted in use, as recorded on our consolidated balance sheets as of September 28, 2014, and September 29, 2013, was $2,059,000 and $3,721,000, respectively included in the line item “Other current assets”. As of September 28, 2014, and September 29, 2013, these amounts covered outstanding letters of credit and cash received and temporarily held in our senior secured credit facility collections account. The revolving credit and security agreement between us and PNC Bank, as amended, requires that we maintain a $2,500,000 compensating balance to draw proceeds on the corresponding credit facility. The $2,500,000 balance is maintained under the credit agreement to assure future credit availability. |
Investment, Policy [Policy Text Block] | ' |
Investments |
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Our short-term investments are comprised of United States government debt securities. We account for securities available for sale in accordance with Financial Accounting Standards Board (“FASB”) guidance regarding accounting for certain investments in debt and equity securities, which requires that available-for-sale and trading securities be carried at fair value. Unrealized gains and losses deemed to be temporary on available-for-sale securities are reported as other comprehensive income (“OCI”) within shareholders’ equity. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis. We classify our available-for-sale securities as short- or long-term based upon management’s intent and ability to hold these investments. |
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A summary of our investments as of September 28, 2014, and September 29, 2013, is as follows: |
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| | 28-Sep-14 |
| | | | Gross Realized | | Gross Unrealized | | |
| | Cost Basis | | Gains | | Losses | | Gains | | Losses | | Recorded Basis |
Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term investments restricted | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. government debt securities | | $ | 965 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 965 | |
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| | 29-Sep-13 |
| | | | Gross Realized | | Gross Unrealized | | |
| | Cost Basis | | Gains | | Losses | | Gains | | Losses | | Recorded Basis |
Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term investments restricted | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. government debt securities | | $ | 1,200 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 1,200 | |
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As of September 28, 2014, and September 29, 2013, our short-term investments mature within one year. |
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As of September 28, 2014, and September 29, 2013, we had $965,000 and $1,200,000, respectively, of short-term investments that were restricted in use. The amounts are required by the State of Minnesota to be held as security for our self-insured workers compensation programs. |
Trade and Other Accounts Receivable, Policy [Policy Text Block] | ' |
Trade Receivables |
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We grant credit to our customers, but generally do not require collateral or any other security to support amounts due. Trade receivables of $23,971,000 at September 28, 2014, and $21,680,000 at September 29, 2013, are net of allowances for sales returns of $497,000 and $656,000, respectively. |
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During the third and fourth quarters of 2014, we entered into multiple independent bill of exchange discounting transactions under an uncommitted facility with Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch (“HSBC”), under which our Thai subsidiary, Hutchinson Technology Operations (Thailand) Co. Ltd., sold, without recourse, an aggregate of $43,849,000 of its accounts receivable to HSBC and was paid 95% of the face value of the accounts receivable, less interest expense of LIBOR plus 1.75%. Upon full payment of the receivable by its customer to HSBC, our Thai subsidiary receives from HSBC the 5% remainder due on the receivable. As of September 28, 2014, there remained $1,177,000 to be paid to our Thai subsidiary from HSBC from the sale of $23,472,000 of its accounts receivable to HSBC. The $1,177,000 was included within the line item “Other receivables” on our consolidated balance sheet. |
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We generally warrant that the products sold by us will be free from defects in materials and workmanship for a period of one year or less following delivery to our customer. Upon determination that the products sold are defective, we typically accept the return of such products and refund the purchase price to our customer. We record a provision against revenue for estimated returns on sales of our products in the same period that the related revenues are recognized. We base the allowance on historical product returns, as well as existing product return authorizations. The following table reconciles the changes in our allowance for sales returns under warranties: |
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Fiscal Year | | Beginning Balance | | Increases in the Allowance Related to | | Reductions in the Allowance for Returns Under Warranties | | Ending Balance | | | | | | | | |
Warranties Issued | | | | | | | | |
2014 | | $ | 656 | | | $ | 1,968 | | | $ | (2,127 | ) | | $ | 497 | | | | | | | | | |
2013 | | $ | 44 | | | $ | 2,094 | | | $ | (1,482 | ) | | $ | 656 | | | | | | | | | |
Inventory, Policy [Policy Text Block] | ' |
Inventories |
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Inventories are valued at the lower of cost (first-in, first-out method) or market by analyzing market conditions, current sales prices, inventory costs and inventory balances. Inventories consisted of the following at September 28, 2014, and September 29, 2013: |
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| | 2014 | | 2013 | | | | | | | | | | | | | | | | |
Raw materials | | $ | 21,376 | | | $ | 18,608 | | | | | | | | | | | | | | | | | |
Work in process | | | 11,860 | | | | 9,306 | | | | | | | | | | | | | | | | | |
Finished goods | | | 15,742 | | | | 16,371 | | | | | | | | | | | | | | | | | |
| | $ | 48,978 | | | $ | 44,285 | | | | | | | | | | | | | | | | | |
Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Property and Depreciation |
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Property, plant and equipment are stated at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets. We also use straight-line depreciation methods for income tax reporting purposes. |
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Costs of renewals and betterments that substantially extend the useful life of an asset are capitalized and depreciated. Maintenance and repairs are charged directly to expense as incurred. |
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Property under capital lease is comprised of equipment used in our operations. The related depreciation for capital leases is included in depreciation expense. The carrying value of property under capital lease was $9,770,000 at September 28, 2014, net of accumulated depreciation of $2,520,000. |
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Estimated useful lives for financial reporting purposes are as follows: |
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Buildings (in years) | 25 | to | 35 | | | | | | | | | | | | | | | | | | | | | |
Leasehold improvements (in years) | 5 | to | 10 | | | | | | | | | | | | | | | | | | | | | |
Equipment (in years) | 1 | to | 15 | | | | | | | | | | | | | | | | | | | | | |
Capital leases (in years) | 1 | to | 15 | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency Transactions and Translations Policy [Policy Text Block] | ' |
Other Comprehensive Loss |
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The components of accumulated OCI, net of income taxes, were as follows: |
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| | September 28, | | September 29, | | | | | | | | | | | | | | | | |
2014 | 2013 | | | | | | | | | | | | | | | | |
Foreign currency translation | | $ | (543 | ) | | $ | (148 | ) | | | | | | | | | | | | | | | | |
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Our Thailand operation uses their local currency as its functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average exchange rates during the year. Resulting translation adjustments are recorded as a separate component of accumulated OCI. Foreign currency translation, net of income taxes of $0, was a $395,000 loss in 2014, a $19,000 loss in 2013 and a $319,000 loss in 2012. |
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Transaction gains and losses that arise from the exchange rate changes on transactions denominated in a currency other than the local currency are included in “Other (expense) income, net” in the consolidated statements of operations. We recognized a foreign currency loss of $2,076,000 in 2014, a loss of $1,372,000 in 2013 and a loss of $233,000 in 2012 primarily related to purchases denominated in U.S. dollars made by our Thailand operation. |
Research and Development Expense, Policy [Policy Text Block] | ' |
Engineering and Process Development |
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Our engineers and technicians are responsible for the implementation of new technologies, as well as process and product development and improvements. Expenditures related to these activities totaled $47,397,000 in 2014, $39,657,000 in 2013 and $39,764,000 in 2012. Of these amounts, $17,316,000 in 2014, $14,621,000 in 2013 and $16,474,000 in 2012 were classified as research and development expenses, with the remainder relating to quality, engineering and manufacturing support, classified as cost of sales. |
Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block] | ' |
Severance and Site Consolidation Expenses |
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A summary of our severance and site consolidation expenses as of September 28, 2014, is as follows: |
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| | Severance and Benefits | | Site Consolidation Expenses | | Total | | | | | | | | | | | | |
Accrual balances, September 25, 2011 | | $ | 1,741 | | | $ | - | | | $ | 1,741 | | | | | | | | | | | | | |
Restructuring (reversals) charges | | | (895 | ) | | | 184 | | | | (711 | ) | | | | | | | | | | | | |
Cash payments | | | (846 | ) | | | (184 | ) | | | (1,030 | ) | | | | | | | | | | | | |
Accrual balances, September 30, 2012 | | | - | | | | - | | | | - | | | | | | | | | | | | | |
Restructuring charges | | | 1,212 | | | | 1,661 | | | | 2,873 | | | | | | | | | | | | | |
Cash payments | | | (1,212 | ) | | | (1,661 | ) | | | (2,873 | ) | | | | | | | | | | | | |
Accrual balances, September 29, 2013 | | | - | | | | - | | | | - | | | | | | | | | | | | | |
Restructuring charges | | | 1,377 | | | | 1,349 | | | | 2,726 | | | | | | | | | | | | | |
Cash payments | | | (1,350 | ) | | | (1,349 | ) | | | (2,699 | ) | | | | | | | | | | | | |
Accrual balances, September 28, 2014 | | $ | 27 | | | $ | - | | | $ | 27 | | | | | | | | | | | | | |
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We have had an ongoing severance and manufacturing consolidation and restructuring plan in place to support efforts to improve operating results and liquidity through improved utilization of our facilities in both the U.S. and Thailand. |
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At the end of 2011, $1,741,000 of severance and other expenses remained to be paid related to the 2011 manufacturing consolidation and restructuring plan that included eliminating approximately 800 positions from our U.S. workforce. As a result of leveraging our U.S. assembly operations to offset the temporary loss of manufacturing capacity in Thailand due flooding, we retained approximately 120 employees in our Hutchinson, Minnesota manufacturing facility that we previously expected to terminate and whose anticipated severance and benefits were included in our 2011 severance and benefits expenses. This resulted in a reduction of $895,000 in our severance and benefits expenses during the first quarter of 2012. The remaining severance and benefits payments were completed in our second quarter of 2012. |
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As part of our consolidation and restructuring actions, a total of $184,000 of other expenses were recorded in 2012, primarily internal labor, contractors and freight, related to consolidation of the Hutchinson, Minnesota components operations into our operations in Eau Claire, Wisconsin. |
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During the first quarter of 2013, we eliminated approximately 55 positions as part of our continued focus on overall cost reductions. As of September 29, 2013, we had incurred $2,873,000 of severance and site consolidation expenses, primarily internal labor, contractors and freight, related to the consolidation. All severance and benefits payments were completed in our second quarter of 2013. |
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During the second and third quarters of 2014, we identified a total of approximately 170 positions to be eliminated as part of our continued consolidation effort and our continued focus on overall cost reductions. During the fourth quarter of 2014, we retained approximately 40 of those positions for manufacturing of our shape memory alloy optical image stabilization product. This and our site consolidation activities resulted in $2,726,000 of severance and site consolidation expenses. We expect the total remaining 2014 severance and benefits payments of $27,000 will be complete by the end of our first quarter of 2015. |
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | ' |
Asset Impairment |
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When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate positive cash flows. Changes in any of these factors could necessitate impairment recognition in future periods for other assets held for use. |
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In connection with this consolidation of our operations, two of our facilities were offered for sale or lease in 2013, including the Eau Claire, Wisconsin assembly building and the Development Center building on our Hutchinson, Minnesota campus. During the first quarter of 2014, we received third-party interest in purchasing the Eau Claire assembly building. Based on the discussions regarding the potential sale of this building, we modified our forecast model to increase the probability of a sale of our Eau Claire assembly building and decrease the probability of a lease. Using these new weightings for sale and lease, the carrying value of our assets exceeded the expected undiscounted cash flows indicating a trigger of potential impairment. As a result, we evaluated the recoverability of the Eau Claire assembly building based on these circumstances and recorded an impairment charge of $4,470,000 included in the line item “Asset impairment” in our consolidated statement of operations. The building and related assets had remaining useful lives ranging from 15 to 30 years. We determined the long-lived assets did not meet the criteria to be classified as assets held for sale. During the second quarter of 2014, we sold the Eau Claire, Wisconsin assembly building, and related real and personal property for net proceeds of $4,364,000. We will continue to own and operate the remaining portion of the Eau Claire facility, representing approximately 700,000 square feet of floor space. As of September 28, 2014, there were no indicators of additional impairment related to our Development Center building. |
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Thailand Flood |
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In October 2011, severe flooding in Thailand required us to suspend assembly operations at our Thailand manufacturing facility. During our fourth quarter of 2011, prior to the flooding, approximately one-third of our sales originated out of our Thailand assembly facility. By the end of that quarter, our Thailand operations had an assembly capacity of four to five million parts per week. |
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As a result of the flooding in Thailand, during 2012, we recorded insurance recoveries, net of flood-related costs, as follows: |
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| | For the Year Ended | | | | | | | | | | | | | | | | | | | | |
30-Sep-12 | | | | | | | | | | | | | | | | | | | | |
Impairment of building and equipment and write-off of inventory | | $ | 11,839 | | | | | | | | | | | | | | | | | | | | | |
Continuing costs during site shutdown | | | 5,908 | | | | | | | | | | | | | | | | | | | | | |
Site restoration | | | 2,613 | | | | | | | | | | | | | | | | | | | | | |
| | | 20,360 | | | | | | | | | | | | | | | | | | | | | |
Insurance recoveries | | | (25,000 | ) | | | | | | | | | | | | | | | | | | | | |
Insurance recoveries, net of flood-related costs | | $ | (4,640 | ) | | | | | | | | | | | | | | | | | | | | |
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The total carrying value of our Thailand building and equipment was approximately $18,700,000 at the time of the flood. Of the total, $8,541,000 was destroyed by the flooding and was impaired and written off. The flood-related inventory write-off was $3,298,000, which included the cost of raw materials, work-in-process and finished goods inventories that were not able to be used or sold due to the flood damage. Repairs, maintenance, employee and other flood-related costs were expensed when incurred. These expenses totaled $8,521,000 for 2012. These amounts are reflected, net of insurance recoveries, in “Insurance recoveries, net of flood related costs”, on our consolidated statements of operations. |
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After review of the flood mitigation plans of the Thai government and those of the industrial park where our plant is located, we restored our Thailand manufacturing facility. The industrial park has completed construction of a flood wall and we resumed production at that facility and began shipping products for customer qualification during the third quarter of 2012. In total, we spent approximately $27,000,000 during 2012 and $7,000,000 during 2013 for incremental costs of manufacturing in our U.S. assembly operations instead of in Thailand, capital expenditures for site restoration and equipment replacement, recovery expenses, and inventory replenishment. These costs were partially offset by the $25,000,000 in insurance proceeds that we received in 2012. These costs do not include lost profits from lower demand due to constraints in the overall capacity in the disk drive supply chain as a result of the flooding. |
Income Tax, Policy [Policy Text Block] | ' |
Income Taxes |
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As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be realized based on future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense or a benefit within the tax provision in our consolidated statement of operations. |
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Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. At September 28, 2014, and September 29, 2013, we had valuation allowances of $227,219,000 and $213,948,000 respectively. The FASB guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company’s current or previous losses are given more weight than its future outlook. Under the guidance, our three-year historical cumulative loss was a significant negative factor. This loss, combined with uncertain near-term market and economic conditions, reduced our ability to rely on our projections of future taxable income in determining whether a valuation allowance is appropriate. Accordingly, we concluded that a full valuation allowance was appropriate. We will continue to assess the likelihood that our deferred tax assets will be realizable, and our valuation allowance will be adjusted accordingly, which could materially impact our financial position and results of operations. |
Earnings Per Share, Policy [Policy Text Block] | ' |
Loss per Share |
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Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the year. Diluted earnings (loss) per share identifies the dilutive effect of potential common shares using net income (loss) available to common shareholders and is computed (i) using the treasury stock method for outstanding stock options and the if-converted method for the 8.50% Convertible Notes, and (ii) in accordance with FASB guidance relating to the effect of contingently convertible instruments on diluted earnings per share for the 3.25% Notes outstanding as of September 30, 2012. A reconciliation of these amounts is as follows: |
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| | 2014 | | 2013 | | 2012 | | | | | | | | | | | | |
Net loss | | $ | (40,414 | ) | | $ | (35,076 | ) | | $ | (48,642 | ) | | | | | | | | | | | | |
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Weighted-average common shares outstanding | | | 27,993 | | | | 25,981 | | | | 23,565 | | | | | | | | | | | | | |
Dilutive potential common shares | | | - | | | | - | | | | - | | | | | | | | | | | | | |
Weighted-average diluted shares outstanding | | | 27,993 | | | | 25,981 | | | | 23,565 | | | | | | | | | | | | | |
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Basic loss per share | | $ | (1.44 | ) | | $ | (1.35 | ) | | $ | (2.06 | ) | | | | | | | | | | | | |
Diluted loss per share | | $ | (1.44 | ) | | $ | (1.35 | ) | | $ | (2.06 | ) | | | | | | | | | | | | |
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Diluted loss per share for 2014 excludes potential common shares of 366,000 using the treasury stock method and potential common shares of 4,630,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive. Diluted loss per share for 2013 excludes potential common shares of 533,000 using the treasury stock method and potential common shares of 5,305,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive. Diluted loss per share for 2012 excludes potential common shares and warrants of 2,241,000 using the treasury stock method and potential common shares of 8,466,000 using the if-converted method for the 8.50% Convertible Notes, as they were anti-dilutive. |