UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGT0N, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the fiscal year ended December 31, 2009
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the transition period from
to
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Commission File No. 000-30109
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
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74-2747608
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
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78727
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(Address of principal executive offices)
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(Zip Code)
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(512) 219-8020
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
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Title of each class
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Name of exchange on which registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market
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Rights to Purchase Series A Junior Participating Preferred Stock, $0.001 par value
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The NASDAQ Global Market
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Securities registered pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
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No
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
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No
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Based on the closing sale price of common stock on The NASDAQ Global Market on June 30, 2009,
the aggregate market value of the voting stock held by non-affiliates of the Registrant was
$683,940,619 as of such date, which assumes, for purposes of this calculation only, that all shares
of common stock beneficially held by officers and directors are shares owned by affiliates.
There were 41,844,572 shares of the Companys Common Stock, par value $0.001 per share,
outstanding on February 23, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2010 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
Safe Harbor Cautionary Statement
This annual report on Form 10-K contains statements that are forward-looking statements under
the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current
expectations of forecasts of future events. All statements other than statements of current or
historical fact contained in this annual report, including statements regarding our future
financial position, business strategy, new products, assay sales, budgets, liquidity, cash flows,
projected costs, litigation costs, including the costs or impact of any litigation settlements or
orders, regulatory approvals or the impact of any laws or regulations applicable to us, and plans
and objectives of management for future operations, are forward-looking statements. The words
anticipate, believe, continue, should, estimate, expect, intend, may, plan,
projects, will, and similar expressions, as they relate to us, are intended to identify
forward-looking statements. These statements are based on our current plans and actual future
activities, and our financial condition and results of operations may be materially different from
those set forth in the forward-looking statements as a result of known or unknown risks and
uncertainties, including, among other things:
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risks and uncertainties relating to market demand and acceptance of our products and
technology;
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dependence on strategic partners for development, commercialization and distribution of
products;
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the impact of the ongoing uncertainty in U.S. and global finance markets and changes in
government funding, including its effects on the capital spending policies of our partners
and end users and their ability to finance purchases of our products;
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concentration of our revenue in a limited number of strategic partners some of which may
be experiencing decreased demand for their products utilizing or incorporating our
technology and budget or finance constraints in the current economic environment or
periodic variability in their purchasing patterns or practices;
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fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, bulk
purchases of consumables, fluctuations in product mix, and the seasonal nature of some of
our assay products;
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our ability to obtain and enforce intellectual property protections on our products and
technologies;
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reliance on third party distributors for distribution of specific assay products;
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our ability to scale manufacturing operations and manage operating expenses, gross
margins and inventory levels;
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potential shortages, or increases in costs, of components or other disruptions to our
manufacturing operations;
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our ability to successfully launch new products;
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the timing of regulatory approvals;
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the implementation, including any modification, of our strategic operating plans;
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the uncertainty regarding the outcome or expense of any litigation brought against or
initiated by us;
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risks relating to our foreign operations; and
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risks and uncertainties associated with implementing our acquisition strategy including
our ability to obtain financing, our ability to integrate acquired companies or selected
assets into our consolidated business operations, and the ability to recognize the benefits
of our acquisitions.
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Many of these risks, uncertainties and other factors are beyond our control and are difficult
to predict. Any or all of our forward-looking statements in this annual report may turn out to be
inaccurate. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. New factors could also
emerge from time to time that could adversely affect our business. The forward-looking statements
herein can be affected by inaccurate assumptions we might make or by known or unknown risks,
uncertainties and assumptions, including the risks, uncertainties and assumptions outlined above
and described in Item 1A Risk Factors below. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed in this annual report may not
occur and actual results could differ materially from those anticipated or implied in the
forward-looking statements. When you consider these forward-looking statements, you should keep in
mind these risk factors and other cautionary statements in this annual report including in Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations and in Item
1A Risk Factors.
Our forward-looking statements speak only as of the date made. We undertake no obligation to
publicly update or revise forward-looking statements, whether as a result of new information,
future events or otherwise. All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained in this annual report.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to
Luminex, the Company, we, us and our refer to Luminex Corporation and its subsidiaries.
Luminex
®
, xMAP
®
, xTAG
®
, Luminex
®
100, Luminex
®
200, Luminex
®
XYP, Luminex
®
SD, Luminex
HTS
TM
, FLEXMAP 3D
®
, MicroPlex
®
, MagPix, MagPlex
®
, SeroMAP, xPONENT
®
, and FlexmiR
®
are
trademarks of Luminex Corporation. This report also refers to trademarks, service marks and trade
names of other organizations.
PART I
ITEM 1. BUSINESS
Overview
We develop, manufacture and sell proprietary biological testing technologies and products with
applications throughout the life sciences and diagnostics industries. These industries depend on a
broad range of tests, called bioassays, to perform diagnostic tests, discover and develop new drugs
and identify genes. Our xMAP
®
(Multi-Analyte Profiling) technology, an open architecture,
multiplexing technology, allows simultaneous analysis of up to 500 bioassays from a small sample
volume, typically a single drop of fluid, by reading biological tests on the surface of microscopic
polystyrene beads called microspheres. xMAP technology combines this miniaturized liquid array
bioassay capability with small lasers, digital signal processors and proprietary software to create
a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is
currently being used within various segments of the life sciences industry which includes the
fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense,
protein analysis and biomedical research. Our business is currently organized into two reportable
segments: the technology segment and the assay segment. Our products are described below under
Products.
The technology segment was initially built around strategic partnerships. As of December 31,
2009, we had approximately 68 strategic partners, 39 of which have developed reagent-based products
utilizing our technology. Luminex and these partners have sold over 6,760 xMAP-based instruments in
laboratories worldwide as of December 31, 2009. We license our xMAP technology to our partners, who
then develop products that incorporate the xMAP technology into products that they sell to end
users. We also develop and manufacture the proprietary xMAP laboratory instrumentation and the
proprietary xMAP microspheres and sell these products to our partners. When our partners sell
xMAP-based reagent consumable products or xMAP-based testing services, which run on the xMAP
instrumentation, to end users, such as testing laboratories, we obtain a royalty on the sales from
the partner. Luminex was founded on this model, and much of our success to date has been due to
this model.
The assay segment consists of Luminex Bioscience Group, or LBG, and Luminex Molecular
Diagnostics, or LMD. This segment is primarily involved in the development and sale of assays
utilizing xMAP technology on our installed base of systems. The assay segment augments our
partnership model with a distribution model, designed to take advantage of our increasing installed
base of xMAP-based instrumentation. LBG introduced our first two assay products in late 2006.
LMD, which we created upon our acquisition of Tm Bioscience in March 2007, is focused on
multiplexed applications for the human molecular clinical diagnostics market. Tm Bioscience focused
on the three segments of the genetic testing market for which it was developing products: human
genetics, personalized medicine and infectious disease. Tm Bioscience had established a solid
position in the marketplace with their product development and FDA-compliant manufacturing
capabilities. We substantially completed the integration of Tm Bioscience during 2007, and we
believe that with Tm Bioscience fully integrated, we are in a position to take advantage of the
complementary strengths of both companies in molecular diagnostics. In January 2008, the assay
segment launched xTAG
®
Respiratory Viral Panel (RVP), which is the first Food and Drug
Administration (FDA) cleared assay to simultaneously detect and identify 12 viruses and viral
subtypes that together are responsible for more than 85 percent of respiratory viral infections.
1
We have established a leading position in several segments of the life sciences industry by
developing and delivering products that meet customer and partner needs in specific market
segments, including multiplexing, accuracy, precision, sensitivity, specificity, reduction of labor
and ability to test for proteins and nucleic acids. These needs are addressed by our proprietary
technology, xMAP Technology, which allows the end user in a laboratory to perform biological
testing in a multiplexed format. Multiplexing allows for many different laboratory results to be
generated from one sample at one time. This is important because our end user customers and
partners, which include laboratory professionals performing research, clinical laboratories
performing tests on patients as ordered by a physician and other laboratories, have a fundamental
need to perform high quality testing as efficiently as possible. Until the availability of
multiplexing technology such as xMAP, the laboratory professional had to perform one test on one
sample in a sequential manner, and if additional testing was required on that sample, a second
procedure would be performed to generate the second result, and so on until all the necessary tests
were performed. By using xMAP technology, these end users have the opportunity to become more
efficient by generating multiple simultaneous results per sample. We believe that this technology
may also offer advantages in other industries, such as the food safety/animal health, newborn
screening and bio-defense/bio-threat markets. Using the products Luminex has available today, up to
500 simultaneous analyte results can be generated from a single sample.
Luminex was incorporated under the laws of the State of Texas in May 1995, and we began
commercial production of our Luminex 100 System in 1999. We were reincorporated in the State of
Delaware in July 2000. Our shares of common stock are traded on the Nasdaq Global Market under the
symbol LMNX. Our principal executive offices are located at 12212 Technology Blvd., Austin,
Texas 78727, and our telephone number is (512) 219-8020. Our website address is
www.luminexcorp.com
. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, are available free of charge through our website
as soon as reasonably practicable after such material is electronically filed with, or furnished
to, the Securities and Exchange Commission, or the SEC. Information contained or accessible on our
website is not incorporated by reference into this report and such information should not be
considered to be part of this report except as expressly incorporated herein. The public may read
and copy these materials at the SECs public reference room at 100 F Street, N.E., Washington, D.C.
20549 or on the SECs website at http://www.sec.gov. The SECs website contains reports, proxy
and information statements, and other information regarding issuers that file electronically with
the SEC. Questions regarding the public reference room may be directed to the SEC at
1-800-732-0330.
Industry Background
The life sciences industry uses bioassays to detect the presence and characteristics of
certain biochemicals, proteins or nucleic acids in a sample. Drug discovery, genetic analysis,
pharmacogenomics, clinical diagnostics and general biomedical research all use bioassays. For
example, bioassays can be used to:
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measure the presence and quantity of substances such as infectious agents, antigens for
histocompatibility, hormones, cancer markers and other proteins in a patients blood, other
body fluid or tissue to assist physicians in diagnosing, treating or monitoring disease
conditions;
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detect genetic variations, such as single nucleotide polymorphisms or genetic mutations
present in inherited diseases;
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measure the response to a compound or dosage by measuring cellular activity for drug
discovery and development; and
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assist physicians in prescribing the appropriate tailored drug therapy based on the
patients unique genetic makeup, a process known as pharmacogenetics.
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The life sciences customer can purchase bioassays in the form of complete off-the-shelf kits,
develop them internally or utilize a customized service to meet their specific needs. Although it
is important to note that xMAP technology is relevant to a subset of the total life sciences
market, based on external market research data, we believe the total global market for tools and
consumables used in drug discovery and development, clinical diagnostics and biomedical research
represented a market of approximately $45 billion in end user sales in 2008, growing at an
estimated 6% annually.
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The table below briefly describes the key bioassay technologies in the life sciences industry:
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KEY TECHNOLOGIES
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DESCRIPTION
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MARKETS SERVED
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BioChips/Microarrays
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High-density arrays of DNA fragments or
proteins attached to a flat glass or silicon
surface
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Biomedical research and
select clinical
diagnostics
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Automated Immunoassays
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Automated test tube-based instruments used for
detecting antibodies, proteins and other
analytes
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Clinical diagnostics
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Gels and blots
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Physical separation of molecules or analytes for
visualization
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Clinical diagnostics
and biomedical research
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PCR methods
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Tests which use polymerase chain reaction (PCR)
technology to test DNA and ribonucleic acid
(RNA)
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Nucleic acid testing in
clinical diagnostics
and biomedical research
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Microfluidics chips
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Miniaturized liquid handling system on
a chip
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Biomedical research
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Microtiter-plate based assays
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Plastic trays with discrete wells in which
different types of assays are performed,
usually Enzyme-Linked Immuno-Sorbent Assay
(ELISA) tests
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Drug discovery,
clinical diagnostics
and biomedical research
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Genotyping technologies
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DNA primers or probes designed to identify
small differences between DNA targets using
methods such as primer extension assays,
ligation assays, cleavage assays or
hybridization assays, sequencing and others
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Drug discovery,
clinical diagnostics
and biomedical research
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Gene expression technologies
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DNA primers or probes designed to measure the
degree of transcriptional activity of a
specific gene, indicating how active the cells
are in making the protein encoded by that gene
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Drug discovery,
clinical diagnostics
and biomedical research
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Based on external market research data and our own internal estimates, we believe the
potential life sciences market directly addressed by our xMAP technology was approximately $2.1
billion in 2008 and that it will reach $3.3 billion by 2012. In addition, we are also focused on
other specialty market segments, including food safety/animal health, newborn screening and
bio-defense/bio-threats. With only limited market penetration of our multiplexing xMAP technology
thus far in the key market segments referenced above, we believe there remain significant growth
opportunities for Luminex and our strategic partners in each of these markets.
3
Our xMAP Technology
Our xMAP technology combines existing biological testing techniques with advanced digital
signal processing and proprietary software. With our technology, discrete bioassays are performed
on the surface of color-coded microspheres. These microspheres are read in a compact analyzer that
utilizes lasers and high-speed digital signal processing to simultaneously identify the bioassay
and measure the individual assay results. The key features of xMAP technology include the
following:
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Multi-analyte/multi-format
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xMAP technology has been designed to simultaneously perform up to 500
distinct bioassays in a single tube or well of a microtiter plate
using only a small amount of sample. Moreover, unlike most existing
technologies that are dedicated to only one type of bioassay, xMAP can
perform multiple types of assays including enzymatic, genetic and
immunologic tests on the same instrumentation platform.
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Flexibility/scalability
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xMAP technology allows flexibility in customizing test panels. Panels can be modified to include
new bioassays in the same tube by adding additional microsphere sets. It is also scalable,
meaning that there is no change in the manufacturing process and only minimal changes to the
required labor to produce a small or large number of microsphere-based tests.
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Both protein and nucleic acid applications on a single platform
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xMAP technology has an advantage due to its ability to analyze both proteins and nucleic acids.
This allows customers to utilize a single platform to evaluate samples across more biological
parameters and generate a more complete assessment of these samples. Alternative technologies
are restricted to either proteins or nucleic acid, requiring customers to use two or more
technologies from other vendors to get the same information.
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High throughput
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Our technology can perform up to 500 tests in a single well permitting up to 96,000 unattended
tests to be detected in approximately an hour with only a small amount of sample. Rapid sample
analysis permits efficient use for high-throughput applications.
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Ease of use
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Most xMAP bioassays are simple to perform. A test sample is added to a solution containing
microspheres that have been coated with reagents. The solution is then processed through our
xMAP technology system which incorporates proprietary software to automate data acquisition and
analysis in real-time.
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Cost effective
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By performing multiple assays at one time, xMAP technology is designed to be cost effective for
customers compared to competitive techniques such as enzyme-linked immunosorbent assay (ELISA)
or Real-time PCR. By analyzing only those assays in which a customer is interested, xMAP is also
more cost effective than most competing microarray technologies. In addition, microsphere-based
bioassays are inexpensive compared to other technologies such as biochips.
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Polystyrene microspheres, approximately 5.6 microns in diameter, are a fundamental component
of the xMAP technology. We purchase and manufacture microspheres and, in a proprietary process, dye
them with varying intensities of proprietary dyes to achieve up to 500 distinct colors. The
specific dye proportions permit each color-coded microsphere to be readily identified based on its
distinctive fluorescent signature. Our customers create bioassays by attaching different
biochemical reactants to each distinctly colored microsphere set. These unique reactants bind, or
capture, specific substances present in the test sample. The microsphere sets can then be combined
in test panels as required by the user, with a maximum of 500 tests per panel. Customers can order
either standard microspheres or magnetic microspheres.
4
To perform a bioassay using xMAP technology, a researcher attaches biochemicals, or reagents,
to one or more sets of color-coded microspheres, which are then mixed with a test sample. This
mixture is injected into the xMAP analyzer, where the microspheres pass single-file in a fluid
stream through two laser beams. The first laser excites the internal dyes that are used to identify
the color of the microsphere and the test being performed on the surface of the microsphere. The
second laser excites a fluorescent dye captured on the surface of the microspheres that is used to
quantify the result of the bioassay taking place. Our proprietary optics, digital signal processors
and software record the fluorescent signature of each microsphere and compare the results to the
known identity of that color-coded microsphere set. The results are analyzed and displayed in
real-time with data stored on the computer database for reference, evaluation and analysis.
xTAG
®
technology developed by the assay segment consists of several components including
multiplexed PCR or target identification primers, DNA Tags, xMAP microspheres, and data analysis
software. xTAG technology permits the development of molecular diagnostic assays for clinical use
by hospital and reference laboratories. xTAG technology has been applied, in particular, to human
genetic assays, pharmacogenetic assays, and infectious disease assays.
We have an active product development pipeline of both instrument systems and assays. Our new
instrument, FLEXMAP 3D
®
was market released in June 2009 to complement our current instrument
offerings. The FLEXMAP 3D system has twice the throughput of our LX 200 instrument and will
detect, via multiplexing, up to 500 distinct biomarkers simultaneously in a single assay. This is a
five fold increase in multiplexing capability over our LX200 instrument. The FLEXMAP 3D system,
with these enhanced capabilities, will support our market expansion into new testing segments in
both research and clinical testing markets in which high-throughput and/or high-multiplexing are
key customer requirements.
In addition to FLEXMAP 3D, we have a new instrument platform under development we refer to
internally as MagPix. Market release of the MagPix is expected in the latter half of 2010.
MagPix is an innovative technology platform using our proprietary xMAP magnetic microspheres. By
virtue of its small size and ease of use, we believe MagPix will enhance the adoption of our xMAP
technology in our existing markets and allow us to expand xMAP into emerging markets including
research, clinical and bio-threat testing segments with lower throughput and lower multiplexing
requirements, but with increased focus on capital cost considerations.
We have multiple assay development activities ongoing in the assay segment. The assay segment
has assay development programs focused in the areas of human genetics, pharmacogenetics, infectious
disease, newborn screening, agricultural testing, and bio-threat. In 2010, we have plans to submit
certain assay products to regulatory authorities for clearance in order to comply with established
guidelines across the jurisdictions in which we participate.
Business Strategy
Our primary goal continues to be the establishment of Luminex as an industry leader and xMAP
technology as the industry standard for performing bioassays by transforming Luminex from a
technology-based company to a market-driven, customer-focused company. To achieve this goal, we
have implemented and are pursuing the following strategies:
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Focus on key market segments
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We have identified the following key market segments: (i) life sciences research profile oriented
screening and secondary screening, (ii) life sciences research RNA profiling and transcriptional
screening, (iii) genetic molecular infectious disease testing, and (iv) immunodiagnostics. In
addition to the segments listed above, we have identified other potential market opportunities in
the applied markets such as bio-defense, or bio-threat testing, and food safety and animal health
testing. We will continue to employ both a partnership driven business model focused on selected
key segments and a product driven business model in other key segments, working with
distributors.
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We will continue to focus our commercialization efforts through strategic partners on large
sectors of the life sciences industry where Luminex believes it has distinct competitive
advantages over existing and emerging technologies and approaches. We define strategic partners
as companies in the life sciences industry that either develop and distribute assays and tests on
xMAP technology or may only distribute our xMAP technology based systems and consumables. With
our partners support, we have targeted major pharmaceutical companies, large clinical
laboratories, research institutions and major medical institutions for our principal marketing
efforts. We believe these customers provide the greatest opportunity for maximizing the use of
xMAP based products and continued adoption by these industry leaders will promote wider market
acceptance of our xMAP technology.
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Continue to develop strategic partnerships focused on our key market segments
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Currently, 39 of our approximately 68 strategic partners have developed reagent-based products
utilizing the Luminex platform and are submitting royalties. We also have strategic partners who
distribute Luminex products. During 2009, the 39 strategic partners who have commercialized
reagent-based products accounted for approximately 58% of our total revenue and all of our
strategic partners represented approximately 77% of our total revenue. We intend to broaden and
accelerate market acceptance of xMAP technology through development, marketing and distribution
partnerships with leaders in the life sciences industry. By leveraging our strategic partners
market positions and utilizing their distribution channels and marketing infrastructure, we
believe we can continue to expand our installed instrument base. Furthermore, our partners
investments in research and development for xMAP applications provide Luminex users with more
menu options than we can presently generate ourselves.
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Develop and deliver market-leading assay products
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We are focused on maximizing the value we provide our stockholders, partners and end user
customers by developing internally and co-developing with partners content applications based on
customers needs in key market segments. We believe that by enhancing both our partner driven
model and our direct efforts with the delivery of value-added assay content, Luminex should be
able to gain greater control over product development, market penetration and commercialization.
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Develop next generation products
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Our research and development group is pursuing projects such as the development of consumables,
automation, software and the expansion and enhancement of our multiplexing capabilities to
advance our xMAP technology and its market acceptance. We are also collaborating with industry
participants, biomedical research institutions and government entities to develop additional xMAP
products. We also continuously consider other adjacent markets where our platform and assay
offerings would be beneficial. We believe that our design, development, and manufacturing
capabilities and FDA compliance track record provide us a competitive advantage over our
competitors, relating to the commercialization of both multiplex testing platforms and assay
products.
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Opportunistically pursue acquisitions that could accelerate these strategies
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We have developed analytical tools and an evaluation template to assess potential acquisition
targets to accelerate our business strategies in the key markets described above. This approach
led to the acquisition of Tm Bioscience in 2007. We actively evaluate opportunities to enhance
our capabilities or our access to markets or technologies, or provide us other advantages in
executing our business strategies in our key markets.
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Products
Technology Segment
Instruments
Luminex
®
100 and Luminex
®
200.
The Luminex 100 and 200 are compact analyzers that integrate
fluidics, optics and digital signal processing to perform up to 100 bioassays simultaneously in a
single tube or well of a microtiter plate using only a small amount of sample. By combining small
diode lasers with digital signal processors and microcontrollers, these systems perform rapid,
multi-analyte profiles under the control of a Windows
®
-based personal computer and our proprietary
software.
We also offer two peripheral components for the Luminex systems the
Luminex
®
XYP (XY
Platform)
and the
Luminex
®
SD (Luminex Sheath Delivery System).
The XY Platform complements the
Luminex systems by automating the sequential positioning of each well of a microtiter plate,
permitting up to 9,600 unattended tests per plate to be performed in less than an hour. The
Luminex SD is a pressurized, external pump delivery system that enhances the delivery of sheath
fluid to the Luminex systems by pumping sheath fluid from an external bulk reservoir, enabling the
Luminex systems to operate for up to 24 hours without switching to a new reservoir of sheath fluid.
6
FLEXMAP 3D
®
. The FLEXMAP 3D system is intended for use as a general laboratory instrument in
markets, including but not limited to, life science research and diagnostics. This device is
designed for use with xMAP technology and assay kits available through Luminex and Luminex-partner
companies. The FLEXMAP 3D system, in combination with xMAP technology, can simultaneously measure
up to 500 analytes from a single sample. The FLEXMAP 3D is Luminexs newest instrument and offers
increased speed and enhanced ease-of-use and serviceability.
Total instrument revenue for 2009, 2008, and 2007 was $30.7 million, $28.1 million, and $24.4
million, respectively; or 25%, 27%, and 33% of total revenue, respectively. See Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 8
Financial Statements and Supplementary Data for a detailed discussion of our financial position
and results of operations by segment.
Consumables
MicroPlex
®
Microspheres.
Our xMAP Systems use polystyrene microspheres that are approximately
5.6 microns in diameter. We dye the microspheres in sets with varying intensities of a red and a
near infrared dye to achieve up to 500 distinct color sets. Each microsphere can carry the reagents
of an enzymatic, genetic or immunologic bioassay. In addition to microspheres, consumables from
Luminex also include sheath fluid. Additional consumables, for which Luminex receives a royalty, in
the form of reagent kits are developed and distributed by our partners.
MagPlex
®
Microspheres.
These microspheres feature super-paramagnetic properties that make
them ideal for running automated xMAP-based assays. These microspheres can be moved or held in
place by a magnetic field. Many automated sample preparation systems utilize magnetic properties to
automate the sample preparation steps in an assay. Automating sample testing using MagPlex
microspheres on a robotic sample preparation system minimizes hands-on technician time, improves
precision, and streamlines workflow.
xTAG
®
Microspheres.
These dyed microspheres are linked to a set of 100 proprietary nucleic
acid capture sequences providing a universal array for DNA and RNA work. They are designed for
conducting genotyping and other nucleic acid-based experiments in the life sciences markets. When
used in conjunction with our Luminex systems, the xTAG microspheres are designed to simplify the
genotyping assay development process and increase assay flexibility. The xTAG microspheres may be
used in customized end user identified single nucleotide polymorphisms (SNPs) or in pre-defined
kits developed by our strategic partners.
SeroMAP Microspheres.
These 100 distinct sets of microspheres are designed for specific
protein based serological applications. Certain Luminex partners use this product for enriched
sensitivity in serum-based assays.
Calibration and Control Microspheres.
Calibration microspheres are microspheres of known
fluorescent light intensities used to calibrate the settings for the classification and reporter
channel for the Luminex systems. Control microspheres are microspheres that are used to verify the
calibration and optical integrity for both the classification and reporter channels for the Luminex
100, 200 and FLEXMAP 3D systems.
Total consumable revenue for the years ended December 31, 2009, 2008, and 2007 was $28.4
million, $31.7 million, and $19.2 million, respectively; or 24%, 30%, and 26% of total revenue,
respectively. The decrease in consumables as a percentage of total revenue is primarily
attributable to the decrease in the dollar amount of bulk purchases by our two largest customers
due to the varying consumable needs during the regulatory clearance and commercialization phases of
development of our partners products and the economic environment. Additionally, our partners
reported approximately $282 million, $238 million, and $170 million of royalty bearing consumable
sales during 2009, 2008 and 2007, respectively; resulting in $18.3 million, $14.9 million, and
$10.2 million of royalty revenue for the years ended December 31, 2009, 2008 and 2007, respectively
or 15%, 14%, and 14% of total revenue, respectively. See Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and Item 8 Financial Statements and
Supplementary Data for a detailed discussion of our financial position and results of operations
by segment.
7
Software
xPONENT
®
.
This software enhances both ease-of-use and automation capabilities expanding xMAP
functionality in our core market segments. Customer-centric development and extensive field
testing with customers has resulted in a user experience which is a significant step forward in the
market place. The software suite incorporates important new features all designed to simplify
laboratory workflow and increase productivity. New features include enhanced security (21 CFR Part
11 compliance and electronic signatures), integration capabilities that allow users to transmit and
receive data from Laboratory Information Systems (LIS/LIMS), integration with the most popular
automated sample preparation systems, the ability to run magnetic bead applications and
touch-screen capability. xPONENT is sold on new Luminex 100, 200 and FLEXMAP 3D systems and is
available as an upgrade to the existing Luminex 100 and 200 systems in the marketplace. Sales of
this product during 2009 did not represent a material component of our revenue.
Assay Segment
Product Families
A product family consists of two or more assay products which are focused on similar or
related markets. Each assay consists of a combination of chemical and biological reagents and our
proprietary bead technology used to perform diagnostic and research assays on samples. As of
February 23, 2010 the following product families are commercially available:
MicroRNA Family
The FlexmiR
®
family of Research Use Only (RUO) kits is used by our customers to study the
levels of microRNA targets in a variety of cells or tissues from different species. MicroRNA is of
interest in a wide variety of applications including cancer and numerous other diseases.
Respiratory Viral Family
This family of products includes the xTAG
®
Respiratory Viral Panel, as well as xTAG
®
RVP FAST,
a newer version of the original RVP assay. These in vitro diagnostic (IVD) products enable our
laboratory end users to identify the causative agent for respiratory infections, a major cause of
illness and mortality globally, for their physicians and patients.
Cystic Fibrosis Family
These FDA-cleared and Conformité Européenne (CE) marked IVD kits include the first-ever
FDA-cleared IVD for cystic fibrosis genotyping. Current recommendations by the American College of
Medical Genetics (ACMG) and the American College of Obstetricians and Gynecologists (ACOG) include
screening for 23 mutations in the cystic fibrosis transmembrane conductance regulator (CFTR) gene.
The xTAG
®
Cystic Fibrosis Kits screen for these mutations in addition to a variety of other
important cystic fibrosis (CF) mutations commonly found in the ethnically diverse North American
and European populations. These kits are typically used for screening newborns and for diagnosing
adult carriers of the CF gene.
Personalized Medicine Products Family
This product family includes three assays used to determine the drug metabolism status of
individuals for specific medications. All three products include genotyping of genes encoding
different cytochrome P450 drug metabolizing enzymes. This type of information is typically used
to determine if a patient will need a lower or higher dose of a specific drug, or whether they
should be switched to a different medication altogether. These three assays are currently
Investigational Use Only (IUO) assays.
8
Specialty Products Family
This family of products includes one IVD product and two investigational assays. These
products are targeted towards specialty, niche markets.
In addition to the commercially available assays, we develop custom reagents for certain of
our partners. Total assay revenue for the years ended December 31, 2009, 2008, and 2007 was $31.1
million, $18.7 million, and $11.3 million, respectively; or 26%, 18%, and 15% of total revenue,
respectively. The increase in assay revenue as a percentage of total revenue is primarily
attributable to the acquisition of LMD. See Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 Financial Statements and Supplementary
Data for a detailed discussion of our financial position and results of operations by segment.
Sales and Marketing
Our sales and marketing strategy is to expand the installed base and utilization of xMAP
technology. We are focused on generating recurring revenues from royalties on bioassay kits and
testing services developed or performed by others that use our technology, as well as the sale of
Luminex-developed assays, microspheres and other consumables. We have two key elements of our sales
and marketing strategy. The first is our allegiance to Luminexs historic strategic partner
program with life sciences companies that develop applications or perform testing using our
technology platforms and distribute our systems to their customers. The second is our dedication
to marketing the assays developed by the assay segment through our strategic partners or directly
to end users in segments where our partners do not participate.
We continue to use strategic partners as our primary distribution channel, and we will
continue to pursue new partnerships focusing on partners with market presence in our key segments
described above. Some of our strategic partners develop application-specific bioassay kits for use
on our xMAP platform that they, in turn, sell to their customers thereby generating royalties for
us. Certain strategic partners also perform testing services for third parties using our technology
also resulting in royalties for us. Other strategic partners also buy our products, including xMAP
Luminex systems and consumables, or xTAG test kits, and then resell those products to their
customers. As of December 31, 2009, we had approximately 68 strategic partners, compared to
approximately 60 strategic partners as of December 31, 2008. During 2009, 39 of these strategic
partners had released commercialized products utilizing the Luminex platform and were submitting
royalties. Of these 39 strategic partners with commercialized products, 18 companies principally
serve the clinical diagnostics market and 21 companies principally serve the life science research
market. Revenues through these commercialized, royalty-submitting, strategic partners constituted
58% of our revenues for 2009. We also believe our strategic partners provide us with complementary
capabilities in product development, regulatory expertise and sales and marketing. By leveraging
our strategic partners bioassay testing competencies, customer relationships and distribution
channels, we believe that we can continue to achieve measurable market penetration and technology
adoption.
We also serve as the original equipment manufacturer (OEM) for certain strategic partners that
choose to sell our xMAP technology as an embedded system under their own branding and marketing
efforts.
Customers
In 2009, 2008 and 2007, two customers each accounted for more than 10% of our total revenues.
One Lambda, Inc. accounted for 15%, 19%, and 15% of our total revenues in 2009, 2008 and 2007,
respectively. Bio-Rad Laboratories, Inc. accounted for 11%, 17%, and 20% of our total revenues in
2009, 2008 and 2007, respectively. No other customer accounted for more than 10% of our total
revenues in 2009, 2008 or 2007. The loss of either one of these customers could have a material
adverse effect on our business, financial condition and results of operation.
One Lambda, Inc. accounted for 21%, 24% and 18% of the Companys total technology segment
revenues in 2009, 2008 and 2007, respectively. Bio-Rad Laboratories, Inc. accounted for 16%, 21%
and 24% of the Companys total technology segment revenues in 2009, 2008 and 2007, respectively.
Fisher Scientific accounted for 31%, 21% and less than 10% of the Companys total assay segment
revenues in 2009, 2008 and 2007, respectively. Abbott Laboratories accounted for 21%, less than
10%, and less than 10% of the Companys total assay segment revenues in 2009, 2008 and 2007,
respectively. Genzyme Genetics accounted for 15%, 27%, and 33% of the Companys total assay
segment revenues in 2009, 2008 and 2007, respectively. LabCorp accounted for less than 10%, less
than 10%, and 13% of the Companys total assay segment revenues in 2009, 2008 and 2007,
respectively. No other customer accounted for more than 10% of total segment revenues in 2009,
2008 or 2007.
9
International Operations
We currently sell our products to a number of customers outside the United States, primarily
including customers in other areas of North America, Europe and Asia-Pacific. For the annual
periods ended December 31, 2009, 2008, and 2007, foreign sales to customers totaled $22.8 million,
$15.0 million, and $11.4 million, respectively, representing 19%, 14%, and 15%, respectively, of
our total revenues for such periods. We have foreign subsidiaries in the Netherlands, the Peoples
Republic of China and Japan which increase our international support, service and marketing
capabilities. Our foreign subsidiaries are a direct and integral component of the U.S. entitys
operations and their efforts support the sales made by our North American entities. Sales to
territories outside of the U.S. are primarily denominated in U.S. dollars. We believe that our
activities in some countries outside the U.S. involve greater risk than our domestic business due to
the foreign economic conditions, exchange rate fluctuations, local commercial and economic policies
and political uncertainties. See Note 17 to our Consolidated Financial Statements.
Technical Operations
Our Technical Operations Group provides technical support to our customers, our strategic
partners and their customers. Most of our technical operations personnel have experience as
biologists, biochemists, or electrical engineers and have extensive experience in academic,
industrial and commercial settings. Cross training is a major focus, empowering group members to
solve problems outside their primary assignment.
Remote Support
Our technical support services department assists users primarily through a toll-free hotline,
internet interface and e-mail communications. We deliver 24/7 remote technical support with our
staff based at our Austin location, our Toronto location, and in our European, Chinese, and
Japanese subsidiaries to better serve our customer base. Personnel assist our strategic partners
and customers with product orders, software, hardware, system implementation and development of
their bioassays. A comprehensive software and database system is utilized to track customer
interactions, follow trends and measure utilization. The information is categorized and presented
to management for regular review.
Training
Through our training group, we offer comprehensive programs in basic system training, advanced
assay development, instrument field service and technical support functions. A significant part of
our training material is now web-based and available online. For larger customers who have many
users, such as our strategic partners, training may be performed on-site at their locations.
Field Support
We currently have field service and field application personnel based across North America,
Europe, China and Japan in areas of our more significant system concentration. We intend to place
additional field service personnel and pursue third-party service provider agreements through our
certified service professional program, as required, in order to ensure responsive and
cost-effective support of our customers worldwide. In addition, several of our strategic partners
provide their own field service and field application support. As we continue to expand our
installed base, we believe a strong, reliable, efficient field support organization is crucial to
building a high level of customer satisfaction.
10
Research and Development
Our research and development groups seek to advance the capabilities of xMAP technology to
further penetrate the life sciences and diagnostics industry to increase utilization of our
systems. In addition, we collaborate with other companies, academic institutions and our customers
to increase the breadth of xMAP applications. Our research and development expense for the years
ended December 31, 2009, 2008, and 2007, was $20.8 million, $18.6 million and $15.4 million,
respectively. Our current research and development projects include:
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New product development
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Our research and development teams, including the assay segment, and marketing team are working
closely with both internal and external groups to design and develop products that will expand
capabilities of the xMAP-based technologies. We believe that these efforts will continue to
result in unique products. These products will include instrumentation, services, software and
consumables including assays.
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Instrument development
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Our engineering group responsible for the design of our xMAP instruments leverages proprietary
electrical, optical and digital signal processing technologies to achieve high performance and
reliability. This methodology enabled the recently released FLEXMAP 3D
®
instrument to double
throughput, multiplex up to 500 analytes, enhance assay limit of detection, and greatly extend
the usable dynamic range.
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To further market penetration, we are now engaged in the development of an instrument line that
maintains the top features of our existing products, at a greatly reduced sales and manufacturing
cost. Simultaneously, a highly efficient subset of the engineering team is engaged in the
focused research necessary to extend our intellectual property position, and keep our products
innovative for many years to come.
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Assay development
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Our assay segment, consisting of LBG and LMD, develops new assay products that include both
nucleic acid-based and protein-based assays. These assays include immunoassays and molecular
diagnostic assays for the diagnostics industry, and nucleic acid-based and protein-based assays
for the life science research and agricultural science markets. All assay applications make use
of our xMAP technology and our strength in multiplex technology. Our assay research and
development is intended to increase the penetration of our xMAP instruments and our application
menu, and to drive growth in our high-margin assay businesses.
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Consumable development
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We continue to develop and enhance our existing consumable product line and support introduction
of new product lines. These new products include calibrators, controls and microspheres with
additional performance characteristics.
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Our current bead utilizes three common chemistries for the immobilization of assays on its
surface. While these chemistries are well accepted in the industry, it is desirable to expand our
bead chemistry capability to enhance market penetration and adoption. We continue to work on
other surface chemistries to provide optimal performance in broader application areas.
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Software development
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Our software research and development teams will continue to extend xPONENT instrument control
and analysis software capabilities. xPONENT software provides analysis and automation interface
capabilities as well as control functions for Luminex instruments like the FLEXMAP 3D product.
New versions of xPONENT will provide sophisticated data regression functionality and increased
productivity through better instrument utilization. We continue to develop applications like
xPONENT QC-Reviewer that will bridge the gap between the instrument control software and the
Laboratory Information Systems (LIS) to provide better test results management and wider use of
Luminex developed assays.
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11
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Automation
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We collaborate with our strategic partners and others to provide automation solutions that will
integrate our various xMAP instruments with sample handling equipment and laboratory information
systems to increase bioassay throughput and operational efficiencies and allow for walk-away
capability.
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Enhancing bioassay performance and operational efficiencies
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Our scientists and engineers dedicate efforts to further enhance xMAP in the areas of assay
performance, such as sensitivity, precision, reliability and operational efficiencies. We are
actively collecting market and customer requirements that will allow us to provide optimal
features and benefits in current and future products.
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Manufacturing
We have approximately 29,000 square feet of manufacturing space located at our principal
executive offices in Austin, Texas. In 2002, we completed the registration of our Quality
Management System (QMS) to the ISO 9001:2000 standard, which is an internationally recognized
standard for quality management systems. Subsequent audits by the registrar have been and will
continue to be carried out at regular intervals to ensure we are maintaining our system in
compliance with ISO standards. Recertification is required every three years and we were
successfully recertified as of February 23, 2007.
In July 2005, we completed the registration of our QMS to the ISO 13485:2003 Quality
Management Standard and the Canadian Medical Devices Conformity Assessment System (CMDCAS) for
Medical Devices. This standard includes a special set of requirements specifically related to the
supply of medical devices and related services. Additionally, we manufacture to current Good
Manufacturing Practice (cGMP) requirements and our QMS is implemented in accordance with FDA
Quality System Regulations. In August 2006, a Level II Quality System Inspection Technique (QSIT)
contract inspection was conducted. The inspection is closed under 21 C.F.R. 20.64 (d) (3) and the
Establishment Inspection Report No. 3002524000 provided in accordance with the Freedom of
Information Act (FOIA) and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was issued.
In addition, we have approximately 4,000 square feet of manufacturing space located in
Toronto, Canada. This facility and the LMD QMS have been certified to the ISO 13485:2003 standard
and registered under the CMDCAS.
Instruments
Contract manufacturers assemble certain components of our xMAP technology systems. The
remaining assembly and manufacturing of our systems are performed at our facility in Austin, Texas.
The quality control and quality assurance protocols are all performed at our facility. Parts and
component assemblies that comprise our xMAP technology system are obtained from a number of
sources. We have identified alternate sources of supply for several of our strategic parts and
component assemblies. Additionally, we have entered into supply agreements with most of our
suppliers of strategic parts and component subassemblies to help ensure component availability, and
flexible purchasing terms with respect to the purchase of such components. As of December 31,
2009, 6,767 Luminex systems have been sold since inception.
Microspheres
We manufacture as well as procure undyed, standard and magnetic carboxylated polystyrene
microspheres. We synthesize our dyes and manufacture our dyed polystyrene microspheres using a
proprietary method in our Austin, Texas manufacturing facility in large lots. We dye the
microspheres with varying intensities of a red and a near infrared dye to produce our distinctly
colored microsphere sets. We currently purchase polystyrene microspheres from one supplier, in
accordance with a supply agreement. We believe this agreement will help ensure microsphere
availability and flexible purchasing terms with respect to the purchase of such microspheres. While
we believe the microspheres will continue to be available from our supplier in quantities
sufficient to meet our production needs, we believe our in-house manufacturing capabilities along
with other potential suppliers would provide sufficient microspheres for us if given adequate
lead-time to manufacture the microspheres to our specifications.
12
Kits
Contract manufacturers produce certain components of our xMAP-based developed reagents. The
remaining assembly and manufacturing of our developed kits are performed at either our facility in
Austin, Texas or Toronto, Canada. The quality control and quality assurance protocols are all
performed at our facilities. Reagents and component assemblies that comprise our xMAP technology
kits are obtained from a number of sources.
Competition
We design our xMAP technology for use by customers across the various segments of the life
sciences industry. Our competition includes companies marketing conventional testing products based
on established technologies such as ELISA, real-time PCR, mass spectrometry, sequencing, gels,
biochips and flow-based technologies as well as companies developing their own advanced testing
technologies.
The pharmaceutical industry is a large market for the genomic, protein and high-throughput
screening applications of the xMAP technology. In each application area, Luminex faces a different
set of competitors. Genomic and protein testing can be performed by products available from
Affymetrix, Inc., Life Technologies Corporation, Becton, Dickinson and Company, Illumina, Inc.,
Meso Scale Discovery, a division of Meso Scale Diagnostics LLC, and Sequenom, Inc., among others.
Our diagnostic market competitors include Abbott Laboratories, Beckman Coulter, Inc., Celera
Corporation, Cepheid, Johnson & Johnson, Roche Diagnostics, Siemens Medical, and Hologic, Inc.
among others. Some of these companies have technologies that can perform a variety of established
assays. Some of these companies also offer integrated systems and laboratory automation that are
designed to meet the need for improved work efficiencies in the clinical laboratory.
Competition within the academic biomedical research market is highly fragmented. There are
hundreds of suppliers to this market including Amersham Pharmacia Biotech, a part of GE Healthcare,
Life Technologies Corporation, and Becton, Dickinson and Company. Any company in this field is a
potential competitor.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination
of patent, copyright, trademark and trade secrets laws and confidentiality agreements. We have
filed for registration or obtained registration for trademarks used with our products and key
technology.
We have implemented a strategy designed to optimize our intellectual property rights. For core
intellectual property, we are pursuing patent coverage in the United States and those foreign
countries that correspond to the majority of our anticipated customer base. We currently own 89
issued patents in the United States and foreign jurisdictions, including five in each of France,
Germany and the United Kingdom, four in Japan and Canada, three in Italy, two each in India,
Singapore and Australia and one in each of Hong Kong, Korea and Israel, all directed to various
aspects and applications of our products and technology. In addition, our patent portfolio includes
215 other pending patent applications in the United States and their corresponding international
and foreign counterparts in major industrial markets. We believe our patents and pending claims
provide, or will provide, protection for systems and technologies that allow real time
multiplexed analytical techniques for the detection and quantification of many analytes from a
single sample. We also hold a patent covering the precision-dyeing process that we use to dye our
microspheres. We have been granted a patent on our Zero Dead Time sampling architecture, which
uses digital over-sampling to measure the area of a fluorescence pulse instead of peak detection,
giving increased sensitivity with no lost events. Other issued patents and pending patent
applications cover specific aspects and applications of our xMAP technology and on-going molecular
research. However, as a result of a procedural omission, we are unable to pursue a patent
application in Japan corresponding to our U.S. patent for real-time multiplexing techniques. We
also have patents covering key aspects of xTAG technology utilized in our assay products.
The source code for our proprietary software is protected as a trade secret and/or as a
copyrighted work. Aspects of this software also are covered by an issued patent.
13
We also rely on trade secret protection of our intellectual property. We attempt to protect
our trade secrets by entering into confidentiality agreements with strategic partners, third
parties, employees and consultants. Our employees and third-party consultants also sign agreements
requiring that they assign to us their interests in inventions and original works of expression and
any corresponding patents and copyrights arising from their work for us.
Government Regulation
Food and Drug Administration
The Food and Drug Administration regulates medical devices pursuant to various statutes,
namely the Federal Food, Drug and Cosmetic Act as amended and supplemented by the Medical Device
Amendments of 1976, the Safe Medical Devices Act of 1990, the Medical Device Amendments of 1992,
the FDA Export Reform and Enhancement Act of 1996, the FDA Modernization Act of 1997, the Public
Health, Security and Bioterrorism Preparedness and Response Act of 2002, the Medical Device User
Fee and Modernization Act of 2002, and the Project BioShield Act of 2004. Medical devices, as
defined by statute, include instruments, machines, in vitro reagents or other similar or related
articles, including any components, parts, or accessories of such articles that are intended for
use in the diagnosis of disease or other condition or in the cure, mitigation, treatment or
prevention of disease; or are intended to affect the structure or function of the body and do not
achieve their intended purpose through chemical action or metabolization. The FDA classifies
medical devices intended for human use into three classes. For Class I devices, general controls
(for example, labeling and good manufacturing practices) provide reasonable assurance of safety and
effectiveness. Class II devices are products for which general controls do not provide reasonable
assurance of safety and effectiveness and for which there is sufficient information to establish
special controls (for example, special control documents, guidelines and patient registries). Class
III devices are products for which neither general nor special controls provide reasonable
assurance of safety and effectiveness. Generally, Class III includes devices that support or
sustain human life, are for uses that are substantially important in preventing impairment of human
health, are used as a stand alone assay for patient screening or diagnosis of disease, or present a
potential, unreasonable risk of illness or injury.
We manufacture a version of the Luminex 100 and Luminex 200 the Luminex 100 Integrated
System (Luminex 100 IS) and the Luminex 200 Integrated System (Luminex 200 IS), respectively for
use with diagnostic assay kits that are available through our strategic partners. For FDA purposes,
the Luminex 100 IS and Luminex 200 IS are IVD cleared and are considered a component of our
partners kit products. Depending on the particular kits regulatory classification into Class I,
II, or III and its intended use, kits manufactured by our strategic partners that are used in
conjunction with our technology may be subject to FDA clearance or approval before they can be
marketed and sold. After incorporating the Luminex 100 IS or Luminex 200 IS into their products,
our strategic partners are required to make various premarket submissions such as premarket
approval applications, premarket notifications and/or investigational device exemption applications
to the FDA for their products and are required to comply with numerous requirements and
restrictions prior to clearance or approval of the applications. There can be no assurance that the
FDA will file, clear or approve our strategic partners submissions.
We manufacture kit products that are intended for research use only (RUO) applications (not
for diagnostic use) as well as kits that are for diagnostic use (currently regulatory
classification of Class II) in our Austin, Texas facility. Additionally, the assay segment
manufactures products that are intended for RUO, those that are IVD cleared (Class II) as well as
kits and investigational use only (IUO) or clinical applications.
In December, 2007 we submitted to the FDA our request for 510(k) clearance on our Luminex
100/200 Instrument. On December 13, 2007 the FDA received our 510(k) #k073506 submission for the
Luminex 100/200 IS System. On March 7, 2008, the instrument received FDA 510(k) clearance. All
future diagnostic assay kits subject to FDA clearance may reference the 510(k) #k073506 for the
instrument in their respective applications. A master file letter from Luminex allowing the
partner to reference the file may be required.
Our instruments use lasers to identify the bioassays and measure their results. Therefore, we
are required to ensure that our products comply with FDA regulations pertaining to the performance
of laser products. These regulations are intended to ensure the safety of laser products by
establishing standards to prevent exposure to excess levels of laser radiation. There can be no
assurance that the FDA will agree with our interpretation and implementation of these regulations.
14
We, and our strategic partners, may be subject to periodic inspection by the FDA for, among
other things, compliance with the FDAs current good manufacturing practice regulations. These
regulations, also known as the Quality System Regulations, govern the methods used in, and the
facilities and controls used for, the design, manufacture, packaging, labeling, servicing,
installation and distribution of all finished medical devices intended for human use. Additionally,
our strategic partners may be subject to other premarket and post market controls such as labeling,
complaint handling, medical device reporting, corrections and removals reporting, and record
keeping requirements. If the FDA has evidence demonstrating that a company is not in compliance
with applicable regulations, it can detain or seize products, request or, in certain circumstances,
require a recall, impose operating restrictions, enjoin future violations, recommend criminal
prosecution to the Department of Justice, and assess civil and criminal penalties against us, our
officers, or our employees. Other regulatory agencies may have similar powers.
Medical device laws and regulations are also in effect in many countries outside of the United
States. These range from comprehensive preapproval requirements for medical products to simpler
requests for product data or certification. The number and scope of these requirements are
increasing. There can be no assurance that we, and our strategic partners, will be able to obtain
any approvals that may be required to market xMAP technology products outside the United States.
The assay segment produces CE marked products which are subject to a number of different
European Union (EU) Directives including but not limited to the In Vitro Diagnostic Devices
Directive (98/79/EEC). CE marking of our products is currently by self declaration, not issued by a
third party, based on the intended uses of our products. A product that is not CE marked is
automatically considered to be non-compliant. The law is enforced through market surveillance by
appointed national enforcement agencies. Imported products are checked for compliance at customs
offices.
The State Food and Drug Administration, P.R. China (SFDA) is the Government regulation
authority in charge of safety management of drug, food, health food and cosmetics for the Peoples
Republic of China. In December 2007 we submitted the application for a certificate to combine both
Luminex 100 and 200 into one product called Luminex System. This certificate is required for
registration and approval to import our products into China. Luminex received the registration
certificate from the Peoples Republic of China for the Luminex 100 and Luminex 200 Systems on
March 4, 2009.
Failure by us, or our strategic partners, to comply with applicable federal, state and foreign
medical product laws and regulations would likely have a material adverse effect on our business.
In addition, federal, state and foreign regulations regarding the manufacture and sale of medical
devices and components of such devices are subject to future changes. We cannot predict what
impact, if any, such changes might have on our business, but any such change could have a material
impact.
WEEE
As part of the Council Directive 2002/26 of February 13, 2003, Waste Electrical and Electronic
Equipment (WEEE), we are in compliance with the requirements, beginning on August 13, 2005,
regarding the labeling and disposal of some of our products containing electronic devices in each
of the EU member states where our regulated products are distributed. While we are taking steps to
comply with the requirements of WEEE, we cannot be certain that we will comply with the
implementation of WEEE in all EU member states.
15
European IVD Directive
The EUs regulation of in vitro medical devices is under the In Vitro Diagnostic Directive
(IVDD) 98/79/EC of October 27, 1998, as implemented in the EU member states.
The principle behind the IVDD is that no in vitro device or accessory may be placed on the
market or put into service unless it satisfies the essential requirements set forth in the IVDD.
Devices considered to meet the essential requirements must bear the CE marking of conformity when
they are placed on the market. The responsibility for placing the CE marking on the device lies
with the manufacturer. A manufacturer placing devices on the market in its name is required to
notify its national competent authorities.
Luminex Corporation has declared that the LX100 IS, the LX200 IS and the FLEXMAP 3D are
classified as a self-declaration device and is in conformity with Article 1, Article 9, Annex I
(Essential Requirements), and Annex III, and the additional provisions of IVDD 98/79/EC. However,
there can be no assurance that the EU member states will agree with our interpretation and
implementation of these regulations. As the European marketplace continues to be material to our
operations, failure by us or our strategic partners to comply with the IVDD could have a material
adverse effect on our business.
Environmental
We are subject to federal, state and local laws and regulations relating to the protection of
human health and the environment. In the course of our business, we are involved in the handling,
storage and disposal of certain chemicals and biohazards. The laws and regulations applicable to
our operations include provisions that regulate the discharge of materials into the environment.
Some of these environmental laws and regulations impose strict liability, rendering a party
liable without regard to negligence or fault on the part of such party. Such environmental laws and
regulations may expose us to liability for environmental contamination, including remediation
costs, natural resource damages and other damages as a result of the conduct of, or conditions
caused by, us or others, or for acts that were in compliance with all applicable laws at the time
such acts were performed. In addition, where contamination may be present, it is not uncommon for
neighboring landowners and other third parties to file claims for personal injury, property damage
and recovery of response costs. Although it is our policy to use generally accepted operating and
disposal practices in accordance with applicable environmental laws and regulations, hazardous
substances or wastes may have been disposed or released on, under or from properties owned, leased
or operated by us or on, under or from other locations where such substances or wastes have been
taken for disposal. These properties may be subject to investigation, remediation and monitoring
requirements under federal, state and local environmental laws and regulations. We believe that our
operations are in substantial compliance with applicable environmental laws and regulations.
However, failure to comply with these environmental laws and regulations may result in the
imposition of administrative, civil and criminal penalties or other liabilities. We do not believe
that we have been required to expend material amounts in connection with our efforts to comply with
environmental requirements or that compliance with such requirements will have a material adverse
effect upon our capital expenditures, results of operations or competitive position. Because the
requirements imposed by such laws and regulations may frequently change and new environmental laws
and regulations may be adopted, we are unable to predict the cost of compliance with such
requirements in the future, or the effect of such laws on our capital expenditures, results of
operations or competitive position. Moreover, the modification or interpretation of existing
environmental laws or regulations, the more vigorous enforcement of existing environmental laws or
regulations, or the adoption of new environmental laws or regulations may also negatively impact
our strategic partners, which in turn could have a material adverse effect on us and other
similarly situated component companies.
16
Employees
As of both February 23, 2010 and December 31, 2009, we had a total of 437 employees and
contract employees, as compared with 384 as of December 31, 2008. The increase from 2008 to 2009
is mainly due to personnel added related to development, production, regulatory clearance, and
quality control for our new instrument, MagPix, and our new bead products and assays, as well as
our expansion into China and Japan. None of our employees are represented by a collective
bargaining agreement, and we have not experienced any work stoppage. We believe that relations with
our employees are good.
Segments
Financial information relating to our reportable segments for the years ended December 31,
2009, 2008, and 2007 can be found in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8 Financial Statements and Supplementary Data.
Executive Officers of the Registrant as of February 25, 2010
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Name
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Age
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Position
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Patrick J. Balthrop
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53
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President and Chief Executive Officer
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Michael F. Pintek
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41
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Senior Vice President, Operations
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Russell W. Bradley
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Vice President, Business Development and Strategic Planning
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Jeremy Bridge-Cook, Ph.D
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Senior Vice President, Assay Group
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Harriss T. Currie
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48
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Chief Financial Officer, Vice President, Finance and Treasurer
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Gregory J. Gosch
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Vice President, Luminex Bioscience Group
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David S. Reiter
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Vice President, General Counsel and Corporate Secretary
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Patrick J. Balthrop
. Mr. Balthrop joined Luminex in May 2004 as President and Chief Executive
Officer and has served as a member of the Board of Directors since September 2004. He served as
president of Fisher Healthcare, a Fisher Scientific International company, a manufacturer and
supplier of products and services principally to the scientific and laboratory markets from 2002 to
May 2004. Prior to Fisher Scientific International, Mr. Balthrop served in a number of leadership
positions for over 20 years with Abbott Laboratories, primarily in Abbotts Diagnostics Division.
Mr. Balthrops most recent positions at Abbott were as head of worldwide commercial diagnostics
operations and as head of Abbott Vascular. Mr. Balthrop holds an M.B.A. from the Kellogg Graduate
School of Management of Northwestern University, and a B.S. in Biology from Spring Hill College.
Michael F. Pintek.
Mr. Pintek joined Luminex as Senior Vice President of Operations in July
2009. He joined Luminex from Roche Molecular Systems, Inc., a subsidiary of Roche Diagnostics
Corporation where he held several positions of increasing responsibility since 2001, most recently
as Vice President and General Manager, Blood Screening at Roche. Prior to Roche Molecular Systems,
his experience includes management positions with Ventana Medical Systems and Abbott Laboratories
Diagnostics Division. Mr. Pintek holds a B.S. in Business Administration from Central Michigan
University.
Russell W. Bradley
. Mr. Bradley joined Luminex in May 2005 as Vice President of Business
Development and Strategic Planning. Previously, Mr. Bradley spent 17 years at Beckman Coulter
Corp., a manufacturer of biomedical testing systems and products, where he served as the director
of the Beckman Coulter CARES initiative, involved in Luminexs clinical HIV/AIDS monitoring
business in developing regions around the globe. During his tenure at Beckman Coulter, Mr. Bradley
was involved in the evaluation, market assessment and successful commercial launch of multiple life
science technologies and applications. Mr. Bradley holds a B.S. in Immunology and Biochemistry
from Monash University, Melbourne, Australia.
17
Jeremy Bridge-Cook, Ph.D.
Dr. Bridge-Cook has served as Senior Vice President, Assay Group
since June 2009. Dr. Bridge Cook joined Luminex in March 2007 as Vice President of Luminex
Molecular Diagnostics. Previously, Dr. Bridge-Cook served as senior vice president, corporate
development of Tm Bioscience. Dr. Bridge-Cook joined Tm Bioscience in July 2000 as director of
business development and served in various capacities thereafter, including vice president of
business development, vice president of marketing and business development, and finally senior vice
president, corporate development. Prior to joining Tm, Dr. Bridge-Cook worked for three years as
an investment analyst at MDS Capital Corp. and University Medical Discoveries Inc. Dr. Bridge-Cook
has a Ph.D. in Immunology from the University of Toronto.
Harriss T. Currie.
Mr. Currie has served as Vice President, Finance, Treasurer and Chief
Financial Officer since October of 2002. Since joining Luminex in November of 1998, Mr. Currie
previously served in the capacities of Controller, Treasurer and Acting Chief Financial Officer.
Prior to joining us, he was employed as the chief financial officer, secretary and treasurer of
SpectraCell Laboratories from 1993 to 1998 where he also served as vice president of finance for
two subsidiary companies. Mr. Currie earned his B.B.A. from Southwestern University and his M.B.A.
in Finance and Marketing from The University of Texas at Austin. Prior to returning to graduate
school for his M.B.A., Mr. Currie was a certified public accountant with Deloitte & Touche LLP.
Gregory J. Gosch.
Mr. Gosch joined Luminex in October 2004, and currently serves as
Vice President, Luminex Bioscience Group. Since joining Luminex, Mr. Gosch previously served
in the capacity of Vice President, Marketing and Sales. Previously, he served in commercial
management positions at other life sciences companies including Nanogen Inc., a manufacturer of
diagnostic testing products, Chiron Corporation and Bio-Rad Laboratories, Inc. Mr. Gosch holds an
M.B.A. from the Carlson School of Management, a Masters of Health Care Administration from the
School of Public Health, both of the University of Minnesota, and a B.A. in Molecular, Cellular and
Developmental Biology from the University of Colorado.
David S. Reiter.
Mr. Reiter joined Luminex as Vice President, General Counsel and Corporate
Secretary in October 2003. Prior to becoming General Counsel, Mr. Reiter was in private practice
with the firm of Phillips & Reiter, PLLC, which provides outsourced general counsel services for
technology companies. Before co-founding the firm, Mr. Reiter was vice president and general
counsel for 724 Solutions Inc., a provider of mobile commerce software solutions and applications
(NASDAQ: SVNX). Earlier in his career, Mr. Reiter served as senior counsel for Compaq Computer
Corporation, supporting the Worldwide Sales & Services, Supply Chain Management and Consumer
Products Group. Mr. Reiter is a graduate of the University of Southern California (Juris
Doctorate/Master of International Relations), University of Sheffield, UK (M.B.A.) and the
University of Notre Dame (B.A.) in Government. Mr. Reiter is a member of the Texas Bar and the
American Bar Association.
18
ITEM 1A. RISK FACTORS
We expect our operating results to continue to fluctuate from quarter to quarter.
The sale of our instrumentation and assay products typically involves a significant technical
evaluation and commitment of capital by us, our partners and the end user. Accordingly, the sales
cycle associated with our products typically is lengthy and subject to a number of significant
risks, much of which is beyond our control, including partners budgetary constraints, inventory
management practices, regulatory approval and internal acceptance reviews. As a result of this
lengthy and unpredictable sales cycle, our operating results have historically fluctuated
significantly from quarter to quarter. We expect this trend to continue for the foreseeable future.
The vast majority of our system sales are made to our strategic partners. Our partners
typically purchase instruments in three phases during their commercialization cycle: first,
instruments necessary to support internal assay development; second, instruments for sales force
demonstrations; and finally, instruments for resale to their customers. As a result, most of our
system placements are highly dependent on the continued commercial success of our strategic
partners and can fluctuate from quarter to quarter as our strategic partners move from phase to
phase. We expect this trend to continue for the foreseeable future.
Our assay products are sometimes sold to large customers. The ordering and consumption
patterns of these customers can fluctuate, affecting the timing of shipments and revenue
recognition. In addition, certain products assist in the diagnosis of illnesses that are seasonal,
and customer orders can fluctuate for this reason.
Because of the effect of bulk purchases, defined as the purchase of $100,000 or more of
consumables in a quarter, and the introduction of seasonal components to our assay menus, we
experience fluctuations in the percentage of our quarterly revenues derived from our highest margin
items: consumables, royalties and assays. Our gross margin percentage is highly dependent upon the
mix of revenue components each quarter. These fluctuations contribute to the variability and lack
of predictability of both gross margin percentage and total gross profit from quarter to quarter.
We expect this trend to continue for the foreseeable future.
Due to the early stage of the market for molecular tests, projected growth scenarios for the
assay segment are highly volatile and are based on a number of underlying assumptions that may or
may not prove to be valid, including the performance of strategic partners that distribute our
assay segment products.
We have a limited history of profitability and had an accumulated deficit of approximately
$67.0 million as of December 31, 2009.
We have incurred significant net losses since our inception. At December 31, 2009, we had an
accumulated deficit of approximately $67.0 million. In order to remain profitable, we need to
sustain or increase our revenues while achieving reasonable cost and expense levels. We believe
that we have achieved a level of consistent profitability from our continuing operations; however,
we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis.
If we fail to achieve operating results in line with market expectations, the market price of our
common stock will likely decline. Furthermore, as we continue to utilize cash to support
operations, acquisitions and research and development efforts, we may further decrease the cash
available to us. As of December 31, 2009, cash, cash equivalents and short-term and long-term
investments totaled $119.6 million, compared to $124.1 million at December 31, 2008. The decrease
since December 31, 2008 is primarily attributable to capital expenditures and an increase in our
accounts receivable as of December 31, 2009.
19
Our success depends significantly on the establishment and maintenance of successful relationships
with our strategic partners. Currently, a limited number of strategic partners account for a
majority of our revenue and the loss of any one of these partners or their inability to perform to
expectations could have a material adverse effect on our business, financial condition and results
of operations.
The development and commercialization of our xMAP technology is highly dependent on our
ability to establish successful strategic relationships with a number of partners. For the twelve
months ended December 31, 2009, we had 39 strategic partners submitting royalties as compared to 35
for the twelve months ended December 31, 2008. Two customers, One Lambda, Inc. and Bio-Rad
Laboratories, Inc., accounted for 26% of consolidated total revenue in the twelve months ended
December 31, 2009 (15% and 11%, respectively). For comparative purposes, these same two customers
accounted for 36% of total revenue (19% and 17%, respectively) in the twelve months ended December
31, 2008. No other customer accounted for more than 10% of total revenue during the twelve months
ended December 31, 2009. We had only three additional partners who individually represented 5% or
more of our total revenue and collectively represented 22% of our revenue for the year ended
December 31, 2009. In total, for the year ended December 31, 2009, our top five partners accounted
for 48% of our total revenue. In total, for the year ended December 31, 2008, our top five
partners accounted for 53% of our total revenue. The loss of any of our significant strategic
partners, or any of our significant customers, could have a material adverse effect on our growth
and future results of operations. The assay segment is dependent on a few significant customers
with respect to sales of its genetic test kits. If any significant customer discontinues its
relationship with the assay segment for any reason, or reduces or postpones current or expected
purchase commitments for the assay segments products, the assay segments results from operations
could be materially adversely affected.
Delays in implementation, delays in obtaining regulatory approval, changes in strategy or the
financial difficulty of our strategic partners for any reason could have a material adverse effect
on our business, financial condition and results of operations.
Our ability to enter into agreements with additional strategic partners depends in part on
convincing them that our technology can help achieve and accelerate their goals or efforts. We will
expend substantial funds and management efforts with no assurance that any additional strategic
relationships will result. We cannot assure you that we will be able to negotiate additional
strategic agreements in the future on acceptable terms, if at all, or that current or future
strategic partners will not pursue or develop alternative technologies either on their own or in
collaboration with others. Some of the companies we are targeting as strategic partners offer
products competitive with our xMAP technology, which may hinder or prevent strategic relationships.
Termination of strategic relationships, the failure to enter into a sufficient number of additional
strategic relationships on favorable terms, or disputes with our partners could reduce sales of our
products, lower margins on our products and limit the creation of market demand for and acceptance
of our products.
In most of our strategic relationships we have granted our strategic partners non-exclusive
rights with respect to commercialization of our products and technology. The lack of exclusivity
could deter existing strategic partners from commercializing xMAP technology and may deter new
strategic partners from entering into agreements with us.
A significant portion of our future revenues will come from sales of our systems and the
development and sale of bioassay kits utilizing our technology by our strategic partners and from
use of our technology by our strategic partners in performing services offered to third parties. We
believe that our strategic partners will have economic incentives to develop and market these
products, but we cannot accurately predict future sales and royalty revenues because most of our
existing strategic partner agreements do not include minimum purchase requirements or minimum
royalty commitments. In addition, we have no control with respect to our strategic partners sales
personnel and how they prioritize products based on xMAP technology nor can we control the timing
of the development or release of products by our strategic partners. The amount of these revenues
depends on a variety of factors that are outside our control, including the amount and timing of
resources that current and future strategic partners devote to develop and market products
incorporating our technology. Further, the development and marketing of certain bioassay kits will
require our strategic partners to obtain governmental approvals, which could delay or prevent their
commercialization efforts. If our current or future strategic partners do not successfully develop
and market products based on our technology and obtain necessary government approvals, our revenues
from product sales and royalties will be significantly reduced.
20
Current economic conditions and the uncertain economic outlook may adversely impact our business,
results of operations, financial condition or liquidity.
Global economic conditions may remain challenging and uncertain for the foreseeable future.
The credit markets and the financial services industry have been experiencing a period of
unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of
various financial institutions and an unprecedented level of intervention from the United States
federal government. These conditions not only limit our access to capital but also make it
extremely difficult for our customers, our vendors and us to accurately forecast and plan future
business activities, and they could cause U.S. and foreign businesses and consumers to slow
spending on our products and services, which would delay and lengthen sales cycles. Some of our
customers rely on government research grants to fund technology purchases. If negative trends in
the economy affect the governments allocation of funds to research, there may be less grant
funding available for certain of our customers to purchase technologies like those Luminex sells.
Certain of our partners and their and our customers may face challenges gaining timely access to
sufficient credit or may otherwise be faced with budget constraints, which could result in
decreased purchases of, or development of products based on, our products or in an impairment of
their ability to make timely payments to us. If our partners and our customers do not make timely
payments to us, we may be required to assume greater credit risk relating to those customers,
increase our allowance for doubtful accounts and our days sales outstanding would be negatively
impacted. Although we maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments and such losses have historically
been within our expectations and the provisions established, we may not continue to experience the
same loss rates that we have in the past, especially given the current turmoil of the worldwide
economy. Additionally, these economic conditions and market turbulence may also impact our
suppliers causing them to be unable to supply in a timely manner sufficient quantities of
customized components, thereby impairing our ability to manufacture on schedule and at commercially
reasonable costs.
If the FDA or other governmental laws and regulations change in ways that we do not anticipate and
we fail to comply with those regulations that affect our business, we could be subject to
enforcement actions, injunctions and civil and criminal penalties or otherwise be subject to
increased costs that could delay or prevent marketing of our products.
The production, testing, labeling, marketing and distribution of our products for some
purposes and products based on our technology are subject to governmental regulation by the FDA and
by similar agencies in other countries. Some of our products and products based on our technology
for in vitro diagnostic purposes are subject to clearance by the FDA prior to marketing for
commercial use. To date, eight strategic partners have obtained such clearances. Others are
anticipated. The process of obtaining necessary FDA clearances can be time-consuming, expensive and
uncertain. Further, clearance may place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed. In addition, because some of our products
employ laser technology, we are also required to comply with FDA requirements relating to radiation
performance safety standards.
Periodically the FDA issues guidance documents that represent the FDAs current thinking on a
topic. These issues are initially issued in draft form prior to final rule generally with
enforcement discretion for some grace period of time. Changes made through this process may impact
the release status of products offered and our ability to market those products affected by the
change. For example, the FDA released on September 14, 2007 the final document Guidance for
Industry and FDA Staff Commercially Distributed Analyte Specific Reagents (ASRs): Frequently Asked
Questions. This guidance may limit or delay distribution of assays on our platform, including
assays developed and distributed by our assay segment, to the extent additional regulatory
clearance is required prior to distribution.
Cleared medical device products are subject to continuing FDA requirements relating to, among
others, manufacturing quality control and quality assurance, maintenance of records and
documentation, registration and listing, import/export, adverse event and other reporting,
distribution, labeling and promotion and advertising of medical devices. Our inability or the
inability of our strategic partners to obtain required regulatory approval or clearance on a timely
or acceptable basis could harm our business. In addition, failure to comply with applicable
regulatory requirements could subject us or our strategic partners to regulatory enforcement
action, including warning letters, product seizures, recalls, withdrawal of clearances,
restrictions on or injunctions against marketing our products or products based on our technology,
and civil and criminal penalties.
21
Medical device laws and regulations are in effect within the United States and also in many
countries outside the United States. These range from comprehensive device clearance requirements
for some or all of our medical device products to requests for product data or certifications
regarding the hazardous material content of our products. As part of the European Council Directive
2002/96 of February 13, 2003 (WEEE), we are expected to comply with certain requirements regarding
the collection, recycling and labeling of our products containing electronic devices in each of the
European Union, or EU, member states where our regulated products are distributed. While we are
taking steps to comply with the requirements of WEEE, we cannot be certain that we will comply with
the national stage implementation of WEEE in all member states. Our products are currently exempt
from the European Council Directive 2002/95 of January 27, 2003, Restriction of the Use of Certain
Hazardous Substances in Electrical and Electronic Equipment (RoHS), which required the removal of
certain specified hazardous substances from certain products beginning July 1, 2006 in each of the
member states. However, the EU has indicated that it may, and it is generally expected it will,
include medical devices, including some of our products, under the jurisdiction of RoHS. If this
exemption is revoked, it could result in increased costs to us and we cannot assure you we will
ultimately be able to comply with RoHS or related requirements in other jurisdictions. In addition,
the State of California adopted the Electronic Waste Recycling Act, effective January 1, 2007,
which requires the California Department of Toxic Substances Control to adopt regulations to
prohibit the sale of electronic devices in California if they are also prohibited from sale in the
EU under the RoHS directive because they contain certain heavy metals. The number and scope of
these requirements are increasing and we will likely become subject to further similar laws in
other jurisdictions. Failure to comply with applicable federal, state and foreign medical device
laws and regulations may harm our business, financial condition and results of operations. We are
also subject to a variety of other laws and regulations relating to, among other things,
environmental protection and workplace health and safety.
Our strategic partners and customers expect our organization to operate on an established
quality management system compliant with FDA Quality System Regulations and industry standards, the
In Vitro Diagnostic Directive 98/79/EC of 27 October 1998 (Directive) as implemented nationally in
the EU member states and industry standards, such as ISO 9000. We became ISO 9001:2000 certified in
March 2002 and self-declared our Luminex 100 and Luminex 200 devices are in conformity with
Article 1, Article 9, Annex I (Essential Requirements), and Annex III, and the additional
provisions of the Directive as of December 7, 2003. Subsequent audits are carried out annually to
ensure we maintain our system in substantial compliance with ISO and other applicable regulations
and industry standards. We became ISO 13485:2003 and Canadian Medical Device Conformity Assessment
System (CMDCAS) certified in July 2005. In August 2006 a Level II QSIT contract inspection was
conducted in accordance with CPGM 7382.845, Inspection of Medical Device Manufacturers, PAC 82845B,
Medical Device Level II Inspections pursuant to the FDA Dallas District Office FY 06 Workplan and
the DSHS Drugs & Medical Device Group FY 06 Workplan. The inspection is closed under 21 C.F.R.
20.64 (d) (3) and the Establishment Inspection Report No. 3002524000 provided in accordance with
the FOIA and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was issued. Failure to maintain
compliance with FDA, CMDCAS and EU regulations and other medical device laws, or to obtain
applicable registrations where required, could reduce our competitive advantage in the markets in
which we compete and also decrease satisfaction and confidence levels with our partners.
22
If our technology and products do not become widely used in the life sciences and clinical
diagnostics industries, it is unlikely that we can maintain or increase profitability.
Life sciences companies have historically conducted biological tests using a variety of
technologies, including bead-based analysis. In certain testing areas, our xMAP technology is
relatively new and unproven, and the use of our technology by life sciences companies is limited.
The commercial success of our technology depends upon its widespread adoption as a method to
perform bioassays. In order to be successful, we must convince potential partners to utilize our
system instead of competing technologies. Market acceptance depends on many factors, including our
ability to:
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convince prospective strategic partners and customers that our technology is an attractive
alternative to other technologies for pharmaceutical, research, clinical, biomedical and
genetic testing and analysis;
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encourage these partners to develop and market products using our technology;
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manufacture products in sufficient quantities with acceptable quality and at an acceptable cost;
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obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and
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place and service sufficient quantities of our products, including the ability to provide the level of service required in
the mainstream clinical diagnostics market segment.
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Because of these and other factors, our products may not gain or sustain sufficient market
acceptance to again achieve, maintain or increase profitability.
Our reliance on strategic relationships to market many of our products makes forecasting difficult.
As a result of our reliance on our strategic relationships, it can be difficult to accurately
forecast future operating results. Our operating expenses are largely based on anticipated revenue
trends, and a high percentage of our expenses are, and will continue to be, fixed in the
short-term. The level of our revenues depends upon the rate and timing of the adoption of our
technology as a method to perform bioassays. In addition, we currently anticipate that the vast
majority of future sales of our products and products incorporating our technology will be made by
through our strategic relationships. For the following reasons, estimating the timing and amount of
sales of these products that may be made through our strategic relationships is particularly
difficult:
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We have no control over the timing or extent of product development, marketing or sale of our products by our strategic partners.
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We do not control the incentives provided by our strategic partners and distributors to their sales personnel.
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We utilize distributors for a portion of our sales, including several of our key assay products and the loss of or non-performance by
these distributors could harm our revenues in the territories serviced by these distributors.
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A significant number of our strategic partners intend to produce clinical diagnostic applications that may need to be approved by the
FDA, or other regulatory bodies in jurisdictions outside of the United States.
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Certain strategic partners may have unique requirements for their applications and systems. Assisting the various strategic partners
may strain our research and development and manufacturing resources. To the extent that we are not able to timely assist our strategic
partners, the commercialization of their products will likely be delayed.
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Certain strategic partners may fail to deliver products that satisfy market requirements, or such products may fail to perform properly.
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We have limited access to partner and distributor confidential corporate information. A sudden unexpected change in ownership, strategy
or other material event could adversely impact partner purchases of our products.
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Partners tend to order in bulk prior to the production of new lots of their products and prior to major product development
initiatives. The frequency of these bulk purchases is difficult to predict and may cause large fluctuations in microsphere sales
quarter to quarter.
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23
The life sciences industry is highly competitive and subject to rapid technological change, and we
may not have the resources necessary to compete successfully.
We compete with companies in the United States and abroad that are engaged in the development
and production of similar products. We will continue to face intense competition from existing
competitors and other companies seeking to develop new technologies. Many of our competitors have
access to greater financial, technical, scientific, research, marketing, sales, distribution,
service and other resources than we do. These companies may develop technologies that are superior
alternatives to our technologies or may be more effective at commercializing their technologies in
products.
The life sciences industry is characterized by rapid and continuous technological innovation.
We may need to develop new technologies for our products to remain competitive. One or more of our
current or future competitors could render our present or future products or those of our partners
obsolete or uneconomical by technological advances. In addition, the introduction or announcement
of new products by us or others could result in a delay of or decrease in sales of existing
products, as we await regulatory approvals, while customers evaluate these new products, or if
customers choose to purchase the new products instead of legacy products. We may also encounter
other problems in the process of delivering new products to the marketplace such as problems
related to design, development, supply chain or manufacturing of such products, and as a result we
may be unsuccessful in selling such products. Our future success depends on our ability to compete
effectively against current technologies, as well as to respond effectively to technological
advances by developing and marketing products that are competitive in the continually changing
technological landscape.
Our success depends on our ability to service and support our products directly or in collaboration
with our strategic partners.
To the extent that we or our strategic partners fail to maintain a high quality level of
service and support for xMAP technology products, there is a risk that the perceived quality of our
xMAP technology products will be diminished in the marketplace. Likewise, we may fail to provide
the level, quantity or quality of service expected by the marketplace. This could result in slower
adoption rates and lower than anticipated utilization of xMAP products which could have a material
adverse affect on our business, financial condition and results of operations.
The property rights we rely upon to protect the technology underlying our products may not be
adequate to maintain market exclusivity. Inadequate intellectual property protection could enable
third parties to exploit our technology or use very similar technology and could reduce our ability
to distinguish our products in the market.
Our success depends, in part, on our ability to obtain, protect and enforce patents on our
technology and products and to protect our trade secrets, including the intellectual property of
entities we may acquire. Any patents we own may not afford full protection for our technology and
products. Others may challenge our patents and, as a result, our patents could be narrowed or
invalidated. In addition, our current and future patent applications may not result in the issuance
of patents in the United States or foreign countries. Competitors may develop products that are not
covered by our patents. Further, there is a substantial backlog of patent applications at the
U.S. Patent and Trademark Office and certain patent offices in foreign jurisdictions, and the
approval or rejection of patent applications may take several years.
We have obtained 89 patents in the United States and foreign jurisdictions directed to various
aspects and applications of our products and technology. We have 215 pending applications in the
United States and foreign jurisdictions. In Japan, due to a procedural omission, we are unable to
obtain patent protection for our method of real time detection and quantification of multiple
analytes from a single sample on our platform technology similar to the protection we have obtained
in the United States. Although we are pursuing patent protection in Japan for other aspects of our
technology and products, we may not be able to prevent competitors from developing and marketing
technologies and products similar to our xMAP technology in Japan. We also have patents covering
key aspects of xTAG technology utilized in our assay products.
24
We require our employees, consultants, strategic partners and other third parties to execute
confidentiality agreements. Our employees and third-party consultants also sign agreements
requiring that they assign to us their interests in inventions and original expressions and any
corresponding patents and copyrights arising from their work for us. In addition, we have
implemented a patent process to file patent applications on our key technology. However, we cannot
guarantee that these agreements or this patent process will provide us with adequate protection
against improper use of our intellectual property or disclosure of confidential information. In
addition, in some situations, these agreements may conflict with, or be subject to, the rights of
third parties with whom our employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop substantially equivalent proprietary
technology, techniques and products or counterfeit versions of our products or otherwise gain
access to our trade secrets. Our failure to protect our proprietary information and techniques may
inhibit or limit our ability to exclude certain competitors from the market.
In order to protect or enforce our patent rights, we may have to initiate legal proceedings
against third parties, such as infringement suits or interference proceedings. These legal
proceedings could be expensive, take significant time and/or divert managements attention from
other business concerns. These proceedings may cause us to lose the benefit of some of our
intellectual property rights, the loss of which may inhibit or preclude our ability to exclude
certain competitors from the market. These proceedings also may provoke these third parties to
assert claims against us. The patent position of companies like ours generally is highly uncertain,
involves complex legal and factual questions and has recently been the subject of much litigation.
No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding
the breadth of claims allowed or the degree of protection afforded under patents like ours.
Our success depends partly on our ability to operate without infringing on or misappropriating the
proprietary rights of others.
We have been (and from time to time we may be) notified that third parties consider their
patents or other intellectual property relevant to our products. We may be sued for infringing the
intellectual property rights of others, including claims with respect to intellectual property of
entities we may acquire. In addition, we may find it necessary, if threatened, to initiate a
lawsuit seeking a declaration from a court that we do not infringe on the proprietary rights of
others or that their rights are invalid or unenforceable. Intellectual property litigation is
costly, and, even if we prevail, the cost of such litigation could affect our profitability.
Furthermore, litigation is time consuming and could divert managements attention and resources
away from our business. If we do not prevail in any litigation, we may have to pay damages and
could be required to stop the infringing activity or obtain a license. Any required license may not
be available to us on acceptable terms, if at all. Moreover, some licenses may be nonexclusive, and
therefore, our competitors may have access to the same technology licensed to us. If we fail to
obtain a required license or are unable to design around a patent, we may be unable to sell some of
our products, which could have a material adverse affect on our business, financial condition and
results of operations.
We require collaboration with other organizations in obtaining relevant biomarkers, access to
oligonucleotides and enzymes that are patented or controlled by others. If we cannot continue to
obtain access to these areas or identify freedom to operate opportunities, our business, financial
condition and results of operations could be negatively affected.
25
We have only produced our products in limited quantities, and we may experience problems in scaling
our manufacturing operations or delays or component shortages that could limit the growth of our
revenue.
To date, we have produced our products in limited quantities relative to the quantities
necessary to achieve desired revenue growth. We may not be able to produce sufficient quantities or
maintain consistency between differing lots of consumables. If we encounter difficulties in scaling
our manufacturing operations as a result of, among other things, quality control and quality
assurance issues and availability of components and raw material supplies, we will likely
experience reduced sales of our products, increased repair or re-engineering costs due to product
returns, and defects and increased expenses due to switching to alternate suppliers, any of which
would reduce our revenues and gross margins.
We presently outsource certain aspects of the assembly of our systems to contract
manufacturers. Because of a long lead-time to delivery, we are required to place orders for a
variety of items well in advance of scheduled production runs. We recently increased our
flexibility to purchase strategic components within shorter lead times by entering into supply
agreements with the suppliers of these components. Although we attempt to match our parts inventory
and production capabilities to estimates of marketplace demand, to the extent system orders
materially vary from our estimates, we may experience continued constraints in our systems
production and delivery capacity, which could adversely impact revenue in a given fiscal period.
Should our need for raw materials and components used in production continue to fluctuate, we could
incur additional costs associated with either expediting or postponing delivery of those materials.
In an effort to control costs, during the last quarter of 2005 we implemented a lean production
system. Managing the change from discrete to continuous flow production requires time and
management commitment. Lean initiatives and limitations in our supply chain capabilities may result
in part shortages that delay shipments and cause fluctuations in revenue in a given period.
We currently purchase certain key components of our product line from a limited number of
outside sources and may only be available through a limited number of providers. We do not have
agreements with all of our suppliers. While we currently believe that we will be able to satisfy
our forecasted demand for our kits, the failure to find alternative suppliers in the event of a
supply failure at any of our current vendors at reasonably comparable prices could have a material
adverse effect on our business, financial condition and results of operations. Additionally, we
have entered into supply agreements with most of our suppliers of strategic reagents and component
subassemblies to help ensure component availability, and flexible purchasing terms with respect to
the purchase of such components. Our reliance on our suppliers and contract manufacturers exposes
us to risks including:
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the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with us could terminate their
services at any time without penalty;
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the potential obsolescence and/or inability of our suppliers to obtain required components;
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the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
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the inability to qualify alternate sources without impacting performance claims of our products;
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reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or assemblers; and
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increases in prices of raw materials and key components.
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Consequently, in the event that supplies of components or work performed by any of our
assemblers are delayed or interrupted for any reason, our ability to produce and supply our
products could be impaired.
26
International business operations create additional operational and legal risk.
Our future profitability will depend in part on our ability to grow and ultimately maintain
our product sales in foreign markets, particularly in Asia and Europe. Our plans to expand
globally will expose us to additional foreign currency risk in multiple currencies. Our operations
outside the United States are subject to additional risks, including:
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changes in or interpretations of foreign law that may adversely affect our ability to sell our products, perform services or
repatriate profits to the United States;
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the imposition of tariffs;
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hyperinflation or economic or political instability in foreign countries;
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imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;
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conducting business in places where business practices and customs are unfamiliar and unknown;
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the burden of complying with complex and changing foreign regulatory requirements;
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longer accounts receivable collection times;
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the imposition of restrictive trade policies, including export restrictions;
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worldwide political conditions;
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the imposition of inconsistent laws or regulations;
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reduced protection of intellectual property rights in some foreign countries;
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the imposition or increase of investment requirements and other restrictions by foreign governments;
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longer collection cycles for account receivables;
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the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute;
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uncertainties relating to foreign laws, including labor laws, and legal proceedings;
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significant currency fluctuations;
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having to comply with a variety of U.S. laws, including the Foreign Corrupt Practices Act; and
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having to comply with U.S. export control regulations and policies that restrict our ability to communicate with non-U.S.
employees and supply foreign affiliates, partners and customers.
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The capital spending policies of our customers have a significant effect on the demand for our
products.
Our customers include clinical diagnostic, pharmaceutical, biotechnological, chemical and
industrial companies, and the capital spending policies of these companies can have a significant
effect on the demand for our products. These policies are based on a wide variety of factors,
including governmental regulation or price controls, the resources available for purchasing
research equipment, the spending priorities among various types of analytical equipment and the
policies regarding capital expenditures during recessionary periods. Any decrease in capital
spending by life sciences companies could cause our revenues to decline. As a result, we are
subject to significant volatility in revenue. Therefore, our operating results can be materially
affected (negatively and positively) by the spending policies and priorities of our customers.
27
If we become subject to product liability claims, we may be required to pay damages that exceed our
insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the
testing, production, marketing and sale of biotechnological, human (including genetic) diagnostic
and therapeutic products. Although we believe that we are reasonably insured against these risks
and we generally have limited indemnity protections in our supplier agreements, there can be no
assurance that we will be able to obtain insurance in amounts or scope sufficient to provide us
with adequate coverage against all potential liabilities. A product liability claim in excess of
our insurance coverage or claim that is outside or exceeds our indemnity protections in our
supplier agreements or a recall of one of our products would have to be paid out of our cash
reserves.
If third-party payors increasingly restrict payments for healthcare expenses or fail to adequately
pay for multi-analyte testing, we may experience reduced sales which would hurt our business and
our business prospects.
Third-party payors, such as government entities and healthcare programs, health maintenance
organizations and private insurers, are continually seeking to reduce healthcare expenses. The
federal government has also recently reduced the funding for certain government sponsored
healthcare programs which has caused these third party payors to seek further reduction in medical
expenses. The federal government is also considering comprehensive healthcare reform, which could
further limit government reimbursement to these payors. These reductions may decrease demand for
our products and the price we can charge. Increasingly, Medicaid and other third-party payors are
challenging the prices charged for medical services, including clinical diagnostic tests. They are
also attempting to contain costs by limiting coverage and the reimbursement level of tests and
other healthcare products. In addition, cost containment initiatives by governmental or educational
entities or programs may reduce funding for genetic research and development activities and retard
the growth of the genetic testing marketing. Without adequate coverage and reimbursement, consumer
demand for tests will decrease. Decreased demand could cause sales of our products, and sales and
services by our strategic partners, to fall. In addition, decreased demand could place pressure on
us, or our strategic partners, to lower prices on these products or services, resulting in lower
margins. Reduced sales or margins by us, or our strategic partners, would hurt our business,
profitability and business prospects.
We may in the future incur substantial debt that could restrict our operations.
We may incur indebtedness in the future for, among other purposes, funding operating expenses
and/or costs related to future expansions and acquisitions. This indebtedness could have adverse
consequences on us, including:
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limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
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limiting our ability to borrow additional funds for working capital, capital and research and development expenditures, acquisitions and general
corporate or other purposes; and
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exposing us to interest rate risk.
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To the extent incurred, our debt service obligations will require us to use a portion of our
operating cash flow to pay interest and principal on indebtedness instead of for other corporate
purposes, including funding future expansion of our business and ongoing capital expenditures. Our
ability to repay or refinance our debt depends on our successful financial and operating
performance. Our financial and operating performance depends upon a number of factors, many of
which are beyond our control, as further described in this Item 1A Risk Factors.
28
We may be unsuccessful in implementing our acquisition strategy. We may face difficulties
integrating acquired entities with our existing businesses.
Acquisitions of assets or entities designed to accelerate the implementation of our strategic
plan are an element of our long-term strategy. We may be unable to identify and complete
appropriate future acquisitions in a timely manner and no assurance can be provided that the market
price of potential business acquisitions will be acceptable. In addition, many of our competitors
have greater financial resources than we have and may be willing to pay more for these businesses
or selected assets. In the future, should we identify suitable acquisition targets, we may be
unable to complete acquisitions or obtain the financing, if necessary, for these acquisitions on
terms favorable to us. Generally, potential acquisitions pose a number of risks, including, among
others, that:
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we may not be able to accurately estimate the financial effect of acquisitions on our business;
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future acquisitions may require us to assume liabilities, incur large and immediate write-offs, issue capital stock
potentially dilutive to our stockholders or spend significant cash or may result in a decrease in our future operating
income or operating margins;
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we may be unable to realize the anticipated benefits and synergies from acquisitions as a result of inherent risks and
uncertainties, including difficulties integrating acquired businesses or retaining their key personnel, partners, customers
or other key relationships, entering market segments in which we have no or limited experience, and risks that acquired
entities may not operate profitably or that acquisitions may not result in improved operating performance;
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acquisitions and subsequent integration of these companies may disrupt our business and distract our management from other
responsibilities; and
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the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
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Other risks of integration include:
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disparate information technology, internal control, financial reporting and record-keeping systems;
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differences in accounting policies, including those requiring judgment or complex estimation processes;
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new partners or customers who may operate on terms and programs different than ours;
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additional employees not familiar with our operations;
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facilities or operations in remote locations or potentially foreign jurisdictions and the inherent risks of operating in
unfamiliar legal and regulatory environments; and
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new products, including the risk that any underlying intellectual property associated with such products may not have been
adequately protected or that such products may infringe on the proprietary rights of others.
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We rely on the innovation and resources of larger industry participants and public programs to
advance genomic research and educate physicians/clinicians on genetic diagnostics.
The linkages between genetic anomalies that our products detect and the underlying disease
states are not always fully medically correlated. Additionally, the availability of correlated
genetic markers is dependent on significant investment in genomic research, often funded through
public programs for which there are no assurances of on-going support. Should any government limit
patent rights to specific genetic materials, private investment in this area could also be
significantly curtailed. In addition, the adoption of genetic diagnostics is dependent to a great
extent on the education and training of physicians and clinicians. We do not have the resources to
undertake such training, and are relying on larger industry participants and professional medical
colleges to establish, communicate and educate physicians and clinicians on best practices related
to genetic diagnostics.
We are subject to evolving legislative, judicial and ethical standards on use of technology and
biotechnology.
The adoption of genetic testing is occurring within the broader context of a myriad of
decisions related to genetic patenting and genotyping. Issues associated with health insurance,
data access, intellectual property protection, national and international legislative initiatives
and other variables may have a significant impact on the wide spread adoption of genetic testing or
on specific segments or tests within the genetic testing market.
29
Our success depends on our ability to attract and retain our management and staff.
We depend on the principal members of our management and scientific staff, including our chief
executive officer, Patrick Balthrop, and our operations, marketing, research and development,
technical support, technical service and sales staff. The loss of services of key members of
management could delay or reduce our product development, marketing and sales and technical support
efforts. In addition, recruiting and retaining qualified scientific and other personnel to perform
research and development, technical support, technical service and marketing and sales work will be
critical to our success. There is a shortage in our industry of qualified management and scientific
personnel, and competition for these individuals is intense. There can be no assurance that we will
be able to attract additional and retain existing personnel necessary to achieve our business
objectives.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue to be highly volatile
and subject to wide fluctuations in price. This volatility is in response to various factors, many
of which are beyond our control, including:
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actual or anticipated variations in quarterly operating results from historical results or estimates of results prepared by securities analysts;
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announcements of technological innovations or new products or services by us or our competitors;
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announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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conditions or trends in the life science, biotechnology and pharmaceutical industries;
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additions or departures of key personnel;
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changes in financial estimates by securities analysts;
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general economic conditions and interest rates;
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instability in the United States and other financial markets and the ongoing and possible escalation of unrest in the Middle East, other armed
hostilities or further acts or threats of terrorism in the United States or elsewhere;
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sales of our common stock; and
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the potential adverse impact of the secondary trading of our stock on foreign exchanges which are subject to less regulatory oversight than the
NASDAQ Global Market, without our permission, and the activity of the market makers of our stock on such exchanges, including the risk that
such market makers may engage in naked short sales and/or other deceptive trading practices which may artificially depress or otherwise affect
the price of our common stock on the NASDAQ Global Market.
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In addition, the stock market in general, and the NASDAQ Global Market and the market for
technology companies in particular, has experienced significant price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of those companies.
Further, there has been particular volatility in the market prices of securities of life sciences
companies. These broad market and industry factors may seriously harm the market price of our
common stock, regardless of our operating performance. In the past, following periods of volatility
in the market price of a companys securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in substantial costs, potential
liabilities and the diversion of managements attention and resources.
Anti-takeover provisions in our certificate of incorporation, bylaws and stockholder rights plan
and Delaware law could make a third party acquisition of us difficult.
Our certificate of incorporation, bylaws and stockholder rights plan contain provisions that
could make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. We are also subject to certain provisions of Delaware law that could delay,
deter or prevent a change in control of us. These provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock.
30
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative facilities are
located in Austin, Texas, and consist of approximately 115,000 square feet of leased space pursuant
to a lease agreement which expires April 30, 2015. We maintain an additional 10,384 square feet of
leased office space in Oosterhout, Netherlands, approximately 27,000 square feet of leased office
and manufacturing space primarily used by the assay segment in Toronto, Canada, approximately 3,500
square feet of leased office space in Shanghai, Peoples Republic of China, and approximately 2,500
square feet of leased office space in Tokyo, Japan. We are currently expanding our manufacturing
space in Austin, Texas to ensure that our facilities are adequate for our future needs.
ITEM 3. LEGAL PROCEEDINGS
On July 24, 2009, we notified Abbott Molecular Inc. of our intent to convert its right to
distribute Luminexs xTAG
®
Respiratory Viral Panel from exclusive to non-exclusive on a worldwide
basis under the Distribution Agreement, dated February 1, 2008, between Abbott Molecular and LMD.
On September 11, 2009, Abbott Molecular Inc. notified us that it intended to exercise its right to
seek arbitration under the Distribution Agreement. Among other matters, Abbott disputed LMDs right
to terminate Abbotts exclusive right to distribute RVP under the Agreement. The arbitration to
resolve this matter was held on December 14-15, 2009. The arbitrator issued his binding ruling on
December 30, 2009, instructing Luminex, among other matters, to reinstate Abbotts exclusive right
to distribute RVP outside of the United States and co-exclusively with Fisher Scientific within the
United States. All other terms and conditions of the Distribution Agreement remain in effect and
are unaffected by the Arbitration.
When and if it appears probable in managements judgment that we will incur monetary damages
or other costs in connection with any claims or proceedings, and such costs can be reasonably
estimated, liabilities will be recorded in the financial statements and charges will be recorded
against earnings. Though there can be no assurances, our management believes that the resolution of
existing routine matters and other incidental claims, taking into account accruals and insurance,
will not have a material adverse effect on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
31
PART II
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ITEM 5.
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MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market Information
Our common stock is traded on the NASDAQ Global Market under the symbol LMNX.
The following table sets forth the range of high and low sale prices on The NASDAQ Stock
Market and/or NASDAQ Global Market, as applicable, for each quarter during 2009 and 2008. On
February 23, 2010, the last reported sale price of our common stock was $14.67 per share.
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2009
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High
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Low
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First Quarter
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$
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22.83
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$
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14.86
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Second Quarter
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$
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19.01
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$
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14.32
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Third Quarter
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$
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18.70
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$
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14.47
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Fourth Quarter
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$
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17.65
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$
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12.75
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2008
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High
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Low
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First Quarter
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$
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20.48
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$
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14.75
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Second Quarter
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$
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23.09
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$
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18.00
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Third Quarter
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$
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27.00
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$
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19.41
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Fourth Quarter
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$
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25.11
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$
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12.57
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Holders
As of February 23, 2010, we had 718 holders of record of our common stock. Because many of our
shares are held by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of beneficial stockholders represented by these record holders.
Dividends
We have never declared or paid cash dividends on our common stock and, while this policy is
subject to periodic review by our board of directors, we currently intend to retain any earnings
for use in our business and do not anticipate paying cash dividends in the foreseeable future. Our
ability to declare dividends may also from time to time be limited by the terms of any applicable
credit facility.
32
Performance Graph
The following graph compares the change in Luminexs cumulative total stockholder return on
its common shares with the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Luminex Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
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*
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$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
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12/04
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12/05
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12/06
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12/07
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12/08
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12/09
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Luminex Corporation
|
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100.00
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|
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130.86
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143.02
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182.88
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240.54
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168.13
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NASDAQ Composite
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100.00
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101.33
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114.01
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123.71
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73.11
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105.61
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NASDAQ Biotechnology
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100.00
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117.54
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117.37
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121.37
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|
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113.41
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|
|
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124.58
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33
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2009 was as follows:
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Total Number of Shares
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Approximate Dollar Value of
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Total Number of
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|
|
Average Price
|
|
|
Purchased as Part of
|
|
|
Shares that May Yet Be
|
|
|
|
Shares
|
|
|
Paid per Share
|
|
|
Publicly Announced
|
|
|
Purchased Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
(1)($)
|
|
|
Plans or Programs
|
|
|
Programs
|
|
10/01/09 - 10/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/1/09 - 11/30/09
|
|
|
303
|
|
|
|
13.74
|
|
|
|
|
|
|
|
|
|
12/01/09 - 12/31/09
|
|
|
993
|
|
|
|
14.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fourth Quarter
|
|
|
1,296
|
|
|
|
14.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Shares purchased are attributable to the withholding of shares by Luminex
to satisfy the payment of tax obligations related to the vesting of restricted
shares.
|
34
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and with Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and other financial data included
elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the
years ended December 31, 2009, 2008 and 2007 and the consolidated balance sheet data at December
31, 2009 and 2008 are derived from the audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. The consolidated statement of operations data for the years
ended December 31, 2006 and 2005 and the consolidated balance sheet data at December 31, 2007, 2006
and 2005 are derived from audited consolidated financial statements not included in this Annual
Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
120,643
|
|
|
$
|
104,447
|
|
|
$
|
75,010
|
|
|
$
|
52,989
|
|
|
$
|
42,313
|
|
Gross profit
|
|
|
81,294
|
|
|
|
70,946
|
|
|
|
46,094
|
|
|
|
32,252
|
|
|
|
22,321
|
|
Income (loss) from operations
|
|
|
7,399
|
|
|
|
3,353
|
|
|
|
(17,418
|
)
|
|
|
(581
|
)[1]
|
|
|
(3,496
|
)
|
Net income (loss)
|
|
|
17,729
|
|
|
|
3,057
|
|
|
|
(2,711
|
)
|
|
|
1,507
|
[1]
|
|
|
(2,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
17,729
|
|
|
$
|
3,057
|
|
|
$
|
(2,711
|
)
|
|
$
|
1,507
|
|
|
$
|
(2,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.44
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.05
|
[1]
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per
share, basic
|
|
|
40,562
|
|
|
|
37,868
|
|
|
|
34,361
|
|
|
|
31,434
|
|
|
|
30,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted
|
|
$
|
0.43
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.05
|
[1]
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per
share, diluted
|
|
|
41,633
|
|
|
|
39,700
|
|
|
|
34,361
|
|
|
|
32,988
|
|
|
|
30,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,843
|
|
|
$
|
81,619
|
|
|
$
|
27,233
|
|
|
$
|
27,414
|
|
|
$
|
25,206
|
|
Short-term investments
|
|
|
8,511
|
|
|
|
40,501
|
|
|
|
6,944
|
|
|
|
10,956
|
|
|
|
10,947
|
|
Long-term investments
|
|
|
20,228
|
|
|
|
2,000
|
|
|
|
|
|
|
|
7,346
|
|
|
|
5,466
|
|
Working capital
|
|
|
122,398
|
|
|
|
131,767
|
|
|
|
40,801
|
|
|
|
44,179
|
|
|
|
39,364
|
|
Total assets
|
|
|
248,013
|
|
|
|
217,291
|
|
|
|
123,559
|
|
|
|
66,696
|
|
|
|
58,035
|
|
Total long-term debt
|
|
|
3,591
|
|
|
|
3,359
|
|
|
|
3,110
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
218,738
|
|
|
|
194,540
|
|
|
|
103,480
|
|
|
|
54,159
|
|
|
|
44,710
|
|
|
|
|
[1]
|
|
Effective January 1, 2006, we changed our method of accounting for stock-based compensation to conform to
ASC 718 Stock Compensation.
|
35
|
|
|
ITEM 7.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
The following information should be read in conjunction with the Consolidated Financial
Statements and the accompanying Notes included below in Item 8 and Risk Factors included above in
Item 1A of this Annual Report on
Form 10-K
. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements.
Overview
We develop, manufacture and sell proprietary biological testing technologies and products with
applications throughout the life sciences and diagnostics industries. These industries depend on a
broad range of tests, called bioassays, to perform diagnostic tests, discover and develop new drugs
and identify genes. Our xMAP
®
technology, an open architecture, multiplexing technology, allows
simultaneous analysis of up to 500 bioassays from a small sample volume, typically a single drop of
fluid, by reading biological tests on the surface of microscopic polystyrene beads called
microspheres. xMAP technology combines this miniaturized liquid array bioassay capability with
small lasers, digital signal processors and proprietary software to create a system offering
advantages in speed, precision, flexibility and cost. Our xMAP technology is currently being used
within various segments of the life sciences industry which includes the fields of drug discovery
and development, clinical diagnostics, genetic analysis, bio-defense, protein analysis and
biomedical research.
Our end user customers and partners, which include laboratory professionals performing
research, clinical laboratories performing tests on patients as ordered by a physician and other
laboratories, have a fundamental need to perform high quality testing as efficiently as possible.
Luminex has adopted a business model built, in part, around strategic partnerships. We have
licensed our xMAP technology to partner companies, which in turn then develop products that
incorporate the xMAP technology into products that partners sell to end users. Luminex develops and
manufactures the proprietary xMAP laboratory instrumentation and the proprietary xMAP microspheres
and sells these products to its partners. Our partners then sell xMAP instrumentation and
xMAP-based reagent consumable products, which run on the instrumentation, to the end user
laboratory. As of December 31, 2009, Luminex had approximately 68 strategic partners and these
partners have purchased from Luminex over 6,760 xMAP-based systems. Of the 68 strategic partners,
39 have released commercialized reagent-based products utilizing our technology.
Beginning in 2006, we began developing proprietary assays through LBG. This development was
supplemented in 2007 by our acquisition of Tm Bioscience, which we now refer to as LMD. Our assay
segment focuses on the molecular diagnostics market and certain specialty markets.
Luminex has several forms of revenue that result from our business model:
|
|
|
System revenue is generated from the sale of our xMAP systems and peripherals.
Currently, system revenue is derived from the sale of the Luminex 100 and 200 analyzers,
our FLEXMAP 3D system, optional XY Platform and Sheath Delivery Systems.
|
|
|
|
Consumable revenue is generated from the sale of our dyed polystyrene microspheres and
sheath fluid. Our larger commercial and development partners often purchase these
consumables in bulk to minimize the number of incoming qualification events and to allow
for longer development and production runs.
|
|
|
|
Royalty revenue is generated when a partner sells our proprietary microspheres to an end
user, a partner sells a kit incorporating our proprietary microspheres to an end user or
when a partner utilizes a kit to provide a testing result to a user. End users can be
facilities such as testing labs, development facilities and research facilities that buy
prepared kits and have specific testing needs or testing service companies that provide
assay results to pharmaceutical research companies or physicians.
|
|
|
|
Assay revenue is generated from the sale of our kits which are a combination of chemical
and biological reagents and our proprietary bead technology used to perform diagnostic and
research assays on samples.
|
|
|
|
Service revenue is generated when a partner or other owner of a system purchases a
service contract from us after the standard warranty has expired. Service contract revenue
is amortized over the life of the contract and the costs associated with those contracts
are recognized as incurred.
|
|
|
|
Other revenue consists of items such as training, shipping, parts sales, license
revenue, grant revenue, contract research and development fees, milestone revenue and other
items that individually amount to less than 5% of total revenue.
|
36
2009 Highlights
|
|
|
Luminex grew total revenue by approximately 16% over 2008 revenue to $120.6 million
|
|
|
|
|
Gross margin percentage of 67%, compared to 68% in 2008
|
|
|
|
|
For the year ended 2009, assay revenue increased 66%, royalty revenue increased 23%
and system sales increased 9% over the prior calendar year
|
|
|
|
|
Full commercial launch of the high-throughput FLEXMAP 3D multiplexing system
|
|
|
|
|
System shipments of 873, resulting in cumulative life-to-date shipments of 6,767, up
15% from a year ago
|
|
|
|
|
Our partners reported over $281 million of royalty bearing end user sales on xMAP
technology for the year, an 18% increase over 2008
|
|
|
|
|
Settlement of SUNY lawsuit, resulting in a one-time charge of approximately $4.4
million
|
|
|
|
|
Establishment of offices in Shanghai, Peoples Republic of China and Tokyo, Japan to
provide commercial support and service to customers and partners in these markets
|
|
|
|
|
Obtained registration certificate from the Peoples Republic of China for the
Luminex 100 and Luminex 200 Systems
|
|
|
|
|
Tax benefit from the release of the U.S. deferred tax asset valuation allowance
provided a one time benefit of $14.9 million, or $0.36 per share, basic
|
Consumable Sales Trends
We have experienced a decline in consumable revenue since the third quarter of 2008. After
thorough analysis of the decline, we have identified several factors contributing to the decline,
none of which individually appear to be systemic in nature or indicative of future results.
Overall, the decline manifested itself through a decline in activity at varying times from our
largest, bulk purchasing partners. From the third quarter of 2008 through the fourth quarter of
2009, we had bulk purchases totaling $7.0 million, $6.8 million, $6.1 million, $5.5 million, $4.3
million, and $6.4 million in consumables, respectively. Alternatively, non bulk consumable sales
varied within a much smaller range between $1.2 million and $1.8 million with the largest amount of
non bulk sales taking place in the third quarter of 2009 with $1.8 million of consumables. We
believe the decrease in bulk purchases can be attributed to several factors including (1) purchases
in prior periods of significant volumes of consumables related to the conversion of our partners
assay product portfolios from carboxyl beads to magnetic beads primarily in anticipation of the
release of our new MagPix system in 2010; (2) volume reductions in bulk purchases from several of
our partners as a result of a reduction in total consumable needs prior to the regulatory clearance
and commercialization phases of development of new products and transitioning product lines; (3)
increased attention on inventory management by our partners during 2009 as a result of the macro
economic climate and (4) an increase in our partners focus on generating current revenue from
commercialized products. We anticipate consumables sales will improve in 2010. The success of our
partners commercialization efforts is reflected in the rising level of royalties and reported
royalty bearing sales during the period over which the consumable revenue has declined. Reported
royalty bearing sales have increased by 18% from $238.5 million in 2008 to $281.8 million in 2009.
Release of Valuation Allowance
During the fourth quarter of 2009, we released a portion of our total valuation allowance on
deferred U.S. tax assets. Release of the valuation allowance was dependent upon an assessment of
the likelihood of utilization of the specifically identified deferred tax assets. The assessment
indicated that Luminex was more likely than not to benefit from the deferred tax assets based upon
our historical pre-tax book income and projected taxable income, thus prompting the release. The
tax benefit from the release of this deferred tax asset valuation allowance is reflected below
operating income as a benefit of $14.9 million in 2009, or $0.36 per share, basic.
As a result of the release of our valuation allowance on US tax assets, our effective tax
rate, which has been relatively low, will increase significantly in the near term. For 2010, we
estimate that our effective tax rate will be in excess of the maximum U.S. corporate tax rate of
35%, however, for the full year 2010, we expect cash taxes paid will be less than 25% of total
income tax expense recognized for the full year. The quarterly effective tax rate for 2010 will
fluctuate as a result of variability of the taxable income within the multiple jurisdictions (the
United States, Canada, The Netherlands, China and Japan) in which we operate.
37
Change in Cash Position
Our cash, cash equivalents and investments decreased by approximately $4.5 million during the
year ended December 31, 2009 to $119.6 million at December 31, 2009 from $124.1 million at December
31, 2008. The decrease was primarily attributable to capital expenditures of $10.4 million
partially offset by positive operating cash flows.
Segment Information
Luminex has two reportable segments: The technology segment and the assay segment. The
technology segment, which is our base business, consists of system sales to partners and end
customers, raw bead sales, royalties, service and support of the technology, and other
miscellaneous items. The assay segment consists of LBG and LMD. This segment is primarily
involved in the development and sale of assays on xMAP technology for use on Luminexs installed
base of systems.
Future Operations
We anticipate 2010 revenue growth to be driven by continued adoption of our core technology
coupled with system and assay introductions and commercialization by Luminex and our partners. We
anticipate continued revenue concentration in our high margin items (assays, consumables and
royalties) contributing to favorable, but variable gross margin percentages. Additionally, we
believe that a sustained investment in R&D is necessary in order to meet the needs of our
marketplace and provide a sustainable new product pipeline. Therefore, we estimate that R&D
expenditures will increase in absolute dollars over time, but decrease as a percentage of total
revenue towards our long term target of 15% of revenue. We could experience volatility in R&D
expenses as a percentage of revenue on a quarterly basis. Consistent with this trend our R&D
expenses increased by $2.1 million or 11% from 2008 to 2009, but dropped as a percentage of total
revenue to 17% in 2009 compared to 18% in 2008. While we currently expect modest increases in
absolute dollars of selling, general, and administrative expenses in 2010, excluding the impact of
foreign exchange rates on foreign denominated balances, we expect selling, general, and
administrative expenses to decrease as a percentage of total revenue in 2010.
We expect our primary challenges in 2010 to be the continued adoption and development of
partner products incorporating Luminex technology, the timing effect of the ongoing uncertainty in
global finance markets and changes in government funding on planned purchases by end users,
commercialization, regulatory acceptance and market adoption of output from the assay segment and
the expansion and enhancement of our installed base and leadership position within our identified
target market segments.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with United
States generally accepted accounting principles (GAAP). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other
sources. The following is a discussion of our most critical accounting policies used in the
preparation of our financial statements, and the judgments and estimates involved under each. We
also have other significant accounting policies that do not involve critical accounting estimates
because they do not generally require us to make estimates and judgments that are difficult or
subjective. These are described in Note 1 of our Consolidated Financial Statements provided herein
in Item 8. Estimates and assumptions are reviewed periodically. Actual results may differ from
these estimates under different assumptions or conditions.
38
Revenue Recognition.
Revenue on sales of our products is recognized when persuasive evidence
of an agreement exists, delivery has occurred, the fee is fixed and determinable and collectability
is probable. These criteria are generally met at the time our product is shipped. If the criteria
for revenue recognition are not met at the time of shipment, the revenue is deferred until all
criteria are met. Royalty revenue is generated when a partner sells products incorporating our
technology, provides testing services to third parties using our technology or resells our
consumables. Royalty revenue is recognized as it is reported to us by our partners, generally
quarterly; therefore, the underlying end user sales may be related to prior periods due to the
timing of when the revenue is reported to us by our partners. We also sell extended service
contracts for maintenance and support of our products. Revenue for service contracts is recognized
ratably over the term of the agreement. Revenue from contracts with multiple elements is
recognized as each element is earned based on the relative selling price of each element when there
are no undelivered elements that are essential to the functionality of the delivered elements and
when the amount is not contingent upon delivery of the undelivered elements.
Upfront payments from our strategic partners are nonrefundable and will be recognized as
revenue as our strategic partners purchase products or applied against royalty payments.
Nonrefundable license fees are amortized into revenue over the estimated life of the license
agreements.
Inventory Valuation.
Inventories are valued at the lower of cost or market value, with cost
determined according to the standard cost method. Inventories have been written down through an
allowance for excess and obsolete inventories. The two major components of the allowance for excess
and obsolete inventory are (i) a specific write-down for inventory items that we no longer use in
the manufacture of our products or that no longer meet our specifications and (ii) a write-down
against slow moving items for potential obsolescence. Inventory is reviewed on a regular basis and
adjusted based on managements review of inventories on hand compared to estimated future usage and
sales. While management believes that adequate write-downs for inventory obsolescence have been
made in the consolidated financial statements, scientific and technological advances will continue
and we could experience additional inventory write-downs in the future. However, we do not believe
this estimate is subject to significant variability.
Warranties.
We provide for the estimated cost of initial product warranties at the time
revenue is recognized. While we engage in product quality programs and processes, our warranty
obligation is affected by product failure rates, material usage and service delivery costs incurred
in correcting a product failure. While management believes that adequate reserve has been made in
the consolidated financial statements for product warranties, should actual product failure rates,
material usage or service delivery costs differ from our estimates, revisions to the estimated
warranty liability would be required. However, we do not believe this estimate is subject to
significant variability.
Purchase Price Allocation, Intangibles and Goodwill.
The purchase price allocation for
acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase
price to the identifiable tangible and intangible assets acquired, including in-process research
and development (IPR&D), and liabilities assumed based on their respective fair values.
Intangible assets with definite lives are amortized over the assets estimated useful lives using
the straight-line method. We periodically review the estimated useful lives of our identifiable
intangible assets, taking into consideration any events or circumstances that might result in a
diminished fair value or revised useful life.
We evaluate the carrying value of goodwill and other intangible assets annually or more
frequently if there is evidence that certain events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. In performing the impairment test, we
utilize the two-step approach prescribed under U.S. GAAP. The first step requires a comparison of
the carrying value of the reporting unit to the estimated fair value of the reporting unit. If in
step one of the annual test, the carrying amount of a reporting unit exceeds its fair value, then a
goodwill impairment test is performed in step two to measure the amount of the impairment loss, if
any. We would recognize an impairment charge for any amount by which the carrying amount of
goodwill exceeds its fair value. Determining the fair value of goodwill is subjective in nature
and often involves the use of estimates and assumptions.
As of December 31, 2009, we have $39.6 million of goodwill allocated to the assay segment,
which includes LMD. Our annual test did not result in an impairment charge as the estimated fair
value of the assay segment reporting unit continues to exceed the carrying value by a significant
enough amount that any reasonably likely change in the assumptions used in the analysis, including
terminal growth rates and the discount rate, would not cause the carrying value to exceed the
estimated fair value for the reporting unit as determined under the step one goodwill impairment
analysis.
39
We utilize the income approach based on a discounted cash flow analysis to determine its fair
value estimates, and then use market comparisons as a reasonability check to ensure that neither
the income approach nor the market comparisons yielded significantly different results. The income
approach is based on a discounted cash flow (DCF) analysis and calculates the fair value by
estimating the after-tax cash flows attributable to a reporting unit and then discounting the
after-tax cash flows to a present value using a risk-adjusted discount rate. As our assay segment
and goodwill came into existence in 2007 due to our acquisition of Tm Biosciences, now referred to
as LMD, we believe that the DCF method best aligns with how we approached the acquisition and
determined the value of the acquired company. This methodology used to determine fair value has
been consistently applied since the inception of our goodwill in 2007; however, the assumptions and
estimates are updated each year. Our estimates are based on revenue projections by product line,
and include judgment based on historical growth and scheduled product approvals by the various
governmental authorities. We believe its assumptions are consistent with the plans and estimates
used to manage the underlying businesses. The most significant assumptions used in the discounted
cash flow methodology are the discount rate, based upon the estimated weighted average cost of
capital (WACC), and the terminal growth rate, based upon strategic studies we commissioned and our
own internal analysis. We used the following rates in 2009:
|
|
|
|
|
Assumptions
|
|
2009
|
|
WACC
|
|
|
15.2
|
%
|
Terminal Growth Rate
|
|
|
4.4
|
%
|
To determine our WACC rate, we performed a peer company analysis and considered the weighted
average return on debt and equity, the updated risk-free interest rate, beta, equity risk premium,
and entity specific size risk premium. We based our terminal growth rates upon market estimates
provided in strategic studies previously commissioned by us and our own internal analysis. Our
analysis yielded an estimated fair value in excess of the carrying value by over 50% for 2009.
Concurrent with the above analysis, we performed a sensitivity analysis based upon reasonably
likely changes to determine if our DCF analysis would result in impairment if the following changes
were made to our assumptions: i) assumed WACC rate was increased by 5 percentage points; ii)
future revenue was 75% of our projections in the DCF model; or iii) the terminal growth rate used
was 50% lower. None of these sensitivity analyses resulted in an estimated fair value less than
the carrying amount of the reporting unit.
Accounting for Income Taxes.
We calculate our provision for income taxes using the asset and
liability method, under which deferred tax assets and liabilities are recognized by identifying the
temporary differences arising from the different treatment of items for tax and accounting
purposes. In determining the future tax consequences of events that have been recognized in our
financial statements or tax returns, judgment is required. Differences between the anticipated and
actual outcomes of these future tax consequences could have a material impact on our consolidated
results of operations or financial position. The recognition of deferred tax assets is reduced by a
valuation allowance if it is more likely than not that the tax benefits will not be realized. We
regularly review our deferred tax assets for recoverability and establish a valuation allowance
based on historical income, projected future income, the expected timing of the reversals of
existing temporary differences and the implementation of tax-planning strategies. Undistributed
earnings of our foreign subsidiaries are considered permanently reinvested and, accordingly, no
provision for U.S. federal or state income taxes has been provided thereon.
Effective January 1, 2007, we adopted Accounting Standards Codification (ASC) 740 Income
Taxes (ASC 740) which clarifies the accounting for uncertainty in tax positions. These provisions
require recognition of the impact of a tax position in our financial statements only if that
position is more likely than not of being sustained upon examination by taxing authorities, based
on the technical merits of the position. Any interest and penalties related to uncertain tax
positions will be reflected in income tax expense. Determining the consolidated provision for
income taxes involves judgments, estimates and the application of complex tax regulations. We are
required to provide for income taxes in each of the jurisdictions where we operate, including
estimated liabilities for uncertain tax positions. Although we believe that we have provided
adequate liabilities for uncertain tax positions, the actual liability resulting from examinations
by taxing authorities could differ from the recorded income tax liabilities and could result in
additional income tax expense. In accordance with ASC 740, changes of estimates in our income tax
liabilities are reflected in our income tax provision in the period in which the factors resulting
in the change to our estimate become known to us. As a result, our effective income tax rate may
fluctuate on a quarterly basis.
40
We recognize excess tax benefits associated with share-based compensation to stockholders
equity only when realized. When assessing whether excess tax benefits relating to share-based
compensation have been realized, we follow the with-and-without approach, excluding any indirect
effects of the excess tax deductions. Under this approach, excess tax benefits related to
share-based compensation are not deemed to be realized until after the utilization of all other tax
benefits available to us.
Stock compensation
. Stock-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as an expense on a straight-line basis over the
requisite service period, which is generally the vesting period. The fair value of our stock-based
awards is estimated using the Black-Scholes option pricing model. The Black-Scholes valuation
calculation requires us to estimate key assumptions such as expected volatility, expected term and
risk-free rate of return. Calculation of expected volatility is based on historical volatility. The
expected term is calculated using the contractual term of the options as well as an analysis of our
historical exercises of stock options. The estimate of risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. We have never paid cash dividends and do not
currently intend to pay cash dividends, thus we have assumed a 0% dividend yield. We are required
to estimate potential forfeitures of stock grants and adjust compensation cost recorded
accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are
expected to differ, from such estimates. If we use different assumptions for estimating
stock-based compensation expense in future periods or if actual forfeitures differ materially from
our estimated forfeitures, the change in our stock-based compensation expense could materially
affect our operating income, net income, and net income per share.
Consolidated Results of Operations
The following table sets forth the percentage of total revenue of certain items in the
Consolidated Statements of Operations. The financial information and the discussion below should be
read in conjunction with the Consolidated Financial Statements and Notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
33
|
%
|
|
|
32
|
%
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
67
|
%
|
|
|
68
|
%
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
|
17
|
%
|
|
|
18
|
%
|
|
|
20
|
%
|
Selling, general and administrative expense
|
|
|
44
|
%
|
|
|
47
|
%
|
|
|
54
|
%
|
In-process research and development expense
|
|
|
|
|
|
|
|
|
|
|
10
|
%
|
Gain on settlement of liability
|
|
|
|
|
|
|
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
61
|
%
|
|
|
65
|
%
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
6
|
%
|
|
|
3
|
%
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense from long-term debt
|
|
|
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of litigation
|
|
|
(4
|
)%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
12
|
%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
15
|
%
|
|
|
3
|
%
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
41
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
120,643
|
|
|
$
|
104,447
|
|
|
$
|
16,196
|
|
|
|
16
|
%
|
Gross profit
|
|
$
|
81,294
|
|
|
$
|
70,946
|
|
|
$
|
10,348
|
|
|
|
15
|
%
|
Gross margin percentage
|
|
|
67
|
%
|
|
|
68
|
%
|
|
|
(1
|
)%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
73,895
|
|
|
$
|
67,593
|
|
|
$
|
6,302
|
|
|
|
9
|
%
|
Net income
|
|
$
|
17,729
|
|
|
$
|
3,057
|
|
|
$
|
14,672
|
|
|
|
480
|
%
|
Revenue.
Total revenue increased to $120.6 million for the year ended December 31, 2009 from
$104.4 million in 2008. The increase in revenue was primarily attributable to an increase of $12.3
million in assay revenue in the assay segment and continued growth in system sales and royalty
revenue in the technology segment, offset by a decrease in technology segment consumable sales.
A breakdown of revenue for the years ended December 31, 2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
30,711
|
|
|
$
|
28,136
|
|
Consumable sales
|
|
|
28,380
|
|
|
|
31,724
|
|
Royalty revenue
|
|
|
18,312
|
|
|
|
14,897
|
|
Assay revenue
|
|
|
31,054
|
|
|
|
18,715
|
|
Service contracts
|
|
|
5,845
|
|
|
|
5,363
|
|
Other revenue
|
|
|
6,341
|
|
|
|
5,612
|
|
|
|
|
|
|
|
|
|
|
$
|
120,643
|
|
|
$
|
104,447
|
|
|
|
|
|
|
|
|
We continue to have revenue concentration in a limited number of strategic partners, as the
top five customers, by revenue, accounted for 48% of total revenue in 2009 down from 53% of total
revenue in 2008. In particular, two customers accounted for 26% of 2009 total revenue (15% and 11%
respectively) down from 36% of 2008 total revenue (19% and 17% respectively). The decline was
primarily attributable to the increase in assay segment revenue as a percentage of total revenue,
but was also affected by company and market factors specific to those customers. No other customer
accounted for more than 10% of total revenue. See the segment discussions that follow on pages
45-51 for additional revenue discussion.
Gross Profit.
Gross profit increased to $81.3 million for the year ended December 31, 2009, as
compared to $70.9 million for the year ended December 31, 2008. The gross profit margin rate (gross
profit as a percentage of total revenue) was 67% for the year ended December 31, 2009, down from
68% for the year ended December 31, 2008. Maintenance of our gross profit margin rate was enabled
by the high concentration of sales in our higher margin items such as assays, consumables and
royalties. The increase in gross profit was primarily attributable to the overall increase in
revenue. We anticipate continued fluctuation in gross profit margin and related gross profit
primarily as a result of variability in partner bulk purchases and the absolute number of quarterly
system sales.
Research and Development Expense.
Research and development expenses increased to $20.8 million
for the year ended December 31, 2009 from $18.6 million for the year ended December 31, 2008. The
increase was primarily attributable to increased activity by the assay segment related to product
development, an increase in materials, and additional personnel costs associated with the addition
of employees and contract employees. Research and development headcount at December 31, 2009 was
132 as compared to 116 at December 31, 2008. As a percentage of revenue, research and development
expense decreased to 17% in 2009 as compared with 18% in 2008. Our current expectation is for
research and development expenses to be between 15% and 18% of total revenue for 2010.
42
Selling, General and Administrative Expense.
Selling, general and administrative expenses
increased to $53.1 million for the year ended December 31, 2009 from $49.0 million for the
comparable period in 2008. The increase was primarily attributable to additional personnel costs
associated with the addition of employees and an increase in stock compensation expense. Selling,
general and administrative headcount at December 31, 2009 was 158 as compared to 134 at December
31, 2008. As a percentage of revenue, selling, general and administrative expenses decreased to
44% in 2009 as compared to 47% in 2008.
Income from Operations.
Operating profit as a percentage of revenue increased from 3% in 2008
to 6% in 2009 as a result of our overall control of operating expenses and maintenance of our gross
profit margin rate.
Other Income, net.
Other income, net decreased to $0.7 million for the year ended December 31,
2009 from $1.1 million for the year ended December 31, 2008 due to the decrease in the average rate
earned on our current invested balances from 2.0% for the year ended December 31, 2008 to 0.6% for
the year ended December 31, 2009. This decrease is the result of an overall decrease in market
rates compared to the prior year period.
Income taxes.
Income tax expense decreased in 2009 due to the $14.9 million tax benefit from
the release of a portion of our total valuation allowance on deferred U.S. tax assets.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
104,447
|
|
|
$
|
75,010
|
|
|
$
|
29,437
|
|
|
|
39
|
%
|
Gross profit
|
|
$
|
70,946
|
|
|
$
|
46,094
|
|
|
$
|
24,852
|
|
|
|
54
|
%
|
Gross margin percentage
|
|
|
68
|
%
|
|
|
61
|
%
|
|
|
7
|
%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
67,593
|
|
|
$
|
63,512
|
|
|
$
|
4,081
|
|
|
|
6
|
%
|
Net (loss) income
|
|
$
|
3,057
|
|
|
$
|
(2,711
|
)
|
|
$
|
5,768
|
|
|
|
213
|
%
|
Revenue.
Total revenue increased to $104.4 million for the year ended December 31, 2008 from
$75.0 million in 2007. The increase in revenue was primarily attributable to an increase of $17.2
million in consumable and royalty revenues in the technology segment and continued growth in the
assay segment, including the effects of the acquisition of LMD. In addition, system sales
increased to 915 systems in 2008 from 862 systems for 2007.
A breakdown of revenue for the years ended December 31, 2008 and 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
System sales
|
|
$
|
28,136
|
|
|
$
|
24,428
|
|
Consumable sales
|
|
|
31,724
|
|
|
|
19,199
|
|
Royalty revenue
|
|
|
14,897
|
|
|
|
10,244
|
|
Assay revenue
|
|
|
18,715
|
|
|
|
11,323
|
|
Service contracts
|
|
|
5,363
|
|
|
|
4,431
|
|
Other revenue
|
|
|
5,612
|
|
|
|
5,385
|
|
|
|
|
|
|
|
|
|
|
$
|
104,447
|
|
|
$
|
75,010
|
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 53% of total revenue in 2008. In
particular, two customers accounted for 36% of 2008 total revenue (19% and 17% respectively). No
other customer accounted for more than 10% of total revenue in 2008. See the segment discussions
that follow on pages 45-51 for additional revenue discussion.
Gross Profit.
Gross profit increased to $70.9 million for the year ended December 31, 2008, as
compared to $46.1 million for the year ended December 31, 2007. The gross profit margin rate was
68% for the year ended December 31, 2008, up from 61% the year ended December 31, 2007. The
increase in gross margin rate was primarily attributable to the continuing shift in revenue
concentration towards higher margin items such as assays, consumables and royalties. The increase
in gross profit was primarily attributable to the overall increase in revenue.
43
Research and Development Expense.
Research and development expenses increased to $18.6 million
for the year ended December 31, 2008 from $15.4 million for the year ended December 31, 2007. The
increase was primarily attributable to incorporation of the results of LMD for the full twelve
months in 2008 compared to the inclusion of only ten months of operating results of LMD in the year
ended December 31, 2007, as the acquisition was consummated on March 1, 2007, and to a lesser
extent, to increased activity by the assay segment related to product development, an increase in
materials, and additional personnel costs associated with the addition of employees and contract
employees. Research and development headcount at December 31, 2008 was 116 as compared to 111 at
December 31, 2007. As a percentage of revenue, research and development expense decreased to 18%
in 2008 as compared with 21% in 2007.
Selling, General and Administrative Expense.
Selling, general and administrative expenses
increased to $49.0 million for the year ended December 31, 2008 from $40.7 million for the
comparable period in 2007. The increase was primarily attributable to incorporation of the results
of LMD for the full twelve months in 2008 compared to the inclusion of only ten months of operating
results of LMD in the year ended December 31, 2007, and to a lesser extent additional personnel
costs associated with the addition of employees and an increase in stock compensation expense.
Selling, general and administrative headcount at December 31, 2008 was 134 as compared to 119 at
December 31, 2007. As a percentage of revenue, selling, general and administrative expenses
reduced to 47% in 2008 as compared to 54% in 2007.
Other Income, net.
Other income, net decreased to $1.1 million for the year ended December 31,
2008 from $1.7 million for the year ended December 31, 2007 partially due to approximately $480,000
in costs related to a potential acquisition that did not occur, offset by the interest income on
the net proceeds from our secondary offering. In addition, the average rate earned on current
invested balances decreased to 2.0% for the year ended December 31, 2008 from 5.0% for the year
ended December 31, 2007. This decrease in the average rate earned is the result of an overall
decrease in market rates compared to the prior year period. See additional discussions by segment
below.
Settlement of litigation.
We settled our pending litigation with Rules Based Medicine (RBM) on
October 15, 2007. As part of the settlement, Luminex received a cash payment of $12.5 million.
$11.5 million was recognized as part of net income in 2007, while $1.0 million was deferred for
licensing rights granted to RBM from Luminex.
Gain on settlement of liability.
$2.3 million was recognized in the year ended December 31,
2007 related to the settlement of a liability related to the renegotiation of a contract acquired
as part of the acquisition of Tm Bioscience.
44
Segment Results of Operations
Technology Segment
Selected financial data for the year ended December 31, 2009 and 2008 of our technology segment is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
87,389
|
|
|
$
|
83,567
|
|
|
$
|
3,822
|
|
|
|
5
|
%
|
Gross profit
|
|
$
|
57,649
|
|
|
$
|
54,756
|
|
|
$
|
2,893
|
|
|
|
5
|
%
|
Gross margin percentage
|
|
|
66
|
%
|
|
|
66
|
%
|
|
|
0
|
%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
49,527
|
|
|
$
|
45,723
|
|
|
$
|
3,804
|
|
|
|
8
|
%
|
Net income
|
|
$
|
21,406
|
|
|
$
|
9,405
|
|
|
$
|
12,001
|
|
|
|
128
|
%
|
Revenue.
Total revenue increased 5% to $87.4 million for the year ended December 31, 2009 from
$83.6 million in 2008. The increase in revenue was primarily attributable to an increase in system
sales and royalty revenue as a result of the continued acceptance and utilization of our technology
in the marketplace offset by decreases in consumable sales.
A breakdown of revenue in the technology segment for the years ended December 31, 2009 and
2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
System sales
|
|
$
|
29,296
|
|
|
$
|
26,408
|
|
Consumable sales
|
|
|
28,316
|
|
|
|
31,678
|
|
Royalty revenue
|
|
|
18,312
|
|
|
|
14,897
|
|
Service contracts
|
|
|
5,552
|
|
|
|
5,290
|
|
Other revenue
|
|
|
5,913
|
|
|
|
5,294
|
|
|
|
|
|
|
|
|
|
|
$
|
87,389
|
|
|
$
|
83,567
|
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 56% of total technology segment revenue in
2009 compared to 62% in 2008. In particular, two customers accounted for 37% of total technology
segment revenue in the year ended December 31, 2009 (21% and 16%, respectively). For comparative
purposes, these same two customers accounted for 45% of total technology segment revenue (24% and
21%, respectively) in the year ended December 31, 2008. We believe that the decrease in percentage
of total revenue represented by our two largest customers is primarily the result of specific
company factors and general market factors applicable to our two largest customers. These factors,
we believe, resulted in a decrease in the dollar amount of bulk purchases by one of our largest
customers, and a decline in system purchases relative to their historical purchases by the other.
No other customer accounted for more than 10% of total technology segment revenue.
System and peripheral component sales increased 11% to $29.3 million for the year ended
December 31, 2009 from $26.4 million for the year ended December 31, 2008. The technology segment
sold 838 of the 873 total system sales in 2009. For the year ended December 31, 2009, five of our
partners accounted for 552, or 66%, of total technology segment system sales for the period. Five
of our partners accounted for 698, or 80%, of total technology segment system sales for the year
ended December 31, 2008.
45
Consumable sales, comprised of microspheres and sheath fluid, decreased 11% to $28.3 million
during 2009 from $31.7 million in 2008. This is primarily the result of a decrease in the number
and average dollar amount of bulk purchases as described in the Overview section above. During
2009 we had 51 bulk purchases of consumables totaling approximately $22.3 million as compared with
49 bulk purchases totaling approximately $26.1 million in the prior year. Partners who reported
royalty bearing sales accounted for $22.7 million, or 80%, of total consumable sales for the year
ended December 31, 2009. A bulk purchase is defined as the purchase of $100,000 or more of
consumables in a quarter. As the number of applications available on our platform expands, we
anticipate that the overall level of consumable sales, and related bulk purchases, will continue to
fluctuate.
Royalty revenue increased 23% to $18.3 million for the year ended December 31, 2009 from $14.9
million for the year ended December 31, 2008. We believe this is primarily the result of our
increased cumulative instrument placements, menu expansion, and utilization of our partners assays
on our technology. We expect modest fluctuations in the number of commercial partners submitting
royalties quarter to quarter based upon the varying contractual terms, consolidations among
partners, differing reporting and payment requirements, and the addition of new partners. For the
year ended December 31, 2009, we had 39 commercial partners submit royalties as compared with 35
for the year ended December 31, 2008. Additionally, the 39 partners from whom we recognized $18.3
million in royalties in 2009 represented approximately $14.9 million of the total royalties in
2008, an increase of approximately 23% over their prior year payments. Total royalty bearing sales
reported to us by our partners were approximately $281.8 million for the year ended December 31,
2009 as compared to $238.5 million for the year ended December 31, 2008.
Service contracts, comprised of extended warranty contracts earned ratably over the term of a
contract, increased 5% to $5.6 million during 2009 from $5.3 million in 2008. This increase is
attributable to additional resources allocated to the sale of extended service agreements resulting
in increased penetration of the expanded installed base. At December 31, 2009, we had 1,086 Luminex
systems covered under extended service agreements and $2.3 million in deferred revenue related to
those contracts. At December 31, 2008, we had 967 Luminex systems covered under extended service
agreements and $2.1 million in deferred revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales,
amortized license fees, reagent sales and grant revenue, increased 12% to $5.9 million for the year
ended December 31, 2009 compared to $5.3 million for the year ended December 31, 2008. This
increase is primarily the result of an increase in grant revenue.
Gross Profit.
The gross profit margin percentage (gross profit as a percentage of total
revenue) for the technology segment remained flat at 66% for the years ended December 31, 2009 and
2008. The increase in royalty revenue, one of our higher margin items, was offset by the decrease
in consumable sales, another of our higher margin items. Consumables and royalties comprised
$46.6 million, or 53%, of technology segment revenue for the year ended December 31, 2009 and $46.6
million, or 56%, for the year ended December 31, 2008. Gross profit for the technology segment
increased to $57.6 million for the year ended December 31, 2009, as compared to $54.8 million for
the year ended December 31, 2008. The increase in gross profit was primarily attributable to the
overall increase in revenue.
Operating expenses.
Research and development expenses increased to $10.9 million for the year
ended December 31, 2009 from $10.8 million for the year ended December 31, 2008. The slight
increase was primarily attributable to an increase in personnel costs associated with the addition
of employees offset by a decrease in professional consulting fees. The increase in the number of
employees has allowed us to enhance our focus on development of our system, consumable and software
products and the expansion of applications for use on our platforms. As a percentage of revenue,
research and development expense was 12% in 2009 and 13% in 2008.
Selling, general and administrative expenses increased to $38.7 million for the year ended
December 31, 2009 from $34.9 million for the comparable period in 2008. The increase was primarily
related to additional personnel costs and the related stock compensation and travel costs
associated with the increase in employees and contract employees of the technology segment to 119
at December 31, 2009 from 99 at December 31, 2008 and higher legal and professional fees. As a
percentage of revenue, selling, general and administrative expenses were 44% in 2009 and 42% in
2008.
46
Income taxes.
Income tax expense decreased in 2009 due to the $14.9 million tax benefit from
the release of a portion of our total valuation allowance on deferred U.S. tax assets.
Selected financial data for the year ended December 31, 2008 and 2007 of our technology segment is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
83,567
|
|
|
$
|
62,436
|
|
|
$
|
21,131
|
|
|
|
34
|
%
|
Gross profit
|
|
$
|
54,756
|
|
|
$
|
37,864
|
|
|
$
|
16,892
|
|
|
|
45
|
%
|
Gross margin percentage
|
|
|
66
|
%
|
|
|
61
|
%
|
|
|
5
|
%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
45,723
|
|
|
$
|
38,391
|
|
|
$
|
7,332
|
|
|
|
19
|
%
|
Net income
|
|
$
|
9,405
|
|
|
$
|
12,330
|
|
|
$
|
(2,925
|
)
|
|
|
24
|
%
|
Revenue.
Total revenue increased 34% to $83.6 million for the year ended December 31, 2008
from $62.4 million in 2007. The increase in revenue was primarily attributable to an increase in
consumable, royalty and system revenue as a result of our efforts to accelerate instrument
placements, menu expansion, and increasing utilization of our partners assays on our technology.
A breakdown of revenue in the technology segment for the years ended December 31, 2008 and 2007 is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
System sales
|
|
$
|
26,408
|
|
|
$
|
23,320
|
|
Consumable sales
|
|
|
31,678
|
|
|
|
19,197
|
|
Royalty revenue
|
|
|
14,897
|
|
|
|
10,213
|
|
Service contracts
|
|
|
5,290
|
|
|
|
4,431
|
|
Other revenue
|
|
|
5,294
|
|
|
|
5,275
|
|
|
|
|
|
|
|
|
|
|
$
|
83,567
|
|
|
$
|
62,436
|
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 62% of total revenue in 2008 compared to 61%
in 2007. In particular, two customers accounted for 45% of 2008 total technology segment revenue
(24% and 21%, respectively) compared to 42% of 2007 total technology segment revenue (18% and 24%,
respectively). No other customer accounted for more than 10% of total technology segment revenue.
System and peripheral component sales increased 13% to $26.4 million for the year ended
December 31, 2008 from $23.3 million for the year ended December 31, 2007. System sales increased
to 875 systems for 2008 as compared to 838 systems in the prior year.
Consumable sales, comprised of microspheres and sheath fluid, increased 65% to $31.7 million
during 2008 from $19.2 million in 2007. This was primarily the result of an increase in bulk
purchases due to increased commercial activity by our partners. Partners who reported royalty
bearing sales accounted for $28.2 million, or 89%, of total consumable sales for the year ended
December 31, 2008. In addition, during 2008 we had 49 bulk purchases of consumables totaling
approximately $26.1 million as compared with 41 bulk purchases totaling approximately $14.3 million
in the prior year.
Royalty revenue increased 46% to $14.9 million for the year ended December 31, 2008 from $10.2
million for the year ended December 31, 2007. We believe this was primarily the result of our
efforts to accelerate instrument placements, menu expansion, and increasing utilization of our
partners assays on our technology. For the year ended December 31, 2008, we had 35 commercial
partners submit royalties as compared with 30 for the year ended December 31, 2007. Additionally,
the 30 partners from whom we recognized $10.2 million in royalties in 2007 represented
approximately $14.6 million of the total royalties in 2008, an increase of approximately 43% over
their prior year payments. Total royalty bearing sales reported to us by our partners were
approximately $238.5 million for the year ended December 31, 2008 as compared to $167.0 million for
the year ended December 31, 2007.
47
Service contracts, comprised of extended warranty contracts earned ratably over the term of a
contract, increased 19% to $5.3 million during 2008 from $4.4 million in 2007. This increase was
attributable to additional resources allocated to the sale of extended service agreements resulting
in increased penetration of the expanded installed base. At December 31, 2008, we had 967 Luminex
systems covered under extended service agreements and $2.1 million in deferred revenue related to
those contracts. At December 31, 2007, we had 799 Luminex systems covered under extended service
agreements and $1.8 million in deferred revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales,
amortized license fees, reagent sales and grant revenue, stayed flat at $5.3 million for the years
ended December 31, 2008 and 2007.
Gross Profit.
The gross profit margin percentage (gross profit as a percentage of total
revenue) for the technology segment increased to 66% for the year ended December 31, 2008 from 61%
for the year ended December 31, 2007. Gross profit for the technology segment increased to $54.8
million for the year ended December 31, 2008, as compared to $37.9 million for the year ended
December 31, 2007. The increase in gross profit margin percentage was primarily attributable to
changes in revenue mix between our higher and lower gross margin items. The increase in gross
profit was primarily attributable to the overall increase in revenue coupled with the increase in
gross margin. Consumables and royalties, two of our higher margin items, comprised $46.6 million,
or 56%, of technology segment revenue for the year ended December 31, 2008 and $29.4 million, or
47%, for the year ended December 31, 2007.
Operating expenses.
Research and development expenses increased to $10.8 million for the year
ended December 31, 2008 from $8.9 million for the year ended December 31, 2007. The increase was
primarily attributable to an increase in materials and supplies and additional personnel costs
associated with the addition of employees in the technology segment. The increase in materials and
supplies and the number of employees has allowed us to enhance our focus on development of our
system, consumable and software products and the expansion of applications for use on our
platforms. As a percentage of revenue, research and development expense was 13% in 2008 and 14% in
2007.
Selling, general and administrative expenses increased to $34.9 million for the year ended
December 31, 2008 from $29.4 million for the comparable period in 2007. The increase was primarily
related to additional personnel costs and the related stock compensation and travel costs
associated with the increase in employees and contract employees of the technology segment to 99 at
December 31, 2008 from 81 at December 31, 2007 and higher legal and professional fees. As a
percentage of revenue, selling, general and administrative expenses were 42% in 2008 and 47% in
2007.
Settlement of litigation.
We settled our pending litigation with RBM on October 15, 2007. As
part of the settlement, Luminex received a cash payment of $12.5 million. $11.5 million was
recognized as part of net income in 2007, while $1.0 million was deferred for licensing rights
granted to RBM from Luminex.
48
Assay Segment
Selected financial data for the year ended December 31, 2009 and 2008 of our assay segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
33,254
|
|
|
$
|
20,880
|
|
|
$
|
12,374
|
|
|
|
59
|
%
|
Gross profit
|
|
$
|
23,645
|
|
|
$
|
16,190
|
|
|
$
|
7,455
|
|
|
|
46
|
%
|
Gross margin percentage
|
|
|
71
|
%
|
|
|
78
|
%
|
|
|
(6
|
)%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
24,368
|
|
|
$
|
21,870
|
|
|
$
|
2,498
|
|
|
|
(11
|
)%
|
Net loss
|
|
$
|
(3,677
|
)
|
|
$
|
(6,348
|
)
|
|
$
|
2,671
|
|
|
|
42
|
%
|
A breakdown of revenue in the assay segment for the years ended December 31 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
System sales
|
|
$
|
1,415
|
|
|
$
|
1,728
|
|
Consumable sales
|
|
|
64
|
|
|
|
46
|
|
Royalty revenue
|
|
|
|
|
|
|
|
|
Assay revenue
|
|
|
31,054
|
|
|
|
18,715
|
|
Service contracts
|
|
|
293
|
|
|
|
73
|
|
Other revenue
|
|
|
428
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
$
|
33,254
|
|
|
$
|
20,880
|
|
|
|
|
|
|
|
|
Revenue.
Total revenue increased 59% to $33.3 million for the year ended December 31, 2009
from $20.9 million in 2008. The increase in revenue was primarily attributable to a 66% increase in
assay revenue, driven primarily by increased sales of RVP resulting from the H1N1 influenza. We
currently do not anticipate the occurrence of a pandemic influenza to contribute to our 2010
results. The top five customers, by revenue, accounted for 81% of total revenue in 2009 compared
to 72% in 2008. In particular, the top two customers in 2009, one of which was not a top two
customer in 2008, accounted for 52% of total revenue (31% and 21%, respectively) compared to the
top two customers of 2008 which accounted for 48% of total revenue (27% and 21%, respectively).
The majority of our assay segment revenues are generated from the sale of test kits. Historically,
over 70% of our total assay revenue was derived from our CF product line. In the year ended
December 31, 2009, our top two assay segment products were RVP and CF. These two products
represented approximately 89% and 83% of total assay revenue in the years ended December 31, 2009
and 2008, respectively. System sales during the year ended 2009 in the assay segment decreased to
35 systems compared to 40 systems in 2008. Other revenue includes contract research and
development fees and commercial milestone revenue.
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the assay segment decreased to 71% for the year ended December 31, 2009 from 78% for
the year ended December 31, 2008. Gross profit for the assay segment increased to $23.6 million for
the year ended December 31, 2009, as compared to $16.2 million for the year ended December 31,
2008. The decrease in gross profit margin percentage was primarily attributable to a contractual
amendment with a partner resulting in a positive pricing adjustment of $327,000 in 2008 and
accelerated amortization in 2009 of a license agreement related to the termination of a supply
contract associated with our FlexmiR product line. The increase in gross profit was primarily
attributable to the overall increase in revenue offset by the decrease in gross margin.
Operating expenses.
Research and development expenses increased to $9.9 million for the year
ended December 31, 2009 from $7.8 million for the year ended December 31, 2008. The increase in
research and development expenses was primarily due to increased activity by the assay segment
related to product development, additional personnel costs and the related stock compensation costs
associated with the increase in research and development employees and contract employees of the
assay segment to 60 at December 31, 2009 from 45 at December 31, 2008.
49
Selling, general and administrative expenses, including the amortization of acquired
intangibles, increased to $14.5 million for the year ended December 31, 2009 from $14.1 million for
the comparable period in 2008. The slight increase in selling, general and administrative expenses
was primarily due to a decrease in marketing expenses, outside services and legal fees, offset by a
payment of $780,000 made related to the termination of a supply contract associated with our
FlexmiR product line. We launched our next generation FlexmiR in July 2009. This termination is
not expected to affect FlexmiR product supply to customers.
Selected financial data for the year ended December 31, 2008 and 2007 of our assay segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
Variance
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
(%)
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Revenue
|
|
$
|
20,880
|
|
|
$
|
12,574
|
|
|
$
|
8,306
|
|
|
|
66
|
%
|
Gross profit
|
|
$
|
16,190
|
|
|
$
|
8,230
|
|
|
$
|
7,960
|
|
|
|
97
|
%
|
Gross margin percentage
|
|
|
78
|
%
|
|
|
65
|
%
|
|
|
13
|
%
|
|
|
N/A
|
|
Operating expenses
|
|
$
|
21,870
|
|
|
$
|
25,121
|
|
|
$
|
(3,251
|
)
|
|
|
(13
|
)%
|
Net loss
|
|
$
|
(6,348
|
)
|
|
$
|
(15,041
|
)
|
|
$
|
8,693
|
|
|
|
58
|
%
|
Revenue.
Revenues were derived from LBG for the twelve months ended December 31, 2008 and
2007 and also from LMD from March 1, 2007 through December 31, 2008.
A breakdown of revenue in the assay segment for the years ended December 31 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
System sales
|
|
$
|
1,728
|
|
|
$
|
1,108
|
|
Consumable sales
|
|
|
46
|
|
|
|
2
|
|
Royalty revenue
|
|
|
|
|
|
|
31
|
|
Service contracts
|
|
|
73
|
|
|
|
|
|
Assay revenue
|
|
|
18,715
|
|
|
|
11,323
|
|
Other revenue
|
|
|
318
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
$
|
20,880
|
|
|
$
|
12,574
|
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 72% of total revenue in 2008 compared to 64%
in 2007. In particular, the top two customers in 2008 accounted for 48% of total revenue (27% and
21%, respectively) compared to the top two customers of 2007 which accounted for 46% of total
revenue (33% and 13%, respectively. In the year ended December 31, 2008, as a result of the launch
of our RVP product in January, 2008, our top two assay segment products were CF and RVP. These two
products represented over 83% of total assay revenue in the year ended December 31, 2008. System
sales during the year ended 2008 in the assay segment increased to 40 systems compared to 24
systems in 2007. Other revenue includes contract research and development fees and commercial
milestone revenue.
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the assay segment increased to 78% for the year ended December 31, 2008 from 65% for
the year ended December 31, 2007. Gross profit for the assay segment increased to $16.2 million for
the year ended December 31, 2008, as compared to $8.2 million for the year ended December 31, 2007.
The increase in gross profit margin percentage was primarily attributable to increased utilization
and capacity at LMD, increased sales of higher gross margin assays, and changes in revenue mix
between our higher and lower gross margin items. The increase in gross profit was primarily
attributable to the overall increase in revenue coupled with the increase in gross margin.
50
Operating expenses.
Research and development expenses increased to $7.8 million for the year
ended December 31, 2008 from $6.4 million for the year ended December 31, 2007. The increase in
research and development expenses was primarily due to incorporation of the results of LMD for the
full twelve months in 2008 compared to the inclusion of only ten months of operating results of LMD
in the year ended December 31, 2007, as the acquisition was consummated on March 1, 2007, and to a
lesser extent, to increased activity by the assay segment related to product development.
Selling, general and administrative expenses increased to $12.1 million for the year ended
December 31, 2008 from $9.6 million for the comparable period in 2007, excluding the non-recurring
$7.4 million write-off of in-process research and development related to the acquisition of LMD,
for the nine months ended September 30, 2007. The overall increase in selling, general, and
administrative expenses is primarily due to the addition of costs associated with LMD. As
previously discussed, the expenses for the year ended December 31, 2007 include expenses related to
LBG for the entire twelve months and expenses related to LMD for ten months only. The overall
increase in selling, general and administrative expenses was primarily attributable to the addition
of LMD and to a lesser extent increased activity by the LBG.
Gain on settlement of liability.
$2.3 million was recognized in the year ended December 31,
2007 related to the settlement of a liability related to the renegotiation of a contract acquired
as part of the acquisition of Tm Bioscience.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
90,843
|
|
|
$
|
81,619
|
|
Short-term investments
|
|
|
8,511
|
|
|
|
40,501
|
|
Long-term investments
|
|
|
20,228
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
$
|
119,582
|
|
|
$
|
124,120
|
|
|
|
|
|
|
|
|
At December 31, 2009, we held cash, cash equivalents and short-term and long-term investments
of $119.6 million and had working capital of $122.4 million. At December 31, 2008, we held cash,
cash equivalents and short-term and long-term investments of $124.1 million and had working capital
of $131.5 million. Cash, cash equivalents and investments have decreased by approximately $4.5
million during the year ended December 31, 2009 due primarily to capital expenditures and an
increase in our accounts receivable.
We have funded our operations to date primarily through the issuance of equity securities (in
conjunction with an initial public offering in 2000, subsequent option exercises, and our follow-on
public offering in 2008) and cash generated from operations. Our cash reserves are held directly
or indirectly in a variety of short-term, interest-bearing instruments, including obligations of
the United States government or agencies thereof and United States corporate debt securities. We
do not have any investments in asset-backed commercial paper, auction rate securities, or mortgage
backed or sub-prime style investments.
Cash provided by operations was $5.8 million for the year ended December 31, 2009. Significant
items affecting operating cash flows for the period were our net income of $17.7 million and
adjustments for depreciation and amortization of $8.3 million and stock compensation of $8.2
million, offset by the $15.5 million increase in our deferred income taxes due to our release of
the valuation allowance, an increase in accounts receivable of $10.8 and an increase in inventory
of $5.9 million.
51
Cash provided by investing activities was $3.3 million for the year ended December 31, 2009 as
compared with cash used in investing of $41.7 million for the year ended December 31, 2008. In
2009, our purchases of securities decreased as we decided to hold maturing short-term investments
in cash and cash equivalents. Capital expenditures for property, plant and equipment increased to
$10.4 million from $4.4 million in 2008. The increase is primarily related to leasehold
improvements for additional space leased in the U.S. and the Netherlands, acquisitions of FLEXMAP
3D systems for internal use, leasehold improvements for our new office in the Peoples Republic of
China, and purchases of equipment for our business continuity site. Currently, exclusive of
changes in investments, we expect cash used in investing activities to be primarily for purchases
of property, plant and equipment.
Cash provided by financing activities was $0.6 million for the year ended December 31, 2009 as
compared with cash provided by financing activities of $81.7 million for the year ended December
31, 2008 due to our follow-on public offering in June of 2008 of $74.7 million and a decrease in
the proceeds from issuance of common stock due to exercises of stock options and warrants of $0.6
million in 2009 compared to $7.1 million in 2008.
Our future capital requirements will depend on a number of factors, including our success in
developing and expanding markets for our products, payments under possible future strategic
arrangements, continued progress of our research and development of potential products, the timing
and outcome of regulatory approvals, the need to acquire licenses to new technology, costs
associated with strategic acquisitions including integration costs and assumed liabilities,
litigation expense, the status of competitive products and potential cost associated with both
protecting and defending our intellectual property. Additionally, actions taken as a result of the
ongoing internal evaluation of our business could result in expenditures not currently contemplated
in our estimates for 2010. We believe, however, that our existing cash and cash equivalents are
sufficient to fund our operating expenses, capital equipment requirements and other expected
liquidity requirements for the coming twelve months. Factors that could affect our capital
requirements, in addition to those listed above include: (i) continued collections of accounts
receivable consistent with our historical experience, (ii) our ability to manage our inventory
levels consistent with past practices, and (iii) signing of partnership agreements which include
significant up front license fees. See also the Safe Harbor Cautionary Statement and Item 1A
Risk Factors above.
To the extent our capital resources are insufficient to meet future capital requirements we
will have to raise additional funds to continue the development and deployment of our technologies.
There can be no assurance that debt or equity funds will be available on favorable terms, if at
all, particularly given the current state of the capital markets. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the issuance of those
securities could result in dilution to our stockholders. Moreover, incurring debt financing could
result in a substantial portion of our operating cash flow being dedicated to the payment of
principal and interest on such indebtedness, could render us more vulnerable to competitive
pressures and economic downturns and could impose restrictions on our operations. If adequate funds
are not available, we may be required to curtail operations significantly or to obtain funds
through entering into agreements on unattractive terms.
52
Contractual Obligations
As of December 31, 2009, we had approximately $11.7 million in non-cancelable obligations for
the next 12 months. These obligations are included in our estimated cash usage during 2009. The
following table reflects our total current non-cancelable obligations by period as of December 31,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
Non-cancelable rental
obligations
|
|
$
|
11,421
|
|
|
$
|
2,446
|
|
|
$
|
4,656
|
|
|
$
|
3,801
|
|
|
$
|
518
|
|
Non-cancelable purchase
obligations
(1)
|
|
|
12,662
|
|
|
|
8,330
|
|
|
|
1,552
|
|
|
|
1,082
|
|
|
|
1,698
|
|
Long-term debt
obligations
(2)
|
|
|
5,430
|
|
|
|
868
|
|
|
|
2,090
|
|
|
|
2,472
|
|
|
|
|
|
Capital lease obligations
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(3)
|
|
$
|
29,533
|
|
|
$
|
11,664
|
|
|
$
|
8,298
|
|
|
$
|
7,355
|
|
|
$
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Purchase obligations include contractual arrangements in the form of purchase orders
primarily as a result of normal inventory purchases or minimum payments due resulting when
minimum purchase commitments are not met.
|
|
(2)
|
|
On December 12, 2003, LMD entered into an agreement with the Ministry of Industry of
the Government of Canada under which the Government agreed to invest up to Canadian (Cdn)
$7.3 million relating to the development of several genetic tests. This agreement was
amended in March 2009. Funds were advanced from Technology Partnerships Canada (TPC), a
special operating program. The actual payments we received were predicated on eligible
expenditures made during the project period which ended July 31, 2008. LMD has received
Cdn $4.9 million from TPC which is expected to be repaid along with approximately Cdn $1.6
million of imputed interest for a total of approximately Cdn $6.5 million.
|
|
|
|
LMD has agreed to repay the TPC funding through a royalty on revenues. Royalty payments
commenced in 2007 at a rate of 1% of total revenue and at a rate of 2.5% for 2008 and
thereafter. Aggregate royalty repayment will continue until total advances plus imputed
interest has been repaid or until December 31, 2016, whichever is earlier. The repayment
obligation expires on December 31, 2016 and any unpaid balance will be cancelled and forgiven
on that date. Should the term of repayment be shorter than expected due to higher than
expected assay revenue, the effective interest rate would increase as repayment is
accelerated. Repayments denominated in U.S. Dollars are currently projected to be as shown in
the table above, but actual future sales generating a repayment obligation will vary from this
projection and are subject to the risks and uncertainties described elsewhere in this report,
including under Risk Factors and Safe Harbor Cautionary Statement. Furthermore, payment
reflected in U.S. Dollars is subject to adjustment based upon applicable exchange rates as of
the reporting date. The amount due within one year, as shown in the table above, is our
estimated repayment amount based on the current projected sales for the full year 2009.
|
|
(3)
|
|
Due to the uncertainty with respect to the timing of future cash flows associated with
Luminexs unrecognized tax benefits at December 31, 2009, Luminex is unable to make
reasonably reliable estimates of the timing of cash settlement with the respective taxing
authority. Therefore, $0.8 million of unrecognized tax benefits have been excluded from the
contractual obligations table above. See Note 10 to the Consolidated Financial Statements
for a discussion on income taxes.
|
Inflation
We do not believe that inflation has had a direct adverse effect on our operations to date.
However, a substantial increase in product and manufacturing costs and personnel related expenses
could have an adverse impact on our results of operations in the event these expenses increase at a
faster pace than we can increase our system, consumable and royalty rates.
53
Recently Adopted Accounting Standards
In June 2009, the FASB issued ASC Update No. 2009-01 (ASU No. 2009-01), Topic 105 Generally
Accepted Accounting Principles, which amends the ASC for the issuance of Statement of Financial
Accounting Standards No. 168 (SFAS No. 168), The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. ASU No. 2009-01 includes SFAS No. 168 in
its entirety and establishes the ASC as the source of authoritative accounting principles
recognized by FASB for all nongovernmental entities in the preparation of financial statements in
accordance with GAAP. For SEC registrants, rules and interpretive releases of the SEC under federal
securities laws are also considered authoritative sources of GAAP. The guidance is effective for
financial statements issued for interim and annual periods ending after September 15, 2009. We
adopted the FASB ASC for fiscal year ended December 31, 2009. The adoption had no impact on our
financial statements. All references to authoritative guidance have been updated to cite relevant
ASC Topics, as applicable.
Recent Accounting Pronouncements
The FASB recently amended its guidance on the information that a reporting entity must provide
in its financial reports about a transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a transferors continuing
involvement in transferred financial assets. Specifically, among other aspects, the new guidance
amends previous guidance related to the concept of a qualifying special-purpose entity, variable
interest entities that are qualifying special-purpose entities and the financial-components
approach. The new guidance is effective for transfer of financial assets occurring on or after
January 1, 2010. We have not determined the effect that the adoption of the new guidance will have
on its financial position or results of operations but the effect will generally be limited to
future transactions. Historically, we have not had any material transfers of financial assets.
Additionally, the FASB recently amended its guidance surrounding a companys analysis to determine
whether its variable interest or interests give it a controlling financial interest in a variable
interest entity. The primary beneficiary of a variable interest entity is the enterprise that has
both (1) the power to direct the activities of a variable interest entity that most significantly
impact the entitys economic performance and (2) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the variable interest entity. This new
guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of
a variable interest entity. The guidance is effective for all variable interest entities and
relationships with variable interest entities existing as of January 1, 2010. We do not expect the
adoption of this standard to have an impact on our financial position or results of operations.
In October 2009, the FASB updated its revenue recognition guidance, amending the criteria for
separating consideration in multiple-deliverable arrangements. The amendments establish a selling
price hierarchy for determining the selling price of a deliverable. The selling price used for each
deliverable will be based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. The amendments will
eliminate the residual method of allocation and require that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the relative selling price method.
The relative selling price method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverables selling price. This update will be effective
prospectively for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the
requirements of this update and have not yet determined the impact on our consolidated financial
statements.
In October 2009, the FASB updated its software guidance, changing the accounting model for
revenue arrangements that include both tangible products and software elements. Tangible products
containing software components and non-software components that function together to deliver the
tangible products essential functionality are no longer within the scope of the software revenue
guidance. In addition, the amendments require that hardware components of a tangible product
containing software components always be excluded from the software revenue guidance. This update
will be effective prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are currently
evaluating the requirements of this update and have not yet determined the impact on our
consolidated financial statements.
54
In January 2010, the FASB updated it guidance related to fair value measurements and
disclosures
.
This guidance requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement in order to improve these disclosures and, thus, increase
the transparency in financial reporting. Specifically, guidance will require a reporting entity to
disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair
value measurements and describe the reasons for the transfers and present separately information
about purchases, sales, issuances, and settlements in the reconciliation for fair value
measurements using significant unobservable inputs. In addition, the FASB clarified the disclosure
requirements related to the use of judgment in determining the appropriate classes of assets and
liabilities when reporting fair value measurement for each class and about the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.
The update is effective for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. Early
application is permitted. We are currently evaluating the requirements of this update and have not
yet determined the impact on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk.
Our interest income is sensitive to changes in the general level of
domestic interest rates, particularly since our investments are in short-term and long-term
instruments available-for-sale. A 50 basis point fluctuation from average investment returns at
December 31, 2009 would yield an approximate 1% variance in overall investment return. Due to our
intention to hold our investments to maturity, we have concluded that there is no material market
risk exposure.
Foreign Currency Risk.
As of December 31, 2009, as a result of our foreign operations, we
have costs, assets and liabilities that are denominated in foreign currencies, primarily Canadian
dollars and to a lesser extent the Euro, Renminbi, and Yen. For example, some fixed asset
purchases, certain expenses, and the TPC debt of our Canadian subsidiary, LMD, are denominated in
Canadian dollars while sales of products are primarily denominated in U.S. dollars. All
transactions in our Netherlands and Japanese subsidiaries are denominated in Euros and Yen,
respectively. All transactions, with the exception of our initial capital investment, in our
Chinese subsidiary are denominated in Renminbi. As a consequence, movements in exchange rates
could cause our foreign currency denominated expenses to fluctuate as a percentage of net revenue,
affecting our profitability and cash flows. A significant majority of our revenues are denominated
in U.S. dollars. The impact of foreign exchange on foreign denominated balances will vary in
relation to changes between the U.S. and Canadian Dollar, Euro, Yen, and Renminbi exchange rates. A
10% change in these exchange rates in relation to the U.S. dollar would result in an immaterial
foreign exchange impact. As a result of our efforts to expand globally, in the future we will be
exposed to additional foreign currency risk in multiple currencies; however, at this time, our
exposure to foreign currency fluctuations is not material.
In addition, the indirect effect of fluctuations in interest rates and foreign currency
exchange rates could have a material adverse effect on our business financial condition and results
of operations. For example, currency exchange rate fluctuations could affect international demand
for our products. In addition, interest rates fluctuations could affect our customers buying
patterns. Furthermore, interest rate and currency exchange rate fluctuations may broadly influence
the United States and foreign economies resulting in a material adverse effect on our business,
financial condition and results of operations. As a result, we cannot give any assurance as to the
effect that future changes in foreign currency rates will have on our consolidated financial
position, results of operations or cash flows. Our aggregate foreign currency transaction loss of
$214,000 was included in determining our consolidated results for the year ended December 31, 2009.
55
|
|
|
ITEM 8.
|
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
PAGE
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
of
Luminex Corporation
We have audited Luminex Corporations internal control over financial reporting as of December 31,
2009, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Luminex
Corporations management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Luminex Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Luminex Corporation as of December 31,
2009 and 2008, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2009 of Luminex Corporation
and our report dated February 25, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2010
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Luminex Corporation
We have audited the accompanying consolidated balance sheets of Luminex Corporation (the Company)
as of December 31, 2009 and 2008, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period ended December 31,
2009. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Luminex Corporation at December 31, 2009
and 2008 and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2009, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25,
2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2010
58
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,843
|
|
|
$
|
81,619
|
|
Short-term investments
|
|
|
8,511
|
|
|
|
40,501
|
|
Accounts receivable, (net of allowance for doubtful accounts of
$523 and $272 at December 31, 2009 and 2008, respectively)
|
|
|
22,108
|
|
|
|
11,024
|
|
Inventories, net
|
|
|
17,524
|
|
|
|
11,589
|
|
Deferred income taxes
|
|
|
1,040
|
|
|
|
2
|
|
Prepaids and other
|
|
|
2,130
|
|
|
|
1,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
142,156
|
|
|
|
146,393
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
17,255
|
|
|
|
12,567
|
|
Intangible assets, net
|
|
|
12,938
|
|
|
|
14,901
|
|
Deferred income taxes
|
|
|
14,732
|
|
|
|
274
|
|
Long-term investments
|
|
|
20,228
|
|
|
|
2,000
|
|
Goodwill
|
|
|
39,617
|
|
|
|
39,617
|
|
Other
|
|
|
1,087
|
|
|
|
1,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
248,013
|
|
|
$
|
217,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,430
|
|
|
$
|
4,580
|
|
Accrued liabilities
|
|
|
7,493
|
|
|
|
6,930
|
|
Deferred revenue
|
|
|
2,967
|
|
|
|
2,671
|
|
Current Portion of long term debt
|
|
|
868
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,758
|
|
|
|
14,626
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,591
|
|
|
|
2,914
|
|
Deferred revenue
|
|
|
4,614
|
|
|
|
4,960
|
|
Other
|
|
|
1,312
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
29,275
|
|
|
|
22,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 200,000,000 shares authorized; issued and
outstanding: 40,736,340 shares in 2009; 40,334,082 shares in 2008
|
|
|
41
|
|
|
|
40
|
|
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares
issued and outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
285,648
|
|
|
|
279,255
|
|
Accumulated other comprehensive loss (gain)
|
|
|
28
|
|
|
|
(47
|
)
|
Accumulated deficit
|
|
|
(66,979
|
)
|
|
|
(84,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
218,738
|
|
|
|
194,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
248,013
|
|
|
$
|
217,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the acompanying notes which are an integral part of these Consolidated Financial Statements.
59
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
120,643
|
|
|
$
|
104,447
|
|
|
$
|
75,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
39,349
|
|
|
|
33,501
|
|
|
|
28,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81,294
|
|
|
|
70,946
|
|
|
|
46,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
20,752
|
|
|
|
18,628
|
|
|
|
15,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
53,143
|
|
|
|
48,965
|
|
|
|
40,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
7,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of liability
|
|
|
|
|
|
|
|
|
|
|
(2,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
73,895
|
|
|
|
67,593
|
|
|
|
61,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
7,399
|
|
|
|
3,353
|
|
|
|
(15,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense from long-term debt
|
|
|
(481
|
)
|
|
|
(592
|
)
|
|
|
(513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
719
|
|
|
|
1,144
|
|
|
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of litigation
|
|
|
(4,350
|
)
|
|
|
|
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3,287
|
|
|
|
3,905
|
|
|
|
(2,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
14,442
|
|
|
|
(848
|
)
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,729
|
|
|
$
|
3,057
|
|
|
$
|
(2,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
|
|
$
|
0.44
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share, basic
|
|
|
40,562
|
|
|
|
37,868
|
|
|
|
34,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted
|
|
$
|
0.43
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share, diluted
|
|
|
41,633
|
|
|
|
39,700
|
|
|
|
34,361
|
|
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
60
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,729
|
|
|
$
|
3,057
|
|
|
$
|
(2,711
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
8,329
|
|
|
|
7,001
|
|
|
|
5,063
|
|
In-process research and development expense
|
|
|
|
|
|
|
|
|
|
|
7,400
|
|
Gain on settlement of liability
|
|
|
|
|
|
|
|
|
|
|
(2,345
|
)
|
Amortization of deferred stock, restricted stock
and stock compensation expense
|
|
|
8,160
|
|
|
|
7,251
|
|
|
|
6,593
|
|
Deferred income tax benefit
|
|
|
(15,496
|
)
|
|
|
(105
|
)
|
|
|
(128
|
)
|
Loss on disposal of assets
|
|
|
25
|
|
|
|
8
|
|
|
|
88
|
|
Other
|
|
|
1,665
|
|
|
|
(415
|
)
|
|
|
268
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(10,827
|
)
|
|
|
694
|
|
|
|
(3,255
|
)
|
Inventories, net
|
|
|
(5,935
|
)
|
|
|
(5,081
|
)
|
|
|
(129
|
)
|
Other assets
|
|
|
(699
|
)
|
|
|
(837
|
)
|
|
|
1,147
|
|
Accounts payable
|
|
|
3,672
|
|
|
|
1,760
|
|
|
|
(2,958
|
)
|
Accrued liabilities
|
|
|
(765
|
)
|
|
|
(312
|
)
|
|
|
(715
|
)
|
Deferred revenue
|
|
|
(55
|
)
|
|
|
830
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,803
|
|
|
|
13,851
|
|
|
|
8,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities
|
|
|
(62,764
|
)
|
|
|
|
|
|
|
|
|
Maturities of available-for-sale securities
|
|
|
33,968
|
|
|
|
|
|
|
|
|
|
Purchases of held-to-maturity securities
|
|
|
|
|
|
|
(55,868
|
)
|
|
|
(6,325
|
)
|
Maturities of held-to-maturity securities
|
|
|
42,501
|
|
|
|
20,310
|
|
|
|
17,717
|
|
Purchase of property and equipment
|
|
|
(10,369
|
)
|
|
|
(4,449
|
)
|
|
|
(6,685
|
)
|
Acquisition of business, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(2,686
|
)
|
Acquisition activity
|
|
|
|
|
|
|
(481
|
)
|
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
19
|
|
|
|
30
|
|
Acquired intangible assets
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Acquired technology rights
|
|
|
(29
|
)
|
|
|
(1,216
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3,307
|
|
|
|
(41,685
|
)
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
453
|
|
|
|
|
|
|
|
|
|
Payments on debt
|
|
|
(440
|
)
|
|
|
(134
|
)
|
|
|
(12,349
|
)
|
Proceeds from secondary offering, net of offering costs
|
|
|
|
|
|
|
74,722
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
567
|
|
|
|
7,075
|
|
|
|
1,868
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
580
|
|
|
|
81,663
|
|
|
|
(10,468
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash
|
|
|
(466
|
)
|
|
|
557
|
|
|
|
118
|
|
Change in cash and cash equivalents
|
|
|
9,224
|
|
|
|
54,386
|
|
|
|
(181
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
81,619
|
|
|
|
27,233
|
|
|
|
27,414
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
90,843
|
|
|
$
|
81,619
|
|
|
$
|
27,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and penalties paid
|
|
$
|
456
|
|
|
$
|
160
|
|
|
$
|
1,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH
EFFECT OF ACQUISITIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
|
|
|
|
|
|
|
|
$
|
(49,401
|
)
|
Common stock issued
|
|
|
|
|
|
|
|
|
|
|
41,754
|
|
Conversion of Tm options and warrants
|
|
|
|
|
|
|
|
|
|
|
2,315
|
|
Forgiveness of receivable from acquired company
|
|
|
|
|
|
|
|
|
|
|
1,233
|
|
Write-off of acquired technology rights
|
|
|
|
|
|
|
|
|
|
|
473
|
|
Cash acquired
|
|
|
|
|
|
|
|
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, net of cash acquired
|
|
|
|
|
|
|
|
|
|
$
|
(2,686
|
)
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
61
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
31,678,608
|
|
|
$
|
32
|
|
|
$
|
139,116
|
|
|
$
|
65
|
|
|
$
|
(85,054
|
)
|
|
$
|
54,159
|
|
Exercise of stock options
|
|
|
331,754
|
|
|
|
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
1,868
|
|
Issuances of restricted stock, net of
shares withheld for taxes
|
|
|
178,815
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
Shares Exchanged in Tm Acquisition
|
|
|
3,202,034
|
|
|
|
3
|
|
|
|
41,751
|
|
|
|
|
|
|
|
|
|
|
|
41,754
|
|
Value of Tm options and warrants traded
|
|
|
|
|
|
|
|
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
|
|
2,315
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
6,593
|
|
|
|
|
|
|
|
|
|
|
|
6,593
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,711
|
)
|
|
|
(2,711
|
)
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
35,391,211
|
|
|
$
|
35
|
|
|
$
|
191,218
|
|
|
$
|
(8
|
)
|
|
$
|
(87,765
|
)
|
|
$
|
103,480
|
|
Exercise of stock options
|
|
|
644,057
|
|
|
|
1
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
7,076
|
|
Issuances of restricted stock, net of
shares withheld for taxes
|
|
|
273,814
|
|
|
|
|
|
|
|
(1,281
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,281
|
)
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
7,251
|
|
|
|
|
|
|
|
|
|
|
|
7,251
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,057
|
|
|
|
3,057
|
|
Secondary public offering, net of offering costs
|
|
|
4,025,000
|
|
|
|
4
|
|
|
|
74,718
|
|
|
|
|
|
|
|
|
|
|
|
74,722
|
|
Tax benefits associated with options
|
|
|
|
|
|
|
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
274
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
40,334,082
|
|
|
$
|
40
|
|
|
$
|
279,255
|
|
|
$
|
(47
|
)
|
|
$
|
(84,708
|
)
|
|
$
|
194,540
|
|
Exercise of stock options
|
|
|
71,602
|
|
|
|
1
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
Issuances of restricted stock, net of
shares withheld for taxes
|
|
|
330,656
|
|
|
|
|
|
|
|
(2,371
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,371
|
)
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
8,160
|
|
|
|
|
|
|
|
|
|
|
|
8,160
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,729
|
|
|
|
17,729
|
|
Tax benefits associated with options
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
40,736,340
|
|
|
$
|
41
|
|
|
$
|
285,648
|
|
|
$
|
28
|
|
|
$
|
(66,979
|
)
|
|
$
|
218,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
62
LUMINEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Luminex Corporation (the Company or Luminex) develops, manufactures and sells proprietary
biological testing technologies and products with applications throughout the life sciences and
diagnostic industries. The Companys xMAP
®
technology, an open architecture, multiplexing
technology, allows the Luminex systems to simultaneously perform up to 500 bioassays from a small
sample volume, typically a single drop of fluid, by reading biological tests on the surface of
microscopic polystyrene beads called microspheres. xMAP technology combines this miniaturized
liquid array bioassay capability with small lasers, digital signal processors and proprietary
software to create a system offering advantages in speed, precision, flexibility and cost. The
Companys xMAP technology is currently being used within various segments of the life sciences
industry which includes the fields of drug discovery and development, clinical diagnostics, genetic
analysis, bio-defense, protein analysis and biomedical research.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been eliminated upon
consolidation. Certain prior year amounts have been reclassified to conform to the current year
presentation.
The acquisition of Tm Bioscience Corporation, or Tm, now known as Luminex Molecular
Diagnostics, Inc., or LMD, was completed on March 1, 2007; therefore, the results of operations of
LMD in the Companys consolidated financial statements only include LMD results since that date.
Adoption of the FASB Accounting Standards Codification
In June 2009, the FASB issued ASC Update No. 2009-01 (ASU No. 2009-01), Topic 105 Generally
Accepted Accounting Principles, which amends the ASC for the issuance of Statement of Financial
Accounting Standards No. 168 (SFAS No. 168), The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. ASU No. 2009-01 includes SFAS No. 168 in
its entirety and establishes the ASC as the source of authoritative accounting principles
recognized by FASB for all nongovernmental entities in the preparation of financial statements in
accordance with GAAP. For SEC registrants, rules and interpretive releases of the SEC under federal
securities laws are also considered authoritative sources of GAAP. The guidance is effective for
financial statements issued for interim and annual periods ending after September 15, 2009. The
Company adopted the FASB ASC for fiscal year ended December 31, 2009. The adoption had no impact on
the Companys financial statements. All references to authoritative guidance have been updated to
cite relevant ASC Topics, as applicable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual amounts and results
could differ from those estimates, and such differences could be material to the financial
statements.
Subsequent Events
The Company has evaluated subsequent events through the time of filing this Form 10-K with the
SEC on February 25, 2010. No material subsequent events have occurred since December 31, 2009 that
required recognition or disclosure in these financial statements.
63
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and highly liquid investments with original
maturities of three months or less when purchased.
Investments
The Company determines the appropriate classification of its investments in debt and equity
securities at the time of purchase and reevaluates such determinations at each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Debt securities for which the Company does not have the
intent or ability to hold to maturity are classified as available for sale. Held-to-maturity
securities are stated at amortized cost, which approximates fair value of these investments.
Marketable securities that are bought and held principally for the purpose of selling them in the
near term are classified as trading securities and are reported at fair value, with unrealized
gains and losses recognized in earnings. Debt and marketable equity securities not classified as
held-to-maturity or as trading are classified as available for sale, and are carried at fair market
value, with the unrealized gains and losses included in the determination of comprehensive income
and reported in stockholders equity. Marketable securities are recorded as either short-term or
long-term on the balance sheet based on contractual maturity date. The fair value of all
securities is determined by quoted market prices and market interest rates as of the end of the
reporting period. Declines in fair value below the Companys carrying value deemed to be other
than temporary are charged against net earnings.
Fair Value of Financial Instruments
The fair values of financial instruments are determined based on quoted market prices and
market interest rates as of the end of the reporting period. The Companys financial instruments
include cash and cash equivalents, short-term investments, accounts receivable, long-term
investments, accounts payable, accrued liabilities, and long-term debt. Except for the fair value
of the Companys long-term debt, the fair values of these financial instruments were not materially
different from their carrying or contract values at December 31, 2009 and 2008. See Note 11 for
further details concerning the fair value of the Companys long-term debt.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk
consist of short-term and long-term investments and trade receivables. The Companys short-term
investments consist of investments in high credit quality financial institutions and corporate
issuers.
The Company provides credit, in the normal course of business, to a number of its customers
geographically dispersed primarily throughout the U.S. The Company attempts to limit its credit
risk by performing ongoing credit evaluations of its customers and maintaining adequate allowances
for potential credit losses and does not require collateral.
One Lambda, Inc. accounted for 21%, 24% and 18% of the Companys total technology segment
revenues in 2009, 2008 and 2007, respectively. Bio-Rad Laboratories, Inc. accounted for 16%, 21%
and 24% of the Companys total technology segment revenues in 2009, 2008 and 2007, respectively.
Fisher Scientific accounted for 31%, 21% and less than 10% of the Companys total assay segment
revenues in 2009, 2008 and 2007, respectively. Abbott Laboratories accounted for 21%, less than
10%, and less than 10% of the Companys total assay segment revenues in 2009, 2008 and 2007,
respectively. Genzyme Genetics accounted for 15%, 27%, and 33% of the Companys total assay
segment revenues in 2009, 2008 and 2007, respectively. LabCorp accounted for less than 10%, less
than 10%, and 13% of the Companys total assay segment revenues in 2009, 2008 and 2007,
respectively. No other customer accounted for more than 10% of total segment revenues in 2009,
2008 or 2007.
64
Inventories
Inventories, consisting primarily of raw materials and purchased components, are stated at the
lower of cost or market, with cost determined according to the standard cost method. The Company
routinely assesses its on-hand inventory for timely identification and measurement of obsolete,
slow-moving or otherwise impaired inventory.
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and
depreciation. Property and equipment are generally amortized or depreciated on a straight-line
basis over the useful lives of the assets, which range from two to seven years. Leasehold
improvements and equipment under capital lease are amortized on a straight-line basis over the
shorter of the remaining term of the lease or the estimated useful life of the improvements and
equipment. The Company classifies the carrying value of Luminex xMAP Instruments placed within
the reagent rental program and the instruments on loan to customers in Property and equipment as
Assets on loan/rental.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost over the fair value of the assets of the acquired
business. In accordance with ASC 350 Goodwill and Other (ASC 350), goodwill is reviewed for
impairment at least annually at the beginning of the fourth quarter, or more frequently if
impairment indicators arise, on a reporting unit level. The Company allocates goodwill to one
reporting unit, the assay segment, for goodwill impairment testing. In performing the impairment
test, the Company utilizes the two-step approach prescribed under the ASC. The first step requires
a comparison of the carrying value of the reporting unit to the estimated fair value of the
reporting unit. If in step one of the annual test, the carrying amount of a reporting unit exceeds
its fair value, then a goodwill impairment test is performed in step two to measure the amount of
the impairment loss, if any. Determining the fair value of goodwill is subjective in nature and
often involves the use of estimates and assumptions. The Company utilizes the income approach
based on a discounted cash flow analysis to determine its fair value estimates, and then uses
market comparisons as a reasonability check to ensure that neither the income approach nor the
market comparisons yielded significantly different results. The income approach is based on a
discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows
attributable to a reporting unit and then discounting the after-tax cash flows to a present value
using a risk-adjusted discount rate. As the Companys assay segment and goodwill came into
existence in 2007 due to the acquisition of Tm Biosciences, now referred to as LMD, the Company
believes that the DCF method best aligns with how the Company approached the acquisition and
determined the value of the acquired company. This methodology used to determine fair value has
been consistently applied since the inception of the Companys goodwill in 2007; however, the
assumptions and estimates are updated each year. The Companys estimates are based on revenue
projections by product line, and include judgment based on historical growth and scheduled product
approvals by the various governmental authorities. The Company believes its assumptions are
consistent with the plans and estimates used to manage the underlying businesses. The most
significant assumptions used in the discounted cash flow methodology are the discount rate, based
upon the estimated weighted average cost of capital (WACC), and the terminal growth rate, based
upon strategic studies the Company commissioned and the Companys own internal analysis. A WACC
rate of 15.2% and a terminal growth rate of 4.4% were used by the Company in 2009.
To determine the Companys WACC rate, the Company performed a peer company analysis and
considered the weighted average return on debt and equity, the updated risk-free interest rate,
beta, equity risk premium, and entity specific size risk premium. The Companys terminal growth
rates are based upon market estimates provided in strategic studies previously commissioned by the
Company and the Companys own internal analysis. The Companys analysis yielded an estimated fair
value in excess of the carrying value by over 50% for 2009.
Concurrent with the above analysis, the Company performed a sensitivity analysis based upon
reasonably likely changes to determine if the Companys DCF analysis would result in impairment if
the following changes were made to the Companys assumptions: i) assumed WACC rate was increased
by 5 percentage points; ii) future revenue was 75% of the Companys projections in the DCF model;
or iii) the terminal growth rate used was 50% lower. None of these sensitivity analyses resulted
in an estimated fair value less than the carrying amount of the reporting unit. No goodwill
impairments were recorded in 2009 or 2008.
65
Intangible assets are amortized on a straight line basis over their respective estimated
useful lives ranging from 2 to 15 years. The useful lives of the assets acquired as part of the Tm
acquisition were established as a result of the allocation of fair values at March 1, 2007. The
Company has no intangible assets with indefinite useful lives.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that their net book value may not be recoverable. When such
factors and circumstances exist, the Company compares the projected undiscounted future cash flows
associated with the related asset or group of assets over their estimated useful lives against
their respective carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets and is recorded in the period in which the determination
was made.
Revenue Recognition and Allowance For Doubtful Accounts
Revenue from sales of the Companys products is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed and determinable and
collectability is probable. Generally, these criteria are met at the time the product is shipped.
If the criteria for revenue recognition are not met at the time of shipment, the revenue is
deferred until all criteria are met. Revenues from royalties related to agreements with strategic
partners are recognized when such amounts are reported to the Company; therefore, the underlying
end user sales may be related to prior periods. Revenue from extended service agreements is
deferred and recognized ratably over the term of the agreement. Revenues from contracts with
multiple elements are recognized as each element is earned based on the relative fair value of each
element when there are no undelivered elements that are essential to the functionality of the
delivered elements and when the amount is not contingent upon delivery of the undelivered elements.
Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue.
The Company continuously monitors collections and payments from its customers and maintains
allowances for doubtful accounts based upon its historical experience and any specific customer
collection issues that have been identified. While such credit losses have historically been within
the Companys expectations, there can be no assurance that the Company will continue to experience
the same level of credit losses that it has in the past. A significant change in the liquidity or
financial position of any one of the Companys significant customers, or a deterioration in the
economic environment, in general, could have a material adverse impact on the collectability of the
Companys accounts receivable and its future operating results, including a reduction in future
revenues and additional allowances for doubtful accounts.
Product-Related Expenses
The Company provides for the estimated cost of initial product warranties at the time revenue
is recognized. While the Company engages in product quality programs and processes, the Companys
warranty obligation is affected by product failure rates, material usage and service delivery costs
incurred in correcting a product failure. Should actual product failure rates, material usage or
service delivery costs differ from the Companys estimates, revisions to the estimated warranty
liability would be required. Shipping and handling costs associated with product sales are
included in cost of sales. The Company expenses advertising costs as incurred. Advertising expenses
were not significant for any of the years presented.
Research and Development Costs
Research and development costs are generally expensed in the period incurred; however, the
Company capitalizes certain internally developed products, used for evaluation during development
projects that also have alternative future uses. These assets are generally depreciated on a
straight-line basis over the useful life of the assets which range from two months to one year.
The Company did not capitalize any material research and development costs in 2009 or 2008.
66
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance
metrics. Bonus accruals made throughout the year related to the various incentive plans are based
on managements best estimate of the achievement of the specific metrics. Adjustments to the
accruals are made on a quarterly basis as forecasts of performance are updated. At year-end, the
accruals are adjusted to reflect the actual results achieved.
Income Taxes
The Company accounts for income under the asset and liability method. Deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently
enacted tax laws, which will be in effect in the years in which the temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period of the enactment date. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not
that such assets will be realized.
The Company recognizes excess tax benefits associated with share-based compensation to
stockholders equity only when realized. When assessing whether excess tax benefits relating to
share-based compensation have been realized, the Company follows the with-and-without approach,
excluding any indirect effects of the excess tax deductions. Under this approach, excess tax
benefits related to share-based compensation are not deemed to be realized until after the
utilization of all other tax benefits available to the Company.
Effective January 1, 2007, the Company adopted ASC 740, which clarifies the accounting for
uncertainty in tax positions. These provisions require recognition of the impact of a tax position
in the Companys financial statements only if that position is more likely than not of being
sustained upon examination by taxing authorities, based on the technical merits of the position.
Any interest and penalties related to uncertain tax positions will be reflected in income tax
expense.
Earnings Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) for the period
by the weighted average number of common shares outstanding during the period. Diluted net income
(loss) per share is computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the period. Potentially
dilutive securities composed of incremental common shares issuable upon the exercise of stock
options and warrants, and common shares issuable on conversion of preferred stock, were excluded
from historical diluted loss per share because of their anti-dilutive effect.
Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the fair value
recognition and measurement provisions of ASC 718 Stock Compensation (ASC 718). ASC 718 requires
the recognition of compensation expense, using a fair-value based method, for costs related to all
share-based payments including stock options. Pursuant to ASC 718, stock-based compensation cost is
measured at the grant date, based on the fair value of the award, and is recognized as expense over
the requisite service period.
Segment Reporting
Historically the Company had operated as a single segment. Subsequent to the acquisition of
LMD, management determined that the Company has two segments for financial reporting purposes: the
technology segment and the assay segment. See Note 17 Segment and Geographic Information.
67
NOTE 2 BUSINESS COMBINATIONS
Acquisition
On March 1, 2007, the Company completed the acquisition of Tm, a DNA-based research and
diagnostics company headquartered in Toronto, Canada. Prior to the acquisition, Tm was one of the
Companys strategic partners. All intercompany balances were eliminated upon acquisition. The
Company believes this acquisition is a logical extension of its strategy and that the combined
Company will be in a position to take advantage of the complementary strengths of both companies in
molecular diagnostics. The acquired company is referred to as LMD and is included in the Companys
assay segment for financial reporting purposes. The focus of LMD is to design, develop, manufacture
and commercialize nucleic-acid based testing products for use in the genetic testing, personalized
medicine and infectious disease markets.
Upon the closing of the acquisition, the Company exchanged 0.06 shares of Luminex common stock
for each outstanding Tm share, which resulted in the issuance of approximately 3.2 million shares
of Luminex common stock. The value of the approximately 3.2 million common shares issued was
determined based on the average market price of the Companys common stock over the period
including five days before and after the terms of the acquisition were agreed to and announced in
accordance with ASC 805 Business Combinations (ASC 805). The Company also agreed to assume the
outstanding Tm options according to the applicable Tm plan provisions and the outstanding warrants.
At the date of acquisition, these options and warrants were potentially exercisable for
approximately 694,000 additional shares of Luminex common stock on an as-converted basis. The
estimated fair value of Luminex replacement options and warrants was calculated using the
Black-Scholes model. In accordance with ASC 718, the portion of the estimated fair value of
unvested Tm options related to future service (approximately $242,000) was deducted from the
purchase price consideration and will be recognized as compensation expense over those awards
remaining vesting period. As of December 31, 2009, there were replacement options outstanding for
the purchase of 68,414 shares of Luminex common stock with exercise prices ranging from $11.12 to
$44.88 and replacement warrants outstanding for the purchase of approximately 288,000 shares of
Luminex common stock with exercise prices ranging from $10.12 to $37.18. All of the warrants are
exercisable as of December 31, 2009.
Immediately subsequent to the acquisition, the Company retired approximately $13.2 million of
Tm debt, including an approximately $1.0 million contractual penalty, by using existing cash
reserves. Under the terms of one of the retired debt instruments, the balance of the note became
callable upon the acquisition and was subject to a contractual penalty if either called by the debt
holder or prepaid by Tm. The penalty was triggered when the Tm shareholders ratified the
acquisition of Tm by Luminex on February 21, 2007. The penalty was recorded by Tm prior to
Luminex acquisition based on the penalty amount agreed by the debt holder, and was reflected in
the opening balance of Other current liabilities assumed.
The acquisition was accounted for as a purchase business combination in accordance with ASC
805. LMD results of operations are included with the Companys from the date of acquisition, March
1, 2007. The purchase price of the acquisition was approximately $49.4 million, including the
issuance of common stock valued at $41.8 million and transaction costs of approximately $3.6
million. The purchase price has been allocated to the net assets acquired based on estimates of
the fair values at the date of the acquisition.
In 2007, Luminex completed the process of allocating fair values for certain tangible and
intangible assets and in-process research and development (IPR&D) identified during the
acquisition. The acquired intangible assets were allocated to the assay segment. The excess
purchase price over the fair values of the net tangible assets, identified intangible assets and
liabilities was allocated to goodwill. Luminex recorded $39.6 million of goodwill related to the
Tm acquisition in the Companys assay segment. Goodwill is not expected to be deductible for tax
purposes.
68
The following table summarizes the estimated fair values of net assets at the date of
acquisition (in thousands). Certain tangible and intangible assets and liabilities were adjusted
to their estimated fair market values upon the final analysis of these values during the fourth
quarter. Based on ASC 805, the following intangible assets evaluated were: trade name (Tag-It),
customer list/contracts, technology/trade secrets, and in-process research and development. IPR&D
has been recorded at its estimated fair market value and charged to expense in 2007.
|
|
|
|
|
Cash
|
|
$
|
940
|
|
Other current assets
|
|
|
3,157
|
|
Other assets
|
|
|
28
|
|
Property and equipment
|
|
|
3,518
|
|
Purchased intangible assets
|
|
|
18,800
|
|
In-process research and development
|
|
|
7,400
|
|
Goodwill
|
|
|
39,617
|
|
|
|
|
|
Total assets
|
|
$
|
73,460
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt assumed
|
|
$
|
12,447
|
|
Accrued severance assumed
|
|
|
1,945
|
|
Other current liabilities assumed
|
|
|
7,148
|
|
Long-term debt assumed
|
|
|
2,294
|
|
Other long-term liabilities assumed
|
|
|
225
|
|
|
|
|
|
Total liabilities
|
|
|
24,059
|
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
$
|
49,401
|
|
|
|
|
|
Pro Forma Information
The financial information in the table below summarizes the combined results of operations of
Luminex and LMD, on a pro forma basis, as though the companies had been combined at the beginning
of 2007.
The pro forma financial information is presented for informational purposes only and is not
indicative of the results of operation that would have been achieved if the acquisition of LMD had
taken place at the beginning of fiscal 2007.
The following table summarizes the pro forma financial information for the year ended December
31, 2007 (in thousands, except per share amounts):
|
|
|
|
|
|
|
2007
|
|
Revenues
|
|
$
|
75,328
|
|
Net loss
|
|
$
|
(8,488
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.25
|
)
|
In-process Research and Development (IPR&D)
In conjunction with the acquisition of LMD in 2007, the Company has recorded total IPR&D
expense of $7.4 million for acquired IPR&D which was not technologically feasible as of the
acquisition date and had no alternative future use.
69
NOTE 3 INVESTMENTS
Held-to-maturity securities as of December 31, 2009 consisted of government sponsored debt
obligations of $42.8 million.
Held-to-maturity securities consisted of the following as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
Cost
|
|
|
Interest
|
|
|
Amortized Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
40,501
|
|
|
$
|
283
|
|
|
$
|
40,784
|
|
Due after one year through two years
|
|
|
2,000
|
|
|
|
20
|
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
|
$
|
42,501
|
|
|
$
|
303
|
|
|
$
|
42,804
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities consisted of the following as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains in
|
|
|
Losses in
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
Amortized
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market funds
|
|
$
|
60,299
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60,299
|
|
Non-government sponsored debt securities
|
|
|
33,495
|
|
|
|
19
|
|
|
|
(5
|
)
|
|
|
33,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current securities
|
|
|
93,794
|
|
|
|
19
|
|
|
|
(5
|
)
|
|
|
93,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-government sponsored debt securities
|
|
|
18,144
|
|
|
|
72
|
|
|
|
(35
|
)
|
|
|
18,181
|
|
Government sponsored debt securities
|
|
|
2,035
|
|
|
|
12
|
|
|
|
|
|
|
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent securities
|
|
|
20,179
|
|
|
|
84
|
|
|
|
(35
|
)
|
|
|
20,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
113,973
|
|
|
$
|
103
|
|
|
$
|
(40
|
)
|
|
$
|
114,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no proceeds from the sales of available-for-sale securities during the year ended
December 31, 2009 or 2008. Net unrealized holding gains and losses of $63,000 on
available-for-sale securities have been included in accumulated other comprehensive gain (loss).
The estimated fair value of available-for-sale debt securities at December 31, 2009, by
contractual maturity, was as follows (in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Fair Value
|
|
|
|
|
|
Due in one year or less
|
|
$
|
33,509
|
|
Due after one year through two years
|
|
|
20,228
|
|
|
|
|
|
|
|
$
|
53,737
|
|
|
|
|
|
Expected maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment penalties.
70
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value,
establishes a framework for measuring fair value under generally accepted accounting principles and
enhances disclosures about fair value measurements. Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value must
maximize the use of observable inputs and minimize the use of unobservable inputs. The ASC
describes a fair value hierarchy based on the following three levels of inputs that may be used to
measure fair value, of which the first two are considered observable and the last unobservable:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The following table represents the Companys fair value hierarchy for its financial assets
(cash equivalents and investments) measured at fair value on a recurring basis as of December 31,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money Market funds
|
|
$
|
60,299
|
|
|
|
|
|
|
|
|
|
|
$
|
60,299
|
|
Non-government sponsored debt securities
|
|
|
51,690
|
|
|
|
|
|
|
|
|
|
|
|
51,690
|
|
Government sponsored debt securities
|
|
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,036
|
|
|
|
|
|
|
|
|
|
|
$
|
114,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
85,297
|
|
|
|
|
|
|
|
|
|
|
$
|
85,297
|
|
Short-term investments
|
|
|
8,511
|
|
|
|
|
|
|
|
|
|
|
|
8,511
|
|
Long-term investments
|
|
|
20,228
|
|
|
|
|
|
|
|
|
|
|
|
20,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,036
|
|
|
|
|
|
|
|
|
|
|
$
|
114,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
NOTE 4 ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
22,631
|
|
|
$
|
11,296
|
|
Less: Allowance for doubtful accounts
|
|
|
(523
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,108
|
|
|
$
|
11,024
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
301
|
|
Reductions charged to costs and expenses
|
|
|
|
|
Write-offs of uncollectible accounts
|
|
|
(1
|
)
|
Additions due to acquired accounts receivable
|
|
|
56
|
|
Recoveries of uncollectible accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
356
|
|
Reductions charged to costs and expenses
|
|
|
(50
|
)
|
Write-offs of uncollectible accounts
|
|
|
(34
|
)
|
Recoveries of uncollectible accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
272
|
|
Reductions charged to costs and expenses
|
|
|
|
|
Write-offs of uncollectible accounts
|
|
|
(7
|
)
|
Increase in allowance charged to expense
|
|
|
258
|
|
Recoveries of uncollectible accounts
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
523
|
|
|
|
|
|
NOTE 5 INVENTORY, NET
Inventory consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Parts and supplies
|
|
$
|
9,499
|
|
|
$
|
5,213
|
|
Work-in-progress
|
|
|
4,064
|
|
|
|
3,939
|
|
Finished goods
|
|
|
3,961
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
|
17,524
|
|
|
|
11,589
|
|
|
|
|
|
|
|
|
The Company has non-cancelable purchase commitments with certain of its component suppliers in
the amount of approximately $12.7 million at December 31, 2009. Should production requirements fall
below the level of the Companys commitments, the Company could be required to take delivery of
inventory for which it has no immediate need or incur an increased cost per unit going forward.
72
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
$
|
12,389
|
|
|
$
|
9,223
|
|
Leasehold improvements
|
|
|
9,317
|
|
|
|
6,550
|
|
Computer equipment
|
|
|
3,602
|
|
|
|
3,071
|
|
Purchased software
|
|
|
7,172
|
|
|
|
5,521
|
|
Furniture and fixtures
|
|
|
3,524
|
|
|
|
1,609
|
|
Assets on loan/rental
|
|
|
1,849
|
|
|
|
1,516
|
|
Capital lease equipment
|
|
|
116
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,969
|
|
|
|
27,606
|
|
Less: Accumulated amortization and depreciation
|
|
|
(20,714
|
)
|
|
|
(15,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,255
|
|
|
$
|
12,567
|
|
|
|
|
|
|
|
|
Depreciation expense was $5.7 million, $4.5 million, and $3.0 million for the years ended
December 31, 2009, 2008, and 2007, respectively.
NOTE 7 ACQUIRED INTANGIBLE ASSETS
Amortized identifiable intangible assets consisted of the following at December 31 (in
thousands except weighted average lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
Weighted
|
|
|
Gross carrying
|
|
|
Accumulated
|
|
|
Weighted
|
|
|
|
amount
|
|
|
amortization
|
|
|
average life
|
|
|
amount
|
|
|
amortization
|
|
|
average life
|
|
Technology/trade secrets
|
|
$
|
17,400
|
|
|
$
|
(5,355
|
)
|
|
9
|
|
|
$
|
17,400
|
|
|
$
|
(3,465
|
)
|
|
9
|
|
Customer lists/contracts
|
|
|
1,100
|
|
|
|
(208
|
)
|
|
15
|
|
|
|
1,100
|
|
|
|
(134
|
)
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,500
|
|
|
$
|
(5,563
|
)
|
|
|
|
|
|
$
|
18,500
|
|
|
$
|
(3,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense related to purchased intangible assets was approximately $2.0 million
for both of the years ended December 31, 2009 and 2008. The estimated aggregate amortization
expense for the next five years is as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
1,963
|
|
2011
|
|
|
1,963
|
|
2012
|
|
|
1,963
|
|
2013
|
|
|
1,963
|
|
2014
|
|
|
1,963
|
|
73
NOTE 8 OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Purchased technology rights (net of accumulated amortization of
$1,215,000 and $548,000 in 2009 and 2008, respectively)
|
|
$
|
817
|
|
|
$
|
1,300
|
|
Other
|
|
|
288
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,105
|
|
|
|
1,653
|
|
Less: Current portion
|
|
|
(18
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,087
|
|
|
$
|
1,539
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009 and 2008, the Company recognized amortization expense
related to the amortization of these acquired technology rights of approximately $667,000 and
$440,000, respectively. Future amortization expense will be $129,000 in 2010, $110,000 in 2011,
$107,000 in 2012, $94,000 in 2013, $85,000 in 2014, and $293,000 thereafter.
NOTE 9 ACCRUED WARRANTY COSTS
Sales of certain of the Companys systems are subject to a warranty. System warranties
typically extend for a period of twelve months from the date of installation or no more than 15
months from the date of shipment. The Company estimates the amount of warranty claims on sold
products that may be incurred based on current and historical data. The actual warranty expense
could differ from the estimates made by the Company based on product performance. Warranty
expenses are evaluated and adjusted periodically.
The following table summarizes the changes in the warranty accrual (in thousands):
|
|
|
|
|
Accrued warranty costs at December 31, 2006
|
|
$
|
311
|
|
Warranty expenses
|
|
|
(525
|
)
|
Accrual for warranty costs
|
|
|
473
|
|
|
|
|
|
Accrued warranty costs at December 31, 2007
|
|
|
259
|
|
Warranty expenses
|
|
|
(946
|
)
|
Accrual for warranty costs
|
|
|
1,166
|
|
|
|
|
|
Accrued warranty costs at December 31, 2008
|
|
|
479
|
|
Warranty expenses
|
|
|
(1,003
|
)
|
Accrual for warranty costs
|
|
|
1,105
|
|
|
|
|
|
Accrued warranty costs at December 31, 2009
|
|
$
|
581
|
|
|
|
|
|
NOTE 10 INCOME TAXES
The components of income (loss) before income taxes for the years ended December 31 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Domestic
|
|
$
|
8,236
|
|
|
$
|
13,021
|
|
|
$
|
12,164
|
|
Foreign
|
|
|
(4,949
|
)
|
|
|
(9,116
|
)
|
|
|
(14,585
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,287
|
|
|
$
|
3,905
|
|
|
$
|
(2,421
|
)
|
|
|
|
|
|
|
|
|
|
|
74
The components of the provision (benefit) for income taxes attributable to continuing operations
for the years ended December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
194
|
|
|
$
|
308
|
|
|
$
|
177
|
|
Foreign
|
|
|
(41
|
)
|
|
|
146
|
|
|
|
84
|
|
State
|
|
|
295
|
|
|
|
394
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
448
|
|
|
$
|
848
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(13,263
|
)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(14,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
(14,442
|
)
|
|
$
|
848
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes differs from amount computed by applying the
statutory federal rate to pretax income (loss) as follows (in percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
5.7
|
%
|
|
|
7.3
|
%
|
|
|
3.6
|
%
|
Permanent items
|
|
|
25.5
|
%
|
|
|
16.0
|
%
|
|
|
(21.2
|
)%
|
Effect of foreign operations
|
|
|
0.2
|
%
|
|
|
(0.6
|
)%
|
|
|
14.7
|
%
|
Research and incentive tax credit generated
|
|
|
(48.4
|
)%
|
|
|
(21.9
|
)%
|
|
|
35.8
|
%
|
Canadian tax rate change
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(64.8
|
)%
|
Valuation allowance
|
|
|
(451.2
|
)%
|
|
|
(14.4
|
)%
|
|
|
(11.4
|
)%
|
Other
|
|
|
(6.0
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439.2
|
)%
|
|
|
21.4
|
%
|
|
|
(9.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
75
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Companys deferred tax assets and
liabilities as of December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities and other
|
|
$
|
2,323
|
|
|
$
|
908
|
|
|
$
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
Gross current deferred tax assets
|
|
|
2,323
|
|
|
|
908
|
|
|
|
1,061
|
|
Valuation allowance
|
|
|
(801
|
)
|
|
|
(906
|
)
|
|
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
1,522
|
|
|
|
2
|
|
|
|
2
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards
|
|
|
53,528
|
|
|
|
49,726
|
|
|
|
54,168
|
|
Deferred revenue
|
|
|
2,906
|
|
|
|
2,835
|
|
|
|
2,535
|
|
Depreciation and amortization
|
|
|
3,099
|
|
|
|
6,924
|
|
|
|
7,902
|
|
Stock compensation
|
|
|
1,922
|
|
|
|
3,191
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
Gross Noncurrent Deferred Tax Assets
|
|
|
61,455
|
|
|
|
62,676
|
|
|
|
66,586
|
|
Valuation allowance
|
|
|
(42,575
|
)
|
|
|
(57,577
|
)
|
|
|
(60,944
|
)
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax assets
|
|
$
|
18,880
|
|
|
$
|
5,099
|
|
|
$
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities and other
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax liabilities
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
1,040
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Noncurrent deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
$
|
(4,148
|
)
|
|
$
|
(4,825
|
)
|
|
$
|
(5,521
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities
|
|
$
|
(4,148
|
)
|
|
$
|
(4,825
|
)
|
|
$
|
(5,521
|
)
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax asset
|
|
$
|
14,732
|
|
|
$
|
274
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
15,772
|
|
|
$
|
276
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance decreased by $15.3 million in fiscal year 2009 and decreased by $3.4
million in fiscal year 2008. During fiscal year 2009, the Company released approximately $14.9
million of the valuation allowance that had been placed on its U.S. deferred tax assets that
impacted the effective tax rate. The Company recorded an additional amount of valuation allowance
related to the provision for the Canadian subsidiary of approximately $1.0 million. The remaining
decrease in the valuation allowance of approximately $1.4 million was the reversal of certain
deferred tax assets and the corresponding valuation allowance such that there was no impact to the
Companys income tax provision (benefit). Based on the Companys recent history of generating
income in the U.S. and the Companys expectation to continue to generate future income in the U.S.,
the Company determined that it was more likely than not that the
$14.9 million of U.S. deferred tax
assets would be realized. At December 31, 2009, the Company had federal net operating losses
carryforwards of $66.2 million. Of that amount, approximately $55.6 million of the federal net
operating loss is attributable to employee stock option deductions, the benefit from which will be
allocated to additional paid-in capital rather than current earnings if subsequently realized. The
federal net operating losses begin expiring in 2026. The Company also has federal research and
development credit carryforwards of approximately $2.9 million that will begin to expire in 2013 if
not utilized prior to that time. The Company has net operating losses in various states that total
$10.2 million. The state net operating loss carryforwards expire in fiscal years 2010 through 2021.
In addition, the Company has Canadian non-capital income tax loss carryforwards of $32.4 million, a
scientific research and experimental development pool in Canada of $36 million, and investment tax
credits in Canada of $7.7 million that will begin to expire in 2010 if not utilized prior to that
time. The investment tax credits are accounted for under the flow-through method of accounting.
Utilization of the net operating losses and tax credits may be subject to substantial annual
limitation due to the change in ownership provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses and research and development
credits before utilization.
76
Undistributed earnings of the Companys foreign subsidiaries are considered permanently
reinvested and, accordingly, no provision for U.S. federal or state income taxes has been provided
thereon. The cumulative amount of undistributed earnings of the Companys non-US subsidiaries was
approximately $0.9 million at December 31, 2009, $0 at December 31, 2008 and $6.3 million at
December 31, 2007. The ultimate tax liability related to repatriation of the Companys
undistributed earnings is not estimable at the present time.
On January 1, 2007, the Company adopted the provisions of ASC 740 (FIN No. 48). There were no
liabilities, interest or penalties recorded for uncertain tax positions as a result of the
adoption. Under ASC 740, the impact of an uncertain tax position that is more likely than not of
being sustained upon audit by the relevant taxing authority must be recognized at the largest
amount that is more likely than not to be sustained. No portion of an uncertain tax position will
be recognized if the position has less than a 50% likelihood of being sustained. Also, under ASC
740, interest expense is recognized on the full amount of deferred benefits for uncertain tax
positions.
As of December 31, 2009 and December 31, 2008, the Company had recorded gross unrecognized tax
benefits of approximately $0.8 million and $0.3 million, respectively. All of the unrecognized tax
benefits as of December 31, 2009, if recognized, would impact the effective tax rate. The Company
recognized interest expense and penalties associated with uncertain tax positions as a component of
income tax expense. During the years ended December 31, 2009 and 2008, the Company recognized
approximately $3,000 and $23,000 in tax related interest and penalties, respectively. Reserves for
interest and penalties as of December 31, 2009 and 2008 are not significant as the Company has net
operating loss carryovers. In the years ended December 31, 2009 and 2008, cash paid for taxes, net
of cash received for tax refunds, was approximately $867,000 and $405,000, respectively.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as
follows:
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
|
|
Additions based on tax positions related to the current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
251
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
251
|
|
Additions based on tax positions related to the current year
|
|
|
74
|
|
Additions for tax positions of prior years
|
|
|
508
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
833
|
|
|
|
|
|
As of December 31, 2009, there were no unrecognized tax benefits that the Company expects
would change significantly over the next 12 months.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying
statutes of limitations. In the U.S., the federal income tax returns for years after 1996 are open
and in Canada, the federal income tax returns for years after 2003 are open. There are numerous
other income tax jurisdictions for which tax returns are not yet settled, none of which are
individually significant. The Company is not currently under audit in any major taxing
jurisdictions.
77
NOTE 11 LONG-TERM DEBT
On December 31, 2009, long-term debt consisted of a loan payable to Technology Partnership
Canada (TPC) valued at $3.6 million and the related short term interest payable of $868,000.
On December 12, 2003, LMD entered into an agreement with the Ministry of Industry of the
Government of Canada under which the Government agreed to invest up to Canadian (Cdn) $7.3 million
relating to the development of several genetic tests. This agreement was amended in March 2009.
Funds were advanced from TPC, a special operating program. The actual payments received by the
Company were predicated on eligible expenditures made during the amended project period which ended
July 31, 2008. As of December 31, 2009, the Company had received $4.6 million from TPC ($4.9
million in Canadian dollars) which is expected to be repaid along with approximately $1.6 million
of imputed interest for a total of approximately $6.2 million ($6.5 million in Canadian dollars).
Approximately $761,000 ($799,000 in Canadian dollars) of the interest has been repaid as of
December 31, 2009.
LMD agreed to repay the TPC funding through a royalty on revenues. This liability was assumed
by the Company as part of the acquisition and the liability was recorded at fair value as of the
date of acquisition. This liability is subject to adjustments for foreign currency translation
effects as it is a foreign currency denominated balance. Royalty payments commenced in 2007 at a
rate of 1% of total revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty
repayment will continue until total advances plus imputed interest has been repaid or until
December 31, 2016, whichever is earlier. The repayment obligation expires on December 31, 2016 and
any unpaid balance will be cancelled and forgiven on that date. Should the term of repayment be
shorter than expected due to higher than expected assay revenue, the effective interest rate would
increase as repayment is accelerated. Repayments denominated in U.S. Dollars are currently
projected to be as shown in the table below, but actual future sales generating a repayment
obligation will vary from this projection and are subject to the risks and uncertainties described
elsewhere in this report, including under Risk Factors and Safe Harbor Cautionary Statement.
Furthermore, payments reflected in U.S. Dollars are subject to adjustment based upon applicable
exchange rates as of the reporting date.
Estimated repayments on the debt for the next five years and thereafter are as follows (in
thousands):
|
|
|
|
|
2010
|
|
$
|
868
|
|
2011
|
|
|
947
|
|
2012
|
|
|
1,143
|
|
2013
|
|
|
1,360
|
|
2014
|
|
|
1,112
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
$
|
5,430
|
|
Less: Amount representing implied interest
|
|
|
(414
|
)
|
|
|
|
|
Total principal repayments
|
|
$
|
5,016
|
|
Discount
|
|
$
|
(557
|
)
|
|
|
|
|
Total long-term debt
|
|
$
|
4,459
|
|
Less: Current portion of long-term debt
|
|
|
(868
|
)
|
|
|
|
|
|
|
$
|
3,591
|
|
|
|
|
|
In 2009 and 2008, the Company had imputed interest expense related to its long-term debt of
$179,000 and $221,000, respectively recorded in the assay segment. The effective interest rate was
4.03% and 4.88% as of December 31, 2009 and 2008, respectively. At December 31, 2009 and 2008, the
fair value of the Companys long-term debt was approximately $4.1 million and $3.0 million,
respectively. The Companys long-term debt is classified as a Level 3 instrument and the Company
has used a discounted cash flow (DCF) model to determine the estimated fair value as of December
31, 2009 and 2008. The assumptions used in preparing the DCF model include estimates for (i) the
amount and timing of future interest and principal payments and (ii) the rate of return indicative
of the investment risk in the ownership of the TPC debt. In making these assumptions, the Company
considered relevant factors including the likely timing of principal repayments and the probability
of full repayment considering the timing of royalty payments based upon total revenue.
78
NOTE 12 NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per
share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
17,729
|
|
|
$
|
3,057
|
|
|
$
|
(2,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income (loss) per share weighted average common stock outstanding
|
|
|
40,562
|
|
|
|
37,868
|
|
|
|
34,361
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
|
1,071
|
|
|
|
1,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted net income (loss) per share weighted average shares outstanding diluted
|
|
|
41,633
|
|
|
|
39,700
|
|
|
|
34,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.44
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.43
|
|
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
Restricted stock awards (RSAs) and stock options to acquire 690,000, 623,000, and 1.1 million
shares for the years ended December 31, 2009, 2008 and 2007, respectively, were excluded from the
computations of diluted earnings per share because the effect of including the RSAs and stock
options would have been anti-dilutive.
NOTE 13 STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME/ LOSS
Preferred Stock
The Companys Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote or action by the
Companys stockholders. At December 31, 2009 and 2008, there was no preferred stock issued and
outstanding.
Stockholders Rights Plan
On June 20, 2001, the Companys Board of Directors declared a dividend of one right for each
outstanding share of the Companys common stock to stockholders of record at the close of business
on July 2, 2001. Each right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.001 per share, at a purchase price of $100 per fractional share, subject to adjustment.
The rights are not currently exercisable and will become exercisable only in the event a person or
group acquires beneficial ownership of 20 percent or more of common stock. The rights expire on
June 20, 2011.
Comprehensive Income/Loss
The Companys comprehensive income or loss is comprised of net income or loss and foreign
currency translation and unrealized gains and losses on available-for-sale securities.
Comprehensive income for the year ended December 31, 2009 was approximately $17.8 million and
comprehensive income for the year ended December 31, 2008 was approximately $3.0 million.
79
NOTE 14 EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Stock-Based Compensation
At December 31, 2009, the Company has two stock-based employee compensation plans pursuant to
which grants may be made: the 2006 Management Stock Purchase Plan (the MSPP) which was approved
at the Companys Annual Meeting on May 25, 2006 and the Amended and Restated 2006 Equity Incentive
Plan (the Equity Incentive Plan) which was approved at the Companys Annual Meeting on May 25,
2006 and amended at the Companys Annual Meeting on May 21, 2009. No further grants shall be made
pursuant to the 2000 Long-Term Incentive Plan (the 2000 Plan), the 2001 Broad-Based Stock Option
Plan (the 2001 Plan), or the Tm Bioscience Corporation Share Option Plan (the Tm Plan) that the
Company assumed in connection with the Tm acquisition. The Tm Plan governs the former Tm options
which were exchanged for options to purchase shares of Luminex common stock in connection with the
acquisition.
Equity Incentive Plans
Under the Companys Equity Incentive Plan, 2000 Plan, 2001 Plan, and the Tm Plan, certain
employees, consultants and non-employee directors have been granted RSAs, restricted share units
(RSUs) and options to purchase shares of common stock. The options, RSAs, and RSUs generally vest
in installments over a four to five year period, and the options expire either five or ten years
after the date of grant. Under the Equity Incentive Plan, certain employees, directors of, and
consultants to the Company are eligible to be granted RSAs, RSUs, and options to purchase common
stock. The MSPP provides for the granting of rights to defer an elected percentage of their bonus
compensation through the purchase of restricted shares of the Companys common stock, discounted by
20%, to certain officers of the Company. As of December 31, 2009, there were approximately 2.7
million shares authorized for future issuance under the Companys Equity Incentive Plan and 500,000
shares eligible for purchase, pursuant to the terms and conditions thereof, under the MSPP.
The Equity Incentive Plan, the MSPP, the 2000 Plan, the 2001 Plan, and the Tm Plan are
administered by the Compensation Committee of the Board of Directors. The Compensation Committee
has the authority to determine the terms and conditions under which awards will be granted from the
Equity Incentive Plan, including the number of shares, vesting schedule and term, as applicable.
Any option award exercise prices, as set forth in the Equity Incentive Plan, will be equal to the
fair market value on the date of grant. Under certain circumstances, the Company may repurchase
previously granted RSAs and RSUs.
On March 25, 2007, the Compensation Committee approved an amendment to the restricted stock
agreement, dated May 17, 2004 (the Restricted Stock Agreement), of the Companys CEO, Patrick J.
Balthrop. The Company and Mr. Balthrop initially entered into the Restricted Stock Agreement in
connection with the hiring of Mr. Balthrop as the President and Chief Executive Officer of the
Company. The Restricted Stock Agreement provided for the grant of 200,000 restricted shares, which
would vest in portions based on the attainment of certain performance goals related to Company
revenue, earnings and stock price. If the goals provided for in the Restricted Stock Agreement were
not achieved by the end of the fifth anniversary of the date of the Restricted Stock Agreement, all
non-vested shares would be forfeited. The amendment provides for the automatic vesting of all
unvested restricted shares immediately prior to the fifth anniversary of the date of the Restricted
Stock Agreement, to the extent any or all of the performance measures have not been previously
achieved. Mr. Balthrops 200,000 share restricted stock award, as amended, has market, service or
performance criteria for vesting of all shares. The Company has assumed that vesting will occur at
the end of the five years based on achievement of the service criteria so all expense is being
amortized straight-line over the five-year period from May 17, 2004 through 2009. Pursuant to the
amendment to this award, the award was revalued to the market price on the date of amendment of
$14.39. This resulted in additional expense to the Company of approximately $356,000 of which
approximately $29,000 and $70,000 was recognized in 2009 and 2008, respectively.
80
On December 4, 2008 and March 11, 2009 the Board adopted the Luminex Corporation 2008 Long
Term Incentive Plan (the 2008 LTIP) and the Luminex Corporation 2009 Long Term Incentive Plan
(the 2009 LTIP), respectively. Awards under the 2008 LTIP and 2009 LTIP were granted by the
Board in the form of RSUs and are to be treated as Performance Awards under the Equity Incentive
Plan. Grants of RSUs under the 2008 LTIP and 2009 LTIP shall initially be unvested and represent
the maximum amount of shares that participants may receive under the plan, assuming achievement of
the maximum level of performance goals established for the grant, and subject to adjustment for
certain transactions and other non-recurring events that may affect Luminex or its financial
performance. On December 4, 2008, the Companys Chief Executive Officer was granted an unvested
RSU under the 2008 LTIP for 102,564 shares of Luminex Common Stock, and the Companys then Chief
Operating Officer was granted an unvested RSU under the 2008 LTIP for 76,923 shares of Luminex
Common Stock. Partial or complete vesting of the RSUs shall be dependent upon the continued
employment and the achievement of certain performance goals during the performance period extending
from the date of grant through December 31, 2010. The Companys Chief Operating Officer forfeited
his entire grant upon his resignation on February 1, 2009. On March 11, 2009, the Companys Chief
Executive Officer was granted an award for an unvested RSU under the 2009 LTIP for $2,200,000 worth
of shares of Luminex Common Stock, and the Companys Chief Financial Officer was granted an award
for an unvested RSU under the 2009 LTIP for $825,000 worth of shares of Luminex Common Stock. The
actual maximum number of shares of 140,395 shares and 52,648 shares for the CEO and CFO,
respectively, was determined on May 12, 2009, based upon the closing price of the stock on that
date. Performance goals under the grants are based on the following components, with the following
weights given to each: 50% on the trading price of Luminex Common Stock at the end of the
performance period and 50% on Luminexs operating cash flows per diluted share at the end of the
performance period.
The 2008 LTIP performance goals are as described below:
|
|
|
Partial or complete achievement of the trading price goal is dependent upon the average
closing price of Luminexs Common Stock for the twenty consecutive trading days ending
December 31, 2010, inclusive, subject to certain adjustments as described in the 2008 LTIP.
There is a range of trading price targets as follows: a minimum threshold of $24.79 per
share, a target of $28.17 per share, and a maximum goal of $44.73 per share.
|
|
|
|
Partial or complete achievement of the operating cash flow goal is dependent upon the
average quarterly total operating cash flows per diluted share for the four quarters
ended December 31, 2010, as further described in the 2008 LTIP. Total operating cash
flows means Luminexs GAAP net cash provided by operating activities as shown on its
financial statements for the 12 month period ended December 31, 2010, as further described
in the 2008 LTIP. There is a range of targets as follows: a minimum threshold of $0.101 per
share, a target of $0.111 per share, and a maximum goal of $0.157 per share.
|
The 2009 LTIP performance goals are as described below:
|
|
|
Partial or complete achievement of the trading price goal is dependent upon the average
closing price of Luminexs Common Stock for the twenty consecutive trading days ending
December 31, 2011, inclusive, subject to certain adjustments as described in the 2009 LTIP.
There is a range of trading price targets as follows: a minimum threshold of $32.38 per
share, a target of $36.79 per share, and a maximum goal of $58.42 per share.
|
|
|
|
Partial or complete achievement of the operating cash flow goal is dependent upon the
average quarterly total operating cash flows per diluted share for the four quarters
ended December 31, 2011, as further described in the 2009 LTIP. Total operating cash
flows means Luminexs GAAP net cash provided by operating activities as shown on its
financial statements for the 12 month period ended December 31, 2011, as further described
in the 2009 LTIP. There is a range of targets as follows: a minimum threshold of $0.134 per
share, a target of $0.152 per share, and a maximum goal of $0.241 per share.
|
81
In the event that a participant achieves less than the maximum level of the performance goals,
the total number of shares represented by such RSU shall be reduced to reflect where actual
performance lies in the range of performance goals and weighted aggregate corresponding payout
opportunities established for the grant. Calculation of shares between threshold and maximum
performance shall be determined based on straight-line interpolation.
Accounting for Stock Compensation
Stock-based compensation costs are generally based on the fair value calculated from the
Black-Scholes option-pricing model on the date of grant for stock options and market value on the
date of grant for RSAs. The fair values of stock are amortized as compensation expense on a
straight-line basis over the vesting period of the grants.
In accordance with ASC 718 Company evaluates the assumptions used in the Black-Scholes model
at each grant date using a consistent methodology for computing expected volatility, expected term
and risk-free rate of return. Calculation of expected volatility is based on historical volatility.
The expected term is calculated using the contractual term of the options as well as an analysis of
the Companys historical exercises of stock options. The estimate of the risk-free rate is based
on the U.S. Treasury yield curve in effect at the time of grant. The Company has never paid cash
dividends and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend
yield. The assumptions used are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free rate of return
|
|
|
2.0
|
%
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
Expected life
|
|
|
7 yrs
|
|
|
|
8 yrs
|
|
|
|
7 yrs
|
|
Weighted average fair
value at grant date
|
|
$
|
8.63
|
|
|
$
|
8.62
|
|
|
$
|
4.70
|
[1]
|
|
|
|
[1]
|
|
No stock options were issued to employees during this period.
|
As part of the requirements of ASC 718, the Company is required to estimate potential
forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of
forfeitures is based on historical forfeiture performance and will be adjusted over the requisite
service period to the extent that actual forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up
adjustment in the period of evaluation and will also impact the amount of stock compensation
expense to be recognized in future periods.
82
The Companys stock option activity for the years ended December 31, 2007, 2008 and 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
Stock Options
|
|
(in thousands)
|
|
|
Price
|
|
|
Life
|
|
|
(in thousands)
|
|
Outstanding at December 31, 2006
|
|
|
3,163
|
|
|
$
|
9.76
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
823
|
|
|
|
20.91
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(332
|
)
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(210
|
)
|
|
|
23.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
3,444
|
|
|
$
|
11.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
77
|
|
|
|
20.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(644
|
)
|
|
|
10.99
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(106
|
)
|
|
|
24.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2,771
|
|
|
$
|
11.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
167
|
|
|
|
16.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(72
|
)
|
|
|
7.90
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(70
|
)
|
|
|
17.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,796
|
|
|
$
|
12.18
|
|
|
|
3.62
|
|
|
$
|
12,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2009 and expected to vest
|
|
|
2,794
|
|
|
$
|
12.17
|
|
|
|
3.62
|
|
|
$
|
12,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
2,558
|
|
|
$
|
11.72
|
|
|
|
3.15
|
|
|
$
|
12,972
|
|
During the years ended December 31, 2009, 2008 and 2007, the total intrinsic value of stock
options exercised was $0.6 million, $6.7 million and $3.2 million, respectively, and the total fair
value of stock options that vested was $1.0 million, $3.2 million and $2.8 million, respectively.
The Company had $1.6 million of total unrecognized compensation costs related to stock options at
December 31, 2009 that are expected to be recognized over a weighted-average period of 2.2 years.
83
The Companys restricted share activity for the year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant-Date
|
|
Restricted Stock Awards
|
|
(in thousands)
|
|
|
Fair Value
|
|
Non-vested at December 31, 2008
|
|
|
1,197
|
|
|
$
|
15.39
|
|
Granted
|
|
|
485
|
|
|
|
16.16
|
|
Vested
|
|
|
(464
|
)
|
|
|
14.78
|
|
Cancelled or expired
|
|
|
(117
|
)
|
|
|
16.11
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2009
|
|
|
1,101
|
|
|
$
|
15.90
|
|
|
|
|
|
|
|
|
Shares
|
|
Restricted Stock Units
|
|
(in thousands)
|
|
Non-vested at December 31, 2008
|
|
|
280
|
|
Granted
|
|
|
354
|
|
Vested
|
|
|
(12
|
)
|
Cancelled or expired
|
|
|
(77
|
)
|
|
|
|
|
Non-vested at December 31, 2009
|
|
|
545
|
|
As of December 31, 2009, there was $22.1 million of unrecognized compensation cost related to
RSAs and RSUs. That cost is expected to be recognized over a weighted average-period of 3.1 years.
The total fair value of restricted shares vested during the year ended December 31, 2009, 2008 and
2007 was $7.1 million, $4.4 million, and $2.8 million, respectively.
RSAs and RSUs may be granted at the discretion of the Board of Directors under the Equity
Incentive Plan in connection with the hiring or retention of key employees and are subject to
certain conditions. Restrictions expire at certain dates after the grant date in accordance with
specific provisions in the applicable agreement. During the year ended December 31, 2009, the
Company awarded 485,048 shares of restricted stock awards, which had a fair value at the date of
grant ranging from $14.30 $21.42. During the year ended December 31, 2008, the Company awarded
310,096 shares of restricted stock awards, which had a fair value at the date of grant ranging from
$16.12 $24.69. During the year ended December 31, 2007, the Company awarded 776,359 shares of
restricted common stock, which had a fair value at the date of grant ranging from $12.43 $14.39.
During the year ended December 31, 2009, the Company awarded 354,157 shares of restricted stock
units, which had a fair value at the date of grant ranging from $15.51 $18.48. During the year
ended December 31, 2008, the Company awarded 283,828 shares of restricted stock units, which had a
fair value at the date of grant ranging from $16.12 $24.21. No restricted stock units were
awarded in 2007. Compensation under these restricted stock awards and units was charged to expense
over the restriction period and amounted to $7.4 million, $6.1 million, and $4.4 million in 2009,
2008 and 2007, respectively.
There were no significant stock compensation costs capitalized into assets as of December 31,
2009.
The Company received $0.6 million, $7.1 million, and $1.9 million for the exercise of stock
options during the years ended December 31, 2009, 2008 and 2007, respectively. Cash was not used
to settle any equity instruments previously granted. The Company issued shares pursuant to grants
relating to each of the Equity Incentive Plan, 2000 Plan and 2001 Plan from reserves upon the
exercise of stock options and vesting of RSAs. The Company does not currently expect to repurchase
shares from any source to satisfy such obligation under these plans.
84
The following are the stock-based compensation costs recognized in the Companys consolidated
statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cost of revenue
|
|
$
|
710
|
|
|
$
|
523
|
|
|
$
|
380
|
|
Research and development
|
|
|
1,368
|
|
|
|
1,143
|
|
|
|
810
|
|
Selling, general and administrative
|
|
|
6,082
|
|
|
|
5,585
|
|
|
|
5,403
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs reflected
in net income (loss)
|
|
$
|
8,160
|
|
|
$
|
7,251
|
|
|
$
|
6,593
|
|
|
|
|
|
|
|
|
|
|
|
Reserved Shares of Common Stock
At December 31, 2009 and 2008, the Company had reserved 6,535,475 and 3,873,472 shares of
common stock, respectively, for the issuance of common stock upon the exercise of options, issuance
of RSAs, RSUs, purchase of common stock pursuant to the MSPP or other awards issued pursuant to the
Companys equity plans and arrangements. The following table summarizes the reserved shares by plan
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options / Warrants
|
|
|
Shares Available
|
|
|
Total Shares
|
|
|
|
Outstanding
|
|
|
for Future Issuance
|
|
|
Reserved
|
|
2000 Plan
|
|
|
1,208,300
|
|
|
|
|
|
|
|
1,208,300
|
|
2001 Plan
|
|
|
462,638
|
|
|
|
|
|
|
|
462,638
|
|
2006 Equity Incentive Plan
|
|
|
839,534
|
|
|
|
2,695,420
|
|
|
|
3,534,954
|
|
2006 Management Stock Purchase Plan
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
Tm Plan
|
|
|
61,161
|
|
|
|
|
|
|
|
61,161
|
|
Other *
|
|
|
769,422
|
|
|
|
|
|
|
|
769,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,341,055
|
|
|
|
3,195,420
|
|
|
|
6,536,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Balthrop Option and Tm Warrants
|
Employee Savings Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by
section 401(k) of the Internal Revenue Code. In accordance with the 401(k) plan, all employees are
eligible to participate in the plan on the first day of the month following the commencement of
full time employment. For 2009, 2008, and 2007, each employee could contribute a percentage of
compensation up to a maximum of $16,500, $15,500, and $15,500 per year, respectively, with the
Company matching 50% of each employees contributions. The Companys contributions for 2009, 2008
and 2007 were $767,000, $536,000, and $543,000, respectively.
85
NOTE 15 COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company has operating leases related primarily to its office and manufacturing facilities
with original lease periods up to 10 years. Rental and lease expense for these operating leases for
the years 2009, 2008 and 2007 totaled approximately $2.6 million, $2.6 million, and $1.2 million,
respectively.
Minimum annual lease commitments as of December 31, 2009 under non-cancelable leases for each
of the next five years and in the aggregate were as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
2,446
|
|
2011
|
|
|
2,414
|
|
2012
|
|
|
2,242
|
|
2013
|
|
|
2,131
|
|
2014
|
|
|
1,670
|
|
Thereafter
|
|
|
518
|
|
|
|
|
|
Total
|
|
$
|
11,421
|
|
|
|
|
|
These non-cancelable lease commitments related to facilities include certain rent escalation
provisions which have been included in the minimum annual rental commitments shown above. These
amounts are recorded to expense on a straight-line basis over the life of the lease. In addition,
some of the Companys leases contain options to renew the lease for five to ten years at the then
prevailing market rental rate, right of first refusal to lease additional space that becomes
available, or leasehold improvement incentives.
Non-Cancelable Purchase Commitments
As of December 31, 2009 the Company had approximately $12.7 million in purchase commitments
with several of its inventory suppliers. These commitments require delivery of minimum amounts of
components throughout 2017.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives.
Generally, certain amounts may become payable in the event the Company terminates the executives
employment without cause or the executive resigns for good reason.
Gain on Settlement of Liability
In 2007, the Company renegotiated a contract acquired as part of the acquisition of Tm
Bioscience. As part of the contract renegotiation there was a settlement of a liability of $2.3
million which the Company has recorded as a gain on settlement of liability in 2007.
86
Legal Proceedings
On July 24, 2009, Luminex notified Abbott Molecular Inc. of the Companys intent to convert
its right to distribute Luminexs xTAG
®
Respiratory Viral Panel from exclusive to non-exclusive on
a worldwide basis under the Distribution Agreement, dated February 1, 2008, between Abbott
Molecular and LMD. On September 11, 2009, Abbott Molecular Inc. notified the Company that it
intended to exercise its right to seek arbitration under the Distribution Agreement. Among other
matters, Abbott disputed LMDs right to terminate Abbotts exclusive right to distribute RVP under
the Agreement. The arbitration to resolve this matter was held on December 14-15, 2009. The
arbitrator issued his binding ruling on December 30, 2009, instructing Luminex, among other
matters, to reinstate Abbotts exclusive right to distribute RVP outside of the United States and
co-exclusively with Fisher Scientific within the United States. All other terms and conditions of
the Distribution Agreement remain in effect and are unaffected by the Arbitration.
On June 19, 2009, Luminex terminated a long-term supply contract related to its
FlexmiR
®
product line. A payment of $1 million was made in June 2009 related to this
termination. This payment included a purchase of $220,000 of inventory.
NOTE 16 GUARANTEES
The terms and conditions of the Companys development and supply and license agreements with
its strategic partners generally provide for a limited indemnification of such partners, arising
from the sale of Luminex systems and consumables, against losses, expenses and liabilities
resulting from third-party claims based on an alleged infringement on an intellectual property
right of such third party. The terms of such indemnification provisions generally limit the scope
of and remedies for such indemnification obligations. To date, the Company has not had to reimburse
any of its strategic partners for any losses arising from such indemnification obligations.
NOTE 17 SEGMENT AND GEOGRAPHIC INFORMATION
The Chief Operating Decision Maker (CODM) is Luminexs Chief Executive Officer. The CODM
allocates resources to and assesses the performance of each operating segment using information
about its revenue and projections. The Companys reporting segments reflect the nature of the
products offered to customers and the markets served and are comprised of the following:
Technology segment
represents the Companys base business and consists of system sales to
partners, raw bead sales, royalties, service and support of the technology, and other miscellaneous
items.
Assay segment
consists of LBG and LMD and is primarily involved in the development and sale
of assays on xMAP technology for use on Luminexs installed base of systems.
Intersegment sales are recorded at fixed prices which approximate the prices charged to third
party strategic partners and are not a measure of segment operating earnings. Intersegment sales
of approximately $14.0 million, $6.5 million, and $3.5 million for the years ended December 31,
2009, 2008, and 2007 have been eliminated upon consolidation, respectively.
87
Following is selected information for the years ended December 31, 2009 and 2008 or as of
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Technology
|
|
|
Assay
|
|
|
|
|
|
|
Technology
|
|
|
Assay
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Consolidated
|
|
|
Segment
|
|
|
Segment
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
87,389
|
|
|
$
|
33,254
|
|
|
$
|
120,643
|
|
|
$
|
83,567
|
|
|
$
|
20,880
|
|
|
$
|
104,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,428
|
|
|
|
3,901
|
|
|
|
8,329
|
|
|
|
3,279
|
|
|
|
3,722
|
|
|
|
7,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss)
|
|
|
21,406
|
|
|
|
(3,677
|
)
|
|
|
17,729
|
|
|
|
9,405
|
|
|
|
(6,348
|
)
|
|
|
3,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
170,927
|
|
|
|
77,086
|
|
|
|
248,013
|
|
|
|
145,008
|
|
|
|
72,283
|
|
|
|
217,291
|
|
The table below provides information regarding long-term assets and product revenues from the
Companys sales to customers within the United States and in foreign countries for the years ended
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers
|
|
|
Long-Term Assets
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
97,842
|
|
|
$
|
89,465
|
|
|
$
|
63,591
|
|
|
$
|
50,045
|
|
|
$
|
13,553
|
|
|
$
|
10,863
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
11,398
|
|
|
|
9,279
|
|
|
|
7,835
|
|
|
|
1,078
|
|
|
|
428
|
|
|
|
501
|
|
Asia
|
|
|
4,337
|
|
|
|
1,204
|
|
|
|
739
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
4,608
|
|
|
|
2,204
|
|
|
|
846
|
|
|
|
54,446
|
[1]
|
|
|
56,885
|
[1]
|
|
|
58,676
|
[1]
|
Other
|
|
|
2,458
|
|
|
|
2,295
|
|
|
|
1,999
|
|
|
|
24
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,643
|
|
|
$
|
104,447
|
|
|
$
|
75,010
|
|
|
$
|
105,857
|
|
|
$
|
70,898
|
|
|
$
|
70,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[1]
|
|
$39,617 of the long-term assets in Canada represents goodwill from the acquisition of LMD.
|
Our aggregate foreign currency transaction losses of $214,000 and $465,000 were included in
determining our consolidated results for the year ended December 31, 2009 and 2008, respectively.
88
NOTE 18 SETTLEMENT OF LITIGATION
On January 16, 2008, Luminex Corporation and LMD were served with a complaint, filed by The
Research Foundation of the State University of New York (SUNY) in Federal District Court for the
Northern District of New York, alleging, among other claims, that LMD breached its license
agreement with SUNY by failing to pay royalties allegedly owed under the agreement. The complaint
sought an undetermined amount of damages as well as injunctive relief. On March 27, 2009, Luminex
and LMD settled the pending litigation with SUNY. As part of the settlement, SUNY received a one
time cash payment of approximately $4.4 million, which represents all amounts owed by Luminex as
part of the settlement. The cash payment was made by Luminex in exchange for resolution of the
dispute between the companies and a complete release of all claims by SUNY against Luminex and
correspondingly a complete release of all claims by Luminex against SUNY. All other terms of the
agreement are confidential. The parties have formally dismissed the lawsuit, as required by the
applicable settlement agreement.
The Company settled its pending litigation with Rules Based Medicine, Inc. (RBM) on October
15, 2007. As part of the settlement, Luminex received a cash payment of $12.5 million in 2007. The
cash payment was made by RBM in exchange for resolution of the dispute between the companies
regarding Biophysical Corporation as well as the retirement of Luminexs stock ownership in RBM and
the grant of certain additional licensing rights from Luminex. All other terms of the agreement are
confidential. The parties formally dismissed the lawsuit on October 24, 2007, as required by the
settlement agreement. The Company recorded $11.5 million of the $12.5 million payment in the
fourth quarter of 2007 as a gain on settlement of litigation. The remaining $1.0 million has been
deferred related to the license agreement with RBM and will be recognized over the term of the
license agreement.
NOTE 19 RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently amended its guidance on the information that a reporting entity must provide
in its financial reports about a transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a transferors continuing
involvement in transferred financial assets. Specifically, among other aspects, the new guidance
amends previous guidance related to the concept of a qualifying special-purpose entity, variable
interest entities that are qualifying special-purpose entities and the financial-components
approach. The new guidance is effective for transfer of financial assets occurring on or after
January 1, 2010. The Company has not determined the effect that the adoption of the new guidance
will have on its financial position or results of operations but the effect will generally be
limited to future transactions. Historically, the Company has not had any material transfers of
financial assets. Additionally, the FASB recently amended its guidance surrounding a companys
analysis to determine whether its variable interest or interests give it a controlling financial
interest in a variable interest entity. The primary beneficiary of a variable interest entity is
the enterprise that has both (1) the power to direct the activities of a variable interest entity
that most significantly impact the entitys economic performance and (2) the obligation to absorb
losses of the entity that could potentially be significant to the variable interest entity or the
right to receive benefits from the entity that could potentially be significant to the variable
interest entity. This new guidance also requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity. The guidance is effective for all variable
interest entities and relationships with variable interest entities existing as of January 1, 2010.
The Company does not expect the adoption of this standard to have an impact on its financial
position or results of operations.
89
In October 2009, the FASB updated its revenue recognition guidance, amending the criteria for
separating consideration in multiple-deliverable arrangements. The amendments establish a selling
price hierarchy for determining the selling price of a deliverable. The selling price used for each
deliverable will be based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. The amendments will
eliminate the residual method of allocation and require that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the relative selling price method.
The relative selling price method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverables selling price. This update will be effective
prospectively for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently
evaluating the requirements of this update and has not yet determined the impact on the Companys
consolidated financial statements.
In October 2009, the FASB updated its software guidance, changing the accounting model for
revenue arrangements that include both tangible products and software elements. Tangible products
containing software components and non-software components that function together to deliver the
tangible products essential functionality are no longer within the scope of the software revenue
guidance. In addition, the amendments require that hardware components of a tangible product
containing software components always be excluded from the software revenue guidance. This update
will be effective prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is
currently evaluating the requirements of this update and has not yet determined the impact on the
Companys consolidated financial statements.
In January 2010, the FASB updated it guidance related to fair value measurements and
disclosures
.
This guidance requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement in order to improve these disclosures and, thus, increase
the transparency in financial reporting. Specifically, guidance will require a reporting entity to
disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair
value measurements and describe the reasons for the transfers and present separately information
about purchases, sales, issuances, and settlements in the reconciliation for fair value
measurements using significant unobservable inputs. In addition, the FASB clarified the disclosure
requirements related to the use of judgment in determining the appropriate classes of assets and
liabilities when reporting fair value measurement for each class and about the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.
The update is effective for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. Early
application is permitted. The Company is currently evaluating the requirements of this update and
has not yet determined the impact on the Companys consolidated financial statements.
90
SELECTED QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods indicated (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
25,557
|
|
|
$
|
27,801
|
|
|
$
|
29,118
|
|
|
$
|
38,167
|
|
Gross profit
|
|
|
17,568
|
|
|
|
19,300
|
|
|
|
18,771
|
|
|
|
25,655
|
|
Income (loss) from operations
|
|
|
1,584
|
|
|
|
1,029
|
|
|
|
(512
|
)
|
|
|
5,298
|
|
Net income (loss)
|
|
|
(2,790
|
)
|
|
|
1,112
|
|
|
|
(609
|
)
|
|
|
20,016
|
|
Basic income (loss) per share
|
|
|
(0.07
|
)
|
|
|
0.03
|
|
|
|
(0.01
|
)
|
|
|
0.49
|
|
Diluted income (loss) per share
|
|
|
(0.07
|
)
|
|
|
0.03
|
|
|
|
(0.01
|
)
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
23,012
|
|
|
$
|
24,341
|
|
|
$
|
28,897
|
|
|
$
|
28,197
|
|
Gross profit
|
|
|
15,257
|
|
|
|
16,563
|
|
|
|
19,554
|
|
|
|
19,572
|
|
Income (loss) from operations
|
|
|
(1,268
|
)
|
|
|
(514
|
)
|
|
|
2,981
|
|
|
|
2,154
|
|
Net income (loss)
|
|
|
(1,166
|
)
|
|
|
(959
|
)
|
|
|
3,173
|
|
|
|
2,009
|
|
Basic income (loss) per share
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
0.08
|
|
|
|
0.05
|
|
Diluted income (loss) per share
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
0.08
|
|
|
|
0.05
|
|
|
|
|
ITEM 9.
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934 (Exchange Act), which are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is accumulated and communicated
to the Companys management, including the Companys Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out
an evaluation, under the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedure as of the end of the
period covered by this report. Based on the evaluation and criteria of these disclosure controls
and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.
91
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2009 based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31, 2009. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our independent registered public accounting firm, Ernst & Young LLP, has issued a report on
their assessment of the effectiveness of our internal control over financial reporting, which is
provided at Item 8, page 57.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Exchange Act Rule 13a-15(d) during the fourth quarter of
2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item concerning our directors, audit committee, and audit
committee financial experts, code of ethics and compliance with Section 16(a) of the Exchange Act
is incorporated by reference to information under the captions Proposal 1 Election of Class I
Directors, Corporate Governance and Section 16(a) Beneficial Ownership Reporting Compliance in
our definitive proxy statement for our 2010 annual meeting of stockholders to be held on or about
May 20, 2010 (Proxy Statement). It is anticipated that our Proxy Statement will be filed with the
Securities and Exchange Commission on or about April 7, 2010.
Pursuant to General Instruction G(3), certain information with respect to our executive
officers is set forth under the caption Executive Officers of the Registrant in Item 4 of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the sections of the Proxy
Statement entitled Executive and Director Compensation.
|
|
|
ITEM 12.
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information required by this Item is incorporated by reference to the sections of the Proxy
Statement entitled Security Ownership of Certain Beneficial Owners and Management.
92
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2009, certain information with respect to
shares of our common stock authorized for issuance under our equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining
|
|
|
|
|
|
|
|
|
|
|
|
Available for Future Issuance
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Under Equity Compensation Plans
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
(Excluding Securities Reflected
|
|
Plan Category
|
|
of Outstanding Options
|
|
|
Outstanding Options
|
|
|
in Column (A))
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
approved by security
holders
|
|
|
2,047,834
|
|
|
$
|
7.44
|
|
|
|
3,195,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
not approved by security
holders (1)
|
|
|
1,293,221
|
|
|
$
|
13.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,341,055
|
|
|
|
|
|
|
|
3,195,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes shares issuable upon the exercise of options granted under the Tm Bioscience
Corporation Share Option Plan assumed by Luminex in connection with the acquisition of Tm
Bioscience. These options have a weighted average exercise price of $23.34. No further grants
will be made pursuant to this plan. Also includes options to purchase 500,000 shares of the
Companys common stock issued to Patrick J. Balthrop, Sr. on May 15, 2004 in connection with his
hiring. Such option grants were issued separate and apart from the Companys stockholder approved
equity incentive plans.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this Item is incorporated by reference to the sections of the Proxy
Statement entitled Certain Relationships and Related Party Transactions and Corporate
Governance.
ITEM 14. PRINCIPLE ACCOUNTING FEES AND SERVICES
Information required by this Item is incorporated by reference to the section of the Proxy
Statement entitled Ratification of Appointment of Independent Registered Public Accounting Firm.
93
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
|
|
The following documents are filed as a part of this Annual Report on Form 10-K:
|
(1) Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item 8 of this report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown
in the Financial Statements or in the notes thereto.
(3) Exhibits:
|
|
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION OF DOCUMENT
|
|
|
|
2.1
|
|
Merger Agreement, dated December 14, 2006, by and between the Company and Tm Bioscience Corporation
(Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed December 15, 2006).
|
|
|
|
3.1
|
|
Restated Certificate of Incorporation of the Company (Previously filed as an Exhibit to the Companys
Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Company (Previously filed as an Exhibit to the Companys Current
Report on Form 8-K, filed September 16, 2008).
|
|
|
|
4.1
|
|
Rights Agreement dated as of June 20, 2001 between Luminex Corporation and Mellon Investor Services LLC,
as Rights Agent which includes as Exhibit A the form of Certificate of Designations of Series A Junior
Participating Preferred Stock setting forth the terms of the Series A Junior Participating Preferred
Stock, as Exhibit B the form of Rights Certificate and as Exhibit C the Summary of Rights (Previously
filed as an Exhibit to the Companys Current Report on Form 8-K dated June 21, 2001 (File No.
000-30109)).
|
|
|
|
10.1#
|
|
Form of Incentive Stock Option Agreement for the 1996 Stock Option Plan (Previously filed as an Exhibit
to the Companys Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as
amended).
|
|
|
|
10.2#
|
|
2000 Long-Term Incentive Plan of the Company, as amended (Previously filed as an Exhibit to the
Companys Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002 (File No.
000-30109)).
|
|
|
|
10.3#
|
|
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive Plan (Previously filed as an
Exhibit to the Companys Registration Statement on Form S-1 (File No. 333-96317), filed February 7,
2000, as amended).
|
|
|
|
10.4#
|
|
2001 Broad-Based Stock Option Plan of the Company (Previously filed as an Exhibit to the Companys
Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 000-30109)).
|
|
|
|
10.5#
|
|
Form of Option Grant Certificate for the 2001 Broad-Based Stock Option Plan (Previously filed as an
Exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File
No. 000-30109)).
|
94
|
|
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION OF DOCUMENT
|
|
|
|
10.6#
|
|
Form of Indemnification Agreement between the Company and each of the directors and executive officers
of the Company (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed
September 16, 2008).
|
|
|
|
10.7
|
|
Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex Corporation, as Tenant,
dated October 19, 2001 (Previously filed as an Exhibit to the Companys Form 10-Q for the quarterly
period ended September 30, 2001 (File No. 000-30109)).
|
|
|
|
10.8
|
|
First Amendment to Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex
Corporation as Tenant, dated July 25, 2002. (Previously filed as an Exhibit to the Companys Quarterly
Report on Form 10-Q for the period ended June 30, 2002 (File No. 000-30109)).
|
|
|
|
10.9
|
|
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and Luminex Corporation, as Tenant,
dated January 27, 2003 (Previously filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 (File No. 000-30109)).
|
|
|
|
10. 10#
|
|
Employment Agreement, effective as of October 1, 2003, by and between Luminex Corporation and Harriss T.
Currie (Previously filed as an Exhibit to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 (File No. 000-30109)).
|
|
|
|
10.11#
|
|
Employment Agreement effective as of October 1, 2003, by and between Luminex Corporation and David S.
Reiter (Previously filed as an Exhibit to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 (File No. 000-30109)).
|
|
|
|
10.12#
|
|
Employment Agreement effective as of May 15, 2004, by and between Luminex Corporation and Patrick J.
Balthrop (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 18,
2004).
|
|
|
|
10.13#
|
|
Employment Agreement effective as of October 25, 2004, by and between Luminex Corporation and Gregory J.
Gosch (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed October 22,
2004).
|
|
|
|
10.14#
|
|
Employment Agreement effective as of May 23, 2005, by and between Luminex Corporation and Russell W.
Bradley (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 25, 2005).
|
|
|
|
10.15#
|
|
2009 Executive Compensation Summary (Previously filed in the Companys Current Report on Form 8-K filed
March 17, 2009).
|
|
|
|
10.16#
|
|
Form of Restricted Stock Agreement for the 2000 Long-Term Incentive Plan and 2001 Broad-Based Stock
Option Plan (Previously filed as an Exhibit to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2004 (File No. 000-30109)).
|
|
|
|
10.17#
|
|
Form of Non-Qualified Stock Option Agreement dated as of May 15, 2004, by and between Luminex
Corporation and Patrick J. Balthrop (Previously filed as an Exhibit to the Companys Current Report on
Form 8-K filed May 18, 2004 (File No. 000-30109)).
|
|
|
|
10.18#
|
|
Form of Amendment to Executive Employment Agreements (Previously filed as an Exhibit to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2005).
|
|
|
|
10.19#
|
|
Luminex Corporation Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to
the Companys Current Report on Form 8-K filed May 21, 2009).
|
|
|
|
10.20#
|
|
Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 21, 2009).
|
|
|
|
10.21#
|
|
Form of Restricted Share Award Agreement for Officers & Employees for the Amended and Restated 2006
Equity Incentive Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed
May 21, 2009).
|
95
|
|
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION OF DOCUMENT
|
|
|
|
10.22#
|
|
Form of Restricted Share Award Agreement for Directors for the Amended and Restated 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 21,
2009).
|
|
|
|
10.23#
|
|
Form of Restricted Share Unit Agreement for Officers & Employees for the Amended and Restated 2006
Equity Incentive Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed
May 21, 2009).
|
|
|
|
10.24#
|
|
Form of Restricted Share Unit Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 21, 2009).
|
|
|
|
10.25#
|
|
Luminex Corporation 2006 Management Stock Purchase Plan (Previously filed as Exhibit B to the Companys
Proxy Statement for its Annual Meeting of Shareholders held on May 25, 2006).
|
|
|
|
10.26#
|
|
Employment Agreement effective as of March 1, 2007, by and between Luminex Corporation, Tm Bioscience
and Jeremy Bridge-Cook (Previously filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2006).
|
|
|
|
10.27#
|
|
Amendment to Restricted Stock Agreement, dated as of March 25, 2007, by and between Luminex Corporation
and Patrick J. Balthrop, Sr. (Previously filed as an Exhibit to the Companys Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).
|
|
|
|
10.28#
|
|
Amendment to Luminex Corporation Amended and Restated 2000 Long-Term Incentive Plan dated as of May 24,
2007 (Previously filed as an Exhibit to the Companys Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2007).
|
|
|
|
10.29#
|
|
Amendment to Luminex Corporation 2001 Broad-Based Stock Option Plan dated as of May 24, 2007 (Previously
filed as an Exhibit to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2007).
|
|
|
|
10.30#
|
|
Amendment to Luminex Corporation 2006 Management Stock Purchase Plan dated as of May 24, 2007
(Previously filed as an Exhibit to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2007).
|
|
|
|
10.31#
|
|
Luminex Corporation 2008 Long Term Incentive Plan (Previously filed as an Exhibit to the Companys
Current Report on Form 8-K filed December 9, 2008).
|
|
|
|
10.32#
|
|
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2008 Long Term
Incentive Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed
December 9, 2008).
|
|
|
|
10.33#
|
|
Employment Agreement, dated as of July 1, 2009, by and between Luminex Corporation and Michael F. Pintek.
|
|
|
|
10.34#
|
|
Luminex Corporation 2009 Long Term Incentive Plan (Previously filed as an Exhibit to the Companys
Current Report on Form 8-K filed March 17, 2009).
|
|
|
|
10.35#
|
|
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2009 Long Term
Incentive Plan (Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed March
17, 2009).
|
|
|
|
10.36#
|
|
Form of Non-Qualified Stock Option Agreement for the 2006 Equity Incentive Plan (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K filed May 25, 2006).
|
|
|
|
10.37#
|
|
Form of Restricted Share Award Agreement for Officers & Employees for the 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Companys Current Report on Form 8-K filed May 25, 2006).
|
96
|
|
|
EXHIBIT
|
|
|
NUMBER
|
|
DESCRIPTION OF DOCUMENT
|
|
|
|
10.38#
|
|
Form of Restricted Share Award Agreement for Directors for the 2006 Equity Incentive Plan (Previously
filed as an Exhibit to the Companys Current Report on Form 8-K filed May 25, 2006).
|
|
|
|
10.39#
|
|
Form of Restricted Stock Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an
Exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
|
|
|
|
10.40#
|
|
Form of Amendments to Equity Award Agreements (Previously filed as an Exhibit to the Companys Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2007).
|
|
|
|
21.1
|
|
Subsidiaries of the Company.
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
24.1
|
|
Power of Attorney (incorporated in the signature page of this report).
|
|
|
|
31.1
|
|
Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
#
|
|
Management contract or compensatory plan or arrangement.
|
97
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
LUMINEX CORPORATION
|
|
|
By:
|
/s/ Patrick J. Balthrop
|
|
|
|
Patrick J. Balthrop
|
|
|
|
President and Chief Executive Officer
Date: February 25, 2010
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Patrick J. Balthrop and Harriss T. Currie, each his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
S-1
|
|
|
|
|
SIGNATURES
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ Patrick J. Balthrop
|
|
President and Chief Executive Officer,
|
|
February 25, 2010
|
|
|
|
|
|
Patrick J. Balthrop
|
|
|
|
|
|
|
|
|
|
/s/ Harriss T. Currie
|
|
Chief Financial Officer, Vice
President,
|
|
February 25, 2010
|
|
|
|
|
|
Harriss T. Currie
|
|
Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Robert J. Cresci
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Robert J. Cresci
|
|
|
|
|
|
|
|
|
|
/s/ Thomas W. Erickson
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Thomas W. Erickson
|
|
|
|
|
|
|
|
|
|
/s/ Fred C. Goad, Jr.
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Fred C. Goad, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Jay B. Johnston
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Jay B. Johnston
|
|
|
|
|
|
|
|
|
|
/s/ Jim D. Kever
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Jim D. Kever
|
|
|
|
|
|
|
|
|
|
/s/ G. Walter Loewenbaum II
|
|
Chairman of the Board of Directors
|
|
February 25, 2010
|
|
|
|
|
|
G. Walter Loewenbaum II
|
|
|
|
|
|
|
|
|
|
/s/ Kevin M. McNamara
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Kevin M. McNamara
|
|
|
|
|
|
|
|
|
|
/s/ Edward A. Ogunro
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Edward A. Ogunro
|
|
|
|
|
|
|
|
|
|
/s/ Gerard Vaillant
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
Gerard Vaillant
|
|
|
|
|
S-2
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