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 diagnostics industries. The Company’s 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, LEDs, digital signal processors and proprietary software to create a system offering advantages in speed, precision, flexibility and cost. The Company’s xMAP technology is currently being used within various segments of the life sciences industry which includes the fields of drug discovery and development, and for clinical diagnostics, genetic analysis, bio-defense, food safety and biomedical research. In addition to our xMAP technology, our other offerings include our proprietary MultiCode® technology, used for real-time PCR and multiplexed PCR assays, as well as automation and robotics in the field of dry sample handling.
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.
The acquisition of GenturaDx was completed on July 11, 2012; therefore the results of operations of GenturaDx in the Company’s consolidated financial statements only include GenturaDx’s results since that date. The acquisition of LMA was completed on June 27, 2011; therefore the results of operations of LMA in the Company’s consolidated financial statements only include LMA's results since that date.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
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. 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 securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates fair value of these investments. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. 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 obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value. Declines in fair value below the Company’s 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 by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value. The Company’s financial instruments include cash and cash equivalents, short-term investments, accounts receivable, cost-method investments, long-term investments, accounts payable, accrued liabilities, and long-term debt. Except for the fair value of the Company’s long-term debt, the fair values of these financial instruments were not materially different from their carrying or contract values at
December 31, 2012
and
2011
. See Note 12 for further details concerning the fair value of the Company’s long-term debt.
Supplemental Cash Flow Statement Information (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cash paid during the period for taxes
|
$
|
761
|
|
|
$
|
1,520
|
|
|
$
|
946
|
|
Cash paid during the period for interest and penalties
|
171
|
|
|
176
|
|
|
228
|
|
Effect of acquisitions:
|
|
|
|
|
|
|
|
|
Fair value of tangible assets acquired
|
1,682
|
|
|
6,048
|
|
|
1,550
|
|
Liabilities assumed
|
(1,954
|
)
|
|
(164
|
)
|
|
(116
|
)
|
Cost in excess of fair value of assets acquired
|
8,292
|
|
|
532
|
|
|
2,181
|
|
Acquired identifiable intangible assets
|
—
|
|
|
19,681
|
|
|
1,209
|
|
Deferred tax assets (liabilities), net
|
2,526
|
|
|
7,617
|
|
|
(136
|
)
|
In-process research and development
|
40,100
|
|
|
286
|
|
|
583
|
|
|
50,646
|
|
|
34,000
|
|
|
5,271
|
|
Less accrued contingent consideration
|
1,370
|
|
|
—
|
|
|
41
|
|
Less cash and cash equivalents acquired
|
1,077
|
|
|
86
|
|
|
218
|
|
Net cash paid for business acquisition
|
$
|
48,199
|
|
|
$
|
33,914
|
|
|
$
|
5,012
|
|
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 Company’s short-term investments consist of investments in high credit quality financial institutions, non-government sponsored debt securities 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.
Thermo Fisher Scientific, Inc., which includes One Lambda, Inc., acquired in 2012, accounted for
28%
,
33%
and
21%
of the Company’s total TSP segment revenues in
2012
,
2011
and
2010
, respectively. Bio-Rad Laboratories, Inc. accounted for
14%
,
14%
and
17%
of the Company’s total TSP segment revenues in
2012
,
2011
and
2010
, respectively. EMD Millipore accounted for
13%
,
11%
and
12%
of the Company's total TSP segment revenues in
2012
,
2011
, and
2010
, respectively. LabCorp, including acquired Genzyme Genetics, accounted for
45%
,
31%
, and
29%
of the Company's total ARP segment revenues in
2012
,
2011
and
2010
, respectively. Thermo Fisher Scientific, Inc. accounted for
18%
,
24%
and
29%
of the Company’s total ARP segment revenues in
2012
,
2011
and
2010
, respectively. Abbott Laboratories accounted for
9%
,
10%
and
16%
of the Company’s total ARP segment revenues in
2012
,
2011
and
2010
, respectively. No other customer accounted for more than 10% of total segment revenues in
2012
,
2011
or
2010
.
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, which approximates the first-in, first-out 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 leases 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 Accounting Standards Codification (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. All of the Company's goodwill relates to one reporting unit, our ARP segment, for goodwill impairment testing The Company has historically estimated the fair value of our ARP segment reporting unit using a discounted cash flow analysis (“step one” analysis) of the Company’s projected future results. The step one analysis performed by management in the fourth quarter of 2010 indicated the fair value the ARP segment reporting unit was significantly higher than the carrying value. As discussed in Recent Accounting Pronouncements, the Company early adopted new accounting pronouncements related to the Company’s goodwill impairment analysis in 2011. The new accounting guidance allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount (“step zero” analysis). In fiscal 2012 and 2011, management used this new guidance in the Company’s annual impairment analysis for goodwill because the Company's cash flows for the Company's ARP segment reporting unit continue to exceed management's expectations as of the fourth quarter 2010 step one analysis; a review of the estimated fair value of the assay segment using the market approach as of the fourth quarter of 2012 shows that the estimated fair value of the assay segment exceeded the carrying amount by over 100%; the gap between the estimated fair value of the ARP segment and the carrying value of the ARP segment is broadening compared to 2010 and 2011; and the assay segment revenue growth rate in 2012 exceeded the modeled growth rates in the goodwill impairment test performed as of the fourth quarter of 2010.
No
goodwill impairments were recorded in
2012
,
2011
or 2010.
Intangible assets are amortized on a straight line basis over their respective estimated useful lives ranging from
two
to
fifteen
years. As a result of the acquisition of GenturaDx in July 2012, the Company acquired in process research and development of
$40.1 million
. As a result of the acquisition of LMA in 2011, the Company acquired amortizable identifiable intangible assets consisting of developed technology of
$11.3 million
, customer lists and contracts of
$6.7 million
, licensing and other agreements of
$1.0 million
, trade name of
$0.7 million
and in process research and development of
$0.3 million
. These will be amortized over their estimated lives of
ten
to
twelve
years for the developed technology;
ten
years for the customer lists and contracts;
five
years for the software related developed technology,
eleven
years for the licensing and other agreements; and
one
year for the trade name and non-compete agreements. As a result of the acquisition of BSD in 2010, the Company acquired amortizable identifiable intangible assets consisting of developed technology of
$825,000
, in-process research and development of
$583,000
, customer relationships and contracts of
$152,000
, trade name of
$193,000
, and a non-compete agreement of
$39,000
. These will be amortized over their estimated lives of
five
years for the developed technology,
four
years for the customer relationships and contracts,
two
years for the trade name, and
seven
years for the non-compete agreement.
In-process research and development will be an indefinite-lived intangible asset until completion or abandonment at which point it will be accounted for as a finite-lived intangible asset or written off if abandoned.
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 is generated primarily from the sale of the Company’s products and related services, which are primarily support and maintenance services on our systems. The Company recognizes product revenue at the time the product is shipped provided there is persuasive evidence of an agreement, no right of return exists, the fee is fixed and determinable and collectability is probable. There is no customer right of return in the Company’s sales agreements. If the criteria for revenue recognition are not met at the time of shipment, the revenue is deferred until all criteria are met.
The Company regularly enters into arrangements for system sales that are multiple-element arrangements, including services such as installation and training, and multiple products. These products or services are generally delivered within a short time frame, approximately three to six months, of the agreement execution date and can also be performed by one of the Company’s third-party partners. Based on the terms and conditions of the sale, management believes that these services can be accounted for separately from the delivered system as the delivered products have value to customers on a stand-alone basis. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. Accordingly, the estimated selling price of services or products not yet performed or delivered at the time of system shipment are deferred and recognized as revenue as such services are performed. The Company has generally been able to determine the selling price of each deliverable in a multiple arrangement based on the price for such deliverable when it is sold separately. If vendor specific objective evidence (VSOE) is not determinable and when third-party evidence is not available, management uses the estimated selling price of a deliverable which is determined based upon the Company’s pricing policies, expected margin of the deliverable, geographical location and information gathered from customer negotiations.
Within the diagnostic portion of our ARP segment, we provide systems and certain other hardware to customers through reagent rental agreements under which the customers commit to purchasing minimum quantities of disposable products at a stated price over a defined contract term, which is normally two to three years. Instead of rental payments, we recover the cost of providing the system and other hardware in the amount we charge for our diagnostic assays and other disposables. Revenue is recognized over the defined contract term as assays and other disposable products are shipped. The depreciation costs associated with the system and other hardware are charged to cost of sales on a straight-line basis over the estimated life of the system. The costs to maintain these instruments in the field are charged to cost of sales as incurred.
Revenue from extended service agreements is deferred and recognized ratably over the term of the agreement. 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.
Additional revenue is derived from cost-type contracts with the U.S. government. Revenue and profit under cost-plus service contracts is recognized as costs are incurred plus negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably over the contract performance period as services are performed. Contract costs include labor and related employee benefits, subcontracting costs and other direct costs, as well as allocations of allowable indirect costs. For contract change orders, claims or similar items, judgment is required for estimating the amounts, assessing the potential for realization, and determining whether realization is probable. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the period in which the facts requiring the revision become known. Reimbursements of certain costs, including certain hardware costs or out-of-pocket expenses are included in revenue with corresponding costs included in cost of revenue as costs are incurred.
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 Company’s 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 Company’s significant customers, or a deterioration in the economic environment, in general, could have a material adverse impact on the collectability of the Company’s 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 Company’s 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 Company’s estimates, revisions to the estimated warranty liability would be required. Shipping and handling costs associated with product sales are included in cost of sales. Advertising costs are charged to operations as incurred. The Company does not have any direct-response advertising. Advertising expenses, which include trade shows and conventions, were approximately
$2.4 million
,
$3.1 million
and
$2.8 million
for
2012
,
2011
and
2010
, respectively, and were included in selling, general and administrative expense in the Consolidated Statements of Operations.
Research and Development Costs
Research and development costs are generally expensed in the period incurred. Nonrefundable advance payments for research and development activities for materials, equipment, facilities, and purchased intangible assets that have an alternative future use are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. In addition, the Company capitalizes certain internally developed products used for evaluation during development projects that also have alternative future uses. These internally developed assets are generally depreciated on a straight-line basis over the useful life of the assets, which range from
two months
to
one year
.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC 830, “Foreign Currency Matters”. The reporting currency for the Company is the U.S. dollar. With the exception of its Canadian subsidiary, whose functional currency is the U.S. dollar, the functional currency of the Company’s foreign subsidiaries is their local currency. Accordingly, assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each balance sheet date. Before translation, the Company re-measures foreign currency denominated assets and liabilities, including inter-company accounts receivable and payable, into the functional currency of the respective entity, resulting in unrealized gains or losses recorded in selling, general and administrative expenses in the Consolidated Statement of Operations. Revenues and expenses are translated using average exchange rates during the respective period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are included in selling, general and administrative expenses in the Consolidated Statement of Operations and to date have not been material.
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 management’s 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 those 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.
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes” which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s 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 per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares and potential common shares from outstanding stock options, restricted stock units and contingently issuable shares resulting from an award subject to performance or market conditions determined by applying the treasury stock method. In periods with a net loss, 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, would be 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, restricted stock units and shares issued under the Company’s employee stock purchase plan. 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
Management has determined that the Company has
two
segments for financial reporting purposes: the TSP segment and the ARP segment. See Note 18 – Segment and Geographic Information.
NOTE 2 – BUSINESS COMBINATIONS
2012 Acquisition
On July 11, 2012, the Company completed its acquisition of GenturaDx, a British Virgin Islands corporation with operations in Hayward, California, pursuant to the terms of an Agreement and Plan of Merger, dated July 9, 2012, by and among Luminex, Grouper Merger Sub, Inc., a British Virgin Islands corporation and a wholly-owned subsidiary of Luminex (“Merger Sub”), GenturaDx, and a representative of the stockholders and lenders of GenturaDx (the “Agreement”). Pursuant to the terms of the Agreement, Merger Sub merged with and into GenturaDx and GenturaDx continued as the surviving corporation as a wholly-owned subsidiary of Luminex (the “Merger”). GenturaDx is a molecular diagnostics company in late stage development of a fully integrated, highly automated, real-time PCR system that employs a single-use cassette for sample-to-answer workflow. The integration of Luminex’s MultiCode-RTx chemistry with the GenturaDx instrument is expected to result in a new system for molecular diagnostic testing.
Under the terms of the Agreement, the Company acquired all of the outstanding capital stock of GenturaDx in exchange for approximately
$49.3 million
cash consideration, subject to working capital adjustments, plus (i)
$3 million
in consideration contingent upon achieving certain future development and regulatory milestones by December 31, 2013, (ii) up to
$7 million
in consideration contingent upon achieving certain future development and regulatory milestones by June 30, 2014 and (iii) additional consideration contingent upon acquired products exceeding certain revenue thresholds in each of 2013, 2014 and 2015. Pursuant to ASC 805 "Business Combinations", the Company has recorded an estimate of the fair value of the contingent considerations liability based upon future revenue estimates and weighted probability assumptions of development and regulatory outcomes. The discount rate is used in the estimate of fair value and is based on the weighted-average cost of capital of the acquired business plus a risk premium for a non-performance risk related to the liability. This analysis resulted in an initial contingent consideration liability of approximately
$1.4 million
, which will be adjusted periodically as a component of operating expenses based on changes in the fair value of the liability resulting from changes in the assumptions pertaining to the achievement of the defined milestones and revenue thresholds. This fair value measurement was based on significant inputs not observable in the market and thus represented a Level 3 measurement as defined in ASC 820 "Fair Value Measurements and Disclosures". This fair value measurement is directly impacted by the Company's estimate of future incremental revenue of the business. Accordingly, if actual revenue is higher or lower than the estimates within the fair value measurement, the Company would record additional charges or benefits, respectively, as appropriate.
Approximately
$8.1 million
of the upfront consideration was deposited in escrow as security for potential indemnity claims and certain other expressly enumerated matters of which
$100,000
was deposited in escrow to satisfy, in part, any post-closing adjustments relating to GenturaDx's working capital balance at closing.
$65,000
of the
$8.1 million
escrow was released in the third quarter of 2012 for payment of fees related to the GenturaDx stockholder and lender representative services and
$100,000
was released in the fourth quarter of 2012, of which approximately
$78,000
was released to Luminex due to working capital adjustments and approximately
$22,000
was released to the GenturaDx stockholders and lenders. Additionally, up to
30%
of the milestone payments are subject to certain set-off rights of the Company for indemnification claims under the Agreement. The Company's acquisition of GenturaDx was funded with cash on hand.
The results of operations for GenturaDx have been included in the Company’s consolidated financial statements from the date of acquisition as part of the Company’s ARP segment.
The preliminary purchase price consideration is as follows (in thousands):
|
|
|
|
|
Cash
|
$
|
49,276
|
|
Contingent consideration
|
1,370
|
|
Total purchase price
|
$
|
50,646
|
|
The acquisition of GenturaDx has been accounted for as a business combination in accordance with ASC 805 and, as such, the assets acquired and liabilities assumed have been recorded at their respective fair values. The determination of fair value for the identifiable tangible and intangible assets acquired and liabilities assumed requires extensive use of estimates and assumptions. Significant estimates and assumptions include, but are not limited to estimating future cash flows and determining the appropriate discount rate. The following table summarizes the estimated fair values of GenturaDx’s assets acquired and liabilities assumed at the acquisition date (in thousands):
|
|
|
|
|
Net tangible liabilities assumed as of July 11, 2012
|
$
|
(272
|
)
|
Intangible assets subject to amortization
|
40,100
|
|
Deferred tax assets, net
|
2,526
|
|
Goodwill
|
8,292
|
|
Total purchase price
|
$
|
50,646
|
|
The
$40.1 million
of intangible assets subject to amortization have been identified as in-process research and development (IPR&D) that has not yet reached technological feasibility as of the acquisition date. Technological feasibility is primarily established by obtaining regulatory approval to perform certain diagnostic testing on the Company's systems. The IPR&D project relates to GenturaDx's diagnostic testing prototype system designed to run Sample-to-Answer cassettes in clinical settings and the related cassette design. This project is expected to be completed in 2014. The fair value of the IPR&D has been estimated using the multi-period excess earnings method, a form of the income approach and cash flow projections were discounted using a rate of
29.5 percent
, which reflects the risk associated with the intangible asset related to the other assets and the overall business operations of the Company.
The Company has finalized the purchase price allocation for the GenturaDx transaction. If information later becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recognized in the income statement. The excess of the purchase price over the fair value of the tangible net assets, liabilities and intangible assets acquired was recorded to goodwill. The goodwill recognized is mainly attributable to the compatibility between the Company's MultiCode-RTx chemistry and the prototype system and the expectation that the system together with the Company's MultiCode-RTx chemistry will allow the Company to leverage years of previous assay development and make custom assay development accessible to a greater number of diagnostic labs, even those with little molecular diagnostics experience.
Acquisition related costs of
$4.3 million
have been included in selling, general and administrative costs for 2012. GenturaDx had
no
revenue and operating loss of
$7.9 million
from the date of acquisition to December 31, 2012, including the impact of the acquisition costs. In the fourth quarter of 2012, the Company ceased using the Hayward, California facility, whose operating lease commitment was acquired under the GenturaDx acquisition in July 2012. The Company has accrued a liability of approximately
$850,000
based upon the estimated fair value of the costs that will continue to be incurred under the lease, including an estimate of sublease rental income.
Unaudited Pro Forma Financial Information
GenturaDx’s results of operations have been included in the Company’s financial statements since the date of the acquisition. The unaudited pro forma financial information set forth below assumes that GenturaDx had been acquired at the beginning of each of the 2012 and 2011 fiscal years, and includes removal of interest expense on GenturaDx’s debt extinguished at the date of acquisition, removal of acquisition costs and the impact of purchase accounting adjustments, and tax adjustments. This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the periods presented. In addition, the unaudited pro forma financial information is not intended to be a projection of future results and does not reflect any operating efficiencies or cost savings that might be achievable.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
(unaudited, in thousands except per share data)
|
|
|
|
|
Revenue
|
$
|
202,582
|
|
|
$
|
184,339
|
|
Income from operations
|
16,276
|
|
|
10,224
|
|
Net income
|
9,118
|
|
|
5,194
|
|
Net income per common share, basic
|
$
|
0.22
|
|
|
$
|
0.13
|
|
Shares used in computing net income per common share, basic
|
40,927
|
|
|
41,262
|
|
Net income per common share, diluted
|
$
|
0.22
|
|
|
$
|
0.12
|
|
Shares used in computing net income per common share, diluted
|
41,884
|
|
|
42,537
|
|
2011 Acquisition
On
June 27, 2011
, the Company completed its acquisition of
100%
of the outstanding shares of EraGen Biosciences, Inc., now referred to as Luminex Madison (LMA), a privately-held molecular diagnostic company in Madison, Wisconsin, which was founded in 1999, for the aggregate cash purchase price of
$34.0 million
. This acquisition was undertaken to provide the Company access to a portfolio of molecular diagnostic assays based on a proprietary technology called MultiCode®. LMA is an innovator in molecular diagnostic testing technologies for infectious disease and genetic applications.
The results of operations for LMA have been included in the Company’s consolidated financial statements from the date of acquisition as part of the Company’s ARP segment.
$5.6 million
of the cash purchase price was deposited in escrow as security for breaches of representations and warranties and certain other expressly enumerated matters and to satisfy any post-closing adjustments.
$150,000
of this escrow was released in the third quarter of 2011 as the closing balance sheet was finalized,
$1.0 million
of this escrow was released to a licensor to fund an indemnification claim in the first quarter of 2012 related to a fee due pursuant to a sublicense agreement, and the remaining
$3.5 million
of this escrow was released to former shareholders of LMA and certain other individuals in the second half of 2012 at the conclusion of the escrow period.
The acquisition of LMA has been accounted for as a business combination in accordance with ASC 805 Business Combinations and, as such, the assets acquired and liabilities assumed have been recorded at their respective fair values. The determination of fair value for the identifiable tangible and intangible assets acquired and liabilities assumed requires extensive use of estimates and judgments. Significant estimates and assumptions include, but are not limited to estimating future cash flows and determining the appropriate discount rate. The following table summarizes the estimated fair values of LMA’s assets acquired and liabilities assumed at the acquisition date (in thousands):
|
|
|
|
|
Net tangible assets assumed as of June 27, 2011
|
$
|
5,884
|
|
Intangible assets subject to amortization
|
19,967
|
|
Deferred tax assets, net
|
7,617
|
|
Goodwill
|
532
|
|
Total purchase price
|
$
|
34,000
|
|
The Company has finalized the purchase price allocation for the LMA transaction. If information later becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recognized in the income statement. Acquisition related costs of
$2.1 million
have been included in selling, general and administrative costs for 2011. Acquired finished goods and work-in-process inventory was valued at its estimated selling price less the sum of costs of sales efforts and a reasonable profit allowance for the Company's selling effort and, with respect to work-in-process inventory, estimated costs to complete. This resulted in a fair value adjustment that increased finished goods inventory by approximately
$3.3 million
. As the Company sold the acquired inventory in 2011, its costs of sales reflected the increased valuation of the inventory, which reduced the Company's gross margins in 2011. LMA had revenue of
$7.6 million
and operating loss of
$4.6 million
from the date of acquisition to December 31, 2011, including the impact of the acquisition costs and the fair value adjustment to inventory above.
2010 Acquisition
On
May 24, 2010
, the Company completed the acquisition of
100%
of the outstanding shares of BSD, an Australia-based, privately-held, manufacturer and wholesaler of laboratory instruments. This acquisition was undertaken to provide the Company access to new technology and products, an innovative development team, and an established presence in important strategic markets.
BSD specializes in automation and robotics in the field of dry sample preparation handling. BSD, founded in 1991, is headquartered in Brisbane, Queensland, Australia. BSD has established positions in the worldwide newborn screening, forensics, human identification and several molecular diagnostics markets.
The results of operations for BSD have been included in the Company’s consolidated financial statements from the date of acquisition as part of the Company’s ARP segment. The Company has concluded that the acquisition of BSD does not represent a material business combination and therefore no pro forma financial information has been provided herein.
The aggregate purchase price of
$5.3 million
was comprised of the following components (in thousands):
|
|
|
|
|
Cash consideration
|
$
|
5,230
|
|
Contingent consideration
|
41
|
|
Total purchase price
|
$
|
5,271
|
|
The acquisition also provided for contingent consideration made up of earn-out payments which the Company recognized at the acquisition date at its fair value of
$41,000
. During the fourth quarter of 2011, the Company re-evaluated its assumptions and updated the revenue and probability assumptions for future earn-out periods and lowered its projections. As a result of these adjustments, the Company recorded a reversal of expense of
$41,000
in the fourth quarter of 2011 to record the contingent consideration liability at fair value of
$0
as of December 31, 2011. No earn-out has been earned or paid as of December 31, 2012.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
|
|
|
|
|
Net tangible assets assumed as of May 24, 2010
|
$
|
1,298
|
|
Intangible assets subject to amortization
|
1,792
|
|
Goodwill
|
2,181
|
|
Total purchase price
|
$
|
5,271
|
|
Restricted Cash
The Company had
$1.0 million
of restricted cash as of December 31,
2011
, representing funds placed in escrow in a Luminex account for the acquisition of BSD. The Company was holding these funds back from the cash consideration paid to the sellers of BSD for a term of
two
years. These funds were released in the second quarter of 2012 to the sellers of BSD in accordance with the purchase agreement.
NOTE 3 – INVESTMENTS
Available-for-sale securities consisted of the following as of
December 31, 2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gains in Accumulated Other Comprehensive Income (Loss)
|
|
Losses in Accumulated Other Comprehensive Income (Loss)
|
|
Estimated Fair Value
|
Current:
|
|
|
|
|
|
|
|
Money Market funds
|
$
|
16,987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,987
|
|
Non-government sponsored debt securities
|
13,602
|
|
|
5
|
|
|
—
|
|
|
13,607
|
|
Total current securities
|
30,589
|
|
|
5
|
|
|
—
|
|
|
30,594
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
Non-government sponsored debt securities
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
Total noncurrent securities
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
Total available-for-sale securities
|
$
|
33,589
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
33,594
|
|
Available-for-sale securities consisted of the following as of
December 31, 2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gains in Accumulated Other Comprehensive Income (Loss)
|
|
Losses in Accumulated Other Comprehensive Income (Loss)
|
|
Estimated Fair Value
|
Current:
|
|
|
|
|
|
|
|
Money Market funds
|
$
|
38,520
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,520
|
|
Non-government sponsored debt securities
|
42,554
|
|
|
32
|
|
|
(12
|
)
|
|
42,574
|
|
Total current securities
|
81,074
|
|
|
32
|
|
|
(12
|
)
|
|
81,094
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
Non-government sponsored debt securities
|
6,129
|
|
|
22
|
|
|
—
|
|
|
6,151
|
|
Total noncurrent securities
|
6,129
|
|
|
22
|
|
|
—
|
|
|
6,151
|
|
Total available-for-sale securities
|
$
|
87,203
|
|
|
$
|
54
|
|
|
$
|
(12
|
)
|
|
$
|
87,245
|
|
There were
$6 million
and
$0
in proceeds from the sales of available-for-sale securities during the years ended
December 31, 2012
and
2011
, respectively. Realized gains and losses on sales of investments are determined using the specific identification method and are included in other income (expense) in the Consolidated Statement of Comprehensive Income. Net unrealized holding gains and losses on available-for-sale securities of
$5,000
, net of
$1,000
of tax expense, have been included in accumulated other comprehensive gain (loss) as of December 31, 2012. All of the Company's available-for-sale securities with gross unrealized losses as of December 31, 2012 and 2011 had been in a loss position for less than 12 months.
The estimated fair value of available-for-sale debt securities at
December 31, 2012
, by contractual maturity, was as follows (in thousands):
|
|
|
|
|
|
Estimated Fair Value
|
Due in one year or less
|
$
|
13,607
|
|
Due after one year through two years
|
3,000
|
|
|
$
|
16,607
|
|
Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
NOTE 4 - ACCOUNTS RECEIVABLE AND RESERVES
The Company records an allowance for doubtful accounts based upon a specific review of all outstanding invoices, known collection issues and historical experience. The Company regularly evaluates the collectability of its trade accounts receivables and performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and its assessment of the customer’s current credit worthiness. These estimates are based on specific facts and circumstances of particular orders, analysis of credit memo data and other known factors. Accounts receivable consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Accounts receivable
|
$
|
33,717
|
|
|
$
|
23,133
|
|
Less: Allowance for doubtful accounts
|
(444
|
)
|
|
(117
|
)
|
|
$
|
33,273
|
|
|
$
|
23,016
|
|
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
Balance at December 31, 2009
|
$
|
523
|
|
Reductions charged to costs and expenses
|
(174
|
)
|
Write-offs of uncollectible accounts
|
(51
|
)
|
Balance at December 31, 2010
|
$
|
298
|
|
Reductions charged to costs and expenses
|
(168
|
)
|
Write-offs of uncollectible accounts
|
(13
|
)
|
Balance at December 31, 2011
|
$
|
117
|
|
Reductions charged to costs and expenses
|
335
|
|
Write-offs of uncollectible accounts
|
(8
|
)
|
Balance at December 31, 2012
|
$
|
444
|
|
NOTE 5 - INVENTORIES, NET
Inventories consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Parts and supplies
|
$
|
18,259
|
|
|
$
|
12,382
|
|
Work-in-progress
|
4,831
|
|
|
6,829
|
|
Finished goods
|
6,847
|
|
|
5,368
|
|
|
$
|
29,937
|
|
|
$
|
24,579
|
|
The Company has non-cancellable purchase commitments with certain of its component suppliers in the amount of approximately
$16.8 million
at
December 31, 2012
. Should production requirements fall below the level of the Company’s 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.
NOTE 6 – FAIR VALUE MEASUREMENT
ASC 820 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 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs 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 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. There were no transfers between Level 1, Level 2 or Level 3 measurements for the year ended
December 31, 2012
.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of
December 31, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2012 using
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Money Market funds
|
$
|
16,987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,987
|
|
Non-government sponsored debt securities
|
—
|
|
|
16,607
|
|
|
—
|
|
|
16,607
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
1,370
|
|
|
1,370
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Money Market funds
|
$
|
38,520
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,520
|
|
Non-government sponsored debt securities
|
—
|
|
|
48,725
|
|
|
—
|
|
|
48,725
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Changes in the recurring fair value measurements of financial assets and liabilities using significant unobservable inputs (Level 3) during the years ended December 31, 2012 and 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Beginning balance
|
$
|
—
|
|
|
$
|
41
|
|
Contingent consideration recorded at acquisition
|
1,370
|
|
|
—
|
|
Fair value adjustments
|
—
|
|
|
(41
|
)
|
Ending balance
|
$
|
1,370
|
|
|
$
|
—
|
|
Refer to Note 2 for a description of the valuation of contingent consideration and related sensitivities of the estimates.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Laboratory equipment
|
$
|
21,155
|
|
|
$
|
19,343
|
|
Leasehold improvements
|
16,885
|
|
|
15,822
|
|
Computer equipment
|
7,068
|
|
|
5,428
|
|
Purchased software
|
15,756
|
|
|
12,011
|
|
Furniture and fixtures
|
4,834
|
|
|
4,260
|
|
Assets on loan/rental
|
3,499
|
|
|
2,689
|
|
Capital lease equipment
|
116
|
|
|
116
|
|
|
69,313
|
|
|
59,669
|
|
Less: Accumulated amortization and depreciation
|
(43,084
|
)
|
|
(34,477
|
)
|
|
$
|
26,229
|
|
|
$
|
25,192
|
|
Depreciation expense was
$8.8 million
,
$7.8 million
, and
$6.4 million
for the years ended
December 31, 2012
,
2011
, and
2010
, respectively.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
On July 11, 2012, the Company completed the acquisition of GenturaDx. As a result, the Company recorded approximately
$8.3 million
of goodwill and approximately
$40.1 million
of other identifiable intangible assets. In 2011, as a result of the acquisition of LMA, the Company recorded approximately
$0.5 million
of goodwill and
$20.0 million
of other identifiable intangible assets. For impairment testing purposes, the Company has assigned all of the GenturaDx and LMA goodwill to the ARP segment. This goodwill is not expected to be deductible for tax purposes.
The changes in the carrying amount of goodwill during the period are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Balance at beginning of year
|
$
|
42,763
|
|
|
$
|
42,250
|
|
Acquisition of GenturaDx
|
8,292
|
|
|
—
|
|
Acquisition of LMA
|
—
|
|
|
532
|
|
Foreign currency translation adjustments
|
73
|
|
|
(19
|
)
|
Balance at end of year
|
$
|
51,128
|
|
|
$
|
42,763
|
|
As a result of the acquisition of LMA in 2011, the Company acquired amortizable identifiable intangible assets consisting of developed technology of
$11.3 million
, customer lists and contracts of
$6.7 million
, licensing and other agreements of
$1.0 million
, trade name of
$0.7 million
and in process research and development of
$0.3 million
. These will be amortized over their estimated lives of
ten
to
twelve
years for the developed technology;
ten
years for the customer lists and contracts;
five
years for the software related developed technology;
eleven
years for the licensing and other agreements; and
one
year for the trade name and non-compete agreements.
The current in process research and development projects are scheduled to be completed in 2013 and 2014. The estimated costs to complete these projects are between
$10.0
and
$15.0 million
. During the fourth quarter of 2012, one of the in-process research and development projects from the BSD acquisition was abandoned and written off for
$118,000
.
The Company’s intangible assets are reflected in the table below (in thousands, except weighted average lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived
|
|
Indefinite-lived
|
|
|
|
Technology, trade secrets and know-how
|
|
Customer lists and contracts
|
|
Other identifiable intangible assets
|
|
IP R&D
|
|
Total
|
2011
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
$
|
18,407
|
|
|
$
|
1,285
|
|
|
$
|
283
|
|
|
$
|
712
|
|
|
$
|
20,687
|
|
Additions due to acquisition of LMA
|
11,332
|
|
|
6,697
|
|
|
1,652
|
|
|
286
|
|
|
19,967
|
|
Completion of IP R&D projects
|
270
|
|
|
—
|
|
|
—
|
|
|
(270
|
)
|
|
—
|
|
Write-off of IP R&D projects
|
—
|
|
|
—
|
|
|
—
|
|
|
(92
|
)
|
|
(92
|
)
|
Foreign currency translation adjustments
|
(9
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(5
|
)
|
|
(17
|
)
|
Balance at December 31, 2011
|
30,000
|
|
|
7,981
|
|
|
1,933
|
|
|
631
|
|
|
40,545
|
|
Less: accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization balance at December 31, 2010
|
(7,362
|
)
|
|
(308
|
)
|
|
(73
|
)
|
|
—
|
|
|
(7,743
|
)
|
Amortization expense
|
(2,642
|
)
|
|
(461
|
)
|
|
(272
|
)
|
|
—
|
|
|
(3,375
|
)
|
Foreign currency translation adjustments
|
5
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
10
|
|
Accumulated amortization balance at December 31, 2011
|
(9,999
|
)
|
|
(768
|
)
|
|
(341
|
)
|
|
—
|
|
|
(11,108
|
)
|
Net balance at December 31, 2011
|
$
|
20,001
|
|
|
$
|
7,213
|
|
|
$
|
1,592
|
|
|
$
|
631
|
|
|
$
|
29,437
|
|
Weighted average life (in years)
|
10
|
|
|
11
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
$
|
30,000
|
|
|
$
|
7,981
|
|
|
$
|
1,933
|
|
|
$
|
631
|
|
|
$
|
40,545
|
|
Additions due to acquisition of GenturaDx
|
—
|
|
|
—
|
|
|
—
|
|
|
40,100
|
|
|
40,100
|
|
Completion of IP R&D projects
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Write-off of IP R&D projects
|
—
|
|
|
—
|
|
|
—
|
|
|
(118
|
)
|
|
(118
|
)
|
Foreign currency translation adjustments
|
30
|
|
|
5
|
|
|
8
|
|
|
14
|
|
|
57
|
|
Balance at December 31, 2012
|
30,030
|
|
|
7,986
|
|
|
1,941
|
|
|
40,627
|
|
|
80,584
|
|
Less: accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization balance at December 31, 2011
|
(9,999
|
)
|
|
(768
|
)
|
|
(341
|
)
|
|
—
|
|
|
(11,108
|
)
|
Amortization expense
|
(3,187
|
)
|
|
(790
|
)
|
|
(266
|
)
|
|
—
|
|
|
(4,243
|
)
|
Foreign currency translation adjustments
|
(7
|
)
|
|
(2
|
)
|
|
(6
|
)
|
|
—
|
|
|
(15
|
)
|
Accumulated amortization balance at December 31, 2012
|
(13,193
|
)
|
|
(1,560
|
)
|
|
(613
|
)
|
|
—
|
|
|
(15,366
|
)
|
Net balance at December 31, 2012
|
$
|
16,837
|
|
|
$
|
6,426
|
|
|
$
|
1,328
|
|
|
$
|
40,627
|
|
|
$
|
65,218
|
|
Weighted average life (in years)
|
10
|
|
|
11
|
|
|
9
|
|
|
|
|
|
|
|
The estimated aggregate amortization expense for the next five years and thereafter is as follows (in thousands):
|
|
|
|
|
2013
|
$
|
4,121
|
|
2014
|
4,092
|
|
2015
|
3,322
|
|
2016
|
3,107
|
|
2017
|
2,147
|
|
Thereafter
|
7,802
|
|
|
24,591
|
|
IPR&D
|
40,627
|
|
|
$
|
65,218
|
|
NOTE 9 – OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Purchased technology rights (net of accumulated amortization of $2,390 and $1,262 in 2012 and 2011, respectively)
|
$
|
3,765
|
|
|
$
|
3,513
|
|
Cost-method investments
|
5,081
|
|
|
4,081
|
|
Other
|
556
|
|
|
146
|
|
|
9,402
|
|
|
7,740
|
|
Less: Current portion
|
(939
|
)
|
|
(430
|
)
|
|
$
|
8,463
|
|
|
$
|
7,310
|
|
For the years ended
December 31, 2012
and
2011
, the Company recognized amortization expense related to the amortization of these acquired technology rights of approximately
$1,304,000
and
$693,000
, respectively. Future amortization expense is estimated to be
$1,094,000
in
2013
,
$814,000
in
2014
,
$532,000
in
2015
,
$525,000
in
2016
,
$494,000
in
2017
and
$306,000
thereafter.
Non-Marketable Securities and Other-Than-Temporary Impairment
The Company owns a minority interest in two private companies based in the U.S. through its investments of (i)
$2.1 million
in the second quarter of 2010 and an additional
$2.0 million
in the first quarter of 2011 in one private company and (ii)
$1.0 million
in the third quarter of 2012 in a second private company. These minority investments in the private companies are included at cost in other long-term assets on the Company’s Consolidated Balance Sheets as the Company does not have significant influence over the investees as the Company owns less than
20%
of the voting equity and the investees are not publicly traded. The Company regularly evaluates the carrying value of these cost-method investments for impairment and whether any events or circumstances are identified that would significantly harm the fair value of the investments. The primary indicators the Company utilizes to identify these events and circumstances are the investee's ability to remain in business, such as the investees liquidity and rate of cash use, and the investee’s ability to secure additional funding and the value of that additional funding. In the event a decline in fair value is judged to be other-than-temporary, the Company will record an other-than-temporary impairment charge in other income, net in the Consolidated Statements of Operations. As the inputs utilized for the Company's periodic impairment assessment are not based on observable market data, these cost method investments are classified withing Level 3 of the fair value hierarchy. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical.
NOTE 10 - ACCRUED WARRANTY COSTS
Sales of certain of the Company’s 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, 2009
|
$
|
581
|
|
Warranty expenses
|
(980
|
)
|
Accrual for warranty costs
|
876
|
|
Accrued warranty costs at December 31, 2010
|
477
|
|
Warranty expenses
|
(1,131
|
)
|
Accrual for warranty costs
|
1,335
|
|
Accrued warranty costs at December 31, 2011
|
681
|
|
Warranty expenses
|
(1,119
|
)
|
Accrual for warranty costs
|
1,041
|
|
Accrued warranty costs at December 31, 2012
|
$
|
603
|
|
NOTE 11 - INCOME TAXES
The components of income before income taxes for the years ended December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Domestic
|
$
|
28,241
|
|
|
$
|
26,373
|
|
|
$
|
16,625
|
|
Foreign
|
(5,461
|
)
|
|
(2,444
|
)
|
|
(5,274
|
)
|
Total
|
$
|
22,780
|
|
|
$
|
23,929
|
|
|
$
|
11,351
|
|
The components of the provision (benefit) for income taxes attributable to continuing operations for the years ended December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Current:
|
|
|
|
|
|
Federal
|
$
|
4,158
|
|
|
$
|
8,630
|
|
|
$
|
7,498
|
|
Foreign
|
(129
|
)
|
|
494
|
|
|
(391
|
)
|
State
|
928
|
|
|
1,420
|
|
|
962
|
|
Total current
|
$
|
4,957
|
|
|
$
|
10,544
|
|
|
$
|
8,069
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
3,945
|
|
|
(604
|
)
|
|
(1,738
|
)
|
Foreign
|
1,179
|
|
|
(207
|
)
|
|
(210
|
)
|
State
|
292
|
|
|
(278
|
)
|
|
(1
|
)
|
Total deferred
|
5,416
|
|
|
(1,089
|
)
|
|
(1,949
|
)
|
Total provision for income taxes
|
$
|
10,373
|
|
|
$
|
9,455
|
|
|
$
|
6,120
|
|
The provision for income taxes differs from amount computed by applying the statutory federal rate to pretax income as follows (in percentages):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
3.9
|
%
|
|
2.7
|
%
|
|
5.5
|
%
|
Permanent items
|
2.0
|
%
|
|
5.3
|
%
|
|
11.5
|
%
|
Effect of foreign operations
|
0.5
|
%
|
|
(0.4
|
)%
|
|
0.8
|
%
|
Research and incentive tax credit generated
|
(7.1
|
)%
|
|
(2.5
|
)%
|
|
(37.2
|
)%
|
Valuation allowance
|
11.6
|
%
|
|
(1.3
|
)%
|
|
39.8
|
%
|
Income tax reserves
|
0.1
|
%
|
|
0.5
|
%
|
|
(1.5
|
)%
|
Other
|
(0.5
|
)%
|
|
0.2
|
%
|
|
0.0
|
%
|
|
45.5
|
%
|
|
39.5
|
%
|
|
53.9
|
%
|
The Company accounts for income taxes using the liability method in accordance with ASC 740 "Income Taxes"
.
Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at the end of each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. Significant components of the Company’s deferred tax assets and liabilities as of December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Deferred tax assets:
|
|
|
|
|
|
Current deferred tax assets
|
|
|
|
|
|
Accrued liabilities and other
|
$
|
7,447
|
|
|
$
|
6,830
|
|
|
$
|
4,302
|
|
Gross current deferred tax assets
|
7,447
|
|
|
6,830
|
|
|
4,302
|
|
Valuation allowance
|
(536
|
)
|
|
(839
|
)
|
|
(77
|
)
|
Net current deferred tax assets
|
6,911
|
|
|
5,991
|
|
|
4,225
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards
|
65,724
|
|
|
48,633
|
|
|
30,312
|
|
Deferred revenue
|
2,729
|
|
|
2,867
|
|
|
3,323
|
|
Depreciation and amortization
|
8,194
|
|
|
7,568
|
|
|
7,382
|
|
Stock compensation
|
5,780
|
|
|
5,904
|
|
|
4,527
|
|
Gross noncurrent deferred tax assets
|
82,427
|
|
|
64,972
|
|
|
45,544
|
|
Valuation allowance
|
(44,132
|
)
|
|
(39,229
|
)
|
|
(34,756
|
)
|
Net noncurrent deferred tax assets
|
$
|
38,295
|
|
|
$
|
25,743
|
|
|
$
|
10,788
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities
|
|
|
|
|
|
|
|
|
Accrued liabilities and other
|
$
|
(763
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Total current deferred tax liabilities
|
(763
|
)
|
|
—
|
|
|
—
|
|
Net current deferred tax asset
|
6,148
|
|
|
5,991
|
|
|
4,225
|
|
Noncurrent deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
(22,784
|
)
|
|
(9,352
|
)
|
|
(883
|
)
|
Stock compensation
|
(61
|
)
|
|
(92
|
)
|
|
(61
|
)
|
Acquired intangibles
|
(2,631
|
)
|
|
(3,482
|
)
|
|
(3,481
|
)
|
Total noncurrent deferred tax liabilities
|
(25,476
|
)
|
|
(12,926
|
)
|
|
(4,425
|
)
|
Net noncurrent deferred tax asset
|
12,819
|
|
|
12,817
|
|
|
6,363
|
|
Net deferred tax assets
|
$
|
18,967
|
|
|
$
|
18,808
|
|
|
$
|
10,588
|
|
Under ASC 740, the Company can only recognize a deferred tax asset to the extent that it is “more likely than not” that these assets will be realized. In evaluating the need for a valuation allowance, all available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. The Company has established a valuation allowance against a portion of its remaining deferred tax assets because it is more likely than not that certain deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the Company considered numerous factors including historical profitability, the amount of future taxable income and the existence of deferred tax liabilities that can be used to realize deferred tax assets. The valuation allowance increased approximately
$4.6 million
in 2012 from 2011 primarily due to the Canadian and Australian subsidiaries which have a full valuation allowance recorded against their net deferred tax assets. In 2012 the Company determined that it was not more likely than not that the deferred tax assets of Australia would be realized and recorded a valuation allowance of approximately
$1.5 million
in income tax expense.
At December 31, 2012, the Company had gross federal, state and foreign net operating loss carryforwards of approximately
$80.9 million
,
$60.2 million
, and
$22.8 million
respectively. These losses expire beginning in
2021
, except for
$3.2 million
of losses that have unlimited carryforward periods. Approximately
$12.6 million
of the federal net operating loss carryforward is attributable to excess employee stock option deductions, the benefit from which will be allocated to additional paid-in capital rather than current earnings if subsequently realized. Federal and state net operating losses of approximately
$68.3 million
and
$54.9 million
, respectively, were acquired as part of the acquisitions of U.S. companies. These acquired net operating losses are subject to annual limitations due to the "change of ownership" provisions of Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The Company has federal, state, and foreign credit carryforwards of approximately
$7.2 million
,
$1.1 million
, and
$9.8 million
, respectively. These credits begin to expire in
2012
, except for approximately
$3.2 million
which have an indefinite carryforward period. Approximately
$4.2 million
of the federal credits is attributable to excess employee stock option deductions, the benefit of which will be allocated to additional paid-in capital rather than current earnings if subsequently realized. State credits of approximately
$1.1 million
were acquired as part of the acquisition of GenturaDx in 2012 and are subject to annual limitations due to the "change of ownership" provisions of Section 382 of the Internal Revenue Code of 1986 and similar California state tax provisions. In addition, the Company has a gross scientific research and experimental development pool in Canada of approximately
$49.6 million
which has an indefinite carryforward period.
The American Taxpayer Relief Act of 2012, enacted January 2, 2013, retroactively reinstated the Federal R&D tax credit to January 1, 2012. The Company's estimated 2012 Federal R&D tax credit of approximately
$0.9 million
, net of tax reserves, has not been reflected in the Company's operating results for the year ended
December 31, 2012
. The impact of this legislative change on the Company's financial statements is expected to be reflected in the operating results for the first quarter of 2013.
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. The cumulative amount of undistributed earnings of our non-US subsidiaries was approximately
$1.2 million
at
December 31, 2012
,
$2.1 million
at
December 31, 2011
, and
$1.6 million
at
December 31, 2010
. The ultimate tax liability related to repatriation of our undistributed earnings is not estimable at the present time.
As of
December 31, 2012
and
December 31, 2011
, the Company had recorded gross unrecognized tax benefits of approximately
$1.8 million
and
$1.4 million
, respectively. All of the unrecognized tax benefits as of
December 31, 2012
, if recognized, would impact the effective tax rate. The Company recognizes interest expense and penalties associated with uncertain tax positions as a component of income tax expense. During the years ended
December 31, 2012
and
2011
, the Company recognized approximately
$14,000
and
$(1,000)
in tax related interest and penalties, respectively. Reserves for interest and penalties as of
December 31, 2012
and
2011
are not significant as the Company has net operating loss carryovers.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Balance at beginning of year
|
$
|
1,370
|
|
|
$
|
1,251
|
|
Additions based on tax positions related to the current year
|
390
|
|
|
119
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
Lapse of statute of limitations
|
—
|
|
|
—
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
Balance at end of year
|
$
|
1,760
|
|
|
$
|
1,370
|
|
As of
December 31, 2012
, there were no unrecognized tax benefits that we expect would change significantly over the next 12 months.
We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the United States, the statute of limitations with respect to the federal income tax returns for tax years after 2008 are open to audit; however, since the Company has net operating losses, the taxing authority has the ability to review tax returns prior to the 2009 tax year and make adjustments to these net operating loss carryforwards. In Canada, the statute of limitations with respect to the federal income tax returns for years after 2004 are open for audit. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. The Internal Revenue Service ("IRS") completed its examination of the Company's 2009 federal tax returns during the fourth quarter of 2012. The Company received a “no change” letter as a result of this examination as the IRS did not propose any adjustments. We are currently under audit in Canada for our scientific research and experimental development pool claims for the 2009 through 2011 tax years. Although we do not expect a material adjustment, the outcome of the audit is not known at this time. We are not under audit in any other major taxing jurisdictions at this time.
NOTE 12 - LONG-TERM DEBT
On
December 31, 2012
, long-term debt consisted of a loan payable to TPC valued at
$1.7 million
and the related short term interest payable of
$1.1 million
.
On
December 12, 2003
, Tm Bioscience entered into an agreement with the Ministry of Industry of the government of Canada under which the Government agreed to invest up to
$7.3 million
(Cdn) 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, 2012
, the Company had received
$4.9 million
from TPC (
$4.9 million
(Cdn)) which is expected to be repaid along with approximately
$1.6 million
of imputed interest for a total of approximately
$6.5 million
(
$6.5 million
(Cdn)). Approximately
$3.6 million
(
$3.6 million
(Cdn)) of the interest and advances has been repaid as of
December 31, 2012
.
Tm Bioscience 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 LMD 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):
|
|
|
|
|
2013
|
$
|
1,138
|
|
2014
|
1,270
|
|
2015
|
517
|
|
2016
|
—
|
|
2017
|
—
|
|
Thereafter
|
—
|
|
|
$
|
2,925
|
|
Less: Amount representing implied interest
|
(56
|
)
|
Total principal repayments
|
$
|
2,869
|
|
Discount
|
(29
|
)
|
Total long-term debt
|
$
|
2,840
|
|
Less: Current portion of long-term debt
|
(1,138
|
)
|
|
$
|
1,702
|
|
In
2012
and
2011
, the Company had imputed interest expense related to its long-term debt of
$89,000
and
$125,000
, respectively, recorded in the ARP segment. The effective interest rate was
3.90%
and
3.96%
as of
December 31, 2012
and
2011
, respectively. At
December 31, 2012
and
2011
, the fair value of the Company’s long-term debt was approximately
$2.5 million
and
$3.2 million
, respectively. The Company’s 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, 2012
and
2011
. 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.
NOTE 13 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Numerator:
|
|
|
|
|
|
Net income
|
$
|
12,407
|
|
|
$
|
14,474
|
|
|
$
|
5,231
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share - weighted average common stock outstanding
|
40,927
|
|
|
41,262
|
|
|
41,030
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and awards
|
957
|
|
|
1,275
|
|
|
1,408
|
|
Denominator for diluted net income per share - weighted average shares outstanding - diluted
|
41,884
|
|
|
42,537
|
|
|
42,438
|
|
Basic net income per share
|
$
|
0.30
|
|
|
$
|
0.35
|
|
|
$
|
0.13
|
|
Diluted net income per share
|
$
|
0.30
|
|
|
$
|
0.34
|
|
|
$
|
0.12
|
|
Restricted stock awards (RSAs) and stock options to acquire
364,000
,
141,000
, and
836,000
shares for the years ended
December 31, 2012
,
2011
and
2010
, 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 14 - STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME/ LOSS
Preferred Stock
The Company’s 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 Company’s stockholders. At
December 31, 2012
and
2011
, there was no preferred stock issued and outstanding.
Comprehensive Income/Loss
The Company’s 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, 2012
was approximately
$12.5 million
and comprehensive income for the year ended
December 31, 2011
was approximately
$14.3 million
.
NOTE 15 - EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Stock-Based Compensation
At
December 31, 2012
, the Company has
one
stock-based employee compensation plan pursuant to which grants may be made: the Second Amended and Restated 2006 Equity Incentive Plan (the “Equity Incentive Plan”) which was approved at the Company’s Annual Meeting on May 25, 2006 and amended at the Company’s Annual Meetings on each of May 21, 2009 and May 17, 2012. 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 2006 Management Stock Purchase Plan (the “MSPP”), which was terminated effective March 7, 2012. In addition, at December 31, 2012, the Company has one plan pursuant to which discount purchases may be made by the participants in such plan: the Luminex Corporation Employee Stock Purchase Plan (the "ESPP"), which was approved at the Company's Annual Meeting on May 17, 2012.
Equity Incentive Plans
Under the Company’s Equity Incentive Plan, 2000 Plan, and the 2001 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 ESPP provides for the granting of rights to certain employees of the Company to defer an elected percentage, up to
15%
, of their base salary through the purchase of the Company's common stock, discounted by 15%. As of
December 31, 2012
, there were approximately
4.4 million
shares authorized for future issuance under the Company’s Equity Incentive Plan and
464,704
shares eligible for purchase pursuant to the terms and conditions thereof under the ESPP as more fully described below.
The Equity Incentive Plan, the ESPP, the 2000 Plan and the 2001 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 December 4, 2008, March 11, 2009, March 9, 2010, March 25, 2011 and March 7, 2012 the Board adopted the Luminex Corporation 2008 Long Term Incentive Plan, the Luminex Corporation 2009 Long Term Incentive Plan (the “2009 LTIP”), the Luminex Corporation 2010 Long Term Incentive Plan (the “2010 LTIP”), the Luminex Corporation 2011 Long Term Incentive Plan (the “2011 LTIP”) and the the Luminex Corporation 2012 Long Term Incentive Plan (the "2012 LTIP") respectively. Awards under all of the LTIP plans 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 LTIP plans 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 extraordinary or non-recurring events that may affect Luminex or its financial performance.
On March 11, 2009, the Company’s 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 Company’s 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 common 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 Luminex’s operating cash flows per diluted share at the end of the performance period.
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 Luminex’s 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.
No
shares were earned for this goal under the 2009 LTIP.
|
|
|
•
|
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 Luminex’s 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. The final determination and certification of the shares earned for this goal was made by the compensation committee of the Board of Directors on February 8, 2012 resulting in the Chief Executive Officer earning
70,198
shares and the Chief Financial Officer earning
26,324
shares.
|
On March 9, 2010, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2010 LTIP for
$2,200,000
worth of shares of Luminex Common Stock, and the Company’s 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
132,930
shares and
49,848
shares for the CEO and CFO, respectively, was determined on March 11, 2010, 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 Luminex’s operating cash flows per diluted share at the end of the performance period.
The 2010 LTIP performance goals are as described below:
|
|
•
|
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s Common Stock for the twenty consecutive trading days ending December 31, 2012, inclusive, subject to certain adjustments as described in the 2010 LTIP. There is a range of trading price targets as follows: a minimum threshold of
$22.22
per share, a target of
$25.25
per share, and a maximum goal of
$40.09
per share. No shares were earned for this goal under the 2010 LTIP.
|
|
|
•
|
Partial or complete achievement of the operating cash flow goal is dependent upon the total operating cash flows per diluted share for the four quarters ended December 31, 2012, as further described in the 2010 LTIP. Total operating cash flows means Luminex’s GAAP net cash provided by operating activities as shown on its financial statements for the 12 month period ended December 31, 2012, as further described in the 2010 LTIP. There is a range of targets as follows: a minimum threshold of
$0.212
per share, a target of
$0.241
per share, and a maximum goal of
$0.382
per share. The final determination and certification of the shares earned for this goal will be made by the compensation committee after the filing of this Annual Report on Form 10-K.
|
On March 25, 2011, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2011 LTIP for
$2,200,000
worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for an unvested RSU under the 2011 LTIP for
$825,000
worth of shares of Luminex Common Stock. The actual maximum number of shares of
119,304
shares and
44,740
shares for the CEO and CFO, respectively, was determined on March 25, 2011, 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 Luminex’s total income from operations per diluted share at the end of the performance period.
The 2011 LTIP performance goals are as described below:
|
|
•
|
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s Common Stock for the twenty consecutive trading days ending December 31, 2013, inclusive, subject to certain adjustments as described in the 2011 LTIP. There is a range of trading price targets as follows: a minimum threshold of
$28.50
per share, a target of
$32.38
per share, and a maximum goal of
$51.42
per share.
|
|
|
•
|
Partial or complete achievement of the income from operations goal is dependent upon the total income from operations per diluted share for the year ended December 31, 2013, as further described in the 2011 LTIP. Total income from operations means Luminex’s income from operations as reflected on the Company’s Consolidated Statement of Operations for the year ended December 31, 2013, as further described in the 2011 LTIP. There is a range of targets as follows: a minimum threshold of
$0.73
per share, a target of
$0.81
per share, and a maximum goal of
$1.19
per share.
|
On March 7, 2012, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2012 LTIP for
$2,200,000
worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for an unvested RSU under the 2012 LTIP for
$550,000
worth of shares of Luminex Common Stock. The actual maximum number of shares of
98,434
shares and
24,608
shares for the CEO and CFO, respectively, was determined on March 7, 2012, 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 Luminex’s total income from operations at the end of the performance period.
The 2012 LTIP performance goals are as described below:
|
|
•
|
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s Common Stock for the twenty consecutive trading days ending December 31, 2014, inclusive, subject to certain adjustments as described in the 2012 LTIP. There is a range of trading price targets as follows: a minimum threshold of
$29.29
per share, a target of
$32.54
per share, and a maximum goal of
$39.75
per share.
|
|
|
•
|
Partial or complete achievement of the total income from operations goal is dependent upon the total income from operations for the year ended December 31, 2014, as further described in the 2012 LTIP. Total income from operations means Luminex’s income from operations as reflected on the Company’s Consolidated Statement of Operations for the year ended December 31, 2014, as further described in the 2012 LTIP. There is a range of targets as follows: a minimum threshold of
$58,663,000
, a target of
$67,286,000
, and a maximum goal of
$85,831,000
.
|
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 the 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 Company’s 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free rate of return
|
1.2
|
%
|
|
2.3
|
%
|
|
2.6
|
%
|
Expected life
|
7 years
|
|
|
7 years
|
|
|
7 years
|
|
Weighted average fair value at grant date
|
$
|
7.78
|
|
|
$
|
7.67
|
|
|
$
|
7.62
|
|
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.
The Company’s stock option activity for the years ended
December 31, 2010
,
2011
and
2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Shares
(in thousands)
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2009
|
2,796
|
|
|
$
|
12.18
|
|
|
|
|
|
|
Granted
|
128
|
|
|
16.55
|
|
|
|
|
|
Exercised
|
(242
|
)
|
|
10.54
|
|
|
|
|
|
|
Cancelled or expired
|
(315
|
)
|
|
25.41
|
|
|
|
|
|
Outstanding at December 31, 2010
|
2,367
|
|
|
$
|
10.82
|
|
|
|
|
|
|
Granted
|
84
|
|
|
18.26
|
|
|
|
|
|
Exercised
|
(304
|
)
|
|
11.65
|
|
|
|
|
|
|
Cancelled or expired
|
(127
|
)
|
|
23.74
|
|
|
|
|
|
Outstanding at December 31, 2011
|
2,020
|
|
|
$
|
10.19
|
|
|
|
|
|
|
Granted
|
160
|
|
|
22.53
|
|
|
|
|
|
Exercised
|
(487
|
)
|
|
7.22
|
|
|
|
|
|
|
Cancelled or expired
|
(17
|
)
|
|
20.37
|
|
|
|
|
|
Outstanding at December 31, 2012
|
1,676
|
|
|
$
|
12.13
|
|
|
3.33
|
|
$
|
9,078
|
|
Vested at December 31, 2012 and expected to vest
|
1,674
|
|
|
$
|
12.11
|
|
|
3.32
|
|
$
|
9,078
|
|
Exercisable at December 31, 2012
|
1,413
|
|
|
$
|
10.57
|
|
|
2.36
|
|
$
|
9,068
|
|
During the years ended
December 31, 2012
,
2011
and
2010
, the total exercise intrinsic value of stock options exercised was
$6.9 million
,
$2.9 million
and
$2.3 million
, respectively, and the total fair value of stock options that vested was
$2.0 million
,
$1.9 million
and
$1.7 million
, respectively. Exercise intrinsic value represents the difference between the market value of the Company's common stock at the time of exercise and the strike price of the stock option. The Company had
$1.9 million
of total unrecognized compensation costs related to stock options at
December 31, 2012
that are expected to be recognized over a weighted-average period of
1.7
years.
The Company’s restricted share activity for the years ended
December 31, 2011
and
2012
is as follows:
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
Shares
(in thousands)
|
|
Weighted Average Grant Price
|
Non-vested at December 31, 2010
|
1,093
|
|
|
$
|
16.41
|
|
Granted
|
239
|
|
|
18.73
|
|
Vested
|
(362
|
)
|
|
16.11
|
|
Cancelled or expired
|
(67
|
)
|
|
16.57
|
|
Non-vested at December 31, 2011
|
903
|
|
|
$
|
17.13
|
|
Granted
|
329
|
|
|
22.50
|
|
Vested
|
(339
|
)
|
|
16.75
|
|
Cancelled or expired
|
(75
|
)
|
|
18.59
|
|
Non-vested at December 31, 2012
|
818
|
|
|
$
|
19.32
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
Shares
(in thousands)
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value (in thousands)
|
Non-vested at December 31, 2010
|
768
|
|
|
|
|
|
Granted
|
269
|
|
|
|
|
|
Vested
|
(58
|
)
|
|
|
|
|
Cancelled or expired
|
(152
|
)
|
|
|
|
|
Non-vested at December 31, 2011
|
827
|
|
|
|
|
|
Granted
|
246
|
|
|
|
|
|
Vested
|
(80
|
)
|
|
|
|
|
Cancelled or expired
|
(118
|
)
|
|
|
|
|
Non-vested at December 31, 2012
|
875
|
|
|
1.93
|
|
$
|
14,693
|
|
Vested at December 31, 2012 and expected to vest
|
658
|
|
|
1.92
|
|
$
|
10,389
|
|
Exercisable at December 31, 2012
|
40
|
|
|
0.00
|
|
$
|
664
|
|
As of
December 31, 2012
, there was
$17.9 million
of unrecognized compensation cost related to RSAs and RSUs. That cost is expected to be recognized over a weighted average-period of
2.6 years
. The total fair value of restricted shares vested during the year ended
December 31, 2012
,
2011
and
2010
was
$8.3 million
,
$7.3 million
, and
$6.1 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, 2012
, the Company awarded
329,096
shares of restricted stock awards, which had a fair value at the date of grant ranging from
$17.26
–
$22.71
. During the year ended
December 31, 2011
, the Company awarded
238,812
shares of restricted stock awards, which had a fair value at the date of grant ranging from
$18.26
–
$21.00
. During the year ended
December 31, 2010
, the Company awarded
419,449
shares of restricted stock awards, which had a fair value at the date of grant ranging from
$15.09
–
$17.36
. During the year ended
December 31, 2012
, the Company awarded
246,205
shares of restricted stock units, which had a fair value at the date of grant ranging from
$16.16
–
$23.82
. During the year ended
December 31, 2011
, the Company awarded
268,882
shares of restricted stock units, which had a fair value at the date of grant ranging from
$18.26
–
$20.92
. During the year ended
December 31, 2010
, the Company awarded
340,474
shares of restricted stock units, which had a fair value at the date of grant ranging from
$15.09
–
$17.36
. Compensation under these restricted stock awards and units was charged to expense over the restriction period and amounted to
$8.4 million
,
$10.2 million
, and
$8.5 million
in
2012
,
2011
and
2010
, respectively.
There were
no
significant stock compensation costs capitalized into assets as of
December 31, 2012
,
2011
or
2010
.
The Company received
$3.5 million
,
$3.5 million
, and
$2.2 million
for the exercise of stock options during the years ended
December 31, 2012
,
2011
and
2010
, 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.
Employee Savings Plans and Other Benefit Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by section 401(k) of the Internal Revenue Code for the Company’s employees in the United States. 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
2012
,
2011
, and
2010
, each employee could contribute a percentage of compensation up to a maximum of
$17,000
,
$16,500
, and
$16,500
per year, respectively, with the Company matching
50%
of each employee’s contributions. Effective January 1, 2010, the Company began contributing to a deferred profit sharing plan for our Canadian employees. All Canadian employees are eligible to participate in the plan. The Company’s contributions to these plans for
2012
,
2011
and
2010
were
$2.1 million
,
$1.6 million
, and
$1.3 million
, respectively.
Several of the Company’s Netherlands employees are covered by a defined benefit plan. The cost and total liability to the Company is not significant. Effective January 1, 2011, all of the Company’s new hires in the Netherlands are eligible to participate in a defined contribution plan.
Employee Stock Purchase Plan
In May 2012, the Company's stockholders approved the ESPP Plan, which provides for the granting of up to
500,000
shares of the Company's common stock to eligible employees. The ESPP period is semi-annual and allows participants to purchase the Company's common stock at
85%
of the lesser of (i) the closing market value per share of the common stock on the first trading date of the option period or (ii) the closing market value per share of the common stock on the last trading date of the option period. The first plan option period began on July 1, 2012 and
35,296
shares have been issued out of the ESPP as of December 31, 2012. The related stock-based compensation expense in 2012 was
$0.2 million
.
The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date using the following weighted average assumptions:
|
|
|
|
|
2012
|
Assumptions:
|
|
Risk-free interest rates
|
0.15
|
%
|
Expected life
|
0.5 years
|
|
Expected volatility
|
.51
|
|
Dividend yield
|
—
|
%
|
The following are the stock-based compensation costs recognized in the Company’s consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Cost of revenue
|
$
|
947
|
|
|
$
|
917
|
|
|
$
|
927
|
|
Research and development
|
2,034
|
|
|
2,126
|
|
|
1,641
|
|
Selling, general and administrative
|
6,934
|
|
|
8,374
|
|
|
6,868
|
|
Stock-based compensation costs reflected in net income
|
$
|
9,915
|
|
|
$
|
11,417
|
|
|
$
|
9,436
|
|
Reserved Shares of Common Stock
At
December 31, 2012
and
2011
, the Company had reserved
4,827,116
and
4,575,403
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 ESPP or other awards issued pursuant to the Company’s equity plans and arrangements. The following table summarizes the reserved shares by plan as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Shares Available for Future Issuance
|
|
Total Shares Reserved
|
2000 Plan
|
523,500
|
|
|
—
|
|
|
523,500
|
|
2001 Plan
|
83,529
|
|
|
—
|
|
|
83,529
|
|
2006 Equity Incentive Plan
|
1,690,005
|
|
|
4,362,412
|
|
|
6,052,417
|
|
ESPP Plan
|
—
|
|
|
464,704
|
|
|
464,704
|
|
Balthrop Option
|
450,000
|
|
|
—
|
|
|
450,000
|
|
|
2,747,034
|
|
|
4,827,116
|
|
|
7,574,150
|
|
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company has operating leases related primarily to its office and manufacturing facilities with original lease periods of up to
ten
years. Rental and lease expense for these operating leases for the years
2012
,
2011
and
2010
totaled approximately
$5.5 million
,
$3.6 million
, and
$3.0 million
, respectively.
In the fourth quarter of 2012, the Company ceased using the Hayward, California facility, whose operating lease commitment was acquired under the GenturaDx acquisition in July 2012. The Company has accrued a liability of approximately $
850,000
based upon the estimated fair value of the costs that will continue to be incurred under the lease, including an estimate of sublease rental income.
Minimum annual lease commitments as of
December 31, 2012
under non-cancellable leases for each of the next five years and in the aggregate were as follows (in thousands):
|
|
|
|
|
2013
|
$
|
3,915
|
|
2014
|
3,489
|
|
2015
|
1,790
|
|
2016
|
798
|
|
2017
|
662
|
|
Thereafter
|
3,063
|
|
Total
|
$
|
13,717
|
|
These non-cancellable 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 Company’s 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-Cancellable Purchase Commitments
As of
December 31, 2012
the Company had approximately
$16.8 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.
Legal Proceedings
On August 30, 2012 Abbott Laboratories (Abbott) was sued by ENZO Life Sciences, Inc. (ENZO) in U.S. District Court in Delaware for alleged infringement of its US Patent 7,064,197 as a result of Abbott's distribution of the Company's xTAG Respiratory Viral Panel. The Company and Abbott have entered into an agreement requiring Luminex to defend and indemnify Abbott for any alleged infringement resulting from its distribution of the Respiratory Viral Panel. Abbott filed an answer on October 15, 2012. On November 30, 2012, the Company intervened in the lawsuit. On January 2, 2013 ENZO filed additional claims against the Company, alleging infringement of US Patent 8,097,405 resulting from the Company's distribution of its Multicode products. A trial date has not been set. The parties to the lawsuit have begun engaging in the discovery process.
When and if it appears probable in management's 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. There can be no assurance that we will successfully defend this suit or that a judgment against us would not materially adversely affect our operating results.
NOTE 17 - GUARANTEES
The terms and conditions of the Company’s 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 a multiple of amounts paid by such strategic partner to Luminex during the previous annual period(s). To date, the Company has not had to reimburse any of its strategic partners for any losses arising from such indemnification obligations.
NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION
The Chief Operating Decision Maker (CODM) is Luminex’s Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and projections. The Company’s reporting segments reflect the nature of the products offered to customers and the markets served and are comprised of the following:
TSP segment -
represents the Company’s base business and consists of system sales to partners, raw bead sales, royalties, service and support of the technology, and other miscellaneous items.
ARP segment
- primarily involved in the development and sale of assays on xMAP technology for use on Luminex’s installed base of systems, as well as the sale of automated punching 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
$11.7 million
,
$8.8 million
, and
$6.5 million
for the years ended
December 31, 2012
,
2011
, and
2010
have been eliminated upon consolidation, respectively.
Following is selected information for the years ended
December 31, 2012
and
2011
or as of
December 31, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
TSP Segment
|
|
ARP Segment
|
|
Consolidated
|
|
TSP Segment
|
|
ARP Segment
|
|
Consolidated
|
Revenues from external customers
|
$
|
121,032
|
|
|
$
|
81,550
|
|
|
$
|
202,582
|
|
|
$
|
127,779
|
|
|
$
|
56,560
|
|
|
$
|
184,339
|
|
Depreciation and amortization
|
6,930
|
|
|
7,434
|
|
|
14,364
|
|
|
6,070
|
|
|
5,817
|
|
|
11,887
|
|
Operating profit (loss)
|
15,047
|
|
|
7,669
|
|
|
22,716
|
|
|
29,895
|
|
|
(6,052
|
)
|
|
23,843
|
|
Segment assets
|
179,695
|
|
|
117,304
|
|
|
296,999
|
|
|
160,251
|
|
|
122,396
|
|
|
282,647
|
|
The table below provides information regarding long-term assets and product revenues from the Company’s 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
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
|
|
2011
|
|
|
|
2010
|
|
|
Domestic
|
$
|
167,924
|
|
|
$
|
152,480
|
|
|
$
|
117,947
|
|
|
$
|
113,700
|
|
|
|
|
$
|
66,094
|
|
|
|
|
$
|
34,320
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
17,376
|
|
|
16,029
|
|
|
13,708
|
|
|
1,433
|
|
|
|
|
978
|
|
|
|
|
1,086
|
|
|
|
Asia
|
10,877
|
|
|
9,481
|
|
|
4,817
|
|
|
212
|
|
|
|
|
280
|
|
|
|
|
451
|
|
|
|
Canada
|
3,753
|
|
|
2,892
|
|
|
2,476
|
|
|
48,929
|
|
|
[1]
|
|
52,028
|
|
|
[1]
|
|
53,303
|
|
|
[1]
|
Australia
|
963
|
|
|
1,344
|
|
|
982
|
|
|
2,567
|
|
|
[2]
|
|
4,252
|
|
|
[2]
|
|
4,871
|
|
|
|
Other
|
1,689
|
|
|
2,113
|
|
|
1,627
|
|
|
16
|
|
|
|
|
38
|
|
|
|
|
61
|
|
|
|
|
$
|
202,582
|
|
|
$
|
184,339
|
|
|
$
|
141,557
|
|
|
$
|
166,857
|
|
|
|
|
$
|
123,670
|
|
|
|
|
$
|
94,092
|
|
|
|
[1]
$39.6 million
of the long-term assets in Canada represents goodwill from the acquisition of Tm Bioscience.
[2]
$2.7 million
of the long-term assets in Australia represent goodwill from the acquisition of BSD.
Our aggregate foreign currency transaction losses of
$215,000
and
$108,000
were included in determining our consolidated results for the years ended
December 31, 2012
and
2011
, respectively.
NOTE 19 - SUBSEQUENT EVENTS
In January, 2013, the Company resolved its molecular distribution agreements and an expense of
$7.0 million
will be recorded in selling, general and administrative expenses in the first quarter of 2013. All payments are expected to be made prior to June 30, 2013.
NOTE 20 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities to converge the presentation of offsetting assets and liabilities between U.S. GAAP and International Financial Reporting Standards. The guidance requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The guidance will be effective for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company in the process of evaluating the financial and disclosure impact of this guidance. The impact on the Company's financial position and results of operations is not expected to be material.
In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative information about the unobservable inputs used in a fair value measurement. This guidance is effective for reporting periods beginning after December 15, 2011, and has been applied prospectively. The impact of adoption on the Company's financial position and results of operations was not material.
In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance eliminated one of the presentation options provided by U.S. GAAP which was to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, it gave an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance was effective for reporting periods beginning after December 15, 2011 and has been applied retrospectively. The impact of adoption on the Company’s financial position and results of operations was not material.
In September 2011, the FASB issued amendments to the goodwill impairment guidance which provides an option for companies to use a qualitative approach to test goodwill for impairment if certain conditions are met. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption is permitted). The Company early adopted the amendments in connection with the performance of the Company’s annual goodwill impairment test. The impact of adoption on the Company’s financial position and results of operations was not material.
NOTE 21 - 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,
2012
|
|
June 30,
2012
|
|
September 30,
2012
|
|
December 31,
2012
|
Revenue
|
$
|
48,727
|
|
|
$
|
48,273
|
|
|
$
|
50,047
|
|
|
$
|
55,535
|
|
Gross profit
|
33,760
|
|
|
34,412
|
|
|
35,045
|
|
|
39,357
|
|
Income from operations
|
5,608
|
|
|
6,486
|
|
|
3,367
|
|
|
7,255
|
|
Net income
|
3,527
|
|
|
2,952
|
|
|
1,676
|
|
|
4,252
|
|
Basic income per common share
|
0.09
|
|
|
0.07
|
|
|
0.04
|
|
|
0.10
|
|
Diluted income per common share
|
0.08
|
|
|
0.07
|
|
|
0.04
|
|
|
0.10
|
|
|
Quarter Ended
|
|
March 31,
2011
|
|
June 30,
2011
|
|
September 30,
2011
|
|
December 31,
2011
|
Revenue
|
$
|
43,275
|
|
|
$
|
47,638
|
|
|
$
|
45,557
|
|
|
$
|
47,869
|
|
Gross profit
|
30,728
|
|
|
33,826
|
|
|
28,417
|
|
|
32,519
|
|
Income from operations
|
8,294
|
|
|
8,797
|
|
|
2,820
|
|
|
3,932
|
|
Net income
|
4,461
|
|
|
4,643
|
|
|
1,928
|
|
|
3,442
|
|
Basic income per common share
|
0.11
|
|
|
0.11
|
|
|
0.05
|
|
|
0.08
|
|
Diluted income per common share
|
0.11
|
|
|
0.11
|
|
|
0.05
|
|
|
0.08
|
|