A N N U A L R E P O R T 2 0 0 9
L E A D E R S H I P | G L O B A L E X P A N S I O N | A S S A Y S | P A R T N E R S | I N N O V A T I O N | P E O P L E
Luminex is dedicated to our mission to improve the health,
safety and quality of life for people around the world.
A c o m m i t m e n t t o c u s t o m e r s .
L U M I N E X A N N U A L R E P O R T 2 0 0 9
L E T T E R T O S H A R E H O L D E R S
Fellow Shareholders:
2009 was an extraordinary year filled with unexpected events
whose impact resonated around the world. At Luminex, we are
very proud of the progress we have made through 2009. The events
of the past year have included economic adversity, market challenges
and an unpredicted pandemic. Thanks to the strong financial and
operational foundation we established over the last several years,
and the tremendous dedication of our people, Luminex was able
to weather challenges and realize significant opportunities during
this most unusual year.
As we faced these challenges, the company continued to execute our
strategic growth plan and maintained our focus on our customers
while assisting them in solving their problems. As a result, Luminex
further strengthened our position as the worldwide leader in
multiplexed solutions, and advanced our mission of improving the
health, safety and quality of life of people around the world.
Despite uncertain economic conditions, we achieved many
operational milestones, including record total revenue, record
revenues from royalties, record systems revenue, record assay
sales and record net income. The system revenue we achieved,
in particular, in a year that featured unprecedented capital
constraints is a true testament to the Luminex technology platform.
By year end, we had increased the cumulative number of Luminex
systems shipped worldwide to more than 6,700 and expanded
our international presence into the growing Asia-Pacific market.
Luminex’s Assay Group drove high growth by increasing adoption of
our diagnostic tests worldwide. We achieved regulatory clearances
and updates for our respiratory viral and cystic fibrosis tests around
the world. Our xTAG® Respiratory Viral Panel (RVP) assay product
line played an integral part in the fight against the 2009 Influenza
A/H1N1 virus. We launched new tests and continued refinement
and development of assays in areas as diverse as microRNA analysis,
poultry flock monitoring, biothreat and newborn screening.
Luminex’s Technology Group made major contributions to our growth
with further adoption of our Luminex 200 system in laboratories
and clinics worldwide. We achieved full commercial launch of our
FLEXMAP 3D® system for higher-volume laboratories, and delivered
every milestone toward the final development of our MAGPIX™
system for smaller and lower-volume laboratories.
We enriched our relationships with our strategic partners in 2009,
collaborating to expand the reach of our xMAP® Technology into
international markets and explore new xMAP-based applications
in growth markets including biodefense and agro-biotechnology.
We are proud of what Luminex accomplished in 2009, and are
confident in our growth strategy, partner and product pipeline, and
prospects for continued growth in 2010 and beyond. The market
for innovation continues to be strong and demand for our xMAP
Technology continues to grow. We believe Luminex is very well
positioned to capture many exciting opportunities ahead.
Looking toward the coming year, Luminex will continue to execute
our strategic growth plan, creating the products and leveraging the
collaborations that will allow us to reach additional customers and
new markets. We will also maintain our focus on creating shareholder
value as we strive toward improving the health, safety and quality
of people worldwide.
Thank you for your ongoing support and investment in Luminex.
We look forward to a bright future.
Sincerely,
Patrick J. Balthrop, Sr.
Chief Executive Officer and President
P E R F O R M A N C E H I G H L I G H T S
O V E R A L L
A N N U A L R E V E N U E
Up 16 percent
2 0 0 9 R E V E N U E S
W E R E $ 1 2 0 . 6 M I L L I O N
A N N U A L
G R O S S P R O F I T
Up $10.3 Million
G R O S S P R O F I T M A R G I N
F O R T H E Y E A R
W A S 6 7 P E R C E N T
A N N U A L
O P E R A T I N G I N C O M E
Up 121 percent
2 0 0 9
O P E R A T I N G I N C O M E
I N C R E A S E D
$ 4 M O V E R 2 0 0 8
T O $ 7 . 4 M
A S S A Y
R E V E N U E G R O W T H
Up 66 percent
A S S A Y S A L E S W E R E A
R E C O R D $ 3 1 . 1 M I L L I O N
R O Y A L T Y
R E V E N U E G R O W T H
Up 23 percent
R O Y A L T Y R E V E N U E S
R E A C H E D
$ 1 8 . 3 M I L L I O N
S Y S T E M P L A C E M E N T S
873 shipments
R O Y A L T Y - B E A R I N G
E N D - U S E R S A L E S
Up 18 percent
T H E R E W E R E 6 , 7 6 7
L U M I N E X S Y S T E M S I N
T H E M A R K E T A T
T H E E N D O F 2 0 0 9
R O Y A L T Y - B E A R I N G
E N D - U S E R S A L E S R E A C H E D
$ 2 8 1 . 8 M I L L I O N
I N 2 0 0 9
S Y S T E M R E V E N U E
Up 9 percent
I N A C H A L L E N G I N G
C A P I T A L M A R K E T ,
L U M I N E X H A D
S Y S T E M R E V E N U E O F
$ 3 0 . 7 M I L L I O N
C A S H A N D
I N V E S T M E N T S A T
D E C E M B E R 3 1 , 2 0 0 9
$119.6 Million
L U M I N E X H A S
M A I N T A I N E D A S T R O N G
B A L A N C E S H E E T ,
P R O V I D I N G
S I G N I F I C A N T
F L E X I B I L I T Y
R E V E N U E M I X
2007
63%
2008
2009
54%
33%
13%
27%
10%
63%
26%
10%
64%
Royalty, Consumable and Assay
System
Other
C O N S U M A B L E R E V E N U E
(in millions)
2009
2008
2007
R O Y A L T Y R E V E N U E
(in millions)
2009
2008
2007
A S S A Y R E V E N U E
(in millions)
2009
2008
2007
S Y S T E M R E V E N U E
(in millions)
2009
2008
2007
$28.4
(22% CAGR, 2007–2009)
$31.7
$19.2
$18.3
(34% CAGR, 2007–2009)
$14.9
$10.2
$31.1
(66% CAGR, 2007–2009)
$18.7
$11.3
$30.7
(12% CAGR, 2007–2009)
$28.1
$24.4
T O T A L R E V E N U E (in millions)
(27% CAGR, 2004–2009)
$120.6
$104.4
$75.0
$53.0
$35.9
$42.3
2004
2005
2006
2007
2008
2009
C U M U L A T I V E S Y S T E M S H I P M E N T S
120,000
90,000
60,000
30,000
0
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2004
2005
2006
2007
2008
2009
F I V E Y E A R C U M U L A T I V E T O T A L R E T U R N *
(Among Luminex Corporation, the NASDAQ Composite Index and the NASDAQ Biotechnology Index)
$250
$200
$150
$100
$50
2004
2005
2006
2007
2008
2009
Luminex Corporation
NASDAQ Composite
NASDAQ Biotechnology
*$100 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
E X E C U T I O N A N D L E A D E R S H I P
Luminex delivered excellent financial and
operational results in 2009, posting record
revenues in several key areas, expanding
our market reach, and growing our base
of systems and assays. These results are an
outcome of the strategic growth plan we
have been executing since 2005 to increase
revenues, improve profits and gross margins,
drive adoption of our xMAP® Technology and
build our pipeline of innovative products.
2005 was a year of change as we began to
transform Luminex from a technology-
based company to a market-driven and
customer-focused business. We delivered new
partnerships to expand use of our technology,
strengthened our regulatory infrastructure
and further grew our significant internal
R&D investments.
2006 was a year of development and
achievement. We built on the progress
achieved in 2005, delivered the initial results
of our growing R&D investments and secured
partnerships that would allow us to create
new applications for our technology and
reach new end users across both geographic
markets and important industry sectors.
2007 was a transformational year in which we
completed the acquisition of Tm Bioscience
to create Luminex Molecular Diagnostics
and launch our company into the important,
growing molecular diagnostics market.
2008 was a record-breaking year of many
accomplishments. Record operational and
financial results. The launch of products
including the first assay of its type ever
to be cleared by the U.S. Food and Drug
Administration (FDA), the xTAG®
Respiratory Viral Panel. The first commercial
shipment of our FLEXMAP 3D® system,
and the establishment of many important
new partnerships with companies including
Becton Dickinson, Tyson Foods and
Abbott Molecular.
2009 was a unique and challenging year,
but we set new records as we built on the
tremendous foundation that had been
established throughout the previous years.
Our total revenues reached $120.6 million,
a 16 percent increase over 2008, despite
unprecedented economic constraints across
our industry. With cumulative instrument
shipments of 6,767 instruments worldwide,
our total number of system placements
today is many times higher than that of any
other multiplexing company in the world,
underscoring our position as the worldwide
leader in multiplexed solutions.
The market for Luminex’s xMAP Technology
is very large and expanding, and we
are working both independently and in
cooperation with our partners to capture
these opportunities. We have the resources,
expertise, relationships and financial strength
to position Luminex for continued growth
and industry leadership in 2010.
B R A D C R U T C H F I E L D | V I C E P R E S I D E N T A N D G R O U P M A N A G E R , L I F E S C I E N C E , B I O - R A D
“ The Asia-Pacific region is an essential, growing life sciences market.
There is strong demand for Luminex technology, and many projected
growth opportunities.”
G L O B A L E X P A N S I O N
A key element of Luminex’s growth strategy is driving adoption of our
multiplexing technology around the world. In 2009, to complement
our headquarters in Austin, Texas and locations in Toronto, Canada
and Amsterdam, The Netherlands, we expanded our corporate
footprint to include facilities in Shanghai in the People’s Republic of
China and Tokyo, Japan.
significant. Through our efforts and the work of our partners over
the last several years, Luminex systems can be found in research
institutions and laboratories throughout Asia-Pacific. We established
new offices in China and Japan to drive further expansion and allow
us to provide additional support, sales, training and services to our
customers and partners throughout the Asia-Pacific market.
The Asia-Pacific region is an important growth market for Luminex,
and is home to one of the fastest-growing life science markets in
the world, where the opportunity for xMAP Technology adoption is
In our first months of operation in China and Japan, we have been
hard at work establishing new local partnerships and are excited
about the possibilities ahead.
Vancouver
Calgary
Spokane
Seattle
Portland
Minneapolis
Milwaukee
Omaha
Chicago
Ottawa
Buffalo
Philadelphia
Baltimore
New York
San Francisco
Oakland
Los Angeles
San Diego
Boulder
Kansas City
St. Louis
Washington D. C.
Norfolk
Memphis
Charlotte
Birmingham
Dallas
Houston
New Orleans
Jacksonville
Tampa
Havana
Mexico City
Nuuk
Reykjavik
Torshavn
Oslo
Helsinki
Stockholm
Copenhagen
Berlin
Warsaw
Lviv
Kiev
Rostov
Moscow
Minsk
Perm
Izevsk
Ufa
Tol Yatti
Kuybyshev
Jaroslavl
Gorkiy
Kazan
Saratov
Volgograd
Frunze
Bucharest
Krasnodar
Dublin
London
Cork
Paris
Nantes
Toulouse
Sverdlovsk
Chelyabinsk
Omsk
Novosibirsk
Krasnojarsk
Irkutsk
Ponta Delgada
Porto
Madrid
Barcelona
Rome
Lisbon
Sevilla
Algiers
Gibraltar
Rabat
Tunis
Tripoli
Izmir
Athens
Ankara
Adana
Cairo
Tashkent
Ashgabat
Kabul
Islamabad
Multan
Tehran
Esfahan
Shiraz
Baghdad
Basra
Riyadh
Qaraghandy
Ulaanbaatar
Frunze
Almaty
Urumqi
Baotou
Beijing
Yinchuan
Xining
Taiyuan
Qiqihar
Harbin
Jixi
Fuxin
Jilin
Benxi
Sapporo
Pyongyang
Seoul
Sendai
Tokyo
New Delhi
Jaipur
Agra
Kathmandu
Allahabad
Dhaka
Ahmadabad
Surat
Nagpur
Calcutta
Muscat
Xuzhou
Hefei
Chengdu
Zigong
Huangshi
Yueyang
Shanghai
Ningbo
Dukou
Guiyang
Wenzhou
Wenzhou
Taipai
Fuzhou
Xiamen
Nanning
Shantou
Hanoi
Hong Kong
Bombay
Pune
Varanasi
Rangoon
Vientiane
Madras
Cochin
Colombo
Bangkok
Manila
Phnom Penh
Ho Chi Minh City
Kuala Lumpur
Davao
Nouakchott
Praia
Dakar
Bamako
Niamey
Khartoum
Asmara
Sanaa
Caracas
Bogota
Georgetown
Paramaribo
Conakry
Freetown
Abuja
Porto Novo
Monrovia
Abidjan
Accra
Lome
Bangui
N'Djamena
Jakarta
Port Moresby
Perth
Adelaide
Sydney
Canberra
Melbourne
Brisbane
Auckland
Wellington
Addis Abbaba
Dar es Salaam
Yaounde
Libreville
Kampala
Nairobi
Mogadishu
Kinshasa
Luanda
Huambo
Likasi
Lusaka
Harare
Antananarivo
Windhoek
Walvis Bay
Gaborone
Pretoria
Mbabane
Maputo
Bloemfontein
Umtata
Cape Town
Quito
Lima
Manaus
Belem
Fortaleza
Sao Goncalo
Recife
Brasilia
Salvador
La Paz
Sucre
Goiania
Belo Horizonte
Campinas
Curitiba
Sao Paulo
Rio De Janeiro
Asuncion
Porto Alegre
Santiago
Rosario
Buenos Aires
Montevideo
Port Stanley
A S S A Y S
2009 was a landmark year for Luminex’s
Assay Group, featuring increased sales,
product advancements, the achievement
of regulatory milestones and new launches
around the world.
was recognized as an important tool and
proved to be a comprehensive way for patients
infected with common respiratory viruses
to be distinguished from those potentially
infected with the pandemic influenza strain.
For many, 2009 will be remembered as the
year of the Influenza A/H1N1 pandemic.
The World Health Organization reported that,
from April 2009 through January 2010, more
than 200 countries and overseas territories
or communities had reported laboratory-
confirmed cases of 2009 Influenza A/H1N1.
The pandemic and the necessity for fast,
reliable respiratory viral testing accelerated
adoption of xTAG RVP in many laboratories.
We expect that labs’ experiences with this
innovative test and xMAP® Technology in
such an extraordinary circumstance has
created lasting customers for the product.
Luminex was proud to be responsive to
our customers and involved in efforts
to monitor and control the pandemic.
Our team collaborated with public health
officials, laboratories and partners as the
virus spread from the late spring through
early winter. Because of its ability to detect
many respiratory viruses at once, our
xTAG® Respiratory Viral Panel (RVP)
Further advancing our work in respiratory
viral detection, we launched xTAG RVP
Fast in Europe in 2009. We are following
regulatory approval processes to launch the
test in other regions of the world.
In addition to our xTAG RVP advancements
in 2009, we continued to increase sales
of assays including our Ashkenazi Jewish
Panel and Pneumococcal 14 assay. We also
enhanced our line of cystic fibrosis products,
launching xTAG Cystic Fibrosis 39 v2 in the
U.S. and Europe, and launching in Europe
xTAG Cystic Fibrosis 71 v2, which screens for
71 CF-causing gene mutations using a faster
and simpler protocol. We look forward to
launching xTAG Cystic Fibrosis 60 v2, which
detects 60 mutations more easily and faster,
in the U.S. in 2010.
Luminex continued refinement of our
FlexmiR® line of products in 2009, launching
FlexmiR v2, a faster, easy-to-use, highly
sensitive method for microRNA detection and
quantitation. We also continued development
of our pipeline of assays including our
newborn screening test, NeoPlex4™, our novel
GI panel and our poultry flock monitoring
assay. We expect to launch these assays in
several countries by the end of 2010.
C H R I S T I N E G I N O C C H I O , P H . D . | S E N I O R D I R E C T O R O F I N F E C T I O U S D I S E A S E D I A G N O S T I C S ,
N O R T H S H O R E - L I J H E A L T H S Y S T E M L A B O R A T O R I E S
“ During the influenza pandemic, xTAG RVP helped our lab perform
sensitive molecular testing, and gauge the actual magnitude of the
H1N1 outbreak.”
S T R A T E G I C P A R T N E R S H I P S
A critical component of Luminex’s growth has been our network
of strategic partners. Comprised of industry-leading, innovative
companies, our partner base has been integral in expanding
Luminex’s reach into new geographic markets and industry sectors,
and creating new applications for our xMAP Technology to power
new developments in healthcare, life sciences, agro-biotechnology
and biodefense.
In 2009, we saw many partnerships flourish. Long-standing partners
such as Bio-Rad Laboratories and One Lambda continued to leverage
xMAP-based products to advance science and healthcare.
Our distribution partners, including Abbott Molecular and
Fisher Healthcare, increased penetration worldwide by distributing
Luminex assays. Luminex developed new agreements to deliver
additional products to key customers. Millipore, a long-standing
Luminex partner, signed an agreement to add the FLEXMAP 3D®
system to its Luminex suite of products to serve their international
customer base of academic, reference and pharmaceutical
research laboratories.
I N N O V A T I O N
In addition to the research and development work conducted by our
partners and customers, Luminex maintains a robust R&D operation
dedicated to advancing our technology. Innovation is the core of
Luminex’s business and we are constantly striving to develop new
products for scientists working in diverse disciplines.
Continuous investment in the expansion of our offerings helps us
extend our market-leading position and ensures that we launch
products vital to the customers we serve. xMAP® Technology and our
systems, assays and analysis software play a crucial role in meeting
our customers’ evolving needs.
In 2009, we saw the launch of exciting new products and the
achievement of key milestones for many of our pipeline products.
In systems, we delivered the full commercial launch of FLEXMAP
3D® to create a multiplexing solution for scientists in high-throughout
laboratories. FLEXMAP 3D was developed with our unique blend
of innovation and product development discipline, and its design is
based on years of customer feedback. FLEXMAP 3D can conduct 500
simultaneous tests on one sample, and allow scientists to process up
to 144,000 data points in less than an hour. It is an ideal system for
higher-volume laboratories.
FLEXMAP 3D is an example of the significant investments we have
made in delivering our platform product line strategy. The next
exciting platform offering in this strategy will be MAGPIX™, a system
designed for smaller, lower-volume laboratories. We look forward to
launching MAGPIX in 2010.
In assays, we began to roll out the next generations of our xTAG®
Respiratory Viral Panel, xTAG Cystic Fibrosis line and FlexmiR®
microRNA assay in 2009. These unique tests, which are streamlined,
easier to use and more efficient versions of their predecessors, were
enhanced and improved based on suggestions from clinicians,
scientists and researchers. We have an exciting pipeline of additional
innovative assays in development.
In software, 2009 saw the release of our xPONENT® 3.1 software.
Developed with direct input from users across a range of research
and clinical diagnostic disciplines, the software features more than
65 new enhancements that allow scientists to work more efficiently
and effectively.
As a result of our continuous development, Luminex’s xMAP
Technology is protected by more than 89 patents and 215
patents pending.
Luminex was recognized in
The Wall Street Journal for Technology
Innovation for xTAG RVP and honored
as Most Innovative Company for 2009
at the American Business Awards.
W A Y N E R O T H , P H . D . | C H I E F E N G I N E E R R & D | L U M I N E X E M P L O Y E E F O R 1 2 Y E A R S
“ At the end of the day, improving the lives of people is what our work
at Luminex is all about. Better medicines, faster diagnoses, safer food.
It’s a good feeling to know that the work I do truly makes a difference.”
P E O P L E
While our growth strategy is driven by our
technology, partnerships, products and
innovation, it is people who are at the center
of everything Luminex does. Our customers,
partners, employees and shareholders are
integral to our operations. They drive our
advances and it is through their dedication
that we continue to succeed. We all share a
passion and dedication to fostering the health
and safety of humankind.
Our growth is truly sustainable for the long
term if we can continue to positively impact
human lives. A new assay holds the potential
to create a faster way to identify a genetic
disease in a child. A new system can mean a
quicker route to a new medical therapy. Our
xMAP Technology improves performance and
outcomes while making research and delivery
of healthcare more efficient and less costly.
With our attention focused on improving the
health, safety and quality of life of people, our
opportunities are bright.
C O R P O R AT E O F F I C E R S
V I C E P R E S I D E N T S
B O A R D O F D I R E C T O R S
Patrick J. Balthrop, Sr.
Chief Executive Officer
and President
Russell W. Bradley
Vice President
Business Development
and Strategic Planning
Steven Back
Vice President
Manufacturing
Timothy R. Dehne
Vice President
Systems Research
and Development
Jeremy Bridge-Cook, Ph.D.
Senior Vice President
Assay Group
Andrew D. Ewing
Vice President
Technical Operations
Harriss T. Currie
Chief Financial Officer
Vice President
Treasurer
Nancy Krunic, Ph.D.
Vice President
Luminex Molecular
Diagnostics
Gregory J. Gosch
Vice President
Luminex Bioscience Group
Darin S. Leigh
Vice President
Commercial Operations
Michael F. Pintek
Senior Vice President
Operations
David S. Reiter
Vice President
General Counsel
and Corporate Secretary
Oliver H. Meek
Vice President
Quality Assurance
and Regulatory Affairs
G. Walter Loewenbaum, II (1)
Chairman of the Board;
Chief Executive Officer and
Chairman of the Board,
Mumboe Corp.
Chairman of the Board,
3D Systems Corporation
Patrick J. Balthrop, Sr. (1) (5)
Chief Executive Officer
and President
Robert J. Cresci (2)(4)
Managing Director, Pecks
Management Partners Ltd.
Director, ContinuCare
Corporation
Director, j2 Global
Communications, Inc.
Thomas W. Erickson (1)(2)
Chairman of the Board,
Inmar, Inc.
Fred C. Goad, Jr. (3)
Member, Voyent Partners, LLC
Jay B. Johnston (3)(5)
Chairman of the Board,
QuesTek Innovations, LLC
Jim D. Kever (3)
Member, Voyent Partners, LLC
Director, 3D Systems
Corporation
Director, Emdeon, Inc.
Director, Tyson Foods, Inc.
Kevin M. McNamara (2)
Director, Tyson Foods, Inc.
Edward A. Ogunro, Ph.D. (5)
Director, Applied
NeuroSolutions, Inc.
Gerard Vaillant (3)(4)(5)
Retired Company Group
Chairman, Johnson & Johnson
Director, Sensors for Medicine
and Science, Inc.
Director, Tecan AG
Director, OncoMethylome
Sciences
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating and
Corporate Governance Committee
(5) Member of the Strategy and
Development Committee
Independent Registered Public Accountants
Ernst & Young LLP
Austin, Texas
Annual Meeting of Stockholders
The annual meeting of stockholders will be held on Thursday, May 20, 2010
at 10:00 a.m. local time at the Austin Airport Hilton, Austin, Texas.
Transfer Agent and Registrar
Mellon Investor Services, LLC
480 Washington Boulevard
Jersey City, New Jersey 07310
1.866.635.6965
Form 10-K/Investor Contact
A copy of the Company’s Annual Report on Form 10-K, filed with the Securities
and Exchange Commission, may be obtained from the Company at no charge.
Requests for the Annual Report on Form 10-K and other investor information
should be directed to Investor Relations at the Company’s corporate office or
www.luminexcorp.com or by e-mail to: investor@luminexcorp.com
Cautionary Note Regarding
Forward-Looking Statements
This report contains forward-looking statements
(all statements other than those made solely
with respect to historical fact) under the Private
Securities Litigation Reform Act of 1995. These
forward-looking statements, including statements
regarding our future financial position, business
strategy, new products, assay sales, budgets,
liquidity, cash flows, projected costs, litigation
costs, including the costs or impact of any litigation
settlements or orders, regulatory approvals or the
impact of any laws or regulations applicable to us,
and plans and objectives of management for future
operations, are subject to known and unknown
risks and uncertainties (some of which are
beyond the Company’s control) that could cause
actual results to differ materially and adversely
from those anticipated in the forward-looking
statements. See the Company’s 10-K filing for more
detailed disclosure regarding forward-looking
statements and associated risks and uncertainties.
In 2010, we will continue to execute our growth plan,
advance our product pipeline and enhance relationships
with key partners.
United States Headquarters
Luminex Corporation
12212 Technology Boulevard
Austin, Texas 78727
United States
512.219.8020
Europe
Luminex B.V.
Krombraak 15
4906 Oosterhout
The Netherlands
+31.16.240.8333
Canada
Luminex Molecular Diagnostics
439 University Avenue, Suite 900
Toronto, Ontario M5G 1Y8
Canada
416.593.4323
Japan
Luminex Japan
Corporation Ltd.
Kamiyacho Sankei Bldg 3F
1-7-2 Azabudai
Minato-ku, Tokyo 106-0041
Japan
+81.3.5545.7440
China
Luminex Shanghai Trading Co. Ltd
Unit 6405, Building 6
No. 339 Cai Lun Rd.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGT0N, D.C. 20549
FORM 10-K
(cid:0)
(cid:2)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2009
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to .
Commission File No. 000-30109
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
(Address of principal executive offices)
74-2747608
(I.R.S. Employer
Identification No.)
78727
(Zip Code)
(512) 219-8020
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Common Stock, $0.001 par value
Rights to Purchase Series A Junior Participating Preferred
Stock, $0.001 par value
Name of exchange on which registered
The NASDAQ Global Market
The NASDAQ Global Market
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:0)
(cid:2)
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:2)
(cid:0)
No
Yes
Yes
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
(cid:0)
(cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
(cid:2)
(cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
(cid:2)
Accelerated filer
(cid:0)
Non-accelerated filer
(Do not check if a smaller reporting company)
(cid:0)
Smaller reporting company
(cid:0)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
(cid:0)
(cid:2)
No
Based on the closing sale price of common stock on The NASDAQ Global Market on June 30, 2009, the aggregate market
value of the voting stock held by non-affiliates of the Registrant was $683,940,619 as of such date, which assumes, for purposes
of this calculation only, that all shares of common stock beneficially held by officers and directors are shares owned by
“affiliates”.
There were 41,844,572 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 23,
2010.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 2010 Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
PART I
PAGE
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principle Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures and Certifications
1
19
31
31
31
31
32
35
36
55
56
91
91
92
92
92
92
93
93
94
S-1
Safe Harbor Cautionary Statement
This annual report on Form 10-K contains statements that are forward-looking statements under the Private Securities
Litigation Reform Act of 1995. Forward-looking statements give our current expectations of forecasts of future events. All
statements other than statements of current or historical fact contained in this annual report, including statements regarding our
future financial position, business strategy, new products, assay sales, budgets, liquidity, cash flows, projected costs, litigation
costs, including the costs or impact of any litigation settlements or orders, regulatory approvals or the impact of any laws or
regulations applicable to us, and plans and objectives of management for future operations, are forward-looking statements. The
words “anticipate,” “believe,” “continue,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,” “will,” and
similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements are based on our
current plans and actual future activities, and our financial condition and results of operations may be materially different from
those set forth in the forward-looking statements as a result of known or unknown risks and uncertainties, including, among other
things:
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risks and uncertainties relating to market demand and acceptance of our products and technology;
dependence on strategic partners for development, commercialization and distribution of products;
the impact of the ongoing uncertainty in U.S. and global finance markets and changes in government funding,
including its effects on the capital spending policies of our partners and end users and their ability to finance purchases
of our products;
concentration of our revenue in a limited number of strategic partners some of which may be experiencing decreased
demand for their products utilizing or incorporating our technology and budget or finance constraints in the current
economic environment or periodic variability in their purchasing patterns or practices;
fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, bulk purchases of consumables,
fluctuations in product mix, and the seasonal nature of some of our assay products;
our ability to obtain and enforce intellectual property protections on our products and technologies;
reliance on third party distributors for distribution of specific assay products;
our ability to scale manufacturing operations and manage operating expenses, gross margins and inventory levels;
potential shortages, or increases in costs, of components or other disruptions to our manufacturing operations;
competition;
our ability to successfully launch new products;
the timing of regulatory approvals;
the implementation, including any modification, of our strategic operating plans;
the uncertainty regarding the outcome or expense of any litigation brought against or initiated by us;
risks relating to our foreign operations; and
risks and uncertainties associated with implementing our acquisition strategy including our ability to obtain financing,
our ability to integrate acquired companies or selected assets into our consolidated business operations, and the ability
to recognize the benefits of our acquisitions.
Many of these risks, uncertainties and other factors are beyond our control and are difficult to predict. Any or all of our
forward-looking statements in this annual report may turn out to be inaccurate. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. New factors could also emerge from time to time
that could adversely affect our business. The forward-looking statements herein can be affected by inaccurate assumptions we
might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions
outlined above and described in Item 1A “Risk Factors” below. In light of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially
from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you
should keep in mind these risk factors and other cautionary statements in this annual report including in Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in Item 1A “Risk Factors.”
Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise
forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and
oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained in this annual report.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Luminex,” the “Company,”
“we,” “us” and “our” refer to Luminex Corporation and its subsidiaries.
Luminex®, xMAP®, xTAG®, Luminex® 100™, Luminex® 200™, Luminex® XYP™, Luminex® SD™, Luminex HTSTM,
FLEXMAP 3D®, MicroPlex®, MagPix™, MagPlex®, SeroMAP™, xPONENT®, and FlexmiR® are trademarks of Luminex
Corporation. This report also refers to trademarks, service marks and trade names of other organizations.
ITEM 1. BUSINESS
Overview
PART I
We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the
life sciences and diagnostics industries. These industries depend on a broad range of tests, called bioassays, to perform diagnostic
tests, discover and develop new drugs and identify genes. Our xMAP® (Multi-Analyte Profiling) technology, an open
architecture, multiplexing technology, allows simultaneous analysis of up to 500 bioassays from a small sample volume,
typically a single drop of fluid, by reading biological tests on the surface of microscopic polystyrene beads called microspheres.
xMAP technology combines this miniaturized liquid array bioassay capability with small lasers, digital signal processors and
proprietary software to create a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is
currently being used within various segments of the life sciences industry which includes the fields of drug discovery and
development, clinical diagnostics, genetic analysis, bio-defense, protein analysis and biomedical research. Our business is
currently organized into two reportable segments: the technology segment and the assay segment. Our products are described
below under “Products.”
The technology segment was initially built around strategic partnerships. As of December 31, 2009, we had approximately
68 strategic partners, 39 of which have developed reagent-based products utilizing our technology. Luminex and these partners
have sold over 6,760 xMAP-based instruments in laboratories worldwide as of December 31, 2009. We license our xMAP
technology to our partners, who then develop products that incorporate the xMAP technology into products that they sell to end
users. We also develop and manufacture the proprietary xMAP laboratory instrumentation and the proprietary xMAP
microspheres and sell these products to our partners. When our partners sell xMAP-based reagent consumable products or
xMAP-based testing services, which run on the xMAP instrumentation, to end users, such as testing laboratories, we obtain a
royalty on the sales from the partner. Luminex was founded on this model, and much of our success to date has been due to this
model.
The assay segment consists of Luminex Bioscience Group, or LBG, and Luminex Molecular Diagnostics, or LMD. This
segment is primarily involved in the development and sale of assays utilizing xMAP technology on our installed base of systems.
The assay segment augments our partnership model with a distribution model, designed to take advantage of our increasing
installed base of xMAP-based instrumentation. LBG introduced our first two assay products in late 2006.
LMD, which we created upon our acquisition of Tm Bioscience in March 2007, is focused on multiplexed applications for
the human molecular clinical diagnostics market. Tm Bioscience focused on the three segments of the genetic testing market for
which it was developing products: human genetics, personalized medicine and infectious disease. Tm Bioscience had established
a solid position in the marketplace with their product development and FDA-compliant manufacturing capabilities. We
substantially completed the integration of Tm Bioscience during 2007, and we believe that with Tm Bioscience fully integrated,
we are in a position to take advantage of the complementary strengths of both companies in molecular diagnostics. In
January 2008, the assay segment launched xTAG® Respiratory Viral Panel (RVP), which is the first Food and Drug
Administration (FDA) cleared assay to simultaneously detect and identify 12 viruses and viral subtypes that together are
responsible for more than 85 percent of respiratory viral infections.
1
We have established a leading position in several segments of the life sciences industry by developing and delivering
products that meet customer and partner needs in specific market segments, including multiplexing, accuracy, precision,
sensitivity, specificity, reduction of labor and ability to test for proteins and nucleic acids. These needs are addressed by our
proprietary technology, xMAP Technology, which allows the end user in a laboratory to perform biological testing in a
multiplexed format. Multiplexing allows for many different laboratory results to be generated from one sample at one time. This
is important because our end user customers and partners, which include laboratory professionals performing research, clinical
laboratories performing tests on patients as ordered by a physician and other laboratories, have a fundamental need to perform
high quality testing as efficiently as possible. Until the availability of multiplexing technology such as xMAP, the laboratory
professional had to perform one test on one sample in a sequential manner, and if additional testing was required on that sample,
a second procedure would be performed to generate the second result, and so on until all the necessary tests were performed. By
using xMAP technology, these end users have the opportunity to become more efficient by generating multiple simultaneous
results per sample. We believe that this technology may also offer advantages in other industries, such as the food safety/animal
health, newborn screening and bio-defense/bio-threat markets. Using the products Luminex has available today, up to 500
simultaneous analyte results can be generated from a single sample.
Luminex was incorporated under the laws of the State of Texas in May 1995, and we began commercial production of our
Luminex 100 System in 1999. We were reincorporated in the State of Delaware in July 2000. Our shares of common stock are
traded on the Nasdaq Global Market under the symbol “LMNX.” Our principal executive offices are located at 12212
Technology Blvd., Austin, Texas 78727, and our
is
www.luminexcorp.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are
available free of charge through our website as soon as reasonably practicable after such material is electronically filed with, or
furnished to, the Securities and Exchange Commission, or the SEC. Information contained or accessible on our website is not
incorporated by reference into this report and such information should not be considered to be part of this report except as
expressly incorporated herein. The public may read and copy these materials at the SEC’s public reference room at 100 F Street,
N.E., Washington, D.C. 20549 or on the SEC’s website at http://www.sec.gov. The SEC’s website contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. Questions regarding the
public reference room may be directed to the SEC at 1-800-732-0330.
is (512) 219-8020. Our website address
telephone number
Industry Background
The life sciences industry uses bioassays to detect the presence and characteristics of certain biochemicals, proteins or
nucleic acids in a sample. Drug discovery, genetic analysis, pharmacogenomics, clinical diagnostics and general biomedical
research all use bioassays. For example, bioassays can be used to:
•
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measure the presence and quantity of substances such as infectious agents, antigens for histocompatibility, hormones,
cancer markers and other proteins in a patient’s blood, other body fluid or tissue to assist physicians in diagnosing, treating
or monitoring disease conditions;
detect genetic variations, such as single nucleotide polymorphisms or genetic mutations present in inherited diseases;
measure the response to a compound or dosage by measuring cellular activity for drug discovery and development; and
assist physicians in prescribing the appropriate tailored drug therapy based on the patient’s unique genetic makeup, a
process known as pharmacogenetics.
The life sciences customer can purchase bioassays in the form of complete off-the-shelf kits, develop them internally or
utilize a customized service to meet their specific needs. Although it is important to note that xMAP technology is relevant to a
subset of the total life sciences market, based on external market research data, we believe the total global market for tools and
consumables used in drug discovery and development, clinical diagnostics and biomedical research represented a market of
approximately $45 billion in end user sales in 2008, growing at an estimated 6% annually.
2
The table below briefly describes the key bioassay technologies in the life sciences industry:
KEY TECHNOLOGIES
DESCRIPTION
MARKETS SERVED
BioChips/Microarrays
Automated Immunoassays
Gels and blots
PCR methods
High-density arrays of DNA fragments
or proteins attached to a flat glass or
silicon surface
Automated test tube-based instruments
used for detecting antibodies, proteins
and other analytes
Biomedical research and select clinical
diagnostics
Clinical diagnostics
Physical separation of molecules or
analytes for visualization
Clinical diagnostics and biomedical
research
Tests which use polymerase chain
reaction (PCR) technology to test DNA
and ribonucleic acid (RNA)
Nucleic acid testing in clinical
diagnostics and biomedical research
Microfluidics chips
Miniaturized liquid handling system on
a chip
Biomedical research
Microtiter-plate based assays
Genotyping technologies
Gene expression technologies
Plastic trays with discrete wells in
which different types of assays are
performed, usually Enzyme-Linked
Immuno-Sorbent Assay (ELISA) tests
DNA primers or probes designed to
identify small differences between
DNA targets using methods such as
primer extension assays, ligation assays,
cleavage assays or hybridization assays,
sequencing and others
DNA primers or probes designed to
measure the degree of transcriptional
activity of a specific gene, indicating
how active the cells are in making the
protein encoded by that gene
Drug discovery, clinical diagnostics and
biomedical research
Drug discovery, clinical diagnostics and
biomedical research
Drug discovery, clinical diagnostics and
biomedical research
Based on external market research data and our own internal estimates, we believe the potential life sciences market directly
addressed by our xMAP technology was approximately $2.1 billion in 2008 and that it will reach $3.3 billion by 2012. In
addition, we are also focused on other specialty market segments, including food safety/animal health, newborn screening and
bio-defense/bio-threats. With only limited market penetration of our multiplexing xMAP technology thus far in the key market
segments referenced above, we believe there remain significant growth opportunities for Luminex and our strategic partners in
each of these markets.
3
Our xMAP Technology
Our xMAP technology combines existing biological testing techniques with advanced digital signal processing and
proprietary software. With our technology, discrete bioassays are performed on the surface of color-coded microspheres. These
microspheres are read in a compact analyzer that utilizes lasers and high-speed digital signal processing to simultaneously
identify the bioassay and measure the individual assay results. The key features of xMAP technology include the following:
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Multi-analyte/multi-format
xMAP technology has been designed to simultaneously perform up to 500 distinct bioassays in a single tube or well of a
microtiter plate using only a small amount of sample. Moreover, unlike most existing technologies that are dedicated to
only one type of bioassay, xMAP can perform multiple types of assays including enzymatic, genetic and immunologic tests
on the same instrumentation platform.
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Flexibility/scalability
xMAP technology allows flexibility in customizing test panels. Panels can be modified to include new bioassays in the
same tube by adding additional microsphere sets. It is also scalable, meaning that there is no change in the manufacturing
process and only minimal changes to the required labor to produce a small or large number of microsphere-based tests.
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Both protein and nucleic acid applications on a single platform
xMAP technology has an advantage due to its ability to analyze both proteins and nucleic acids. This allows customers to
utilize a single platform to evaluate samples across more biological parameters and generate a more complete assessment of
these samples. Alternative technologies are restricted to either proteins or nucleic acid, requiring customers to use two or
more technologies from other vendors to get the same information.
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High throughput
Our technology can perform up to 500 tests in a single well permitting up to 96,000 unattended tests to be detected in
approximately an hour with only a small amount of sample. Rapid sample analysis permits efficient use for high-throughput
applications.
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Ease of use
Most xMAP bioassays are simple to perform. A test sample is added to a solution containing microspheres that have been
coated with reagents. The solution is then processed through our xMAP technology system which incorporates proprietary
software to automate data acquisition and analysis in real-time.
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Cost effective
By performing multiple assays at one time, xMAP technology is designed to be cost effective for customers compared to
competitive techniques such as enzyme-linked immunosorbent assay (ELISA) or Real-time PCR. By analyzing only those
assays in which a customer is interested, xMAP is also more cost effective than most competing microarray technologies. In
addition, microsphere-based bioassays are inexpensive compared to other technologies such as biochips.
Polystyrene microspheres, approximately 5.6 microns in diameter, are a fundamental component of the xMAP technology.
We purchase and manufacture microspheres and, in a proprietary process, dye them with varying intensities of proprietary dyes
to achieve up to 500 distinct colors. The specific dye proportions permit each color-coded microsphere to be readily identified
based on its distinctive fluorescent signature. Our customers create bioassays by attaching different biochemical reactants to each
distinctly colored microsphere set. These unique reactants bind, or capture, specific substances present in the test sample. The
microsphere sets can then be combined in test panels as required by the user, with a maximum of 500 tests per panel. Customers
can order either standard microspheres or magnetic microspheres.
4
To perform a bioassay using xMAP technology, a researcher attaches biochemicals, or reagents, to one or more sets of
color-coded microspheres, which are then mixed with a test sample. This mixture is injected into the xMAP analyzer, where the
microspheres pass single-file in a fluid stream through two laser beams. The first laser excites the internal dyes that are used to
identify the color of the microsphere and the test being performed on the surface of the microsphere. The second laser excites a
fluorescent dye captured on the surface of the microspheres that is used to quantify the result of the bioassay taking place. Our
proprietary optics, digital signal processors and software record the fluorescent signature of each microsphere and compare the
results to the known identity of that color-coded microsphere set. The results are analyzed and displayed in real-time with data
stored on the computer database for reference, evaluation and analysis.
xTAG® technology developed by the assay segment consists of several components including multiplexed PCR or target
identification primers, DNA Tags, xMAP microspheres, and data analysis software. xTAG technology permits the development
of molecular diagnostic assays for clinical use by hospital and reference laboratories. xTAG technology has been applied, in
particular, to human genetic assays, pharmacogenetic assays, and infectious disease assays.
We have an active product development pipeline of both instrument systems and assays. Our new instrument, FLEXMAP
3D® was market released in June 2009 to complement our current instrument offerings. The FLEXMAP 3D system has twice the
throughput of our LX 200 instrument and will detect, via multiplexing, up to 500 distinct biomarkers simultaneously in a single
assay. This is a five fold increase in multiplexing capability over our LX200 instrument. The FLEXMAP 3D system, with these
enhanced capabilities, will support our market expansion into new testing segments in both research and clinical testing markets
in which high-throughput and/or high-multiplexing are key customer requirements.
In addition to FLEXMAP 3D, we have a new instrument platform under development we refer to internally as MagPix™.
Market release of the MagPix is expected in the latter half of 2010. MagPix is an innovative technology platform using our
proprietary xMAP magnetic microspheres. By virtue of its small size and ease of use, we believe MagPix will enhance the
adoption of our xMAP technology in our existing markets and allow us to expand xMAP into emerging markets including
research, clinical and bio-threat testing segments with lower throughput and lower multiplexing requirements, but with increased
focus on capital cost considerations.
We have multiple assay development activities ongoing in the assay segment. The assay segment has assay development
programs focused in the areas of human genetics, pharmacogenetics, infectious disease, newborn screening, agricultural testing,
and bio-threat. In 2010, we have plans to submit certain assay products to regulatory authorities for clearance in order to comply
with established guidelines across the jurisdictions in which we participate.
Business Strategy
Our primary goal continues to be the establishment of Luminex as an industry leader and xMAP technology as the industry
standard for performing bioassays by transforming Luminex from a technology-based company to a market-driven, customer-
focused company. To achieve this goal, we have implemented and are pursuing the following strategies:
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Focus on key market segments
We have identified the following key market segments: (i) life sciences research profile oriented screening and secondary
screening, (ii) life sciences research RNA profiling and transcriptional screening, (iii) genetic molecular infectious disease
testing, and (iv) immunodiagnostics. In addition to the segments listed above, we have identified other potential market
opportunities in the applied markets such as bio-defense, or bio-threat testing, and food safety and animal health testing. We
will continue to employ both a partnership driven business model focused on selected key segments and a product driven
business model in other key segments, working with distributors.
We will continue to focus our commercialization efforts through strategic partners on large sectors of the life sciences
industry where Luminex believes it has distinct competitive advantages over existing and emerging technologies and
approaches. We define strategic partners as companies in the life sciences industry that either develop and distribute assays
and tests on xMAP technology or may only distribute our xMAP technology based systems and consumables. With our
partners’ support, we have targeted major pharmaceutical companies, large clinical laboratories, research institutions and
major medical institutions for our principal marketing efforts. We believe these customers provide the greatest opportunity
for maximizing the use of xMAP based products and continued adoption by these industry leaders will promote wider
market acceptance of our xMAP technology.
5
•
Continue to develop strategic partnerships focused on our key market segments
Currently, 39 of our approximately 68 strategic partners have developed reagent-based products utilizing the Luminex
platform and are submitting royalties. We also have strategic partners who distribute Luminex products. During 2009, the
39 strategic partners who have commercialized reagent-based products accounted for approximately 58% of our total
revenue and all of our strategic partners represented approximately 77% of our total revenue. We intend to broaden and
accelerate market acceptance of xMAP technology through development, marketing and distribution partnerships with
leaders in the life sciences industry. By leveraging our strategic partners’ market positions and utilizing their distribution
channels and marketing infrastructure, we believe we can continue to expand our installed instrument base. Furthermore,
our partners’ investments in research and development for xMAP applications provide Luminex users with more menu
options than we can presently generate ourselves.
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Develop and deliver market-leading assay products
We are focused on maximizing the value we provide our stockholders, partners and end user customers by developing
internally and co-developing with partners content applications based on customers’ needs in key market segments. We
believe that by enhancing both our partner driven model and our direct efforts with the delivery of value-added assay
content, Luminex should be able to gain greater control over product development, market penetration and
commercialization.
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Develop next generation products
Our research and development group is pursuing projects such as the development of consumables, automation, software
and the expansion and enhancement of our multiplexing capabilities to advance our xMAP technology and its market
acceptance. We are also collaborating with industry participants, biomedical research institutions and government entities to
develop additional xMAP products. We also continuously consider other adjacent markets where our platform and assay
offerings would be beneficial. We believe that our design, development, and manufacturing capabilities and FDA
compliance track record provide us a competitive advantage over our competitors, relating to the commercialization of both
multiplex testing platforms and assay products.
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Opportunistically pursue acquisitions that could accelerate these strategies
We have developed analytical tools and an evaluation template to assess potential acquisition targets to accelerate our
business strategies in the key markets described above. This approach led to the acquisition of Tm Bioscience in 2007. We
actively evaluate opportunities to enhance our capabilities or our access to markets or technologies, or provide us other
advantages in executing our business strategies in our key markets.
Products
Technology Segment
Instruments
Luminex® 100™ and Luminex® 200™. The Luminex 100 and 200 are compact analyzers that integrate fluidics, optics
and digital signal processing to perform up to 100 bioassays simultaneously in a single tube or well of a microtiter plate using
only a small amount of sample. By combining small diode lasers with digital signal processors and microcontrollers, these
systems perform rapid, multi-analyte profiles under the control of a Windows®-based personal computer and our proprietary
software.
We also offer two peripheral components for the Luminex systems — the Luminex® XYP™ (XY Platform) and the
Luminex® SD™ (Luminex Sheath Delivery System). The XY Platform complements the Luminex systems by automating the
sequential positioning of each well of a microtiter plate, permitting up to 9,600 unattended tests per plate to be performed in less
than an hour. The Luminex SD is a pressurized, external pump delivery system that enhances the delivery of sheath fluid to the
Luminex systems by pumping sheath fluid from an external bulk reservoir, enabling the Luminex systems to operate for up to 24
hours without switching to a new reservoir of sheath fluid.
6
FLEXMAP 3D®. The FLEXMAP 3D system is intended for use as a general laboratory instrument in markets, including
but not limited to, life science research and diagnostics. This device is designed for use with xMAP technology and assay kits
available through Luminex and Luminex-partner companies. The FLEXMAP 3D system, in combination with xMAP
technology, can simultaneously measure up to 500 analytes from a single sample. The FLEXMAP 3D is Luminex’s newest
instrument and offers increased speed and enhanced ease-of-use and serviceability.
Total instrument revenue for 2009, 2008, and 2007 was $30.7 million, $28.1 million, and $24.4 million, respectively; or
25%, 27%, and 33% of total revenue, respectively. See Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and Item 8 “Financial Statements and Supplementary Data” for a detailed discussion of our financial
position and results of operations by segment.
Consumables
MicroPlex® Microspheres. Our xMAP Systems use polystyrene microspheres that are approximately 5.6 microns in
diameter. We dye the microspheres in sets with varying intensities of a red and a near infrared dye to achieve up to 500 distinct
color sets. Each microsphere can carry the reagents of an enzymatic, genetic or immunologic bioassay. In addition to
microspheres, consumables from Luminex also include sheath fluid. Additional consumables, for which Luminex receives a
royalty, in the form of reagent kits are developed and distributed by our partners.
MagPlex® Microspheres. These microspheres feature super-paramagnetic properties that make them ideal for running
automated xMAP-based assays. These microspheres can be moved or held in place by a magnetic field. Many automated sample
preparation systems utilize magnetic properties to automate the sample preparation steps in an assay. Automating sample testing
using MagPlex microspheres on a robotic sample preparation system minimizes hands-on technician time, improves precision,
and streamlines workflow.
xTAG® Microspheres. These dyed microspheres are linked to a set of 100 proprietary nucleic acid capture sequences
providing a “universal array” for DNA and RNA work. They are designed for conducting genotyping and other nucleic acid-
based experiments in the life sciences markets. When used in conjunction with our Luminex systems, the xTAG microspheres
are designed to simplify the genotyping assay development process and increase assay flexibility. The xTAG microspheres may
be used in customized end user identified single nucleotide polymorphisms (SNPs) or in pre-defined kits developed by our
strategic partners.
SeroMAP™ Microspheres. These 100 distinct sets of microspheres are designed for specific protein based serological
applications. Certain Luminex partners use this product for enriched sensitivity in serum-based assays.
Calibration and Control Microspheres. Calibration microspheres are microspheres of known fluorescent light intensities
used to calibrate the settings for the classification and reporter channel for the Luminex systems. Control microspheres are
microspheres that are used to verify the calibration and optical integrity for both the classification and reporter channels for the
Luminex 100, 200 and FLEXMAP 3D systems.
Total consumable revenue for the years ended December 31, 2009, 2008, and 2007 was $28.4 million, $31.7 million, and
$19.2 million, respectively; or 24%, 30%, and 26% of total revenue, respectively. The decrease in consumables as a percentage
of total revenue is primarily attributable to the decrease in the dollar amount of bulk purchases by our two largest customers due
to the varying consumable needs during the regulatory clearance and commercialization phases of development of our partners’
products and the economic environment. Additionally, our partners reported approximately $282 million, $238 million, and
$170 million of royalty bearing consumable sales during 2009, 2008 and 2007, respectively; resulting in $18.3 million,
$14.9 million, and $10.2 million of royalty revenue for the years ended December 31, 2009, 2008 and 2007, respectively or 15%,
14%, and 14% of total revenue, respectively. See Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and Item 8 “Financial Statements and Supplementary Data” for a detailed discussion of our financial
position and results of operations by segment.
7
Software
xPONENT®. This software enhances both ease-of-use and automation capabilities expanding xMAP functionality in our
core market segments. Customer-centric development and extensive field testing with customers has resulted in a user
experience which is a significant step forward in the market place. The software suite incorporates important new features all
designed to simplify laboratory workflow and increase productivity. New features include enhanced security (21 CFR Part 11
compliance and electronic signatures), integration capabilities that allow users to transmit and receive data from Laboratory
Information Systems (LIS/LIMS), integration with the most popular automated sample preparation systems, the ability to run
magnetic bead applications and touch-screen capability. xPONENT is sold on new Luminex 100, 200 and FLEXMAP 3D
systems and is available as an upgrade to the existing Luminex 100 and 200 systems in the marketplace. Sales of this product
during 2009 did not represent a material component of our revenue.
Assay Segment
Product Families
A product family consists of two or more assay products which are focused on similar or related markets. Each assay
consists of a combination of chemical and biological reagents and our proprietary bead technology used to perform diagnostic
and research assays on samples. As of February 23, 2010 the following product families are commercially available:
MicroRNA Family
The FlexmiR® family of Research Use Only (RUO) kits is used by our customers to study the levels of microRNA targets
in a variety of cells or tissues from different species. MicroRNA is of interest in a wide variety of applications including cancer
and numerous other diseases.
Respiratory Viral Family
This family of products includes the xTAG® Respiratory Viral Panel, as well as xTAG® RVP FAST, a newer version of the
original RVP assay. These in vitro diagnostic (IVD) products enable our laboratory end users to identify the causative agent for
respiratory infections, a major cause of illness and mortality globally, for their physicians and patients.
Cystic Fibrosis Family
These FDA-cleared and Conformité Européenne (CE) marked IVD kits include the first-ever FDA-cleared IVD for cystic
fibrosis genotyping. Current recommendations by the American College of Medical Genetics (ACMG) and the American
College of Obstetricians and Gynecologists (ACOG) include screening for 23 mutations in the cystic fibrosis transmembrane
conductance regulator (CFTR) gene. The xTAG® Cystic Fibrosis Kits screen for these mutations in addition to a variety of other
important cystic fibrosis (CF) mutations commonly found in the ethnically diverse North American and European populations.
These kits are typically used for screening newborns and for diagnosing adult carriers of the CF gene.
Personalized Medicine Products Family
This product family includes three assays used to determine the drug metabolism status of individuals for specific
medications. All three products include genotyping of genes encoding different cytochrome P450 drug metabolizing enzymes.
This type of information is typically used to determine if a patient will need a lower or higher dose of a specific drug, or whether
they should be switched to a different medication altogether. These three assays are currently Investigational Use Only
(IUO) assays.
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Specialty Products Family
This family of products includes one IVD product and two investigational assays. These products are targeted towards
specialty, niche markets.
In addition to the commercially available assays, we develop custom reagents for certain of our partners. Total assay
revenue for the years ended December 31, 2009, 2008, and 2007 was $31.1 million, $18.7 million, and $11.3 million,
respectively; or 26%, 18%, and 15% of total revenue, respectively. The increase in assay revenue as a percentage of total revenue
is primarily attributable to the acquisition of LMD. See Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and Item 8 “Financial Statements and Supplementary Data” for a detailed discussion of our financial
position and results of operations by segment.
Sales and Marketing
Our sales and marketing strategy is to expand the installed base and utilization of xMAP technology. We are focused on
generating recurring revenues from royalties on bioassay kits and testing services developed or performed by others that use our
technology, as well as the sale of Luminex-developed assays, microspheres and other consumables. We have two key elements
of our sales and marketing strategy. The first is our allegiance to Luminex’s historic strategic partner program with life sciences
companies that develop applications or perform testing using our technology platforms and distribute our systems to their
customers. The second is our dedication to marketing the assays developed by the assay segment through our strategic partners
or directly to end users in segments where our partners do not participate.
We continue to use strategic partners as our primary distribution channel, and we will continue to pursue new partnerships
focusing on partners with market presence in our key segments described above. Some of our strategic partners develop
application-specific bioassay kits for use on our xMAP platform that they, in turn, sell to their customers thereby generating
royalties for us. Certain strategic partners also perform testing services for third parties using our technology also resulting in
royalties for us. Other strategic partners also buy our products, including xMAP Luminex systems and consumables, or xTAG
test kits, and then resell those products to their customers. As of December 31, 2009, we had approximately 68 strategic partners,
compared to approximately 60 strategic partners as of December 31, 2008. During 2009, 39 of these strategic partners had
released commercialized products utilizing the Luminex platform and were submitting royalties. Of these 39 strategic partners
with commercialized products, 18 companies principally serve the clinical diagnostics market and 21 companies principally
serve the life science research market. Revenues through these commercialized, royalty-submitting, strategic partners constituted
58% of our revenues for 2009. We also believe our strategic partners provide us with complementary capabilities in product
development, regulatory expertise and sales and marketing. By leveraging our strategic partners’ bioassay testing competencies,
customer relationships and distribution channels, we believe that we can continue to achieve measurable market penetration and
technology adoption.
We also serve as the original equipment manufacturer (OEM) for certain strategic partners that choose to sell our xMAP
technology as an embedded system under their own branding and marketing efforts.
Customers
In 2009, 2008 and 2007, two customers each accounted for more than 10% of our total revenues. One Lambda, Inc.
accounted for 15%, 19%, and 15% of our total revenues in 2009, 2008 and 2007, respectively. Bio-Rad Laboratories, Inc.
accounted for 11%, 17%, and 20% of our total revenues in 2009, 2008 and 2007, respectively. No other customer accounted for
more than 10% of our total revenues in 2009, 2008 or 2007. The loss of either one of these customers could have a material
adverse effect on our business, financial condition and results of operation.
One Lambda, Inc. accounted for 21%, 24% and 18% of the Company’s total technology segment revenues in 2009, 2008
and 2007, respectively. Bio-Rad Laboratories, Inc. accounted for 16%, 21% and 24% of the Company’s total technology
segment revenues in 2009, 2008 and 2007, respectively. Fisher Scientific accounted for 31%, 21% and less than 10% of the
Company’s total assay segment revenues in 2009, 2008 and 2007, respectively. Abbott Laboratories accounted for 21%, less
than 10%, and less than 10% of the Company’s total assay segment revenues in 2009, 2008 and 2007, respectively. Genzyme
Genetics accounted for 15%, 27%, and 33% of the Company’s total assay segment revenues in 2009, 2008 and 2007,
respectively. LabCorp accounted for less than 10%, less than 10%, and 13% of the Company’s total assay segment revenues in
2009, 2008 and 2007, respectively. No other customer accounted for more than 10% of total segment revenues in 2009, 2008 or
2007.
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International Operations
We currently sell our products to a number of customers outside the United States, primarily including customers in other
areas of North America, Europe and Asia-Pacific. For the annual periods ended December 31, 2009, 2008, and 2007, foreign
sales to customers totaled $22.8 million, $15.0 million, and $11.4 million, respectively, representing 19%, 14%, and 15%,
respectively, of our total revenues for such periods. We have foreign subsidiaries in the Netherlands, the People’s Republic of
China and Japan which increase our international support, service and marketing capabilities. Our foreign subsidiaries are a
direct and integral component of the U.S. entity’s operations and their efforts support the sales made by our North American
entities. Sales to territories outside of the U.S. are primarily denominated in U.S. dollars. We believe that our activities in some
countries outside the U.S. involve greater risk than our domestic business due to the foreign economic conditions, exchange rate
fluctuations, local commercial and economic policies and political uncertainties. See Note 17 to our Consolidated Financial
Statements.
Technical Operations
Our Technical Operations Group provides technical support to our customers, our strategic partners and their customers.
Most of our technical operations personnel have experience as biologists, biochemists, or electrical engineers and have extensive
experience in academic, industrial and commercial settings. Cross training is a major focus, empowering group members to solve
problems outside their primary assignment.
Remote Support
Our technical support services department assists users primarily through a toll-free hotline, internet interface and e-mail
communications. We deliver “24/7” remote technical support with our staff based at our Austin location, our Toronto location,
and in our European, Chinese, and Japanese subsidiaries to better serve our customer base. Personnel assist our strategic partners
and customers with product orders, software, hardware, system implementation and development of their bioassays. A
comprehensive software and database system is utilized to track customer interactions, follow trends and measure utilization.
The information is categorized and presented to management for regular review.
Training
Through our training group, we offer comprehensive programs in basic system training, advanced assay development,
instrument field service and technical support functions. A significant part of our training material is now web-based and
available online. For larger customers who have many users, such as our strategic partners, training may be performed on-site at
their locations.
Field Support
We currently have field service and field application personnel based across North America, Europe, China and Japan in
areas of our more significant system concentration. We intend to place additional field service personnel and pursue third-party
service provider agreements through our certified service professional program, as required, in order to ensure responsive and
cost-effective support of our customers worldwide. In addition, several of our strategic partners provide their own field service
and field application support. As we continue to expand our installed base, we believe a strong, reliable, efficient field support
organization is crucial to building a high level of customer satisfaction.
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Research and Development
Our research and development groups seek to advance the capabilities of xMAP technology to further penetrate the life
sciences and diagnostics industry to increase utilization of our systems. In addition, we collaborate with other companies,
academic institutions and our customers to increase the breadth of xMAP applications. Our research and development expense
for the years ended December 31, 2009, 2008, and 2007, was $20.8 million, $18.6 million and $15.4 million, respectively. Our
current research and development projects include:
•
New product development
Our research and development teams, including the assay segment, and marketing team are working closely with both
internal and external groups to design and develop products that will expand capabilities of the xMAP-based technologies.
We believe that these efforts will continue to result in unique products. These products will include instrumentation,
services, software and consumables including assays.
•
Instrument development
Our engineering group responsible for the design of our xMAP instruments leverages proprietary electrical, optical and
digital signal processing technologies to achieve high performance and reliability. This methodology enabled the recently
released FLEXMAP 3D® instrument to double throughput, multiplex up to 500 analytes, enhance assay limit of detection,
and greatly extend the usable dynamic range.
To further market penetration, we are now engaged in the development of an instrument line that maintains the top features
of our existing products, at a greatly reduced sales and manufacturing cost. Simultaneously, a highly efficient subset of the
engineering team is engaged in the focused research necessary to extend our intellectual property position, and keep our
products innovative for many years to come.
•
Assay development
Our assay segment, consisting of LBG and LMD, develops new assay products that include both nucleic acid-based and
protein-based assays. These assays include immunoassays and molecular diagnostic assays for the diagnostics industry, and
nucleic acid-based and protein-based assays for the life science research and agricultural science markets. All assay
applications make use of our xMAP technology and our strength in multiplex technology. Our assay research and
development is intended to increase the penetration of our xMAP instruments and our application menu, and to drive
growth in our high-margin assay businesses.
•
Consumable development
We continue to develop and enhance our existing consumable product line and support introduction of new product lines.
These new products include calibrators, controls and microspheres with additional performance characteristics.
Our current bead utilizes three common chemistries for the immobilization of assays on its surface. While these chemistries
are well accepted in the industry, it is desirable to expand our bead chemistry capability to enhance market penetration and
adoption. We continue to work on other surface chemistries to provide optimal performance in broader application areas.
•
Software development
Our software research and development teams will continue to extend xPONENT instrument control and analysis software
capabilities. xPONENT software provides analysis and automation interface capabilities as well as control functions for
Luminex instruments like the FLEXMAP 3D product. New versions of xPONENT will provide sophisticated data
regression functionality and increased productivity through better instrument utilization. We continue to develop
applications like xPONENT QC-Reviewer that will bridge the gap between the instrument control software and the
Laboratory Information Systems (LIS) to provide better test results management and wider use of Luminex developed
assays.
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•
Automation
We collaborate with our strategic partners and others to provide automation solutions that will integrate our various xMAP
instruments with sample handling equipment and laboratory information systems to increase bioassay throughput and
operational efficiencies and allow for walk-away capability.
•
Enhancing bioassay performance and operational efficiencies
Our scientists and engineers dedicate efforts to further enhance xMAP in the areas of assay performance, such as
sensitivity, precision, reliability and operational efficiencies. We are actively collecting market and customer requirements
that will allow us to provide optimal features and benefits in current and future products.
Manufacturing
We have approximately 29,000 square feet of manufacturing space located at our principal executive offices in Austin,
Texas. In 2002, we completed the registration of our Quality Management System (QMS) to the ISO 9001:2000 standard, which
is an internationally recognized standard for quality management systems. Subsequent audits by the registrar have been and will
continue to be carried out at regular intervals to ensure we are maintaining our system in compliance with ISO standards.
Recertification is required every three years and we were successfully recertified as of February 23, 2007.
In July 2005, we completed the registration of our QMS to the ISO 13485:2003 Quality Management Standard and the
Canadian Medical Devices Conformity Assessment System (CMDCAS) for Medical Devices. This standard includes a special
set of requirements specifically related to the supply of medical devices and related services. Additionally, we manufacture to
current Good Manufacturing Practice (cGMP) requirements and our QMS is implemented in accordance with FDA Quality
System Regulations. In August 2006, a Level II Quality System Inspection Technique (QSIT) contract inspection was conducted.
The inspection is “closed” under 21 C.F.R. 20.64 (d) (3) and the Establishment Inspection Report No. 3002524000 provided in
accordance with the Freedom of Information Act (FOIA) and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was
issued.
In addition, we have approximately 4,000 square feet of manufacturing space located in Toronto, Canada. This facility and
the LMD QMS have been certified to the ISO 13485:2003 standard and registered under the CMDCAS.
Instruments
Contract manufacturers assemble certain components of our xMAP technology systems. The remaining assembly and
manufacturing of our systems are performed at our facility in Austin, Texas. The quality control and quality assurance protocols
are all performed at our facility. Parts and component assemblies that comprise our xMAP technology system are obtained from
a number of sources. We have identified alternate sources of supply for several of our strategic parts and component assemblies.
Additionally, we have entered into supply agreements with most of our suppliers of strategic parts and component subassemblies
to help ensure component availability, and flexible purchasing terms with respect to the purchase of such components. As of
December 31, 2009, 6,767 Luminex systems have been sold since inception.
Microspheres
We manufacture as well as procure undyed, standard and magnetic carboxylated polystyrene microspheres. We synthesize
our dyes and manufacture our dyed polystyrene microspheres using a proprietary method in our Austin, Texas manufacturing
facility in large lots. We dye the microspheres with varying intensities of a red and a near infrared dye to produce our distinctly
colored microsphere sets. We currently purchase polystyrene microspheres from one supplier, in accordance with a supply
agreement. We believe this agreement will help ensure microsphere availability and flexible purchasing terms with respect to the
purchase of such microspheres. While we believe the microspheres will continue to be available from our supplier in quantities
sufficient to meet our production needs, we believe our in-house manufacturing capabilities along with other potential suppliers
would provide sufficient microspheres for us if given adequate lead-time to manufacture the microspheres to our specifications.
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Kits
Contract manufacturers produce certain components of our xMAP-based developed reagents. The remaining assembly and
manufacturing of our developed kits are performed at either our facility in Austin, Texas or Toronto, Canada. The quality control
and quality assurance protocols are all performed at our facilities. Reagents and component assemblies that comprise our xMAP
technology kits are obtained from a number of sources.
Competition
We design our xMAP technology for use by customers across the various segments of the life sciences industry. Our
competition includes companies marketing conventional testing products based on established technologies such as ELISA, real-
time PCR, mass spectrometry, sequencing, gels, biochips and flow-based technologies as well as companies developing their
own advanced testing technologies.
The pharmaceutical industry is a large market for the genomic, protein and high-throughput screening applications of the
xMAP technology. In each application area, Luminex faces a different set of competitors. Genomic and protein testing can be
performed by products available from Affymetrix, Inc., Life Technologies Corporation, Becton, Dickinson and Company,
Illumina, Inc., Meso Scale Discovery, a division of Meso Scale Diagnostics LLC, and Sequenom, Inc., among others.
Our diagnostic market competitors include Abbott Laboratories, Beckman Coulter, Inc., Celera Corporation, Cepheid,
Johnson & Johnson, Roche Diagnostics, Siemens Medical, and Hologic, Inc. among others. Some of these companies have
technologies that can perform a variety of established assays. Some of these companies also offer integrated systems and
laboratory automation that are designed to meet the need for improved work efficiencies in the clinical laboratory.
Competition within the academic biomedical research market is highly fragmented. There are hundreds of suppliers to this
market including Amersham Pharmacia Biotech, a part of GE Healthcare, Life Technologies Corporation, and Becton, Dickinson
and Company. Any company in this field is a potential competitor.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright,
trademark and trade secrets laws and confidentiality agreements. We have filed for registration or obtained registration for
trademarks used with our products and key technology.
We have implemented a strategy designed to optimize our intellectual property rights. For core intellectual property, we are
pursuing patent coverage in the United States and those foreign countries that correspond to the majority of our anticipated
customer base. We currently own 89 issued patents in the United States and foreign jurisdictions, including five in each of
France, Germany and the United Kingdom, four in Japan and Canada, three in Italy, two each in India, Singapore and Australia
and one in each of Hong Kong, Korea and Israel, all directed to various aspects and applications of our products and technology.
In addition, our patent portfolio includes 215 other pending patent applications in the United States and their corresponding
international and foreign counterparts in major industrial markets. We believe our patents and pending claims provide, or will
provide, protection for systems and technologies that allow “real time” multiplexed analytical techniques for the detection and
quantification of many analytes from a single sample. We also hold a patent covering the precision-dyeing process that we use to
dye our microspheres. We have been granted a patent on our “Zero Dead Time” sampling architecture, which uses digital over-
sampling to measure the area of a fluorescence pulse instead of “peak detection,” giving increased sensitivity with no lost events.
Other issued patents and pending patent applications cover specific aspects and applications of our xMAP technology and on-
going molecular research. However, as a result of a procedural omission, we are unable to pursue a patent application in Japan
corresponding to our U.S. patent for real-time multiplexing techniques. We also have patents covering key aspects of xTAG
technology utilized in our assay products.
The source code for our proprietary software is protected as a trade secret and/or as a copyrighted work. Aspects of this
software also are covered by an issued patent.
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We also rely on trade secret protection of our intellectual property. We attempt to protect our trade secrets by entering into
confidentiality agreements with strategic partners, third parties, employees and consultants. Our employees and third-party
consultants also sign agreements requiring that they assign to us their interests in inventions and original works of expression and
any corresponding patents and copyrights arising from their work for us.
Government Regulation
Food and Drug Administration
The Food and Drug Administration regulates medical devices pursuant to various statutes, namely the Federal Food, Drug
and Cosmetic Act as amended and supplemented by the Medical Device Amendments of 1976, the Safe Medical Devices Act of
1990, the Medical Device Amendments of 1992, the FDA Export Reform and Enhancement Act of 1996, the FDA
Modernization Act of 1997, the Public Health, Security and Bioterrorism Preparedness and Response Act of 2002, the Medical
Device User Fee and Modernization Act of 2002, and the Project BioShield Act of 2004. Medical devices, as defined by statute,
include instruments, machines, in vitro reagents or other similar or related articles, including any components, parts, or
accessories of such articles that are intended for use in the diagnosis of disease or other condition or in the cure, mitigation,
treatment or prevention of disease; or are intended to affect the structure or function of the body and do not achieve their
intended purpose through chemical action or metabolization. The FDA classifies medical devices intended for human use into
three classes. For Class I devices, general controls (for example, labeling and good manufacturing practices) provide reasonable
assurance of safety and effectiveness. Class II devices are products for which general controls do not provide reasonable
assurance of safety and effectiveness and for which there is sufficient information to establish special controls (for example,
special control documents, guidelines and patient registries). Class III devices are products for which neither general nor special
controls provide reasonable assurance of safety and effectiveness. Generally, Class III includes devices that support or sustain
human life, are for uses that are substantially important in preventing impairment of human health, are used as a stand alone
assay for patient screening or diagnosis of disease, or present a potential, unreasonable risk of illness or injury.
We manufacture a version of the Luminex 100 and Luminex 200 — the Luminex 100 Integrated System (Luminex 100 IS)
and the Luminex 200 Integrated System (Luminex 200 IS), respectively — for use with diagnostic assay kits that are available
through our strategic partners. For FDA purposes, the Luminex 100 IS and Luminex 200 IS are IVD cleared and are considered a
component of our partners’ kit products. Depending on the particular kit’s regulatory classification into Class I, II, or III and its
intended use, kits manufactured by our strategic partners that are used in conjunction with our technology may be subject to FDA
clearance or approval before they can be marketed and sold. After incorporating the Luminex 100 IS or Luminex 200 IS into
their products, our strategic partners are required to make various premarket submissions such as premarket approval
applications, premarket notifications and/or investigational device exemption applications to the FDA for their products and are
required to comply with numerous requirements and restrictions prior to clearance or approval of the applications. There can be
no assurance that the FDA will file, clear or approve our strategic partners’ submissions.
We manufacture kit products that are intended for research use only (RUO) applications (not for diagnostic use) as well as
kits that are for diagnostic use (currently regulatory classification of Class II) in our Austin, Texas facility. Additionally, the
assay segment manufactures products that are intended for RUO, those that are IVD cleared (Class II) as well as kits and
investigational use only (IUO) or clinical applications.
In December, 2007 we submitted to the FDA our request for 510(k) clearance on our Luminex 100/200 Instrument. On
December 13, 2007 the FDA received our 510(k) #k073506 submission for the Luminex 100/200 IS System. On March 7, 2008,
the instrument received FDA 510(k) clearance. All future diagnostic assay kits subject to FDA clearance may reference the 510
(k) #k073506 for the instrument in their respective applications. A master file letter from Luminex allowing the partner to
reference the file may be required.
Our instruments use lasers to identify the bioassays and measure their results. Therefore, we are required to ensure that our
products comply with FDA regulations pertaining to the performance of laser products. These regulations are intended to ensure
the safety of laser products by establishing standards to prevent exposure to excess levels of laser radiation. There can be no
assurance that the FDA will agree with our interpretation and implementation of these regulations.
14
We, and our strategic partners, may be subject to periodic inspection by the FDA for, among other things, compliance with
the FDA’s current good manufacturing practice regulations. These regulations, also known as the Quality System Regulations,
govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, servicing,
installation and distribution of all finished medical devices intended for human use. Additionally, our strategic partners may be
subject to other premarket and post market controls such as labeling, complaint handling, medical device reporting, corrections
and removals reporting, and record keeping requirements. If the FDA has evidence demonstrating that a company is not in
compliance with applicable regulations, it can detain or seize products, request or, in certain circumstances, require a recall,
impose operating restrictions, enjoin future violations, recommend criminal prosecution to the Department of Justice, and assess
civil and criminal penalties against us, our officers, or our employees. Other regulatory agencies may have similar powers.
Medical device laws and regulations are also in effect in many countries outside of the United States. These range from
comprehensive preapproval requirements for medical products to simpler requests for product data or certification. The number
and scope of these requirements are increasing. There can be no assurance that we, and our strategic partners, will be able to
obtain any approvals that may be required to market xMAP technology products outside the United States.
The assay segment produces CE marked products which are subject to a number of different European Union
(EU) Directives including but not limited to the In Vitro Diagnostic Devices Directive (98/79/EEC). CE marking of our products
is currently by self declaration, not issued by a third party, based on the intended uses of our products. A product that is not CE
marked is automatically considered to be non-compliant. The law is enforced through market surveillance by appointed national
enforcement agencies. Imported products are checked for compliance at customs offices.
The State Food and Drug Administration, P.R. China (SFDA) is the Government regulation authority in charge of safety
management of drug, food, health food and cosmetics for the People’s Republic of China. In December 2007 we submitted the
application for a certificate to combine both Luminex 100 and 200 into one product called Luminex System. This certificate is
required for registration and approval to import our products into China. Luminex received the registration certificate from the
People’s Republic of China for the Luminex 100 and Luminex 200 Systems on March 4, 2009.
Failure by us, or our strategic partners, to comply with applicable federal, state and foreign medical product laws and
regulations would likely have a material adverse effect on our business. In addition, federal, state and foreign regulations
regarding the manufacture and sale of medical devices and components of such devices are subject to future changes. We cannot
predict what impact, if any, such changes might have on our business, but any such change could have a material impact.
WEEE
As part of the Council Directive 2002/26 of February 13, 2003, Waste Electrical and Electronic Equipment (WEEE), we are
in compliance with the requirements, beginning on August 13, 2005, regarding the labeling and disposal of some of our products
containing electronic devices in each of the EU member states where our regulated products are distributed. While we are taking
steps to comply with the requirements of WEEE, we cannot be certain that we will comply with the implementation of WEEE in
all EU member states.
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European IVD Directive
The EU’s regulation of in vitro medical devices is under the In Vitro Diagnostic Directive (IVDD) 98/79/EC of October 27,
1998, as implemented in the EU member states.
The principle behind the IVDD is that no in vitro device or accessory may be placed on the market or put into service unless
it satisfies the essential requirements set forth in the IVDD. Devices considered to meet the essential requirements must bear the
CE marking of conformity when they are placed on the market. The responsibility for placing the CE marking on the device lies
with the manufacturer. A manufacturer placing devices on the market in its name is required to notify its national competent
authorities.
Luminex Corporation has declared that the LX100 IS, the LX200 IS and the FLEXMAP 3D are classified as a self-
declaration device and is in conformity with Article 1, Article 9, Annex I (Essential Requirements), and Annex III, and the
additional provisions of IVDD 98/79/EC. However, there can be no assurance that the EU member states will agree with our
interpretation and implementation of these regulations. As the European marketplace continues to be material to our operations,
failure by us or our strategic partners to comply with the IVDD could have a material adverse effect on our business.
Environmental
We are subject to federal, state and local laws and regulations relating to the protection of human health and the
environment. In the course of our business, we are involved in the handling, storage and disposal of certain chemicals and
biohazards. The laws and regulations applicable to our operations include provisions that regulate the discharge of materials into
the environment. Some of these environmental laws and regulations impose “strict liability,” rendering a party liable without
regard to negligence or fault on the part of such party. Such environmental laws and regulations may expose us to liability for
environmental contamination, including remediation costs, natural resource damages and other damages as a result of the
conduct of, or conditions caused by, us or others, or for acts that were in compliance with all applicable laws at the time such
acts were performed. In addition, where contamination may be present, it is not uncommon for neighboring landowners and
other third parties to file claims for personal injury, property damage and recovery of response costs. Although it is our policy to
use generally accepted operating and disposal practices in accordance with applicable environmental laws and regulations,
hazardous substances or wastes may have been disposed or released on, under or from properties owned, leased or operated by us
or on, under or from other locations where such substances or wastes have been taken for disposal. These properties may be
subject to investigation, remediation and monitoring requirements under federal, state and local environmental laws and
regulations. We believe that our operations are in substantial compliance with applicable environmental laws and regulations.
However, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil
and criminal penalties or other liabilities. We do not believe that we have been required to expend material amounts in
connection with our efforts to comply with environmental requirements or that compliance with such requirements will have a
material adverse effect upon our capital expenditures, results of operations or competitive position. Because the requirements
imposed by such laws and regulations may frequently change and new environmental laws and regulations may be adopted, we
are unable to predict the cost of compliance with such requirements in the future, or the effect of such laws on our capital
expenditures, results of operations or competitive position. Moreover, the modification or interpretation of existing
environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption
of new environmental laws or regulations may also negatively impact our strategic partners, which in turn could have a material
adverse effect on us and other similarly situated component companies.
16
Employees
As of both February 23, 2010 and December 31, 2009, we had a total of 437 employees and contract employees, as
compared with 384 as of December 31, 2008. The increase from 2008 to 2009 is mainly due to personnel added related to
development, production, regulatory clearance, and quality control for our new instrument, MagPix, and our new bead products
and assays, as well as our expansion into China and Japan. None of our employees are represented by a collective bargaining
agreement, and we have not experienced any work stoppage. We believe that relations with our employees are good.
Segments
Financial information relating to our reportable segments for the years ended December 31, 2009, 2008, and 2007 can be
found in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8
“Financial Statements and Supplementary Data”.
Executive Officers of the Registrant as of February 25, 2010
Name
Patrick J. Balthrop
Michael F. Pintek
Russell W. Bradley
Jeremy Bridge-Cook, Ph.D
Harriss T. Currie
Gregory J. Gosch
David S. Reiter
Age
53
41
46
41
48
47
43
Position
President and Chief Executive Officer
Senior Vice President, Operations
Vice President, Business Development and Strategic Planning
Senior Vice President, Assay Group
Chief Financial Officer, Vice President, Finance and Treasurer
Vice President, Luminex Bioscience Group
Vice President, General Counsel and Corporate Secretary
Patrick J. Balthrop. Mr. Balthrop joined Luminex in May 2004 as President and Chief Executive Officer and has served as
a member of the Board of Directors since September 2004. He served as president of Fisher Healthcare, a Fisher Scientific
International company, a manufacturer and supplier of products and services principally to the scientific and laboratory markets
from 2002 to May 2004. Prior to Fisher Scientific International, Mr. Balthrop served in a number of leadership positions for over
20 years with Abbott Laboratories, primarily in Abbott’s Diagnostics Division. Mr. Balthrop’s most recent positions at Abbott
were as head of worldwide commercial diagnostics operations and as head of Abbott Vascular. Mr. Balthrop holds an M.B.A.
from the Kellogg Graduate School of Management of Northwestern University, and a B.S. in Biology from Spring Hill College.
Michael F. Pintek. Mr. Pintek joined Luminex as Senior Vice President of Operations in July 2009. He joined Luminex
from Roche Molecular Systems, Inc., a subsidiary of Roche Diagnostics Corporation where he held several positions of
increasing responsibility since 2001, most recently as Vice President and General Manager, Blood Screening at Roche. Prior to
Roche Molecular Systems, his experience includes management positions with Ventana Medical Systems and Abbott
Laboratories’ Diagnostics Division. Mr. Pintek holds a B.S. in Business Administration from Central Michigan University.
Russell W. Bradley. Mr. Bradley joined Luminex in May 2005 as Vice President of Business Development and Strategic
Planning. Previously, Mr. Bradley spent 17 years at Beckman Coulter Corp., a manufacturer of biomedical testing systems and
products, where he served as the director of the Beckman Coulter CARES initiative, involved in Luminex’s clinical HIV/AIDS
monitoring business in developing regions around the globe. During his tenure at Beckman Coulter, Mr. Bradley was involved in
the evaluation, market assessment and successful commercial launch of multiple life science technologies and applications.
Mr. Bradley holds a B.S. in Immunology and Biochemistry from Monash University, Melbourne, Australia.
17
Jeremy Bridge-Cook, Ph.D. Dr. Bridge-Cook has served as Senior Vice President, Assay Group since June 2009.
Dr. Bridge Cook joined Luminex in March 2007 as Vice President of Luminex Molecular Diagnostics. Previously, Dr. Bridge-
Cook served as senior vice president, corporate development of Tm Bioscience. Dr. Bridge-Cook joined Tm Bioscience in
July 2000 as director of business development and served in various capacities thereafter, including vice president of business
development, vice president of marketing and business development, and finally senior vice president, corporate development.
Prior to joining Tm, Dr. Bridge-Cook worked for three years as an investment analyst at MDS Capital Corp. and University
Medical Discoveries Inc. Dr. Bridge-Cook has a Ph.D. in Immunology from the University of Toronto.
Harriss T. Currie. Mr. Currie has served as Vice President, Finance, Treasurer and Chief Financial Officer since October of
2002. Since joining Luminex in November of 1998, Mr. Currie previously served in the capacities of Controller, Treasurer and
Acting Chief Financial Officer. Prior to joining us, he was employed as the chief financial officer, secretary and treasurer of
SpectraCell Laboratories from 1993 to 1998 where he also served as vice president of finance for two subsidiary companies.
Mr. Currie earned his B.B.A. from Southwestern University and his M.B.A. in Finance and Marketing from The University of
Texas at Austin. Prior to returning to graduate school for his M.B.A., Mr. Currie was a certified public accountant with Deloitte
& Touche LLP.
Gregory J. Gosch. Mr. Gosch joined Luminex in October 2004, and currently serves as Vice President, Luminex
Bioscience Group. Since joining Luminex, Mr. Gosch previously served in the capacity of Vice President, Marketing and Sales.
Previously, he served in commercial management positions at other life sciences companies including Nanogen Inc., a
manufacturer of diagnostic testing products, Chiron Corporation and Bio-Rad Laboratories, Inc. Mr. Gosch holds an M.B.A.
from the Carlson School of Management, a Masters of Health Care Administration from the School of Public Health, both of the
University of Minnesota, and a B.A. in Molecular, Cellular and Developmental Biology from the University of Colorado.
David S. Reiter. Mr. Reiter joined Luminex as Vice President, General Counsel and Corporate Secretary in October 2003.
Prior to becoming General Counsel, Mr. Reiter was in private practice with the firm of Phillips & Reiter, PLLC, which provides
outsourced general counsel services for technology companies. Before co-founding the firm, Mr. Reiter was vice president and
general counsel for 724 Solutions Inc., a provider of mobile commerce software solutions and applications (NASDAQ: SVNX).
Earlier in his career, Mr. Reiter served as senior counsel for Compaq Computer Corporation, supporting the Worldwide Sales &
Services, Supply Chain Management and Consumer Products Group. Mr. Reiter is a graduate of the University of Southern
California (Juris Doctorate/Master of International Relations), University of Sheffield, UK (M.B.A.) and the University of Notre
Dame (B.A.) in Government. Mr. Reiter is a member of the Texas Bar and the American Bar Association.
18
ITEM 1A. RISK FACTORS
We expect our operating results to continue to fluctuate from quarter to quarter.
The sale of our instrumentation and assay products typically involves a significant technical evaluation and commitment of
capital by us, our partners and the end user. Accordingly, the sales cycle associated with our products typically is lengthy and
subject to a number of significant risks, much of which is beyond our control, including partners’ budgetary constraints,
inventory management practices, regulatory approval and internal acceptance reviews. As a result of this lengthy and
unpredictable sales cycle, our operating results have historically fluctuated significantly from quarter to quarter. We expect this
trend to continue for the foreseeable future.
The vast majority of our system sales are made to our strategic partners. Our partners typically purchase instruments in
three phases during their commercialization cycle: first, instruments necessary to support internal assay development; second,
instruments for sales force demonstrations; and finally, instruments for resale to their customers. As a result, most of our system
placements are highly dependent on the continued commercial success of our strategic partners and can fluctuate from quarter to
quarter as our strategic partners move from phase to phase. We expect this trend to continue for the foreseeable future.
Our assay products are sometimes sold to large customers. The ordering and consumption patterns of these customers can
fluctuate, affecting the timing of shipments and revenue recognition. In addition, certain products assist in the diagnosis of
illnesses that are seasonal, and customer orders can fluctuate for this reason.
Because of the effect of bulk purchases, defined as the purchase of $100,000 or more of consumables in a quarter, and the
introduction of seasonal components to our assay menus, we experience fluctuations in the percentage of our quarterly revenues
derived from our highest margin items: consumables, royalties and assays. Our gross margin percentage is highly dependent
upon the mix of revenue components each quarter. These fluctuations contribute to the variability and lack of predictability of
both gross margin percentage and total gross profit from quarter to quarter. We expect this trend to continue for the foreseeable
future.
Due to the early stage of the market for molecular tests, projected growth scenarios for the assay segment are highly volatile
and are based on a number of underlying assumptions that may or may not prove to be valid, including the performance of
strategic partners that distribute our assay segment products.
We have a limited history of profitability and had an accumulated deficit of approximately $67.0 million as of December 31,
2009.
We have incurred significant net losses since our inception. At December 31, 2009, we had an accumulated deficit of
approximately $67.0 million. In order to remain profitable, we need to sustain or increase our revenues while achieving
reasonable cost and expense levels. We believe that we have achieved a level of consistent profitability from our continuing
operations; however, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis. If we fail to
achieve operating results in line with market expectations, the market price of our common stock will likely decline.
Furthermore, as we continue to utilize cash to support operations, acquisitions and research and development efforts, we may
further decrease the cash available to us. As of December 31, 2009, cash, cash equivalents and short-term and long-term
investments totaled $119.6 million, compared to $124.1 million at December 31, 2008. The decrease since December 31, 2008 is
primarily attributable to capital expenditures and an increase in our accounts receivable as of December 31, 2009.
19
Our success depends significantly on the establishment and maintenance of successful relationships with our strategic
partners. Currently, a limited number of strategic partners account for a majority of our revenue and the loss of any one of
these partners or their inability to perform to expectations could have a material adverse effect on our business, financial
condition and results of operations.
The development and commercialization of our xMAP technology is highly dependent on our ability to establish successful
strategic relationships with a number of partners. For the twelve months ended December 31, 2009, we had 39 strategic partners
submitting royalties as compared to 35 for the twelve months ended December 31, 2008. Two customers, One Lambda, Inc. and
Bio-Rad Laboratories, Inc., accounted for 26% of consolidated total revenue in the twelve months ended December 31, 2009
(15% and 11%, respectively). For comparative purposes, these same two customers accounted for 36% of total revenue (19%
and 17%, respectively) in the twelve months ended December 31, 2008. No other customer accounted for more than 10% of total
revenue during the twelve months ended December 31, 2009. We had only three additional partners who individually
represented 5% or more of our total revenue and collectively represented 22% of our revenue for the year ended December 31,
2009. In total, for the year ended December 31, 2009, our top five partners accounted for 48% of our total revenue. In total, for
the year ended December 31, 2008, our top five partners accounted for 53% of our total revenue. The loss of any of our
significant strategic partners, or any of our significant customers, could have a material adverse effect on our growth and future
results of operations. The assay segment is dependent on a few significant customers with respect to sales of its genetic test kits.
If any significant customer discontinues its relationship with the assay segment for any reason, or reduces or postpones current or
expected purchase commitments for the assay segment’s products, the assay segment’s results from operations could be
materially adversely affected.
Delays in implementation, delays in obtaining regulatory approval, changes in strategy or the financial difficulty of our
strategic partners for any reason could have a material adverse effect on our business, financial condition and results of
operations.
Our ability to enter into agreements with additional strategic partners depends in part on convincing them that our
technology can help achieve and accelerate their goals or efforts. We will expend substantial funds and management efforts with
no assurance that any additional strategic relationships will result. We cannot assure you that we will be able to negotiate
additional strategic agreements in the future on acceptable terms, if at all, or that current or future strategic partners will not
pursue or develop alternative technologies either on their own or in collaboration with others. Some of the companies we are
targeting as strategic partners offer products competitive with our xMAP technology, which may hinder or prevent strategic
relationships. Termination of strategic relationships, the failure to enter into a sufficient number of additional strategic
relationships on favorable terms, or disputes with our partners could reduce sales of our products, lower margins on our products
and limit the creation of market demand for and acceptance of our products.
In most of our strategic relationships we have granted our strategic partners non-exclusive rights with respect to
commercialization of our products and technology. The lack of exclusivity could deter existing strategic partners from
commercializing xMAP technology and may deter new strategic partners from entering into agreements with us.
A significant portion of our future revenues will come from sales of our systems and the development and sale of bioassay
kits utilizing our technology by our strategic partners and from use of our technology by our strategic partners in performing
services offered to third parties. We believe that our strategic partners will have economic incentives to develop and market these
products, but we cannot accurately predict future sales and royalty revenues because most of our existing strategic partner
agreements do not include minimum purchase requirements or minimum royalty commitments. In addition, we have no control
with respect to our strategic partners’ sales personnel and how they prioritize products based on xMAP technology nor can we
control the timing of the development or release of products by our strategic partners. The amount of these revenues depends on
a variety of factors that are outside our control, including the amount and timing of resources that current and future strategic
partners devote to develop and market products incorporating our technology. Further, the development and marketing of certain
bioassay kits will require our strategic partners to obtain governmental approvals, which could delay or prevent their
commercialization efforts. If our current or future strategic partners do not successfully develop and market products based on
our technology and obtain necessary government approvals, our revenues from product sales and royalties will be significantly
reduced.
20
Current economic conditions and the uncertain economic outlook may adversely impact our business, results of operations,
financial condition or liquidity.
Global economic conditions may remain challenging and uncertain for the foreseeable future. The credit markets and the
financial services industry have been experiencing a period of unprecedented turmoil and upheaval characterized by the
bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United
States federal government. These conditions not only limit our access to capital but also make it extremely difficult for our
customers, our vendors and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign
businesses and consumers to slow spending on our products and services, which would delay and lengthen sales cycles. Some of
our customers rely on government research grants to fund technology purchases. If negative trends in the economy affect the
government’s allocation of funds to research, there may be less grant funding available for certain of our customers to purchase
technologies like those Luminex sells. Certain of our partners and their and our customers may face challenges gaining timely
access to sufficient credit or may otherwise be faced with budget constraints, which could result in decreased purchases of, or
development of products based on, our products or in an impairment of their ability to make timely payments to us. If our
partners and our customers do not make timely payments to us, we may be required to assume greater credit risk relating to those
customers, increase our allowance for doubtful accounts and our days sales outstanding would be negatively impacted. Although
we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required
payments and such losses have historically been within our expectations and the provisions established, we may not continue to
experience the same loss rates that we have in the past, especially given the current turmoil of the worldwide economy.
Additionally, these economic conditions and market turbulence may also impact our suppliers causing them to be unable to
supply in a timely manner sufficient quantities of customized components, thereby impairing our ability to manufacture on
schedule and at commercially reasonable costs.
If the FDA or other governmental laws and regulations change in ways that we do not anticipate and we fail to comply with
those regulations that affect our business, we could be subject to enforcement actions, injunctions and civil and criminal
penalties or otherwise be subject to increased costs that could delay or prevent marketing of our products.
The production, testing, labeling, marketing and distribution of our products for some purposes and products based on our
technology are subject to governmental regulation by the FDA and by similar agencies in other countries. Some of our products
and products based on our technology for in vitro diagnostic purposes are subject to clearance by the FDA prior to marketing for
commercial use. To date, eight strategic partners have obtained such clearances. Others are anticipated. The process of obtaining
necessary FDA clearances can be time-consuming, expensive and uncertain. Further, clearance may place substantial restrictions
on the indications for which the product may be marketed or to whom it may be marketed. In addition, because some of our
products employ laser technology, we are also required to comply with FDA requirements relating to radiation performance
safety standards.
Periodically the FDA issues guidance documents that represent the FDA’s current thinking on a topic. These issues are
initially issued in draft form prior to final rule generally with enforcement discretion for some grace period of time. Changes
made through this process may impact the release status of products offered and our ability to market those products affected by
the change. For example, the FDA released on September 14, 2007 the final document “Guidance for Industry and FDA Staff
Commercially Distributed Analyte Specific Reagents (ASRs): Frequently Asked Questions.” This guidance may limit or delay
distribution of assays on our platform, including assays developed and distributed by our assay segment, to the extent additional
regulatory clearance is required prior to distribution.
Cleared medical device products are subject to continuing FDA requirements relating to, among others, manufacturing
quality control and quality assurance, maintenance of records and documentation, registration and listing, import/export, adverse
event and other reporting, distribution, labeling and promotion and advertising of medical devices. Our inability or the inability
of our strategic partners to obtain required regulatory approval or clearance on a timely or acceptable basis could harm our
business. In addition, failure to comply with applicable regulatory requirements could subject us or our strategic partners to
regulatory enforcement action, including warning letters, product seizures, recalls, withdrawal of clearances, restrictions on or
injunctions against marketing our products or products based on our technology, and civil and criminal penalties.
21
Medical device laws and regulations are in effect within the United States and also in many countries outside the United
States. These range from comprehensive device clearance requirements for some or all of our medical device products to
requests for product data or certifications regarding the hazardous material content of our products. As part of the European
Council Directive 2002/96 of February 13, 2003 (WEEE), we are expected to comply with certain requirements regarding the
collection, recycling and labeling of our products containing electronic devices in each of the European Union, or EU, member
states where our regulated products are distributed. While we are taking steps to comply with the requirements of WEEE, we
cannot be certain that we will comply with the national stage implementation of WEEE in all member states. Our products are
currently exempt from the European Council Directive 2002/95 of January 27, 2003, Restriction of the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment (RoHS), which required the removal of certain specified hazardous
substances from certain products beginning July 1, 2006 in each of the member states. However, the EU has indicated that it
may, and it is generally expected it will, include medical devices, including some of our products, under the jurisdiction of
RoHS. If this exemption is revoked, it could result in increased costs to us and we cannot assure you we will ultimately be able to
comply with RoHS or related requirements in other jurisdictions. In addition, the State of California adopted the Electronic
Waste Recycling Act, effective January 1, 2007, which requires the California Department of Toxic Substances Control to adopt
regulations to prohibit the sale of electronic devices in California if they are also prohibited from sale in the EU under the RoHS
directive because they contain certain heavy metals. The number and scope of these requirements are increasing and we will
likely become subject to further similar laws in other jurisdictions. Failure to comply with applicable federal, state and foreign
medical device laws and regulations may harm our business, financial condition and results of operations. We are also subject to
a variety of other laws and regulations relating to, among other things, environmental protection and workplace health and
safety.
Our strategic partners and customers expect our organization to operate on an established quality management system
compliant with FDA Quality System Regulations and industry standards, the In Vitro Diagnostic Directive 98/79/EC of 27
October 1998 (Directive) as implemented nationally in the EU member states and industry standards, such as ISO 9000. We
became ISO 9001:2000 certified in March 2002 and self-declared our Luminex 100 and Luminex 200 devices are in conformity
with Article 1, Article 9, Annex I (Essential Requirements), and Annex III, and the additional provisions of the Directive as of
December 7, 2003. Subsequent audits are carried out annually to ensure we maintain our system in substantial compliance with
ISO and other applicable regulations and industry standards. We became ISO 13485:2003 and Canadian Medical Device
Conformity Assessment System (CMDCAS) certified in July 2005. In August 2006 a Level II QSIT contract inspection was
conducted in accordance with CPGM 7382.845, Inspection of Medical Device Manufacturers, PAC 82845B, Medical Device
Level II Inspections pursuant to the FDA Dallas District Office FY 06 Workplan and the DSHS Drugs & Medical Device Group
FY 06 Workplan. The inspection is “closed” under 21 C.F.R. 20.64 (d) (3) and the Establishment Inspection Report
No. 3002524000 provided in accordance with the FOIA and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was
issued. Failure to maintain compliance with FDA, CMDCAS and EU regulations and other medical device laws, or to obtain
applicable registrations where required, could reduce our competitive advantage in the markets in which we compete and also
decrease satisfaction and confidence levels with our partners.
22
If our technology and products do not become widely used in the life sciences and clinical diagnostics industries, it is unlikely
that we can maintain or increase profitability.
Life sciences companies have historically conducted biological tests using a variety of technologies, including bead-based
analysis. In certain testing areas, our xMAP technology is relatively new and unproven, and the use of our technology by life
sciences companies is limited. The commercial success of our technology depends upon its widespread adoption as a method to
perform bioassays. In order to be successful, we must convince potential partners to utilize our system instead of competing
technologies. Market acceptance depends on many factors, including our ability to:
•
•
•
•
•
convince prospective strategic partners and customers that our technology is an attractive alternative to other technologies
for pharmaceutical, research, clinical, biomedical and genetic testing and analysis;
encourage these partners to develop and market products using our technology;
manufacture products in sufficient quantities with acceptable quality and at an acceptable cost;
obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and
place and service sufficient quantities of our products, including the ability to provide the level of service required in the
mainstream clinical diagnostics market segment.
Because of these and other factors, our products may not gain or sustain sufficient market acceptance to again achieve,
maintain or increase profitability.
Our reliance on strategic relationships to market many of our products makes forecasting difficult.
As a result of our reliance on our strategic relationships, it can be difficult to accurately forecast future operating results.
Our operating expenses are largely based on anticipated revenue trends, and a high percentage of our expenses are, and will
continue to be, fixed in the short-term. The level of our revenues depends upon the rate and timing of the adoption of our
technology as a method to perform bioassays. In addition, we currently anticipate that the vast majority of future sales of our
products and products incorporating our technology will be made by through our strategic relationships. For the following
reasons, estimating the timing and amount of sales of these products that may be made through our strategic relationships is
particularly difficult:
•
•
•
•
•
•
•
•
We have no control over the timing or extent of product development, marketing or sale of our products by our strategic
partners.
We do not control the incentives provided by our strategic partners and distributors to their sales personnel.
We utilize distributors for a portion of our sales, including several of our key assay products and the loss of or non-
performance by these distributors could harm our revenues in the territories serviced by these distributors.
A significant number of our strategic partners intend to produce clinical diagnostic applications that may need to be
approved by the FDA, or other regulatory bodies in jurisdictions outside of the United States.
Certain strategic partners may have unique requirements for their applications and systems. Assisting the various strategic
partners may strain our research and development and manufacturing resources. To the extent that we are not able to timely
assist our strategic partners, the commercialization of their products will likely be delayed.
Certain strategic partners may fail to deliver products that satisfy market requirements, or such products may fail to perform
properly.
We have limited access to partner and distributor confidential corporate information. A sudden unexpected change in
ownership, strategy or other material event could adversely impact partner purchases of our products.
Partners tend to order in bulk prior to the production of new lots of their products and prior to major product development
initiatives. The frequency of these bulk purchases is difficult to predict and may cause large fluctuations in microsphere
sales quarter to quarter.
23
The life sciences industry is highly competitive and subject to rapid technological change, and we may not have the resources
necessary to compete successfully.
We compete with companies in the United States and abroad that are engaged in the development and production of similar
products. We will continue to face intense competition from existing competitors and other companies seeking to develop new
technologies. Many of our competitors have access to greater financial, technical, scientific, research, marketing, sales,
distribution, service and other resources than we do. These companies may develop technologies that are superior alternatives to
our technologies or may be more effective at commercializing their technologies in products.
The life sciences industry is characterized by rapid and continuous technological innovation. We may need to develop new
technologies for our products to remain competitive. One or more of our current or future competitors could render our present
or future products or those of our partners obsolete or uneconomical by technological advances. In addition, the introduction or
announcement of new products by us or others could result in a delay of or decrease in sales of existing products, as we await
regulatory approvals, while customers evaluate these new products, or if customers choose to purchase the new products instead
of legacy products. We may also encounter other problems in the process of delivering new products to the marketplace such as
problems related to design, development, supply chain or manufacturing of such products, and as a result we may be
unsuccessful in selling such products. Our future success depends on our ability to compete effectively against current
technologies, as well as to respond effectively to technological advances by developing and marketing products that are
competitive in the continually changing technological landscape.
Our success depends on our ability to service and support our products directly or in collaboration with our strategic
partners.
To the extent that we or our strategic partners fail to maintain a high quality level of service and support for xMAP
technology products, there is a risk that the perceived quality of our xMAP technology products will be diminished in the
marketplace. Likewise, we may fail to provide the level, quantity or quality of service expected by the marketplace. This could
result in slower adoption rates and lower than anticipated utilization of xMAP products which could have a material adverse
affect on our business, financial condition and results of operations.
The property rights we rely upon to protect the technology underlying our products may not be adequate to maintain market
exclusivity. Inadequate intellectual property protection could enable third parties to exploit our technology or use very similar
technology and could reduce our ability to distinguish our products in the market.
Our success depends, in part, on our ability to obtain, protect and enforce patents on our technology and products and to
protect our trade secrets, including the intellectual property of entities we may acquire. Any patents we own may not afford full
protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed or
invalidated. In addition, our current and future patent applications may not result in the issuance of patents in the United States or
foreign countries. Competitors may develop products that are not covered by our patents. Further, there is a substantial backlog
of patent applications at the U.S. Patent and Trademark Office and certain patent offices in foreign jurisdictions, and the approval
or rejection of patent applications may take several years.
We have obtained 89 patents in the United States and foreign jurisdictions directed to various aspects and applications of
our products and technology. We have 215 pending applications in the United States and foreign jurisdictions. In Japan, due to a
procedural omission, we are unable to obtain patent protection for our method of “real time” detection and quantification of
multiple analytes from a single sample on our platform technology similar to the protection we have obtained in the United
States. Although we are pursuing patent protection in Japan for other aspects of our technology and products, we may not be able
to prevent competitors from developing and marketing technologies and products similar to our xMAP technology in Japan. We
also have patents covering key aspects of xTAG technology utilized in our assay products.
24
We require our employees, consultants, strategic partners and other third parties to execute confidentiality agreements. Our
employees and third-party consultants also sign agreements requiring that they assign to us their interests in inventions and
original expressions and any corresponding patents and copyrights arising from their work for us. In addition, we have
implemented a patent process to file patent applications on our key technology. However, we cannot guarantee that these
agreements or this patent process will provide us with adequate protection against improper use of our intellectual property or
disclosure of confidential information. In addition, in some situations, these agreements may conflict with, or be subject to, the
rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary technology, techniques and products or
counterfeit versions of our products or otherwise gain access to our trade secrets. Our failure to protect our proprietary
information and techniques may inhibit or limit our ability to exclude certain competitors from the market.
In order to protect or enforce our patent rights, we may have to initiate legal proceedings against third parties, such as
infringement suits or interference proceedings. These legal proceedings could be expensive, take significant time and/or divert
management’s attention from other business concerns. These proceedings may cause us to lose the benefit of some of our
intellectual property rights, the loss of which may inhibit or preclude our ability to exclude certain competitors from the market.
These proceedings also may provoke these third parties to assert claims against us. The patent position of companies like ours
generally is highly uncertain, involves complex legal and factual questions and has recently been the subject of much litigation.
No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under patents like ours.
Our success depends partly on our ability to operate without infringing on or misappropriating the proprietary rights of
others.
We have been (and from time to time we may be) notified that third parties consider their patents or other intellectual
property relevant to our products. We may be sued for infringing the intellectual property rights of others, including claims with
respect to intellectual property of entities we may acquire. In addition, we may find it necessary, if threatened, to initiate a
lawsuit seeking a declaration from a court that we do not infringe on the proprietary rights of others or that their rights are invalid
or unenforceable. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could affect our
profitability. Furthermore, litigation is time consuming and could divert management’s attention and resources away from our
business. If we do not prevail in any litigation, we may have to pay damages and could be required to stop the infringing activity
or obtain a license. Any required license may not be available to us on acceptable terms, if at all. Moreover, some licenses may
be nonexclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to sell some of our products, which could have a
material adverse affect on our business, financial condition and results of operations.
We require collaboration with other organizations in obtaining relevant biomarkers, access to oligonucleotides and enzymes
that are patented or controlled by others. If we cannot continue to obtain access to these areas or identify freedom to operate
opportunities, our business, financial condition and results of operations could be negatively affected.
25
We have only produced our products in limited quantities, and we may experience problems in scaling our manufacturing
operations or delays or component shortages that could limit the growth of our revenue.
To date, we have produced our products in limited quantities relative to the quantities necessary to achieve desired revenue
growth. We may not be able to produce sufficient quantities or maintain consistency between differing lots of consumables. If
we encounter difficulties in scaling our manufacturing operations as a result of, among other things, quality control and quality
assurance issues and availability of components and raw material supplies, we will likely experience reduced sales of our
products, increased repair or re-engineering costs due to product returns, and defects and increased expenses due to switching to
alternate suppliers, any of which would reduce our revenues and gross margins.
We presently outsource certain aspects of the assembly of our systems to contract manufacturers. Because of a long lead-
time to delivery, we are required to place orders for a variety of items well in advance of scheduled production runs. We recently
increased our flexibility to purchase strategic components within shorter lead times by entering into supply agreements with the
suppliers of these components. Although we attempt to match our parts inventory and production capabilities to estimates of
marketplace demand, to the extent system orders materially vary from our estimates, we may experience continued constraints in
our systems production and delivery capacity, which could adversely impact revenue in a given fiscal period. Should our need
for raw materials and components used in production continue to fluctuate, we could incur additional costs associated with either
expediting or postponing delivery of those materials. In an effort to control costs, during the last quarter of 2005 we implemented
a lean production system. Managing the change from discrete to continuous flow production requires time and management
commitment. Lean initiatives and limitations in our supply chain capabilities may result in part shortages that delay shipments
and cause fluctuations in revenue in a given period.
We currently purchase certain key components of our product line from a limited number of outside sources and may only
be available through a limited number of providers. We do not have agreements with all of our suppliers. While we currently
believe that we will be able to satisfy our forecasted demand for our kits, the failure to find alternative suppliers in the event of a
supply failure at any of our current vendors at reasonably comparable prices could have a material adverse effect on our
business, financial condition and results of operations. Additionally, we have entered into supply agreements with most of our
suppliers of strategic reagents and component subassemblies to help ensure component availability, and flexible purchasing
terms with respect to the purchase of such components. Our reliance on our suppliers and contract manufacturers exposes us to
risks including:
•
•
•
•
•
•
the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with us could
terminate their services at any time without penalty;
the potential obsolescence and/or inability of our suppliers to obtain required components;
the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
the inability to qualify alternate sources without impacting performance claims of our products;
reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or
assemblers; and
increases in prices of raw materials and key components.
Consequently, in the event that supplies of components or work performed by any of our assemblers are delayed or
interrupted for any reason, our ability to produce and supply our products could be impaired.
26
International business operations create additional operational and legal risk.
Our future profitability will depend in part on our ability to grow and ultimately maintain our product sales in foreign
markets, particularly in Asia and Europe. Our plans to expand globally will expose us to additional foreign currency risk in
multiple currencies. Our operations outside the United States are subject to additional risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in or interpretations of foreign law that may adversely affect our ability to sell our products, perform services or
repatriate profits to the United States;
the imposition of tariffs;
hyperinflation or economic or political instability in foreign countries;
imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign
subsidiaries;
conducting business in places where business practices and customs are unfamiliar and unknown;
the burden of complying with complex and changing foreign regulatory requirements;
longer accounts receivable collection times;
the imposition of restrictive trade policies, including export restrictions;
worldwide political conditions;
the imposition of inconsistent laws or regulations;
reduced protection of intellectual property rights in some foreign countries;
the imposition or increase of investment requirements and other restrictions by foreign governments;
longer collection cycles for account receivables;
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute;
uncertainties relating to foreign laws, including labor laws, and legal proceedings;
significant currency fluctuations;
having to comply with a variety of U.S. laws, including the Foreign Corrupt Practices Act; and
having to comply with U.S. export control regulations and policies that restrict our ability to communicate with non-U.S.
employees and supply foreign affiliates, partners and customers.
The capital spending policies of our customers have a significant effect on the demand for our products.
Our customers include clinical diagnostic, pharmaceutical, biotechnological, chemical and industrial companies, and the
capital spending policies of these companies can have a significant effect on the demand for our products. These policies are
based on a wide variety of factors, including governmental regulation or price controls, the resources available for purchasing
research equipment, the spending priorities among various types of analytical equipment and the policies regarding capital
expenditures during recessionary periods. Any decrease in capital spending by life sciences companies could cause our revenues
to decline. As a result, we are subject to significant volatility in revenue. Therefore, our operating results can be materially
affected (negatively and positively) by the spending policies and priorities of our customers.
27
If we become subject to product liability claims, we may be required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the testing, production, marketing and sale
of biotechnological, human (including genetic) diagnostic and therapeutic products. Although we believe that we are reasonably
insured against these risks and we generally have limited indemnity protections in our supplier agreements, there can be no
assurance that we will be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all
potential liabilities. A product liability claim in excess of our insurance coverage or claim that is outside or exceeds our
indemnity protections in our supplier agreements or a recall of one of our products would have to be paid out of our cash
reserves.
If third-party payors increasingly restrict payments for healthcare expenses or fail to adequately pay for multi-analyte testing,
we may experience reduced sales which would hurt our business and our business prospects.
Third-party payors, such as government entities and healthcare programs, health maintenance organizations and private
insurers, are continually seeking to reduce healthcare expenses. The federal government has also recently reduced the funding for
certain government sponsored healthcare programs which has caused these third party payors to seek further reduction in
medical expenses. The federal government is also considering comprehensive healthcare reform, which could further limit
government reimbursement to these payors. These reductions may decrease demand for our products and the price we can
charge. Increasingly, Medicaid and other third-party payors are challenging the prices charged for medical services, including
clinical diagnostic tests. They are also attempting to contain costs by limiting coverage and the reimbursement level of tests and
other healthcare products. In addition, cost containment initiatives by governmental or educational entities or programs may
reduce funding for genetic research and development activities and retard the growth of the genetic testing marketing. Without
adequate coverage and reimbursement, consumer demand for tests will decrease. Decreased demand could cause sales of our
products, and sales and services by our strategic partners, to fall. In addition, decreased demand could place pressure on us, or
our strategic partners, to lower prices on these products or services, resulting in lower margins. Reduced sales or margins by us,
or our strategic partners, would hurt our business, profitability and business prospects.
We may in the future incur substantial debt that could restrict our operations.
We may incur indebtedness in the future for, among other purposes, funding operating expenses and/or costs related to
future expansions and acquisitions. This indebtedness could have adverse consequences on us, including:
•
•
•
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in
which we operate;
limiting our ability to borrow additional funds for working capital, capital and research and development expenditures,
acquisitions and general corporate or other purposes; and
exposing us to interest rate risk.
To the extent incurred, our debt service obligations will require us to use a portion of our operating cash flow to pay interest
and principal on indebtedness instead of for other corporate purposes, including funding future expansion of our business and
ongoing capital expenditures. Our ability to repay or refinance our debt depends on our successful financial and operating
performance. Our financial and operating performance depends upon a number of factors, many of which are beyond our control,
as further described in this Item 1A “Risk Factors.”
28
We may be unsuccessful in implementing our acquisition strategy. We may face difficulties integrating acquired entities with
our existing businesses.
Acquisitions of assets or entities designed to accelerate the implementation of our strategic plan are an element of our long-
term strategy. We may be unable to identify and complete appropriate future acquisitions in a timely manner and no assurance
can be provided that the market price of potential business acquisitions will be acceptable. In addition, many of our competitors
have greater financial resources than we have and may be willing to pay more for these businesses or selected assets. In the
future, should we identify suitable acquisition targets, we may be unable to complete acquisitions or obtain the financing, if
necessary, for these acquisitions on terms favorable to us. Generally, potential acquisitions pose a number of risks, including,
among others, that:
•
•
•
•
•
•
•
•
•
•
•
we may not be able to accurately estimate the financial effect of acquisitions on our business;
future acquisitions may require us to assume liabilities, incur large and immediate write-offs, issue capital stock potentially
dilutive to our stockholders or spend significant cash or may result in a decrease in our future operating income or operating
margins;
we may be unable to realize the anticipated benefits and synergies from acquisitions as a result of inherent risks and
uncertainties, including difficulties integrating acquired businesses or retaining their key personnel, partners, customers or
other key relationships, entering market segments in which we have no or limited experience, and risks that acquired
entities may not operate profitably or that acquisitions may not result in improved operating performance;
acquisitions and subsequent integration of these companies may disrupt our business and distract our management from
other responsibilities; and
the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
Other risks of integration include:
disparate information technology, internal control, financial reporting and record-keeping systems;
differences in accounting policies, including those requiring judgment or complex estimation processes;
new partners or customers who may operate on terms and programs different than ours;
additional employees not familiar with our operations;
facilities or operations in remote locations or potentially foreign jurisdictions and the inherent risks of operating in
unfamiliar legal and regulatory environments; and
new products, including the risk that any underlying intellectual property associated with such products may not have been
adequately protected or that such products may infringe on the proprietary rights of others.
We rely on the innovation and resources of larger industry participants and public programs to advance genomic research
and educate physicians/clinicians on genetic diagnostics.
The linkages between genetic anomalies that our products detect and the underlying disease states are not always fully
medically correlated. Additionally, the availability of correlated genetic markers is dependent on significant investment in
genomic research, often funded through public programs for which there are no assurances of on-going support. Should any
government limit patent rights to specific genetic materials, private investment in this area could also be significantly curtailed.
In addition, the adoption of genetic diagnostics is dependent to a great extent on the education and training of physicians and
clinicians. We do not have the resources to undertake such training, and are relying on larger industry participants and
professional medical colleges to establish, communicate and educate physicians and clinicians on best practices related to genetic
diagnostics.
We are subject to evolving legislative, judicial and ethical standards on use of technology and biotechnology.
The adoption of genetic testing is occurring within the broader context of a myriad of decisions related to genetic patenting
and genotyping. Issues associated with health insurance, data access, intellectual property protection, national and international
legislative initiatives and other variables may have a significant impact on the wide spread adoption of genetic testing or on
specific segments or tests within the genetic testing market.
29
Our success depends on our ability to attract and retain our management and staff.
We depend on the principal members of our management and scientific staff, including our chief executive officer, Patrick
Balthrop, and our operations, marketing, research and development, technical support, technical service and sales staff. The loss
of services of key members of management could delay or reduce our product development, marketing and sales and technical
support efforts. In addition, recruiting and retaining qualified scientific and other personnel to perform research and
development, technical support, technical service and marketing and sales work will be critical to our success. There is a
shortage in our industry of qualified management and scientific personnel, and competition for these individuals is intense. There
can be no assurance that we will be able to attract additional and retain existing personnel necessary to achieve our business
objectives.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue to be highly volatile and subject to wide
fluctuations in price. This volatility is in response to various factors, many of which are beyond our control, including:
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in quarterly operating results from historical results or estimates of results prepared by
securities analysts;
announcements of technological innovations or new products or services by us or our competitors;
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
conditions or trends in the life science, biotechnology and pharmaceutical industries;
additions or departures of key personnel;
changes in financial estimates by securities analysts;
general economic conditions and interest rates;
instability in the United States and other financial markets and the ongoing and possible escalation of unrest in the Middle
East, other armed hostilities or further acts or threats of terrorism in the United States or elsewhere;
sales of our common stock; and
the potential adverse impact of the secondary trading of our stock on foreign exchanges which are subject to less regulatory
oversight than the NASDAQ Global Market, without our permission, and the activity of the market makers of our stock on
such exchanges, including the risk that such market makers may engage in naked short sales and/or other deceptive trading
practices which may artificially depress or otherwise affect the price of our common stock on the NASDAQ Global Market.
In addition, the stock market in general, and the NASDAQ Global Market and the market for technology companies in
particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of those companies. Further, there has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm the market price of our common stock,
regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs,
potential liabilities and the diversion of management’s attention and resources.
Anti-takeover provisions in our certificate of incorporation, bylaws and stockholder rights plan and Delaware law could make
a third party acquisition of us difficult.
Our certificate of incorporation, bylaws and stockholder rights plan contain provisions that could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our stockholders. We are also subject to certain provisions of
Delaware law that could delay, deter or prevent a change in control of us. These provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock.
30
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative facilities are located in Austin, Texas, and
consist of approximately 115,000 square feet of leased space pursuant to a lease agreement which expires April 30, 2015. We
maintain an additional 10,384 square feet of leased office space in Oosterhout, Netherlands, approximately 27,000 square feet of
leased office and manufacturing space primarily used by the assay segment in Toronto, Canada, approximately 3,500 square feet
of leased office space in Shanghai, People’s Republic of China, and approximately 2,500 square feet of leased office space in
Tokyo, Japan. We are currently expanding our manufacturing space in Austin, Texas to ensure that our facilities are adequate for
our future needs.
ITEM 3. LEGAL PROCEEDINGS
On July 24, 2009, we notified Abbott Molecular Inc. of our intent to convert its right to distribute Luminex’s xTAG®
Respiratory Viral Panel from exclusive to non-exclusive on a worldwide basis under the Distribution Agreement, dated
February 1, 2008, between Abbott Molecular and LMD. On September 11, 2009, Abbott Molecular Inc. notified us that it
intended to exercise its right to seek arbitration under the Distribution Agreement. Among other matters, Abbott disputed LMD’s
right to terminate Abbott’s exclusive right to distribute RVP under the Agreement. The arbitration to resolve this matter was held
on December 14-15, 2009. The arbitrator issued his binding ruling on December 30, 2009, instructing Luminex, among other
matters, to reinstate Abbott’s exclusive right to distribute RVP outside of the United States and co-exclusively with Fisher
Scientific within the United States. All other terms and conditions of the Distribution Agreement remain in effect and are
unaffected by the Arbitration.
When and if it appears probable in 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. Though there can be no assurances, our management believes
that the resolution of existing routine matters and other incidental claims, taking into account accruals and insurance, will not
have a material adverse effect on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
31
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the NASDAQ Global Market under the symbol “LMNX.”
The following table sets forth the range of high and low sale prices on The NASDAQ Stock Market and/or NASDAQ
Global Market, as applicable, for each quarter during 2009 and 2008. On February 23, 2010, the last reported sale price of our
common stock was $14.67 per share.
2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
22.83
19.01
18.70
17.65
High
20.48
23.09
27.00
25.11
$
$
$
$
$
$
$
$
14.86
14.32
14.47
12.75
Low
14.75
18.00
19.41
12.57
As of February 23, 2010, we had 718 holders of record of our common stock. Because many of our shares are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders
represented by these record holders.
Dividends
We have never declared or paid cash dividends on our common stock and, while this policy is subject to periodic review by
our board of directors, we currently intend to retain any earnings for use in our business and do not anticipate paying cash
dividends in the foreseeable future. Our ability to declare dividends may also from time to time be limited by the terms of any
applicable credit facility.
32
Performance Graph
The following graph compares the change in Luminex’s cumulative total stockholder return on its common shares with the
NASDAQ Composite Index and the NASDAQ Biotechnology Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Luminex Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
*
$100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Luminex Corporation
NASDAQ Composite
NASDAQ Biotechnology
12/04
100.00
100.00
100.00
12/05
130.86
101.33
117.54
12/06
143.02
114.01
117.37
12/07
182.88
123.71
121.37
12/08
240.54
73.11
113.41
12/09
168.13
105.61
124.58
33
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2009 was as follows:
Period
10/01/09 - 10/31/09
11/1/09 - 11/30/09
12/01/09 - 12/31/09
Total Fourth Quarter
Total Number of Average Price
Purchased as Part of
Shares that May Yet Be
Shares
Purchased
Paid per Share Publicly Announced Purchased Under the Plans or
(1)($)
Plans or Programs
Programs
Total Number of Shares Approximate Dollar Value of
—
303
993
1,296
—
13.74
14.63
14.42
—
—
—
—
—
—
—
—
(1) Shares purchased are attributable to the withholding of shares by Luminex to satisfy the payment of tax obligations related
to the vesting of restricted shares.
34
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and other financial data included elsewhere in this Annual Report on Form 10-K. The consolidated statement of
operations data for the years ended December 31, 2009, 2008 and 2007 and the consolidated balance sheet data at December 31,
2009 and 2008 are derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form
10-K. The consolidated statement of operations data for the years ended December 31, 2006 and 2005 and the consolidated
balance sheet data at December 31, 2007, 2006 and 2005 are derived from audited consolidated financial statements not included
in this Annual Report on Form 10-K.
2009
Year Ended December 31,
2006
2007
2008
(In thousands, except per share data)
2005
Consolidated Results of Operations
Data:
Total revenue
Gross profit
Income (loss) from operations
Net income (loss)
Net income (loss) applicable to
common stockholders
Net income (loss) per common
share, basic
Shares used in computing net
income (loss) per share, basic
$
$
$
$
120,643
81,294
7,399
17,729
104,447
70,946
3,353
3,057
$
75,010
46,094
(17,418)
(2,711)
$
52,989
32,252
$
(581)[1]
1,507[1]
42,313
22,321
(3,496)
(2,666)
17,729
$
3,057
$
(2,711)
$
1,507
$
(2,666)
0.44
$
0.08
$
(0.08)
$
0.05[1]
$
(0.09)
40,562
37,868
34,361
31,434
30,990
Net income (loss) per share, diluted
$
0.43
$
0.08
$
(0.08)
$
0.05[1]
$
(0.09)
Shares used in computing net
income (loss) per share, diluted
41,633
39,700
34,361
32,988
30,990
2009
2008
At December 31,
2007
(In thousands)
2006
2005
Consolidated Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Long-term investments
Working capital
Total assets
Total long-term debt
Total stockholders’ equity
$
90,843
8,511
20,228
122,398
248,013
3,591
218,738
$
$
81,619
40,501
2,000
$
27,233
6,944
—
131,767
217,291
3,359
194,540
40,801
123,559
3,110
103,480
$
27,414
10,956
7,346
44,179
66,696
—
54,159
25,206
10,947
5,466
39,364
58,035
—
44,710
[1] Effective January 1, 2006, we changed our method of accounting for stock-based compensation to conform to ASC 718
“Stock Compensation”.
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying
Notes included below in Item 8 and “Risk Factors” included above in Item 1A of this Annual Report on Form 10-K. This
discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements.
Overview
We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the
life sciences and diagnostics industries. These industries depend on a broad range of tests, called bioassays, to perform diagnostic
tests, discover and develop new drugs and identify genes. Our xMAP® technology, an open architecture, multiplexing
technology, allows simultaneous analysis of up to 500 bioassays from a small sample volume, typically a single drop of fluid, by
reading biological tests on the surface of microscopic polystyrene beads called microspheres. xMAP technology combines this
miniaturized liquid array bioassay capability with small lasers, digital signal processors and proprietary software to create a
system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is currently being used within various
segments of the life sciences industry which includes the fields of drug discovery and development, clinical diagnostics, genetic
analysis, bio-defense, protein analysis and biomedical research.
Our end user customers and partners, which include laboratory professionals performing research, clinical laboratories
performing tests on patients as ordered by a physician and other laboratories, have a fundamental need to perform high quality
testing as efficiently as possible. Luminex has adopted a business model built, in part, around strategic partnerships. We have
licensed our xMAP technology to partner companies, which in turn then develop products that incorporate the xMAP technology
into products that partners sell to end users. Luminex develops and manufactures the proprietary xMAP laboratory
instrumentation and the proprietary xMAP microspheres and sells these products to its partners. Our partners then sell xMAP
instrumentation and xMAP-based reagent consumable products, which run on the instrumentation, to the end user laboratory. As
of December 31, 2009, Luminex had approximately 68 strategic partners and these partners have purchased from Luminex over
6,760 xMAP-based systems. Of the 68 strategic partners, 39 have released commercialized reagent-based products utilizing our
technology.
Beginning in 2006, we began developing proprietary assays through LBG. This development was supplemented in 2007 by
our acquisition of Tm Bioscience, which we now refer to as LMD. Our assay segment focuses on the molecular diagnostics
market and certain specialty markets.
Luminex has several forms of revenue that result from our business model:
•
•
•
•
•
•
System revenue is generated from the sale of our xMAP systems and peripherals. Currently, system revenue is derived
from the sale of the Luminex 100 and 200 analyzers, our FLEXMAP 3D system, optional XY Platform and Sheath
Delivery Systems.
Consumable revenue is generated from the sale of our dyed polystyrene microspheres and sheath fluid. Our larger
commercial and development partners often purchase these consumables in bulk to minimize the number of incoming
qualification events and to allow for longer development and production runs.
Royalty revenue is generated when a partner sells our proprietary microspheres to an end user, a partner sells a kit
incorporating our proprietary microspheres to an end user or when a partner utilizes a kit to provide a testing result to a
user. End users can be facilities such as testing labs, development facilities and research facilities that buy prepared
kits and have specific testing needs or testing service companies that provide assay results to pharmaceutical research
companies or physicians.
Assay revenue is generated from the sale of our kits which are a combination of chemical and biological reagents and
our proprietary bead technology used to perform diagnostic and research assays on samples.
Service revenue is generated when a partner or other owner of a system purchases a service contract from us after the
standard warranty has expired. Service contract revenue is amortized over the life of the contract and the costs
associated with those contracts are recognized as incurred.
Other revenue consists of items such as training, shipping, parts sales, license revenue, grant revenue, contract
research and development fees, milestone revenue and other items that individually amount to less than 5% of total
revenue.
36
2009 Highlights
•
•
•
•
•
•
•
•
•
•
Luminex grew total revenue by approximately 16% over 2008 revenue to $120.6 million
Gross margin percentage of 67%, compared to 68% in 2008
For the year ended 2009, assay revenue increased 66%, royalty revenue increased 23% and system sales
increased 9% over the prior calendar year
Full commercial launch of the high-throughput FLEXMAP 3D multiplexing system
System shipments of 873, resulting in cumulative life-to-date shipments of 6,767, up 15% from a year ago
Our partners reported over $281 million of royalty bearing end user sales on xMAP technology for the year, an
18% increase over 2008
Settlement of SUNY lawsuit, resulting in a one-time charge of approximately $4.4 million
Establishment of offices in Shanghai, People’s Republic of China and Tokyo, Japan to provide commercial
support and service to customers and partners in these markets
Obtained registration certificate from the People’s Republic of China for the Luminex 100 and Luminex 200
Systems
Tax benefit from the release of the U.S. deferred tax asset valuation allowance provided a one time benefit of
$14.9 million, or $0.36 per share, basic
Consumable Sales Trends
We have experienced a decline in consumable revenue since the third quarter of 2008. After thorough analysis of the
decline, we have identified several factors contributing to the decline, none of which individually appear to be systemic in nature
or indicative of future results. Overall, the decline manifested itself through a decline in activity at varying times from our
largest, bulk purchasing partners. From the third quarter of 2008 through the fourth quarter of 2009, we had bulk purchases
totaling $7.0 million, $6.8 million, $6.1 million, $5.5 million, $4.3 million, and $6.4 million in consumables, respectively.
Alternatively, non bulk consumable sales varied within a much smaller range between $1.2 million and $1.8 million with the
largest amount of non bulk sales taking place in the third quarter of 2009 with $1.8 million of consumables. We believe the
decrease in bulk purchases can be attributed to several factors including (1) purchases in prior periods of significant volumes of
consumables related to the conversion of our partners’ assay product portfolios from carboxyl beads to magnetic beads primarily
in anticipation of the release of our new MagPix system in 2010; (2) volume reductions in bulk purchases from several of our
partners as a result of a reduction in total consumable needs prior to the regulatory clearance and commercialization phases of
development of new products and transitioning product lines; (3) increased attention on inventory management by our partners
during 2009 as a result of the macro economic climate and (4) an increase in our partners’ focus on generating current revenue
from commercialized products. We anticipate consumables sales will improve in 2010. The success of our partners’
commercialization efforts is reflected in the rising level of royalties and reported royalty bearing sales during the period over
which the consumable revenue has declined. Reported royalty bearing sales have increased by 18% from $238.5 million in 2008
to $281.8 million in 2009.
Release of Valuation Allowance
During the fourth quarter of 2009, we released a portion of our total valuation allowance on deferred U.S. tax assets.
Release of the valuation allowance was dependent upon an assessment of the likelihood of utilization of the specifically
identified deferred tax assets. The assessment indicated that Luminex was more likely than not to benefit from the deferred tax
assets based upon our historical pre-tax book income and projected taxable income, thus prompting the release. The tax benefit
from the release of this deferred tax asset valuation allowance is reflected below operating income as a benefit of $14.9 million
in 2009, or $0.36 per share, basic.
As a result of the release of our valuation allowance on US tax assets, our effective tax rate, which has been relatively low,
will increase significantly in the near term. For 2010, we estimate that our effective tax rate will be in excess of the maximum
U.S. corporate tax rate of 35%, however, for the full year 2010, we expect cash taxes paid will be less than 25% of total income
tax expense recognized for the full year. The quarterly effective tax rate for 2010 will fluctuate as a result of variability of the
taxable income within the multiple jurisdictions (the United States, Canada, The Netherlands, China and Japan) in which we
operate.
37
Change in Cash Position
Our cash, cash equivalents and investments decreased by approximately $4.5 million during the year ended December 31,
2009 to $119.6 million at December 31, 2009 from $124.1 million at December 31, 2008. The decrease was primarily
attributable to capital expenditures of $10.4 million partially offset by positive operating cash flows.
Segment Information
Luminex has two reportable segments: The technology segment and the assay segment. The technology segment, which is
our base business, consists of system sales to partners and end customers, raw bead sales, royalties, service and support of the
technology, and other miscellaneous items. The assay segment consists of LBG and LMD. This segment is primarily involved in
the development and sale of assays on xMAP technology for use on Luminex’s installed base of systems.
Future Operations
We anticipate 2010 revenue growth to be driven by continued adoption of our core technology coupled with system and
assay introductions and commercialization by Luminex and our partners. We anticipate continued revenue concentration in our
high margin items (assays, consumables and royalties) contributing to favorable, but variable gross margin percentages.
Additionally, we believe that a sustained investment in R&D is necessary in order to meet the needs of our marketplace and
provide a sustainable new product pipeline. Therefore, we estimate that R&D expenditures will increase in absolute dollars over
time, but decrease as a percentage of total revenue towards our long term target of 15% of revenue. We could experience
volatility in R&D expenses as a percentage of revenue on a quarterly basis. Consistent with this trend our R&D expenses
increased by $2.1 million or 11% from 2008 to 2009, but dropped as a percentage of total revenue to 17% in 2009 compared to
18% in 2008. While we currently expect modest increases in absolute dollars of selling, general, and administrative expenses in
2010, excluding the impact of foreign exchange rates on foreign denominated balances, we expect selling, general, and
administrative expenses to decrease as a percentage of total revenue in 2010.
We expect our primary challenges in 2010 to be the continued adoption and development of partner products incorporating
Luminex technology, the timing effect of the ongoing uncertainty in global finance markets and changes in government funding
on planned purchases by end users, commercialization, regulatory acceptance and market adoption of output from the assay
segment and the expansion and enhancement of our installed base and leadership position within our identified target market
segments.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with United States generally accepted accounting principles (GAAP). The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. The following is a discussion of our most critical accounting policies used in the preparation of our financial statements,
and the judgments and estimates involved under each. We also have other significant accounting policies that do not involve
critical accounting estimates because they do not generally require us to make estimates and judgments that are difficult or
subjective. These are described in Note 1 of our Consolidated Financial Statements provided herein in Item 8. Estimates and
assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.
38
Revenue Recognition. Revenue on sales of our products is recognized when persuasive evidence of an agreement exists,
delivery has occurred, the fee is fixed and determinable and collectability is probable. These criteria are generally met at the time
our product is shipped. If the criteria for revenue recognition are not met at the time of shipment, the revenue is deferred until all
criteria are met. Royalty revenue is generated when a partner sells products incorporating our technology, provides testing
services to third parties using our technology or resells our consumables. Royalty revenue is recognized as it is reported to us by
our partners, generally quarterly; therefore, the underlying end user sales may be related to prior periods due to the timing of
when the revenue is reported to us by our partners. We also sell extended service contracts for maintenance and support of our
products. Revenue for service contracts is recognized ratably over the term of the agreement. Revenue from contracts with
multiple elements is recognized as each element is earned based on the relative selling price of each element when there are no
undelivered elements that are essential to the functionality of the delivered elements and when the amount is not contingent upon
delivery of the undelivered elements.
Upfront payments from our strategic partners are nonrefundable and will be recognized as revenue as our strategic partners
purchase products or applied against royalty payments. Nonrefundable license fees are amortized into revenue over the estimated
life of the license agreements.
Inventory Valuation. Inventories are valued at the lower of cost or market value, with cost determined according to the
standard cost method. Inventories have been written down through an allowance for excess and obsolete inventories. The two
major components of the allowance for excess and obsolete inventory are (i) a specific write-down for inventory items that we no
longer use in the manufacture of our products or that no longer meet our specifications and (ii) a write-down against slow
moving items for potential obsolescence. Inventory is reviewed on a regular basis and adjusted based on management’s review
of inventories on hand compared to estimated future usage and sales. While management believes that adequate write-downs for
inventory obsolescence have been made in the consolidated financial statements, scientific and technological advances will
continue and we could experience additional inventory write-downs in the future. However, we do not believe this estimate is
subject to significant variability.
Warranties. We provide for the estimated cost of initial product warranties at the time revenue is recognized. While we
engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage
and service delivery costs incurred in correcting a product failure. While management believes that adequate reserve has been
made in the consolidated financial statements for product warranties, should actual product failure rates, material usage or
service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. However, we do
not believe this estimate is subject to significant variability.
Purchase Price Allocation, Intangibles and Goodwill. The purchase price allocation for acquisitions requires extensive use
of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired,
including in-process research and development (IPR&D), and liabilities assumed based on their respective fair values. Intangible
assets with definite lives are amortized over the assets’ estimated useful lives using the straight-line method. We periodically
review the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that
might result in a diminished fair value or revised useful life.
We evaluate the carrying value of goodwill and other intangible assets annually or more frequently if there is evidence that
certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In
performing the impairment test, we utilize the two-step approach prescribed under U.S. GAAP. The first step requires a
comparison of the carrying value of the reporting unit to the estimated fair value of the reporting unit. If in step one of the annual
test, the carrying amount of a reporting unit exceeds its fair value, then a goodwill impairment test is performed in step two to
measure the amount of the impairment loss, if any. We would recognize an impairment charge for any amount by which the
carrying amount of goodwill exceeds its fair value. Determining the fair value of goodwill is subjective in nature and often
involves the use of estimates and assumptions.
As of December 31, 2009, we have $39.6 million of goodwill allocated to the assay segment, which includes LMD. Our
annual test did not result in an impairment charge as the estimated fair value of the assay segment reporting unit continues to
exceed the carrying value by a significant enough amount that any reasonably likely change in the assumptions used in the
analysis, including terminal growth rates and the discount rate, would not cause the carrying value to exceed the estimated fair
value for the reporting unit as determined under the step one goodwill impairment analysis.
39
We utilize the income approach based on a discounted cash flow analysis to determine its fair value estimates, and then use
market comparisons as a reasonability check to ensure that neither the income approach nor the market comparisons yielded
significantly different results. The income approach is based on a discounted cash flow (DCF) analysis and calculates the fair
value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a
present value using a risk-adjusted discount rate. As our assay segment and goodwill came into existence in 2007 due to our
acquisition of Tm Biosciences, now referred to as LMD, we believe that the DCF method best aligns with how we approached
the acquisition and determined the value of the acquired company. This methodology used to determine fair value has been
consistently applied since the inception of our goodwill in 2007; however, the assumptions and estimates are updated each year.
Our estimates are based on revenue projections by product line, and include judgment based on historical growth and scheduled
product approvals by the various governmental authorities. We believe its assumptions are consistent with the plans and
estimates used to manage the underlying businesses. The most significant assumptions used in the discounted cash flow
methodology are the discount rate, based upon the estimated weighted average cost of capital (WACC), and the terminal growth
rate, based upon strategic studies we commissioned and our own internal analysis. We used the following rates in 2009:
Assumptions
WACC
Terminal Growth Rate
2009
15.2%
4.4%
To determine our WACC rate, we performed a peer company analysis and considered the weighted average return on debt
and equity, the updated risk-free interest rate, beta, equity risk premium, and entity specific size risk premium. We based our
terminal growth rates upon market estimates provided in strategic studies previously commissioned by us and our own internal
analysis. Our analysis yielded an estimated fair value in excess of the carrying value by over 50% for 2009.
Concurrent with the above analysis, we performed a sensitivity analysis based upon reasonably likely changes to determine
if our DCF analysis would result in impairment if the following changes were made to our assumptions: i) assumed WACC rate
was increased by 5 percentage points; ii) future revenue was 75% of our projections in the DCF model; or iii) the terminal
growth rate used was 50% lower. None of these sensitivity analyses resulted in an estimated fair value less than the carrying
amount of the reporting unit.
Accounting for Income Taxes. We calculate our provision for income taxes using the asset and liability method, under
which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different
treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been
recognized in our financial statements or tax returns, judgment is required. Differences between the anticipated and actual
outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial
position. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax
benefits will not be realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance
based on historical income, projected future income, the expected timing of the reversals of existing temporary differences and
the implementation of tax-planning strategies. Undistributed earnings of our foreign subsidiaries are considered permanently
reinvested and, accordingly, no provision for U.S. federal or state income taxes has been provided thereon.
Effective January 1, 2007, we adopted Accounting Standards Codification (ASC) 740 “Income Taxes” (ASC 740) which
clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in
our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities,
based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in
income tax expense. Determining the consolidated provision for income taxes involves judgments, estimates and the application
of complex tax regulations. We are required to provide for income taxes in each of the jurisdictions where we operate, including
estimated liabilities for uncertain tax positions. Although we believe that we have provided adequate liabilities for uncertain tax
positions, the actual liability resulting from examinations by taxing authorities could differ from the recorded income tax
liabilities and could result in additional income tax expense. In accordance with ASC 740, changes of estimates in our income
tax liabilities are reflected in our income tax provision in the period in which the factors resulting in the change to our estimate
become known to us. As a result, our effective income tax rate may fluctuate on a quarterly basis.
40
We recognize excess tax benefits associated with share-based compensation to stockholders’ equity only when realized.
When assessing whether excess tax benefits relating to share-based compensation have been realized, we follow the with-and-
without approach, excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to
share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to us.
Stock compensation. Stock-based compensation cost is measured at the grant date based on the fair value of the award and
is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The
fair value of our stock-based awards is estimated using the Black-Scholes option pricing model. The Black-Scholes valuation
calculation requires us to estimate key assumptions such as expected volatility, expected term and risk-free rate of return.
Calculation of expected volatility is based on historical volatility. The expected term is calculated using the contractual term of
the options as well as an analysis of our historical exercises of stock options. The estimate of risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. We have never paid cash dividends and do not currently intend to pay cash
dividends, thus we have assumed a 0% dividend yield. We are required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.
If we use different assumptions for estimating stock-based compensation expense in future periods or if actual forfeitures differ
materially from our estimated forfeitures, the change in our stock-based compensation expense could materially affect our
operating income, net income, and net income per share.
Consolidated Results of Operations
The following table sets forth the percentage of total revenue of certain items in the Consolidated Statements of Operations.
The financial information and the discussion below should be read in conjunction with the Consolidated Financial Statements
and Notes thereto.
2009
Year Ended December 31,
2008
2007
Revenue
Cost of revenue
Gross profit
Operating expenses
Research and development expense
Selling, general and administrative expense
In-process research and development expense
Gain on settlement of liability
Total operating expenses
Income (loss) from operations
Interest expense from long-term debt
Other income, net
Settlement of litigation
Income taxes
Net income (loss)
41
100%
33%
67%
17%
44%
—
—
61%
6%
—
1%
(4)%
12%
15%
100%
32%
68%
18%
47%
—
—
65%
3%
—
1%
—
(1)%
3%
100%
39%
61%
20%
54%
10%
(3)%
82%
(20)%
(1)%
2%
15%
—
(4)%
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net income
2009
$
$
$
$
120,643
81,294
67%
73,895
17,729
$
$
$
$
Variance
2008
(dollars in thousands)
104,447
70,946
$
$
16,196
10,348
68%
67,593
3,057
(1)%
$
$
6,302
14,672
Variance
(%)
16%
15%
N/A
9%
480%
Revenue. Total revenue increased to $120.6 million for the year ended December 31, 2009 from $104.4 million in 2008.
The increase in revenue was primarily attributable to an increase of $12.3 million in assay revenue in the assay segment and
continued growth in system sales and royalty revenue in the technology segment, offset by a decrease in technology segment
consumable sales.
A breakdown of revenue for the years ended December 31, 2009 and 2008 is as follows (in thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service contracts
Other revenue
Year Ended December 31,
2009
2008
$
$
30,711
28,380
18,312
31,054
5,845
6,341
120,643
$
$
28,136
31,724
14,897
18,715
5,363
5,612
104,447
We continue to have revenue concentration in a limited number of strategic partners, as the top five customers, by revenue,
accounted for 48% of total revenue in 2009 down from 53% of total revenue in 2008. In particular, two customers accounted for
26% of 2009 total revenue (15% and 11% respectively) down from 36% of 2008 total revenue (19% and 17% respectively). The
decline was primarily attributable to the increase in assay segment revenue as a percentage of total revenue, but was also affected
by company and market factors specific to those customers. No other customer accounted for more than 10% of total revenue.
See the segment discussions that follow on pages 45-51 for additional revenue discussion.
Gross Profit. Gross profit increased to $81.3 million for the year ended December 31, 2009, as compared to $70.9 million
for the year ended December 31, 2008. The gross profit margin rate (gross profit as a percentage of total revenue) was 67% for
the year ended December 31, 2009, down from 68% for the year ended December 31, 2008. Maintenance of our gross profit
margin rate was enabled by the high concentration of sales in our higher margin items such as assays, consumables and royalties.
The increase in gross profit was primarily attributable to the overall increase in revenue. We anticipate continued fluctuation in
gross profit margin and related gross profit primarily as a result of variability in partner bulk purchases and the absolute number
of quarterly system sales.
Research and Development Expense. Research and development expenses increased to $20.8 million for the year ended
December 31, 2009 from $18.6 million for the year ended December 31, 2008. The increase was primarily attributable to
increased activity by the assay segment related to product development, an increase in materials, and additional personnel costs
associated with the addition of employees and contract employees. Research and development headcount at December 31, 2009
was 132 as compared to 116 at December 31, 2008. As a percentage of revenue, research and development expense decreased to
17% in 2009 as compared with 18% in 2008. Our current expectation is for research and development expenses to be between
15% and 18% of total revenue for 2010.
42
Selling, General and Administrative Expense. Selling, general and administrative expenses increased to $53.1 million for
the year ended December 31, 2009 from $49.0 million for the comparable period in 2008. The increase was primarily attributable
to additional personnel costs associated with the addition of employees and an increase in stock compensation expense. Selling,
general and administrative headcount at December 31, 2009 was 158 as compared to 134 at December 31, 2008. As a percentage
of revenue, selling, general and administrative expenses decreased to 44% in 2009 as compared to 47% in 2008.
Income from Operations. Operating profit as a percentage of revenue increased from 3% in 2008 to 6% in 2009 as a result
of our overall control of operating expenses and maintenance of our gross profit margin rate.
Other Income, net. Other income, net decreased to $0.7 million for the year ended December 31, 2009 from $1.1 million for
the year ended December 31, 2008 due to the decrease in the average rate earned on our current invested balances from 2.0% for
the year ended December 31, 2008 to 0.6% for the year ended December 31, 2009. This decrease is the result of an overall
decrease in market rates compared to the prior year period.
Income taxes. Income tax expense decreased in 2009 due to the $14.9 million tax benefit from the release of a portion of
our total valuation allowance on deferred U.S. tax assets.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net (loss) income
Year Ended December 31,
2008
2007
(dollars in thousands)
Variance
$
$
$
$
104,447
70,946
68%
67,593
3,057
$
$
$
$
75,010
46,094
61%
63,512
(2,711)
$
$
$
$
29,437
24,852
7%
4,081
5,768
Variance
(%)
39%
54%
N/A
6%
213%
Revenue. Total revenue increased to $104.4 million for the year ended December 31, 2008 from $75.0 million in 2007. The
increase in revenue was primarily attributable to an increase of $17.2 million in consumable and royalty revenues in the
technology segment and continued growth in the assay segment, including the effects of the acquisition of LMD. In addition,
system sales increased to 915 systems in 2008 from 862 systems for 2007.
A breakdown of revenue for the years ended December 31, 2008 and 2007 is as follows (in thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service contracts
Other revenue
Year Ended December 31,
2008
2007
$
$
28,136
31,724
14,897
18,715
5,363
5,612
104,447
$
$
24,428
19,199
10,244
11,323
4,431
5,385
75,010
The top five customers, by revenue, accounted for 53% of total revenue in 2008. In particular, two customers accounted for
36% of 2008 total revenue (19% and 17% respectively). No other customer accounted for more than 10% of total revenue in
2008. See the segment discussions that follow on pages 45-51 for additional revenue discussion.
Gross Profit. Gross profit increased to $70.9 million for the year ended December 31, 2008, as compared to $46.1 million
for the year ended December 31, 2007. The gross profit margin rate was 68% for the year ended December 31, 2008, up from
61% the year ended December 31, 2007. The increase in gross margin rate was primarily attributable to the continuing shift in
revenue concentration towards higher margin items such as assays, consumables and royalties. The increase in gross profit was
primarily attributable to the overall increase in revenue.
43
Research and Development Expense. Research and development expenses increased to $18.6 million for the year ended
December 31, 2008 from $15.4 million for the year ended December 31, 2007. The increase was primarily attributable to
incorporation of the results of LMD for the full twelve months in 2008 compared to the inclusion of only ten months of operating
results of LMD in the year ended December 31, 2007, as the acquisition was consummated on March 1, 2007, and to a lesser
extent, to increased activity by the assay segment related to product development, an increase in materials, and additional
personnel costs associated with the addition of employees and contract employees. Research and development headcount at
December 31, 2008 was 116 as compared to 111 at December 31, 2007. As a percentage of revenue, research and development
expense decreased to 18% in 2008 as compared with 21% in 2007.
Selling, General and Administrative Expense. Selling, general and administrative expenses increased to $49.0 million for
the year ended December 31, 2008 from $40.7 million for the comparable period in 2007. The increase was primarily attributable
to incorporation of the results of LMD for the full twelve months in 2008 compared to the inclusion of only ten months of
operating results of LMD in the year ended December 31, 2007, and to a lesser extent additional personnel costs associated with
the addition of employees and an increase in stock compensation expense. Selling, general and administrative headcount at
December 31, 2008 was 134 as compared to 119 at December 31, 2007. As a percentage of revenue, selling, general and
administrative expenses reduced to 47% in 2008 as compared to 54% in 2007.
Other Income, net. Other income, net decreased to $1.1 million for the year ended December 31, 2008 from $1.7 million for
the year ended December 31, 2007 partially due to approximately $480,000 in costs related to a potential acquisition that did not
occur, offset by the interest income on the net proceeds from our secondary offering. In addition, the average rate earned on
current invested balances decreased to 2.0% for the year ended December 31, 2008 from 5.0% for the year ended December 31,
2007. This decrease in the average rate earned is the result of an overall decrease in market rates compared to the prior year
period. See additional discussions by segment below.
Settlement of litigation. We settled our pending litigation with Rules Based Medicine (RBM) on October 15, 2007. As part
of the settlement, Luminex received a cash payment of $12.5 million. $11.5 million was recognized as part of net income in
2007, while $1.0 million was deferred for licensing rights granted to RBM from Luminex.
Gain on settlement of liability. $2.3 million was recognized in the year ended December 31, 2007 related to the settlement
of a liability related to the renegotiation of a contract acquired as part of the acquisition of Tm Bioscience.
44
Segment Results of Operations
Technology Segment
Selected financial data for the year ended December 31, 2009 and 2008 of our technology segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net income
Year Ended December 31,
2009
2008
(dollars in thousands)
Variance
$
$
$
$
87,389
57,649
66%
49,527
21,406
$
$
$
$
83,567
54,756
66%
45,723
9,405
$
$
$
$
3,822
2,893
0%
3,804
12,001
Variance
(%)
5%
5%
N/A
8%
128%
Revenue. Total revenue increased 5% to $87.4 million for the year ended December 31, 2009 from $83.6 million in 2008.
The increase in revenue was primarily attributable to an increase in system sales and royalty revenue as a result of the continued
acceptance and utilization of our technology in the marketplace offset by decreases in consumable sales.
A breakdown of revenue in the technology segment for the years ended December 31, 2009 and 2008 is as follows (in
thousands):
System sales
Consumable sales
Royalty revenue
Service contracts
Other revenue
Year Ended December 31,
2009
2008
$
$
29,296
28,316
18,312
5,552
5,913
87,389
$
$
26,408
31,678
14,897
5,290
5,294
83,567
The top five customers, by revenue, accounted for 56% of total technology segment revenue in 2009 compared to 62% in
2008. In particular, two customers accounted for 37% of total technology segment revenue in the year ended December 31, 2009
(21% and 16%, respectively). For comparative purposes, these same two customers accounted for 45% of total technology
segment revenue (24% and 21%, respectively) in the year ended December 31, 2008. We believe that the decrease in percentage
of total revenue represented by our two largest customers is primarily the result of specific company factors and general market
factors applicable to our two largest customers. These factors, we believe, resulted in a decrease in the dollar amount of bulk
purchases by one of our largest customers, and a decline in system purchases relative to their historical purchases by the other.
No other customer accounted for more than 10% of total technology segment revenue.
System and peripheral component sales increased 11% to $29.3 million for the year ended December 31, 2009 from
$26.4 million for the year ended December 31, 2008. The technology segment sold 838 of the 873 total system sales in 2009. For
the year ended December 31, 2009, five of our partners accounted for 552, or 66%, of total technology segment system sales for
the period. Five of our partners accounted for 698, or 80%, of total technology segment system sales for the year ended
December 31, 2008.
45
Consumable sales, comprised of microspheres and sheath fluid, decreased 11% to $28.3 million during 2009 from
$31.7 million in 2008. This is primarily the result of a decrease in the number and average dollar amount of bulk purchases as
described in the Overview section above. During 2009 we had 51 bulk purchases of consumables totaling approximately
$22.3 million as compared with 49 bulk purchases totaling approximately $26.1 million in the prior year. Partners who reported
royalty bearing sales accounted for $22.7 million, or 80%, of total consumable sales for the year ended December 31, 2009. A
bulk purchase is defined as the purchase of $100,000 or more of consumables in a quarter. As the number of applications
available on our platform expands, we anticipate that the overall level of consumable sales, and related bulk purchases, will
continue to fluctuate.
Royalty revenue increased 23% to $18.3 million for the year ended December 31, 2009 from $14.9 million for the year
ended December 31, 2008. We believe this is primarily the result of our increased cumulative instrument placements, menu
expansion, and utilization of our partners’ assays on our technology. We expect modest fluctuations in the number of commercial
partners submitting royalties quarter to quarter based upon the varying contractual terms, consolidations among partners,
differing reporting and payment requirements, and the addition of new partners. For the year ended December 31, 2009, we had
39 commercial partners submit royalties as compared with 35 for the year ended December 31, 2008. Additionally, the 39
partners from whom we recognized $18.3 million in royalties in 2009 represented approximately $14.9 million of the total
royalties in 2008, an increase of approximately 23% over their prior year payments. Total royalty bearing sales reported to us by
our partners were approximately $281.8 million for the year ended December 31, 2009 as compared to $238.5 million for the
year ended December 31, 2008.
Service contracts, comprised of extended warranty contracts earned ratably over the term of a contract, increased 5% to
$5.6 million during 2009 from $5.3 million in 2008. This increase is attributable to additional resources allocated to the sale of
extended service agreements resulting in increased penetration of the expanded installed base. At December 31, 2009, we had
1,086 Luminex systems covered under extended service agreements and $2.3 million in deferred revenue related to those
contracts. At December 31, 2008, we had 967 Luminex systems covered under extended service agreements and $2.1 million in
deferred revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales, amortized license fees, reagent
sales and grant revenue, increased 12% to $5.9 million for the year ended December 31, 2009 compared to $5.3 million for the
year ended December 31, 2008. This increase is primarily the result of an increase in grant revenue.
Gross Profit. The gross profit margin percentage (gross profit as a percentage of total revenue) for the technology segment
remained flat at 66% for the years ended December 31, 2009 and 2008. The increase in royalty revenue, one of our higher
margin items, was offset by the decrease in consumable sales, another of our higher margin items. Consumables and royalties
comprised $46.6 million, or 53%, of technology segment revenue for the year ended December 31, 2009 and $46.6 million, or
56%, for the year ended December 31, 2008. Gross profit for the technology segment increased to $57.6 million for the year
ended December 31, 2009, as compared to $54.8 million for the year ended December 31, 2008. The increase in gross profit was
primarily attributable to the overall increase in revenue.
Operating expenses. Research and development expenses increased to $10.9 million for the year ended December 31, 2009
from $10.8 million for the year ended December 31, 2008. The slight increase was primarily attributable to an increase in
personnel costs associated with the addition of employees offset by a decrease in professional consulting fees. The increase in the
number of employees has allowed us to enhance our focus on development of our system, consumable and software products and
the expansion of applications for use on our platforms. As a percentage of revenue, research and development expense was 12%
in 2009 and 13% in 2008.
Selling, general and administrative expenses increased to $38.7 million for the year ended December 31, 2009 from
$34.9 million for the comparable period in 2008. The increase was primarily related to additional personnel costs and the related
stock compensation and travel costs associated with the increase in employees and contract employees of the technology
segment to 119 at December 31, 2009 from 99 at December 31, 2008 and higher legal and professional fees. As a percentage of
revenue, selling, general and administrative expenses were 44% in 2009 and 42% in 2008.
46
Income taxes. Income tax expense decreased in 2009 due to the $14.9 million tax benefit from the release of a portion of
our total valuation allowance on deferred U.S. tax assets.
Selected financial data for the year ended December 31, 2008 and 2007 of our technology segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net income
Year Ended December 31,
2008
2007
(dollars in thousands)
Variance
$
$
$
$
83,567
54,756
66%
45,723
9,405
$
$
$
$
62,436
37,864
61%
38,391
12,330
$
$
$
$
21,131
16,892
5%
7,332
(2,925)
Variance
(%)
34%
45%
N/A
19%
24%
Revenue. Total revenue increased 34% to $83.6 million for the year ended December 31, 2008 from $62.4 million in 2007.
The increase in revenue was primarily attributable to an increase in consumable, royalty and system revenue as a result of our
efforts to accelerate instrument placements, menu expansion, and increasing utilization of our partners’ assays on our
technology.
A breakdown of revenue in the technology segment for the years ended December 31, 2008 and 2007 is as follows (in
thousands):
System sales
Consumable sales
Royalty revenue
Service contracts
Other revenue
Year Ended December 31,
2008
2007
$
$
26,408
31,678
14,897
5,290
5,294
83,567
$
$
23,320
19,197
10,213
4,431
5,275
62,436
The top five customers, by revenue, accounted for 62% of total revenue in 2008 compared to 61% in 2007. In particular,
two customers accounted for 45% of 2008 total technology segment revenue (24% and 21%, respectively) compared to 42% of
2007 total technology segment revenue (18% and 24%, respectively). No other customer accounted for more than 10% of total
technology segment revenue.
System and peripheral component sales increased 13% to $26.4 million for the year ended December 31, 2008 from
$23.3 million for the year ended December 31, 2007. System sales increased to 875 systems for 2008 as compared to 838
systems in the prior year.
Consumable sales, comprised of microspheres and sheath fluid, increased 65% to $31.7 million during 2008 from
$19.2 million in 2007. This was primarily the result of an increase in bulk purchases due to increased commercial activity by our
partners. Partners who reported royalty bearing sales accounted for $28.2 million, or 89%, of total consumable sales for the year
ended December 31, 2008. In addition, during 2008 we had 49 bulk purchases of consumables totaling approximately
$26.1 million as compared with 41 bulk purchases totaling approximately $14.3 million in the prior year.
Royalty revenue increased 46% to $14.9 million for the year ended December 31, 2008 from $10.2 million for the year
ended December 31, 2007. We believe this was primarily the result of our efforts to accelerate instrument placements, menu
expansion, and increasing utilization of our partner’s assays on our technology. For the year ended December 31, 2008, we had
35 commercial partners submit royalties as compared with 30 for the year ended December 31, 2007. Additionally, the 30
partners from whom we recognized $10.2 million in royalties in 2007 represented approximately $14.6 million of the total
royalties in 2008, an increase of approximately 43% over their prior year payments. Total royalty bearing sales reported to us by
our partners were approximately $238.5 million for the year ended December 31, 2008 as compared to $167.0 million for the
year ended December 31, 2007.
47
Service contracts, comprised of extended warranty contracts earned ratably over the term of a contract, increased 19% to
$5.3 million during 2008 from $4.4 million in 2007. This increase was attributable to additional resources allocated to the sale of
extended service agreements resulting in increased penetration of the expanded installed base. At December 31, 2008, we had
967 Luminex systems covered under extended service agreements and $2.1 million in deferred revenue related to those contracts.
At December 31, 2007, we had 799 Luminex systems covered under extended service agreements and $1.8 million in deferred
revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales, amortized license fees, reagent
sales and grant revenue, stayed flat at $5.3 million for the years ended December 31, 2008 and 2007.
Gross Profit. The gross profit margin percentage (gross profit as a percentage of total revenue) for the technology segment
increased to 66% for the year ended December 31, 2008 from 61% for the year ended December 31, 2007. Gross profit for the
technology segment increased to $54.8 million for the year ended December 31, 2008, as compared to $37.9 million for the year
ended December 31, 2007. The increase in gross profit margin percentage was primarily attributable to changes in revenue mix
between our higher and lower gross margin items. The increase in gross profit was primarily attributable to the overall increase
in revenue coupled with the increase in gross margin. Consumables and royalties, two of our higher margin items, comprised
$46.6 million, or 56%, of technology segment revenue for the year ended December 31, 2008 and $29.4 million, or 47%, for the
year ended December 31, 2007.
Operating expenses. Research and development expenses increased to $10.8 million for the year ended December 31, 2008
from $8.9 million for the year ended December 31, 2007. The increase was primarily attributable to an increase in materials and
supplies and additional personnel costs associated with the addition of employees in the technology segment. The increase in
materials and supplies and the number of employees has allowed us to enhance our focus on development of our system,
consumable and software products and the expansion of applications for use on our platforms. As a percentage of revenue,
research and development expense was 13% in 2008 and 14% in 2007.
Selling, general and administrative expenses increased to $34.9 million for the year ended December 31, 2008 from
$29.4 million for the comparable period in 2007. The increase was primarily related to additional personnel costs and the related
stock compensation and travel costs associated with the increase in employees and contract employees of the technology
segment to 99 at December 31, 2008 from 81 at December 31, 2007 and higher legal and professional fees. As a percentage of
revenue, selling, general and administrative expenses were 42% in 2008 and 47% in 2007.
Settlement of litigation. We settled our pending litigation with RBM on October 15, 2007. As part of the settlement,
Luminex received a cash payment of $12.5 million. $11.5 million was recognized as part of net income in 2007, while
$1.0 million was deferred for licensing rights granted to RBM from Luminex.
48
Assay Segment
Selected financial data for the year ended December 31, 2009 and 2008 of our assay segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net loss
Year Ended December 31,
2009
2008
(dollars in thousands)
Variance
$
$
$
$
33,254
23,645
71%
24,368
(3,677)
$
$
$
$
20,880
16,190
78%
21,870
(6,348)
$
$
$
$
12,374
7,455
(6)%
2,498
2,671
Variance
(%)
59%
46%
N/A
(11)%
42%
A breakdown of revenue in the assay segment for the years ended December 31 is as follows (in thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service contracts
Other revenue
Year Ended December 31,
2009
2008
$
$
1,415
64
—
31,054
293
428
33,254
$
$
1,728
46
—
18,715
73
318
20,880
Revenue. Total revenue increased 59% to $33.3 million for the year ended December 31, 2009 from $20.9 million in 2008.
The increase in revenue was primarily attributable to a 66% increase in assay revenue, driven primarily by increased sales of
RVP resulting from the H1N1 influenza. We currently do not anticipate the occurrence of a pandemic influenza to contribute to
our 2010 results. The top five customers, by revenue, accounted for 81% of total revenue in 2009 compared to 72% in 2008. In
particular, the top two customers in 2009, one of which was not a top two customer in 2008, accounted for 52% of total revenue
(31% and 21%, respectively) compared to the top two customers of 2008 which accounted for 48% of total revenue (27% and
21%, respectively). The majority of our assay segment revenues are generated from the sale of test kits. Historically, over 70% of
our total assay revenue was derived from our CF product line. In the year ended December 31, 2009, our top two assay segment
products were RVP and CF. These two products represented approximately 89% and 83% of total assay revenue in the years
ended December 31, 2009 and 2008, respectively. System sales during the year ended 2009 in the assay segment decreased to 35
systems compared to 40 systems in 2008. Other revenue includes contract research and development fees and commercial
milestone revenue.
Gross profit. The gross profit margin percentage (gross profit as a percentage of total revenue) for the assay segment
decreased to 71% for the year ended December 31, 2009 from 78% for the year ended December 31, 2008. Gross profit for the
assay segment increased to $23.6 million for the year ended December 31, 2009, as compared to $16.2 million for the year ended
December 31, 2008. The decrease in gross profit margin percentage was primarily attributable to a contractual amendment with a
partner resulting in a positive pricing adjustment of $327,000 in 2008 and accelerated amortization in 2009 of a license
agreement related to the termination of a supply contract associated with our FlexmiR product line. The increase in gross profit
was primarily attributable to the overall increase in revenue offset by the decrease in gross margin.
Operating expenses. Research and development expenses increased to $9.9 million for the year ended December 31, 2009
from $7.8 million for the year ended December 31, 2008. The increase in research and development expenses was primarily due
to increased activity by the assay segment related to product development, additional personnel costs and the related stock
compensation costs associated with the increase in research and development employees and contract employees of the assay
segment to 60 at December 31, 2009 from 45 at December 31, 2008.
49
Selling, general and administrative expenses, including the amortization of acquired intangibles, increased to $14.5 million
for the year ended December 31, 2009 from $14.1 million for the comparable period in 2008. The slight increase in selling,
general and administrative expenses was primarily due to a decrease in marketing expenses, outside services and legal fees,
offset by a payment of $780,000 made related to the termination of a supply contract associated with our FlexmiR product line.
We launched our next generation FlexmiR in July 2009. This termination is not expected to affect FlexmiR product supply to
customers.
Selected financial data for the year ended December 31, 2008 and 2007 of our assay segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Net loss
2008
Year Ended December 31,
Variance
$
2007
(dollars in thousands)
Variance
(%)
$
$
$
$
20,880
16,190
78%
21,870
(6,348)
$
$
$
$
12,574
8,230
65%
25,121
(15,041)
$
$
$
$
8,306
7,960
13%
(3,251)
8,693
66%
97%
N/A
(13)%
58%
Revenue. Revenues were derived from LBG for the twelve months ended December 31, 2008 and 2007 and also from LMD
from March 1, 2007 through December 31, 2008.
A breakdown of revenue in the assay segment for the years ended December 31 is as follows (in thousands):
System sales
Consumable sales
Royalty revenue
Service contracts
Assay revenue
Other revenue
Year Ended December 31,
2008
2007
$
$
1,728
46
—
73
18,715
318
20,880
$
$
1,108
2
31
—
11,323
110
12,574
The top five customers, by revenue, accounted for 72% of total revenue in 2008 compared to 64% in 2007. In particular, the
top two customers in 2008 accounted for 48% of total revenue (27% and 21%, respectively) compared to the top two customers
of 2007 which accounted for 46% of total revenue (33% and 13%, respectively. In the year ended December 31, 2008, as a result
of the launch of our RVP product in January, 2008, our top two assay segment products were CF and RVP. These two products
represented over 83% of total assay revenue in the year ended December 31, 2008. System sales during the year ended 2008 in
the assay segment increased to 40 systems compared to 24 systems in 2007. Other revenue includes contract research and
development fees and commercial milestone revenue.
Gross profit. The gross profit margin percentage (gross profit as a percentage of total revenue) for the assay segment
increased to 78% for the year ended December 31, 2008 from 65% for the year ended December 31, 2007. Gross profit for the
assay segment increased to $16.2 million for the year ended December 31, 2008, as compared to $8.2 million for the year ended
December 31, 2007. The increase in gross profit margin percentage was primarily attributable to increased utilization and
capacity at LMD, increased sales of higher gross margin assays, and changes in revenue mix between our higher and lower gross
margin items. The increase in gross profit was primarily attributable to the overall increase in revenue coupled with the increase
in gross margin.
50
Operating expenses. Research and development expenses increased to $7.8 million for the year ended December 31, 2008
from $6.4 million for the year ended December 31, 2007. The increase in research and development expenses was primarily due
to incorporation of the results of LMD for the full twelve months in 2008 compared to the inclusion of only ten months of
operating results of LMD in the year ended December 31, 2007, as the acquisition was consummated on March 1, 2007, and to a
lesser extent, to increased activity by the assay segment related to product development.
Selling, general and administrative expenses increased to $12.1 million for the year ended December 31, 2008 from
$9.6 million for the comparable period in 2007, excluding the non-recurring $7.4 million write-off of in-process research and
development related to the acquisition of LMD, for the nine months ended September 30, 2007. The overall increase in selling,
general, and administrative expenses is primarily due to the addition of costs associated with LMD. As previously discussed, the
expenses for the year ended December 31, 2007 include expenses related to LBG for the entire twelve months and expenses
related to LMD for ten months only. The overall increase in selling, general and administrative expenses was primarily
attributable to the addition of LMD and to a lesser extent increased activity by the LBG.
Gain on settlement of liability. $2.3 million was recognized in the year ended December 31, 2007 related to the settlement
of a liability related to the renegotiation of a contract acquired as part of the acquisition of Tm Bioscience.
Liquidity and Capital Resources
Cash and cash equivalents
Short-term investments
Long-term investments
December 31, December 31,
2009
2008
(in thousands)
90,843
8,511
20,228
119,582
$
$
81,619
40,501
2,000
124,120
$
$
At December 31, 2009, we held cash, cash equivalents and short-term and long-term investments of $119.6 million and had
working capital of $122.4 million. At December 31, 2008, we held cash, cash equivalents and short-term and long-term
investments of $124.1 million and had working capital of $131.5 million. Cash, cash equivalents and investments have decreased
by approximately $4.5 million during the year ended December 31, 2009 due primarily to capital expenditures and an increase in
our accounts receivable.
We have funded our operations to date primarily through the issuance of equity securities (in conjunction with an initial
public offering in 2000, subsequent option exercises, and our follow-on public offering in 2008) and cash generated from
operations. Our cash reserves are held directly or indirectly in a variety of short-term, interest-bearing instruments, including
obligations of the United States government or agencies thereof and United States corporate debt securities. We do not have any
investments in asset-backed commercial paper, auction rate securities, or mortgage backed or sub-prime style investments.
Cash provided by operations was $5.8 million for the year ended December 31, 2009. Significant items affecting operating
cash flows for the period were our net income of $17.7 million and adjustments for depreciation and amortization of $8.3 million
and stock compensation of $8.2 million, offset by the $15.5 million increase in our deferred income taxes due to our release of
the valuation allowance, an increase in accounts receivable of $10.8 and an increase in inventory of $5.9 million.
51
Cash provided by investing activities was $3.3 million for the year ended December 31, 2009 as compared with cash used
in investing of $41.7 million for the year ended December 31, 2008. In 2009, our purchases of securities decreased as we decided
to hold maturing short-term investments in cash and cash equivalents. Capital expenditures for property, plant and equipment
increased to $10.4 million from $4.4 million in 2008. The increase is primarily related to leasehold improvements for additional
space leased in the U.S. and the Netherlands, acquisitions of FLEXMAP 3D systems for internal use, leasehold improvements
for our new office in the People’s Republic of China, and purchases of equipment for our business continuity site. Currently,
exclusive of changes in investments, we expect cash used in investing activities to be primarily for purchases of property, plant
and equipment.
Cash provided by financing activities was $0.6 million for the year ended December 31, 2009 as compared with cash
provided by financing activities of $81.7 million for the year ended December 31, 2008 due to our follow-on public offering in
June of 2008 of $74.7 million and a decrease in the proceeds from issuance of common stock due to exercises of stock options
and warrants of $0.6 million in 2009 compared to $7.1 million in 2008.
Our future capital requirements will depend on a number of factors, including our success in developing and expanding
markets for our products, payments under possible future strategic arrangements, continued progress of our research and
development of potential products, the timing and outcome of regulatory approvals, the need to acquire licenses to new
technology, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the
status of competitive products and potential cost associated with both protecting and defending our intellectual property.
Additionally, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not
currently contemplated in our estimates for 2010. We believe, however, that our existing cash and cash equivalents are sufficient
to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming twelve
months. Factors that could affect our capital requirements, in addition to those listed above include: (i) continued collections of
accounts receivable consistent with our historical experience, (ii) our ability to manage our inventory levels consistent with past
practices, and (iii) signing of partnership agreements which include significant up front license fees. See also the “Safe Harbor
Cautionary Statement” and Item 1A “Risk Factors” above.
To the extent our capital resources are insufficient to meet future capital requirements we will have to raise additional funds
to continue the development and deployment of our technologies. There can be no assurance that debt or equity funds will be
available on favorable terms, if at all, particularly given the current state of the capital markets. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to
our stockholders. Moreover, incurring debt financing could result in a substantial portion of our operating cash flow being
dedicated to the payment of principal and interest on such indebtedness, could render us more vulnerable to competitive
pressures and economic downturns and could impose restrictions on our operations. If adequate funds are not available, we may
be required to curtail operations significantly or to obtain funds through entering into agreements on unattractive terms.
52
Contractual Obligations
As of December 31, 2009, we had approximately $11.7 million in non-cancelable obligations for the next 12 months. These
obligations are included in our estimated cash usage during 2009. The following table reflects our total current non-cancelable
obligations by period as of December 31, 2009 (in thousands):
Payments Due By Period
Contractual Obligations
Non-cancelable rental obligations
Non-cancelable purchase obligations (1)
Long-term debt obligations (2)
Capital lease obligations
Total
$ 11,421
12,662
5,430
20
Less Than
1 Year
$
2,446
8,330
868
20
1-3 Years
4,656
$
1,552
2,090
—
More Than
3-5 Years
3,801
$
1,082
2,472
—
$
5 Years
518
1,698
—
—
Total (3)
$ 29,533
$
11,664
$
8,298
$
7,355
$
2,216
(1) Purchase obligations include contractual arrangements in the form of purchase orders primarily as a result of normal
inventory purchases or minimum payments due resulting when minimum purchase commitments are not met.
(2) On December 12, 2003, LMD entered into an agreement with the Ministry of Industry of the Government of Canada under
which the Government agreed to invest up to Canadian (Cdn) $7.3 million relating to the development of several genetic
tests. This agreement was amended in March 2009. Funds were advanced from Technology Partnerships Canada (TPC), a
special operating program. The actual payments we received were predicated on eligible expenditures made during the
project period which ended July 31, 2008. LMD has received Cdn $4.9 million from TPC which is expected to be repaid
along with approximately Cdn $1.6 million of imputed interest for a total of approximately Cdn $6.5 million.
LMD has agreed to repay the TPC funding through a royalty on revenues. Royalty payments commenced in 2007 at a rate
of 1% of total revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty repayment will continue until total
advances plus imputed interest has been repaid or until December 31, 2016, whichever is earlier. The repayment obligation
expires on December 31, 2016 and any unpaid balance will be cancelled and forgiven on that date. Should the term of
repayment be shorter than expected due to higher than expected assay revenue, the effective interest rate would increase as
repayment is accelerated. Repayments denominated in U.S. Dollars are currently projected to be as shown in the table
above, but actual future sales generating a repayment obligation will vary from this projection and are subject to the risks
and uncertainties described elsewhere in this report, including under “Risk Factors” and “Safe Harbor Cautionary
Statement.” Furthermore, payment reflected in U.S. Dollars is subject to adjustment based upon applicable exchange rates
as of the reporting date. The amount due within one year, as shown in the table above, is our estimated repayment amount
based on the current projected sales for the full year 2009.
(3) Due to the uncertainty with respect to the timing of future cash flows associated with Luminex’s unrecognized tax benefits
at December 31, 2009, Luminex is unable to make reasonably reliable estimates of the timing of cash settlement with the
respective taxing authority. Therefore, $0.8 million of unrecognized tax benefits have been excluded from the contractual
obligations table above. See Note 10 to the Consolidated Financial Statements for a discussion on income taxes.
Inflation
We do not believe that inflation has had a direct adverse effect on our operations to date. However, a substantial increase in
product and manufacturing costs and personnel related expenses could have an adverse impact on our results of operations in the
event these expenses increase at a faster pace than we can increase our system, consumable and royalty rates.
53
Recently Adopted Accounting Standards
In June 2009, the FASB issued ASC Update No. 2009-01 (ASU No. 2009-01), “Topic 105 — Generally Accepted
Accounting Principles,” which amends the ASC for the issuance of Statement of Financial Accounting Standards No. 168 (SFAS
No. 168), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”
ASU No. 2009-01 includes SFAS No. 168 in its entirety and establishes the ASC as the source of authoritative accounting
principles recognized by FASB for all nongovernmental entities in the preparation of financial statements in accordance with
GAAP. For SEC registrants, rules and interpretive releases of the SEC under federal securities laws are also considered
authoritative sources of GAAP. The guidance is effective for financial statements issued for interim and annual periods ending
after September 15, 2009. We adopted the FASB ASC for fiscal year ended December 31, 2009. The adoption had no impact on
our financial statements. All references to authoritative guidance have been updated to cite relevant ASC Topics, as applicable.
Recent Accounting Pronouncements
The FASB recently amended its guidance on the information that a reporting entity must provide in its financial reports
about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, the new guidance amends
previous guidance related to the concept of a qualifying special-purpose entity, variable interest entities that are qualifying
special-purpose entities and the financial-components approach. The new guidance is effective for transfer of financial assets
occurring on or after January 1, 2010. We have not determined the effect that the adoption of the new guidance will have on its
financial position or results of operations but the effect will generally be limited to future transactions. Historically, we have not
had any material transfers of financial assets. Additionally, the FASB recently amended its guidance surrounding a company’s
analysis to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity.
The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of
the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that
could potentially be significant to the variable interest entity. This new guidance also requires ongoing reassessments of whether
an enterprise is the primary beneficiary of a variable interest entity. The guidance is effective for all variable interest entities and
relationships with variable interest entities existing as of January 1, 2010. We do not expect the adoption of this standard to have
an impact on our financial position or results of operations.
In October 2009, the FASB updated its revenue recognition guidance, amending the criteria for separating consideration in
multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-
party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific
objective evidence nor third-party evidence is available. The amendments will eliminate the residual method of allocation and
require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative
selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We are
currently evaluating the requirements of this update and have not yet determined the impact on our consolidated financial
statements.
In October 2009, the FASB updated its software guidance, changing the accounting model for revenue arrangements that
include both tangible products and software elements. Tangible products containing software components and non-software
components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the
software revenue guidance. In addition, the amendments require that hardware components of a tangible product containing
software components always be excluded from the software revenue guidance. This update will be effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. We are currently evaluating the requirements of this update and have not yet determined the impact on our
consolidated financial statements.
54
In January 2010, the FASB updated it guidance related to fair value measurements and disclosures. This guidance requires
some new disclosures and clarifies some existing disclosure requirements about fair value measurement in order to improve
these disclosures and, thus, increase the transparency in financial reporting. Specifically, guidance will require a reporting entity
to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers and present separately information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable inputs. In addition, the FASB clarified the disclosure
requirements related to the use of judgment in determining the appropriate classes of assets and liabilities when reporting fair
value measurement for each class and about the valuation techniques and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements. The update is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. Early application is permitted. We are currently evaluating the requirements of this
update and have not yet determined the impact on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our interest income is sensitive to changes in the general level of domestic interest rates, particularly
since our investments are in short-term and long-term instruments available-for-sale. A 50 basis point fluctuation from average
investment returns at December 31, 2009 would yield an approximate 1% variance in overall investment return. Due to our
intention to hold our investments to maturity, we have concluded that there is no material market risk exposure.
Foreign Currency Risk. As of December 31, 2009, as a result of our foreign operations, we have costs, assets and liabilities
that are denominated in foreign currencies, primarily Canadian dollars and to a lesser extent the Euro, Renminbi, and Yen. For
example, some fixed asset purchases, certain expenses, and the TPC debt of our Canadian subsidiary, LMD, are denominated in
Canadian dollars while sales of products are primarily denominated in U.S. dollars. All transactions in our Netherlands and
Japanese subsidiaries are denominated in Euros and Yen, respectively. All transactions, with the exception of our initial capital
investment, in our Chinese subsidiary are denominated in Renminbi. As a consequence, movements in exchange rates could
cause our foreign currency denominated expenses to fluctuate as a percentage of net revenue, affecting our profitability and cash
flows. A significant majority of our revenues are denominated in U.S. dollars. The impact of foreign exchange on foreign
denominated balances will vary in relation to changes between the U.S. and Canadian Dollar, Euro, Yen, and Renminbi
exchange rates. A 10% change in these exchange rates in relation to the U.S. dollar would result in an immaterial foreign
exchange impact. As a result of our efforts to expand globally, in the future we will be exposed to additional foreign currency
risk in multiple currencies; however, at this time, our exposure to foreign currency fluctuations is not material.
In addition, the indirect effect of fluctuations in interest rates and foreign currency exchange rates could have a material
adverse effect on our business financial condition and results of operations. For example, currency exchange rate fluctuations
could affect international demand for our products. In addition, interest rates fluctuations could affect our customers’ buying
patterns. Furthermore, interest rate and currency exchange rate fluctuations may broadly influence the United States and foreign
economies resulting in a material adverse effect on our business, financial condition and results of operations. As a result, we
cannot give any assurance as to the effect that future changes in foreign currency rates will have on our consolidated financial
position, results of operations or cash flows. Our aggregate foreign currency transaction loss of $214,000 was included in
determining our consolidated results for the year ended December 31, 2009.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
56
PAGE
57
58
59
60
61
62
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Luminex Corporation
We have audited Luminex Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Luminex Corporation’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Luminex Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Luminex Corporation as of December 31, 2009 and 2008, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 of
Luminex Corporation and our report dated February 25, 2010 expressed an unqualified opinion thereon.
Austin, Texas
February 25, 2010
/s/ Ernst & Young LLP
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Luminex Corporation
We have audited the accompanying consolidated balance sheets of Luminex Corporation (the Company) as of December 31,
2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Luminex Corporation at December 31, 2009 and 2008 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
February 25, 2010 expressed an unqualified opinion thereon.
Austin, Texas
February 25, 2010
/s/ Ernst & Young LLP
58
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, (net of allowance for doubtful accounts of $523 and $272 at
December 31, 2009 and 2008, respectively)
ASSETS
Inventories, net
Deferred income taxes
Prepaids and other
Total current assets
Property and equipment, net
Intangible assets, net
Deferred income taxes
Long-term investments
Goodwill
Other
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Current Portion of long term debt
Total current liabilities
Long-term debt
Deferred revenue
Other
Total liabilities
Stockholders’ equity:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding:
40,736,340 shares in 2009; 40,334,082 shares in 2008
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive loss (gain)
Accumulated deficit
Total stockholders’ equity
December 31,
2009
2008
$
90,843
8,511
$
81,619
40,501
22,108
17,524
1,040
2,130
11,024
11,589
2
1,658
142,156
146,393
17,255
12,938
14,732
20,228
39,617
1,087
12,567
14,901
274
2,000
39,617
1,539
$
248,013
$
217,291
$
$
8,430
7,493
2,967
868
4,580
6,930
2,671
445
19,758
14,626
3,591
4,614
1,312
2,914
4,960
251
29,275
22,751
41
40
—
285,648
28
(66,979)
—
279,255
(47)
(84,708)
218,738
194,540
Total liabilities and stockholders’ equity
$
248,013
$
217,291
See the acompanying notes which are an integral part of these Consolidated Financial Statements.
59
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
In-process research and development
Gain on settlement of liability
Total operating expenses
Income (loss) from operations
Interest expense from long-term debt
Other income, net
Settlement of litigation
Income (loss) before income taxes
Income taxes
Net income (loss)
Net income (loss) per share, basic
Shares used in computing net income (loss) per share, basic
Net income (loss) per share, diluted
Shares used in computing net income (loss) per share, diluted
Year Ended December 31,
2008
2007
2009
$
120,643
$
104,447
$
75,010
39,349
81,294
20,752
53,143
—
—
73,895
7,399
(481)
719
33,501
28,916
70,946
46,094
18,628
48,965
—
—
15,383
40,729
7,400
(2,345)
67,593
61,167
3,353
(15,073)
(592)
1,144
(513)
1,665
(4,350)
—
11,500
3,287
14,442
17,729
0.44
40,562
0.43
41,633
3,905
(2,421)
(848)
(290)
3,057
0.08
$
$
(2,711)
(0.08)
37,868
34,361
0.08
$
(0.08)
39,700
34,361
$
$
$
$
$
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
60
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization expense
In-process research and development expense
Gain on settlement of liability
Amortization of deferred stock, restricted stock and stock
compensation expense
Deferred income tax benefit
Loss on disposal of assets
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities
Maturities of available-for-sale securities
Purchases of held-to-maturity securities
Maturities of held-to-maturity securities
Purchase of property and equipment
Acquisition of business, net of cash acquired
Acquisition activity
Proceeds from sale of assets
Acquired intangible assets
Acquired technology rights
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt
Payments on debt
Proceeds from secondary offering, net of offering costs
Proceeds from issuance of common stock
Other
Net cash provided by (used in) financing activities
Effect of foreign currency exchange rate on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Interest and penalties paid
SUPPLEMENTAL DISCLOSURE OF NON-CASH EFFECT OF
ACQUISITIONS:
Purchase price
Common stock issued
Conversion of Tm options and warrants
Forgiveness of receivable from acquired company
Write-off of acquired technology rights
Cash acquired
Acquisition, net of cash acquired
Year Ended December 31,
2008
2007
2009
$
17,729
$
3,057
$
(2,711)
8,329
—
—
8,160
(15,496)
25
1,665
(10,827)
(5,935)
(699)
3,672
(765)
(55)
5,803
(62,764)
33,968
—
42,501
(10,369)
—
—
—
—
(29)
3,307
453
(440)
—
567
—
580
(466)
9,224
81,619
90,843
456
—
—
—
—
—
—
—
$
$
7,001
—
—
7,251
(105)
8
(415)
694
(5,081)
(837)
1,760
(312)
830
13,851
—
—
(55,868)
20,310
(4,449)
—
(481)
19
—
(1,216)
(41,685)
—
(134)
74,722
7,075
—
81,663
557
54,386
27,233
81,619
160
—
—
—
—
—
—
—
$
$
$
$
5,063
7,400
(2,345)
6,593
(128)
88
268
(3,255)
(129)
1,147
(2,958)
(715)
75
8,393
—
—
(6,325)
17,717
(6,685)
(2,686)
30
(10)
(265)
1,776
—
(12,349)
—
1,868
13
(10,468)
118
(181)
27,414
27,233
1,360
(49,401)
41,754
2,315
1,233
473
940
(2,686)
$
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
61
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
Common Stock
Number of
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Total
Comprehensive Accumulated Stockholders’
Deficit
Income/(Loss)
Equity
Balance at December 31, 2006
Exercise of stock options
Issuances of restricted stock,
net of shares withheld for
taxes
Shares Exchanged in Tm
31,678,608 $
331,754
32 $ 139,116
1,868
—
$
178,815
—
(425)
Acquisition
3,202,034
3
41,751
—
—
—
—
—
2,315
6,593
—
65
—
—
—
—
—
$
(85,054) $
—
—
—
(2,711)
54,159
1,868
(425)
41,754
2,315
6,593
(2,711)
Value of Tm options and
warrants traded
Stock compensation
Net income
Foreign currency translation
adjustment
Balance at December 31, 2007
Exercise of stock options
Issuances of restricted stock,
net of shares withheld for
taxes
Stock compensation
Net income
Secondary public offering, net
of offering costs
Tax benefits associated with
options
Foreign currency translation
adjustment
Balance at December 31, 2008
Exercise of stock options
Issuances of restricted stock,
net of shares withheld for
taxes
Stock compensation
Net income
Tax benefits associated with
options
Foreign currency translation
adjustment
Other
Balance at December 31, 2009
—
35,391,211 $
644,057
—
—
35 $ 191,218
7,075
1
$
(73)
(8) $
—
—
(87,765) $
—
(73)
103,480
7,076
273,814
—
—
—
4,025,000
—
—
4
(1,281)
7,251
—
74,718
274
—
—
—
3,057
(1,281)
7,251
3,057
74,722
274
—
40,334,082 $
71,602
—
—
40 $ 279,255
566
1
$
(39)
(47) $
—
—
(84,708) $
—
(39)
194,540
567
330,656
—
—
—
—
—
(2,371)
8,160
—
38
—
—
40,736,340 $
—
—
—
—
41 $ 285,648
$
—
—
12
63
28
—
17,729
—
$
(66,979) $
(2,371)
8,160
17,729
38
12
63
218,738
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
62
LUMINEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Luminex Corporation (the “Company” or “Luminex”) develops, manufactures and sells proprietary biological testing
technologies and products with applications throughout the life sciences and diagnostic industries. The 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, 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, clinical diagnostics, genetic analysis, bio-defense, protein analysis and
biomedical research.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated upon consolidation. Certain prior year amounts have
been reclassified to conform to the current year presentation.
The acquisition of Tm Bioscience Corporation, or Tm, now known as Luminex Molecular Diagnostics, Inc., or LMD, was
completed on March 1, 2007; therefore, the results of operations of LMD in the Company’s consolidated financial statements
only include LMD results since that date.
Adoption of the FASB Accounting Standards Codification
In June 2009, the FASB issued ASC Update No. 2009-01 (ASU No. 2009-01), “Topic 105 — Generally Accepted
Accounting Principles,” which amends the ASC for the issuance of Statement of Financial Accounting Standards No. 168 (SFAS
No. 168), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”
ASU No. 2009-01 includes SFAS No. 168 in its entirety and establishes the ASC as the source of authoritative accounting
principles recognized by FASB for all nongovernmental entities in the preparation of financial statements in accordance with
GAAP. For SEC registrants, rules and interpretive releases of the SEC under federal securities laws are also considered
authoritative sources of GAAP. The guidance is effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Company adopted the FASB ASC for fiscal year ended December 31, 2009. The adoption had no
impact on the Company’s financial statements. All references to authoritative guidance have been updated to cite relevant ASC
Topics, as applicable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts and results could differ from those estimates, and such differences could be material to the
financial statements.
Subsequent Events
The Company has evaluated subsequent events through the time of filing this Form 10-K with the SEC on February 25,
2010. No material subsequent events have occurred since December 31, 2009 that required recognition or disclosure in these
financial statements.
63
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and highly liquid investments with original maturities of three months or
less when purchased.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to maturity. Debt securities for which the Company does
not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities are stated at
amortized cost, which approximates fair value of these investments. Marketable securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized
gains and losses recognized in earnings. Debt and marketable equity securities not classified as held-to-maturity or as trading are
classified as available for sale, and are carried at fair market value, with the unrealized gains and losses included in the
determination of comprehensive income and reported in stockholders’ equity. Marketable securities are recorded as either short-
term or long-term on the balance sheet based on contractual maturity date. The fair value of all securities is determined by quoted
market prices and market interest rates as of the end of the reporting period. Declines in fair value below the 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 based on quoted market prices and market interest rates as of the
end of the reporting period. The Company’s financial instruments include cash and cash equivalents, short-term investments,
accounts receivable, long-term investments, accounts payable, accrued liabilities, and long-term debt. Except for the fair value of
the 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, 2009 and 2008. See Note 11 for further details concerning the fair value of the Company’s long-
term debt.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of short-term and long-
term investments and trade receivables. The Company’s short-term investments consist of investments in high credit quality
financial institutions and corporate issuers.
The Company provides credit, in the normal course of business, to a number of its customers geographically dispersed
primarily throughout the U.S. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its
customers and maintaining adequate allowances for potential credit losses and does not require collateral.
One Lambda, Inc. accounted for 21%, 24% and 18% of the Company’s total technology segment revenues in 2009, 2008
and 2007, respectively. Bio-Rad Laboratories, Inc. accounted for 16%, 21% and 24% of the Company’s total technology
segment revenues in 2009, 2008 and 2007, respectively. Fisher Scientific accounted for 31%, 21% and less than 10% of the
Company’s total assay segment revenues in 2009, 2008 and 2007, respectively. Abbott Laboratories accounted for 21%, less
than 10%, and less than 10% of the Company’s total assay segment revenues in 2009, 2008 and 2007, respectively. Genzyme
Genetics accounted for 15%, 27%, and 33% of the Company’s total assay segment revenues in 2009, 2008 and 2007,
respectively. LabCorp accounted for less than 10%, less than 10%, and 13% of the Company’s total assay segment revenues in
2009, 2008 and 2007, respectively. No other customer accounted for more than 10% of total segment revenues in 2009, 2008 or
2007.
64
Inventories
Inventories, consisting primarily of raw materials and purchased components, are stated at the lower of cost or market, with
cost determined according to the standard cost method. The Company routinely assesses its on-hand inventory for timely
identification and measurement of obsolete, slow-moving or otherwise impaired inventory.
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and depreciation. Property and
equipment are generally amortized or depreciated on a straight-line basis over the useful lives of the assets, which range from
two to seven years. Leasehold improvements and equipment under capital lease are amortized on a straight-line basis over the
shorter of the remaining term of the lease or the estimated useful life of the improvements and equipment. The Company
classifies the carrying value of Luminex xMAP™ Instruments placed within the reagent rental program and the instruments on
loan to customers in Property and equipment as “Assets on loan/rental”.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost over the fair value of the assets of the acquired business. In accordance with ASC
350 “Goodwill and Other” (ASC 350), goodwill is reviewed for impairment at least annually at the beginning of the fourth
quarter, or more frequently if impairment indicators arise, on a reporting unit level. The Company allocates goodwill to one
reporting unit, the assay segment, for goodwill impairment testing. In performing the impairment test, the Company utilizes the
two-step approach prescribed under the ASC. The first step requires a comparison of the carrying value of the reporting unit to
the estimated fair value of the reporting unit. If in step one of the annual test, the carrying amount of a reporting unit exceeds its
fair value, then a goodwill impairment test is performed in step two to measure the amount of the impairment loss, if any.
Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions. The
Company utilizes the income approach based on a discounted cash flow analysis to determine its fair value estimates, and then
uses market comparisons as a reasonability check to ensure that neither the income approach nor the market comparisons yielded
significantly different results. The income approach is based on a discounted cash flow analysis and calculates the fair value by
estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value
using a risk-adjusted discount rate. As the Company’s assay segment and goodwill came into existence in 2007 due to the
acquisition of Tm Biosciences, now referred to as LMD, the Company believes that the DCF method best aligns with how the
Company approached the acquisition and determined the value of the acquired company. This methodology used to determine
fair value has been consistently applied since the inception of the Company’s goodwill in 2007; however, the assumptions and
estimates are updated each year. The Company’s estimates are based on revenue projections by product line, and include
judgment based on historical growth and scheduled product approvals by the various governmental authorities. The Company
believes its assumptions are consistent with the plans and estimates used to manage the underlying businesses. The most
significant assumptions used in the discounted cash flow methodology are the discount rate, based upon the estimated weighted
average cost of capital (WACC), and the terminal growth rate, based upon strategic studies the Company commissioned and the
Company’s own internal analysis. A WACC rate of 15.2% and a terminal growth rate of 4.4% were used by the Company in
2009.
To determine the Company’s WACC rate, the Company performed a peer company analysis and considered the weighted
average return on debt and equity, the updated risk-free interest rate, beta, equity risk premium, and entity specific size risk
premium. The Company’s terminal growth rates are based upon market estimates provided in strategic studies previously
commissioned by the Company and the Company’s own internal analysis. The Company’s analysis yielded an estimated fair
value in excess of the carrying value by over 50% for 2009.
Concurrent with the above analysis, the Company performed a sensitivity analysis based upon reasonably likely changes to
determine if the Company’s DCF analysis would result in impairment if the following changes were made to the Company’s
assumptions: i) assumed WACC rate was increased by 5 percentage points; ii) future revenue was 75% of the Company’s
projections in the DCF model; or iii) the terminal growth rate used was 50% lower. None of these sensitivity analyses resulted in
an estimated fair value less than the carrying amount of the reporting unit. No goodwill impairments were recorded in 2009 or
2008.
65
Intangible assets are amortized on a straight line basis over their respective estimated useful lives ranging from 2 to
15 years. The useful lives of the assets acquired as part of the Tm acquisition were established as a result of the allocation of fair
values at March 1, 2007. The Company has no intangible assets with indefinite useful lives.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares
the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets and is recorded in the period in which the determination was made.
Revenue Recognition and Allowance For Doubtful Accounts
Revenue from sales of the Company’s products is recognized when persuasive evidence of an agreement exists, delivery of
the product has occurred, the fee is fixed and determinable and collectability is probable. Generally, these criteria are met at the
time the product is shipped. If the criteria for revenue recognition are not met at the time of shipment, the revenue is deferred
until all criteria are met. Revenues from royalties related to agreements with strategic partners are recognized when such
amounts are reported to the Company; therefore, the underlying end user sales may be related to prior periods. Revenue from
extended service agreements is deferred and recognized ratably over the term of the agreement. Revenues from contracts with
multiple elements are recognized as each element is earned based on the relative fair value of each element when there are no
undelivered elements that are essential to the functionality of the delivered elements and when the amount is not contingent upon
delivery of the undelivered elements. Amounts billed or collected in excess of revenue recognized are recorded as deferred
revenue.
The Company continuously monitors collections and payments from its customers and maintains allowances for doubtful
accounts based upon its historical experience and any specific customer collection issues that have been identified. While such
credit losses have historically been within the 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. The Company expenses
advertising costs as incurred. Advertising expenses were not significant for any of the years presented.
Research and Development Costs
Research and development costs are generally expensed in the period incurred; however, the Company capitalizes certain
internally developed products, used for evaluation during development projects that also have alternative future uses. These
assets are generally depreciated on a straight-line basis over the useful life of the assets which range from two months to one
year. The Company did not capitalize any material research and development costs in 2009 or 2008.
66
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance metrics. Bonus accruals made
throughout the year related to the various incentive plans are based on 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
such assets will be realized.
The Company recognizes excess tax benefits associated with share-based compensation to stockholders’ equity only when
realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company
follows the with-and-without approach, excluding any indirect effects of the excess tax deductions. Under this approach, excess
tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits
available to the Company.
Effective January 1, 2007, the Company adopted ASC 740, which clarifies the accounting for uncertainty in tax positions.
These provisions require recognition of the impact of a tax position in the 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 (loss) per share is computed by dividing the net income (loss) for the period by the weighted average
number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net
income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the
period. Potentially dilutive securities composed of incremental common shares issuable upon the exercise of stock options and
warrants, and common shares issuable on conversion of preferred stock, were excluded from historical diluted loss per share
because of their anti-dilutive effect.
Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement
provisions of ASC 718 “Stock Compensation” (ASC 718). ASC 718 requires the recognition of compensation expense, using a
fair-value based method, for costs related to all share-based payments including stock options. Pursuant to ASC 718, stock-based
compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the
requisite service period.
Segment Reporting
Historically the Company had operated as a single segment. Subsequent to the acquisition of LMD, management
determined that the Company has two segments for financial reporting purposes: the technology segment and the assay segment.
See Note 17 — Segment and Geographic Information.
67
NOTE 2 — BUSINESS COMBINATIONS
Acquisition
On March 1, 2007, the Company completed the acquisition of Tm, a DNA-based research and diagnostics company
headquartered in Toronto, Canada. Prior to the acquisition, Tm was one of the Company’s strategic partners. All intercompany
balances were eliminated upon acquisition. The Company believes this acquisition is a logical extension of its strategy and that
the combined Company will be in a position to take advantage of the complementary strengths of both companies in molecular
diagnostics. The acquired company is referred to as LMD and is included in the Company’s assay segment for financial reporting
purposes. The focus of LMD is to design, develop, manufacture and commercialize nucleic-acid based testing products for use in
the genetic testing, personalized medicine and infectious disease markets.
Upon the closing of the acquisition, the Company exchanged 0.06 shares of Luminex common stock for each outstanding
Tm share, which resulted in the issuance of approximately 3.2 million shares of Luminex common stock. The value of the
approximately 3.2 million common shares issued was determined based on the average market price of the Company’s common
stock over the period including five days before and after the terms of the acquisition were agreed to and announced in
accordance with ASC 805 “Business Combinations” (ASC 805). The Company also agreed to assume the outstanding Tm
options according to the applicable Tm plan provisions and the outstanding warrants. At the date of acquisition, these options
and warrants were potentially exercisable for approximately 694,000 additional shares of Luminex common stock on an as-
converted basis. The estimated fair value of Luminex’ replacement options and warrants was calculated using the Black-Scholes
model. In accordance with ASC 718, the portion of the estimated fair value of unvested Tm options related to future service
(approximately $242,000) was deducted from the purchase price consideration and will be recognized as compensation expense
over those awards’ remaining vesting period. As of December 31, 2009, there were replacement options outstanding for the
purchase of 68,414 shares of Luminex common stock with exercise prices ranging from $11.12 to $44.88 and replacement
warrants outstanding for the purchase of approximately 288,000 shares of Luminex common stock with exercise prices ranging
from $10.12 to $37.18. All of the warrants are exercisable as of December 31, 2009.
Immediately subsequent to the acquisition, the Company retired approximately $13.2 million of Tm debt, including an
approximately $1.0 million contractual penalty, by using existing cash reserves. Under the terms of one of the retired debt
instruments, the balance of the note became callable upon the acquisition and was subject to a contractual penalty if either called
by the debt holder or prepaid by Tm. The penalty was triggered when the Tm shareholders ratified the acquisition of Tm by
Luminex on February 21, 2007. The penalty was recorded by Tm prior to Luminex’ acquisition based on the penalty amount
agreed by the debt holder, and was reflected in the opening balance of “Other current liabilities assumed.”
The acquisition was accounted for as a purchase business combination in accordance with ASC 805. LMD results of
operations are included with the Company’s from the date of acquisition, March 1, 2007. The purchase price of the acquisition
was approximately $49.4 million, including the issuance of common stock valued at $41.8 million and transaction costs of
approximately $3.6 million. The purchase price has been allocated to the net assets acquired based on estimates of the fair values
at the date of the acquisition.
In 2007, Luminex completed the process of allocating fair values for certain tangible and intangible assets and in-process
research and development (IPR&D) identified during the acquisition. The acquired intangible assets were allocated to the assay
segment. The excess purchase price over the fair values of the net tangible assets, identified intangible assets and liabilities was
allocated to goodwill. Luminex recorded $39.6 million of goodwill related to the Tm acquisition in the Company’s assay
segment. Goodwill is not expected to be deductible for tax purposes.
68
The following table summarizes the estimated fair values of net assets at the date of acquisition (in thousands). Certain
tangible and intangible assets and liabilities were adjusted to their estimated fair market values upon the final analysis of these
values during the fourth quarter. Based on ASC 805, the following intangible assets evaluated were: trade name (Tag-It),
customer list/contracts, technology/trade secrets, and in-process research and development. IPR&D has been recorded at its
estimated fair market value and charged to expense in 2007.
Cash
Other current assets
Other assets
Property and equipment
Purchased intangible assets
In-process research and development
Goodwill
Total assets
Current portion of debt assumed
Accrued severance assumed
Other current liabilities assumed
Long-term debt assumed
Other long-term liabilities assumed
Total liabilities
Purchase price
Pro Forma Information
$
$
$
940
3,157
28
3,518
18,800
7,400
39,617
73,460
12,447
1,945
7,148
2,294
225
24,059
$
49,401
The financial information in the table below summarizes the combined results of operations of Luminex and LMD, on a pro
forma basis, as though the companies had been combined at the beginning of 2007.
The pro forma financial information is presented for informational purposes only and is not indicative of the results of
operation that would have been achieved if the acquisition of LMD had taken place at the beginning of fiscal 2007.
The following table summarizes the pro forma financial information for the year ended December 31, 2007 (in thousands,
except per share amounts):
Revenues
Net loss
Net loss per share, basic and diluted
In-process Research and Development (IPR&D)
2007
75,328
(8,488)
(0.25)
$
$
$
In conjunction with the acquisition of LMD in 2007, the Company has recorded total IPR&D expense of $7.4 million for
acquired IPR&D which was not technologically feasible as of the acquisition date and had no alternative future use.
69
NOTE 3 — INVESTMENTS
Held-to-maturity securities as of December 31, 2009 consisted of government sponsored debt obligations of $42.8 million.
Held-to-maturity securities consisted of the following as of December 31, 2009 (in thousands):
Due in one year or less
Due after one year through two years
Total held-to-maturity securities
Cost
Accrued
Interest
Amortized Cost
$
$
40,501
2,000
42,501
$
$
283
20
303
$
$
$
40,784
2,020
42,804
Available-for-sale securities consisted of the following as of December 31, 2009 (in thousands):
Gains in
Accumulated
Other
Comprehensive
Gain (Loss)
Losses in
Accumulated
Other
Comprehensive Estimated
Fair Value
Gain (Loss)
Amortized
Cost
Current:
Money Market funds
Non-government sponsored debt securities
Total current securities
$
$
60,299
33,495
93,794
Noncurrent:
Non-government sponsored debt securities
Government sponsored debt securities
Total noncurrent securities
18,144
2,035
20,179
— $
19
19
72
12
84
$
—
(5)
(5)
60,299
33,509
93,808
(35)
—
(35)
18,181
2,047
20,228
Total available-for-sale securities
$ 113,973
$
103
$
(40)
$
114,036
There were no proceeds from the sales of available-for-sale securities during the year ended December 31, 2009 or 2008.
Net unrealized holding gains and losses of $63,000 on available-for-sale securities have been included in accumulated other
comprehensive gain (loss).
The estimated fair value of available-for-sale debt securities at December 31, 2009, by contractual maturity, was as follows
(in thousands):
Due in one year or less
Due after one year through two years
Estimated
Fair Value
$
$
33,509
20,228
53,737
Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
70
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs. The ASC describes a fair value hierarchy based on the following three levels of inputs that may
be used to measure fair value, of which the first two are considered observable and the last unobservable:
Level 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 following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and
investments) measured at fair value on a recurring basis as of December 31, 2009 (in thousands):
Fair Value Measurements at Reporting Date Using
Level 1
Level 2
Level 3
Total
Money Market funds
Non-government sponsored debt securities
Government sponsored debt securities
Total
Amounts included in:
Cash and cash equivalents
Short-term investments
Long-term investments
Total
—
—
—
—
—
—
—
—
$
—
60,299
51,690
2,047
—
$
114,036
$
—
—
—
85,297
8,511
20,228
—
$
114,036
$
$
$
60,299
51,690
2,047
114,036
85,297
8,511
20,228
$
114,036
71
NOTE 4 — ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
2009
2008
Accounts receivable
Less: Allowance for doubtful accounts
$
$
22,631
(523)
22,108
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at December 31, 2006
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Additions due to acquired accounts receivable
Recoveries of uncollectible accounts
Balance at December 31, 2007
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Recoveries of uncollectible accounts
Balance at December 31, 2008
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Increase in allowance charged to expense
Recoveries of uncollectible accounts
Balance at December 31, 2009
NOTE 5 — INVENTORY, NET
Inventory consisted of the following at December 31 (in thousands):
Parts and supplies
Work-in-progress
Finished goods
2009
$
9,499
4,064
3,961
17,524
$
$
$
$
$
$
$
11,296
(272)
11,024
301
—
(1)
56
—
356
(50)
(34)
—
272
—
(7)
258
—
523
2008
5,213
3,939
2,437
11,589
The Company has non-cancelable purchase commitments with certain of its component suppliers in the amount of
approximately $12.7 million at December 31, 2009. Should production requirements fall below the level of the 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.
72
NOTE 6 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
Laboratory equipment
Leasehold improvements
Computer equipment
Purchased software
Furniture and fixtures
Assets on loan/rental
Capital lease equipment
Less: Accumulated amortization and depreciation
2009
2008
$
$
12,389
9,317
3,602
7,172
3,524
1,849
116
9,223
6,550
3,071
5,521
1,609
1,516
116
37,969
(20,714)
27,606
(15,039)
$
17,255
$
12,567
Depreciation expense was $5.7 million, $4.5 million, and $3.0 million for the years ended December 31, 2009, 2008, and
2007, respectively.
NOTE 7 — ACQUIRED INTANGIBLE ASSETS
Amortized identifiable intangible assets consisted of the following at December 31 (in thousands except weighted average
lives):
2009
2008
Technology/trade secrets
Customer lists/contracts
Total
$
$
Gross carrying Accumulated Weighted Gross carrying Accumulated Weighted
amortization average life
amount
amount
amortization
(5,355)
(208)
(5,563)
17,400 $
1,100
18,500 $
average life
9
15
$
$
17,400 $
1,100
18,500 $
(3,465)
(134)
(3,599)
9
15
The amortization expense related to purchased intangible assets was approximately $2.0 million for both of the years ended
December 31, 2009 and 2008. The estimated aggregate amortization expense for the next five years is as follows (in thousands):
2010
2011
2012
2013
2014
$
1,963
1,963
1,963
1,963
1,963
73
NOTE 8 — OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
Purchased technology rights (net of accumulated amortization of $1,215,000 and $548,000
in 2009 and 2008, respectively)
Other
Less: Current portion
2009
2008
$
817
288
$
1,105
(18)
1,300
353
1,653
(114)
$
1,087
$
1,539
For the years ended December 31, 2009 and 2008, the Company recognized amortization expense related to the
amortization of these acquired technology rights of approximately $667,000 and $440,000, respectively. Future amortization
expense will be $129,000 in 2010, $110,000 in 2011, $107,000 in 2012, $94,000 in 2013, $85,000 in 2014, and $293,000
thereafter.
NOTE 9 — ACCRUED WARRANTY COSTS
Sales of certain of the 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, 2006
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2007
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2008
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2009
NOTE 10 — INCOME TAXES
$
$
311
(525)
473
259
(946)
1,166
479
(1,003)
1,105
581
The components of income (loss) before income taxes for the years ended December 31 are as follows (in thousands):
Domestic
Foreign
Total
2009
2008
$
$
8,236
(4,949)
3,287
$
$
13,021
(9,116)
3,905
$
$
2007
12,164
(14,585)
(2,421)
74
The components of the provision (benefit) for income taxes attributable to continuing operations for the years ended
December 31 are as follows (in thousands):
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
Total provision for income taxes
2009
2008
2007
$
$
$
194
(41)
295
448
(13,263)
—
(1,627)
(14,890)
(14,442)
$
$
$
308
146
394
848
—
—
—
—
848
$
$
$
177
84
29
290
—
—
—
—
290
The provision (benefit) for income taxes differs from amount computed by applying the statutory federal rate to pretax
income (loss) as follows (in percentages):
Statutory tax rate
State taxes, net of federal benefit
Permanent items
Effect of foreign operations
Research and incentive tax credit generated
Canadian tax rate change
Valuation allowance
Other
Year Ended December 31,
2008
2007
2009
35.0%
5.7%
25.5%
0.2%
(48.4)%
0.0%
(451.2)%
(6.0)%
(439.2)%
35.0%
7.3%
16.0%
(0.6)%
(21.9)%
0.0%
(14.4)%
0.0%
21.4%
34.0%
3.6%
(21.2)%
14.7%
35.8%
(64.8)%
(11.4)%
0.0%
(9.3)%
75
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of December 31 are as follows (in thousands):
Deferred tax assets:
Current deferred tax assets
Accrued Liabilities and other
Gross current deferred tax assets
Valuation allowance
Net current deferred tax assets
Noncurrent deferred tax assets
Net operating loss and credit carryforwards
Deferred revenue
Depreciation and amortization
Stock compensation
Gross Noncurrent Deferred Tax Assets
Valuation allowance
Net noncurrent deferred tax assets
Deferred tax liabilities:
Current deferred tax liabilities
Accrued Liabilities and other
Total current deferred tax liabilities
Net current deferred tax asset
Noncurrent deferred tax liabilities
Acquired intangibles
Total noncurrent deferred tax liabilities
Net noncurrent deferred tax asset
Net deferred tax assets
2009
2008
2007
$
$
$
$
$
$
$
$
2,323
2,323
(801)
1,522
53,528
2,906
3,099
1,922
61,455
(42,575)
18,880
(482)
(482)
1,040
(4,148)
(4,148)
14,732
15,772
$
$
$
$
$
$
$
908
908
(906)
2
49,726
2,835
6,924
3,191
62,676
(57,577)
5,099
—
—
2
(4,825)
(4,825)
274
276
$
$
$
$
$
$
$
1,061
1,061
(1,059)
2
54,168
2,535
7,902
1,981
66,586
(60,944)
5,642
—
—
2
(5,521)
(5,521)
121
123
The valuation allowance decreased by $15.3 million in fiscal year 2009 and decreased by $3.4 million in fiscal year 2008.
During fiscal year 2009, the Company released approximately $14.9 million of the valuation allowance that had been placed on
its U.S. deferred tax assets that impacted the effective tax rate. The Company recorded an additional amount of valuation
allowance related to the provision for the Canadian subsidiary of approximately $1.0 million. The remaining decrease in the
valuation allowance of approximately $1.4 million was the reversal of certain deferred tax assets and the corresponding valuation
allowance such that there was no impact to the Company’s income tax provision (benefit). Based on the Company’s recent
history of generating income in the U.S. and the Company’s expectation to continue to generate future income in the U.S., the
Company determined that it was more likely than not that the $14.9 million of U.S. deferred tax assets would be realized. At
December 31, 2009, the Company had federal net operating losses carryforwards of $66.2 million. Of that amount,
approximately $55.6 million of the federal net operating loss is attributable to employee stock option deductions, the benefit
from which will be allocated to additional paid-in capital rather than current earnings if subsequently realized. The federal net
operating losses begin expiring in 2026. The Company also has federal research and development credit carryforwards of
approximately $2.9 million that will begin to expire in 2013 if not utilized prior to that time. The Company has net operating
losses in various states that total $10.2 million. The state net operating loss carryforwards expire in fiscal years 2010 through
2021. In addition, the Company has Canadian non-capital income tax loss carryforwards of $32.4 million, a scientific research
and experimental development pool in Canada of $36 million, and investment tax credits in Canada of $7.7 million that will
begin to expire in 2010 if not utilized prior to that time. The investment tax credits are accounted for under the flow-through
method of accounting. Utilization of the net operating losses and tax credits may be subject to substantial annual limitation due
to the “change in ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration
of net operating losses and research and development credits before utilization.
76
Undistributed earnings of the Company’s foreign subsidiaries are considered permanently reinvested and, accordingly, no
provision for U.S. federal or state income taxes has been provided thereon. The cumulative amount of undistributed earnings of
the Company’s non-US subsidiaries was approximately $0.9 million at December 31, 2009, $0 at December 31, 2008 and
$6.3 million at December 31, 2007. The ultimate tax liability related to repatriation of the Company’s undistributed earnings is
not estimable at the present time.
On January 1, 2007, the Company adopted the provisions of ASC 740 (FIN No. 48). There were no liabilities, interest or
penalties recorded for uncertain tax positions as a result of the adoption. Under ASC 740, the impact of an uncertain tax position
that is more likely than not of being sustained upon audit by the relevant taxing authority must be recognized at the largest
amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has
less than a 50% likelihood of being sustained. Also, under ASC 740, interest expense is recognized on the full amount of
deferred benefits for uncertain tax positions.
As of December 31, 2009 and December 31, 2008, the Company had recorded gross unrecognized tax benefits of
approximately $0.8 million and $0.3 million, respectively. All of the unrecognized tax benefits as of December 31, 2009, if
recognized, would impact the effective tax rate. The Company recognized interest expense and penalties associated with
uncertain tax positions as a component of income tax expense. During the years ended December 31, 2009 and 2008, the
Company recognized approximately $3,000 and $23,000 in tax related interest and penalties, respectively. Reserves for interest
and penalties as of December 31, 2009 and 2008 are not significant as the Company has net operating loss carryovers. In the
years ended December 31, 2009 and 2008, cash paid for taxes, net of cash received for tax refunds, was approximately $867,000
and $405,000, respectively.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
Balance at December 31, 2007
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapse of statute of limitations
Cumulative translation adjustment
Balance at December 31, 2008
Additions based on tax positions related to the current year
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 December 31, 2009
$
$
$
—
—
251
—
—
—
—
251
74
508
—
—
—
—
833
As of December 31, 2009, there were no unrecognized tax benefits that the Company expects would change significantly
over the next 12 months.
The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. In the
U.S., the federal income tax returns for years after 1996 are open and in Canada, the federal income tax returns for years after
2003 are open. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are
individually significant. The Company is not currently under audit in any major taxing jurisdictions.
77
NOTE 11 — LONG-TERM DEBT
On December 31, 2009, long-term debt consisted of a loan payable to Technology Partnership Canada (TPC) valued at
$3.6 million and the related short term interest payable of $868,000.
On December 12, 2003, LMD entered into an agreement with the Ministry of Industry of the Government of Canada under
which the Government agreed to invest up to Canadian (Cdn) $7.3 million relating to the development of several genetic tests.
This agreement was amended in March 2009. Funds were advanced from TPC, a special operating program. The actual
payments received by the Company were predicated on eligible expenditures made during the amended project period which
ended July 31, 2008. As of December 31, 2009, the Company had received $4.6 million from TPC ($4.9 million in Canadian
dollars) which is expected to be repaid along with approximately $1.6 million of imputed interest for a total of approximately
$6.2 million ($6.5 million in Canadian dollars). Approximately $761,000 ($799,000 in Canadian dollars) of the interest has been
repaid as of December 31, 2009.
LMD agreed to repay the TPC funding through a royalty on revenues. This liability was assumed by the Company as part of
the acquisition and the liability was recorded at fair value as of the date of acquisition. This liability is subject to adjustments for
foreign currency translation effects as it is a foreign currency denominated balance. Royalty payments commenced in 2007 at a
rate of 1% of total revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty repayment will continue until total
advances plus imputed interest has been repaid or until December 31, 2016, whichever is earlier. The repayment obligation
expires on December 31, 2016 and any unpaid balance will be cancelled and forgiven on that date. Should the term of repayment
be shorter than expected due to higher than expected assay revenue, the effective interest rate would increase as repayment is
accelerated. Repayments denominated in U.S. Dollars are currently projected to be as shown in the table below, but actual future
sales generating a repayment obligation will vary from this projection and are subject to the risks and uncertainties described
elsewhere in this report, including under “Risk Factors” and “Safe Harbor Cautionary Statement.” Furthermore, payments
reflected in U.S. Dollars are subject to adjustment based upon applicable exchange rates as of the reporting date.
Estimated repayments on the debt for the next five years and thereafter are as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
Less: Amount representing implied interest
Total principal repayments
Discount
Total long-term debt
Less: Current portion of long-term debt
$
$
$
$
$
$
868
947
1,143
1,360
1,112
—
5,430
(414)
5,016
(557)
4,459
(868)
3,591
In 2009 and 2008, the Company had imputed interest expense related to its long-term debt of $179,000 and $221,000,
respectively recorded in the assay segment. The effective interest rate was 4.03% and 4.88% as of December 31, 2009 and 2008,
respectively. At December 31, 2009 and 2008, the fair value of the Company’s long-term debt was approximately $4.1 million
and $3.0 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, 2009 and 2008. The assumptions
used in preparing the DCF model include estimates for (i) the amount and timing of future interest and principal payments and
(ii) the rate of return indicative of the investment risk in the ownership of the TPC debt. In making these assumptions, the
Company considered relevant factors including the likely timing of principal repayments and the probability of full repayment
considering the timing of royalty payments based upon total revenue.
78
NOTE 12 — NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per
share data):
Numerator:
Net income (loss)
Denominator:
Year Ended December 31,
2008
2007
2009
$
17,729
$
3,057
$
(2,711)
Denominator for basic net income (loss) per share — weighted average
common stock outstanding
Effect of dilutive securities:
Stock options and awards
40,562
37,868
34,361
1,071
1,832
—
Denominator for diluted net income (loss) per share — weighted
average shares outstanding — diluted
Basic net income (loss) per share
Diluted net income (loss) per share
41,633
39,700
34,361
$
$
0.44
0.43
$
$
0.08
0.08
$
$
(0.08)
(0.08)
Restricted stock awards (RSAs) and stock options to acquire 690,000, 623,000, and 1.1 million shares for the years ended
December 31, 2009, 2008 and 2007, respectively, were excluded from the computations of diluted earnings per share because the
effect of including the RSAs and stock options would have been anti-dilutive.
NOTE 13 — STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/ LOSS
Preferred Stock
The 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, 2009 and 2008,
there was no preferred stock issued and outstanding.
Stockholders’ Rights Plan
On June 20, 2001, the Company’s Board of Directors declared a dividend of one right for each outstanding share of the
Company’s common stock to stockholders of record at the close of business on July 2, 2001. Each right entitles the registered
holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $0.001 per share, at a purchase price of $100 per fractional share, subject to adjustment. The rights are not
currently exercisable and will become exercisable only in the event a person or group acquires beneficial ownership of
20 percent or more of common stock. The rights expire on June 20, 2011.
Comprehensive Income/Loss
The 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, 2009 was
approximately $17.8 million and comprehensive income for the year ended December 31, 2008 was approximately $3.0 million.
79
NOTE 14 — EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Stock-Based Compensation
At December 31, 2009, the Company has two stock-based employee compensation plans pursuant to which grants may be
made: the 2006 Management Stock Purchase Plan (the “MSPP”) which was approved at the Company’s Annual Meeting on
May 25, 2006 and the 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 Meeting on May 21, 2009. No further
grants shall be made pursuant to the 2000 Long-Term Incentive Plan (the “2000 Plan”), the 2001 Broad-Based Stock Option Plan
(the “2001 Plan”), or the Tm Bioscience Corporation Share Option Plan (the “Tm Plan”) that the Company assumed in
connection with the Tm acquisition. The Tm Plan governs the former Tm options which were exchanged for options to purchase
shares of Luminex common stock in connection with the acquisition.
Equity Incentive Plans
Under the Company’s Equity Incentive Plan, 2000 Plan, 2001 Plan, and the Tm Plan, certain employees, consultants and
non-employee directors have been granted RSAs, restricted share units (RSUs) and options to purchase shares of common stock.
The options, RSAs, and RSUs generally vest in installments over a four to five year period, and the options expire either five or
ten years after the date of grant. Under the Equity Incentive Plan, certain employees, directors of, and consultants to the
Company are eligible to be granted RSAs, RSUs, and options to purchase common stock. The MSPP provides for the granting of
rights to defer an elected percentage of their bonus compensation through the purchase of restricted shares of the Company’s
common stock, discounted by 20%, to certain officers of the Company. As of December 31, 2009, there were approximately 2.7
million shares authorized for future issuance under the Company’s Equity Incentive Plan and 500,000 shares eligible for
purchase, pursuant to the terms and conditions thereof, under the MSPP.
The Equity Incentive Plan, the MSPP, the 2000 Plan, the 2001 Plan, and the Tm Plan are administered by the Compensation
Committee of the Board of Directors. The Compensation Committee has the authority to determine the terms and conditions
under which awards will be granted from the Equity Incentive Plan, including the number of shares, vesting schedule and term,
as applicable. Any option award exercise prices, as set forth in the Equity Incentive Plan, will be equal to the fair market value
on the date of grant. Under certain circumstances, the Company may repurchase previously granted RSAs and RSUs.
On March 25, 2007, the Compensation Committee approved an amendment to the restricted stock agreement, dated
May 17, 2004 (the “Restricted Stock Agreement”), of the Company’s CEO, Patrick J. Balthrop. The Company and Mr. Balthrop
initially entered into the Restricted Stock Agreement in connection with the hiring of Mr. Balthrop as the President and Chief
Executive Officer of the Company. The Restricted Stock Agreement provided for the grant of 200,000 restricted shares, which
would vest in portions based on the attainment of certain performance goals related to Company revenue, earnings and stock
price. If the goals provided for in the Restricted Stock Agreement were not achieved by the end of the fifth anniversary of the
date of the Restricted Stock Agreement, all non-vested shares would be forfeited. The amendment provides for the automatic
vesting of all unvested restricted shares immediately prior to the fifth anniversary of the date of the Restricted Stock Agreement,
to the extent any or all of the performance measures have not been previously achieved. Mr. Balthrop’s 200,000 share restricted
stock award, as amended, has market, service or performance criteria for vesting of all shares. The Company has assumed that
vesting will occur at the end of the five years based on achievement of the service criteria so all expense is being amortized
straight-line over the five-year period from May 17, 2004 through 2009. Pursuant to the amendment to this award, the award was
revalued to the market price on the date of amendment of $14.39. This resulted in additional expense to the Company of
approximately $356,000 of which approximately $29,000 and $70,000 was recognized in 2009 and 2008, respectively.
80
On December 4, 2008 and March 11, 2009 the Board adopted the Luminex Corporation 2008 Long Term Incentive Plan
(the “2008 LTIP”) and the Luminex Corporation 2009 Long Term Incentive Plan (the “2009 LTIP”), respectively. Awards under
the 2008 LTIP and 2009 LTIP were granted by the Board in the form of RSUs and are to be treated as Performance Awards
under the Equity Incentive Plan. Grants of RSUs under the 2008 LTIP and 2009 LTIP shall initially be unvested and represent
the maximum amount of shares that participants may receive under the plan, assuming achievement of the maximum level of
performance goals established for the grant, and subject to adjustment for certain transactions and other non-recurring events that
may affect Luminex or its financial performance. On December 4, 2008, the Company’s Chief Executive Officer was granted an
unvested RSU under the 2008 LTIP for 102,564 shares of Luminex Common Stock, and the Company’s then Chief Operating
Officer was granted an unvested RSU under the 2008 LTIP for 76,923 shares of Luminex Common Stock. Partial or complete
vesting of the RSUs shall be dependent upon the continued employment and the achievement of certain performance goals
during the performance period extending from the date of grant through December 31, 2010. The Company’s Chief Operating
Officer forfeited his entire grant upon his resignation on February 1, 2009. 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 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 2008 LTIP performance goals are as described below:
•
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s
Common Stock for the twenty consecutive trading days ending December 31, 2010, inclusive, subject to certain
adjustments as described in the 2008 LTIP. There is a range of trading price targets as follows: a minimum threshold
of $24.79 per share, a target of $28.17 per share, and a maximum goal of $44.73 per share.
Partial or complete achievement of the operating cash flow goal is dependent upon the average quarterly “total
operating cash flows” per diluted share for the four quarters ended December 31, 2010, as further described in the
2008 LTIP. “Total operating cash flows” means Luminex’s GAAP net cash provided by operating activities as shown
on its financial statements for the 12 month period ended December 31, 2010, as further described in the 2008 LTIP.
There is a range of targets as follows: a minimum threshold of $0.101 per share, a target of $0.111 per share, and a
maximum goal of $0.157 per share.
The 2009 LTIP performance goals are as described below:
•
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of 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.
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.
81
In the event that a participant achieves less than the maximum level of the performance goals, the total number of shares
represented by such RSU shall be reduced to reflect where actual performance lies in the range of performance goals and
weighted aggregate corresponding payout opportunities established for the grant. Calculation of shares between threshold and
maximum performance shall be determined based on straight-line interpolation.
Accounting for Stock Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes option-pricing
model on the date of grant for stock options and market value on the date of grant for RSAs. The fair values of stock are
amortized as compensation expense on a straight-line basis over the vesting period of the grants.
In accordance with ASC 718 Company evaluates the assumptions used in the Black-Scholes model at each grant date using
a consistent methodology for computing expected volatility, expected term and risk-free rate of return. Calculation of expected
volatility is based on historical volatility. The expected term is calculated using the contractual term of the options as well as an
analysis of the 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:
Dividend yield
Expected volatility
Risk-free rate of return
Expected life
Weighted average fair value at grant date
[1]
No stock options were issued to employees during this period.
2009
2008
2007
0.0%
0.6
2.0%
7 yrs
8.63
$
0.0%
0.5
3.0%
8 yrs
8.62
$
0.0%
0.5
5.0%
7 yrs
4.70[1]
$
As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and
will also impact the amount of stock compensation expense to be recognized in future periods.
82
The Company’s stock option activity for the years ended December 31, 2007, 2008 and 2009 is as follows:
Stock Options
Outstanding at December 31, 2006
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2007
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2008
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2009
Vested at December 31, 2009 and expected to vest
Exercisable at December 31, 2009
Weighted
Shares
(in thousands)
3,163
823
(332)
(210)
3,444
77
(644)
(106)
2,771
167
(72)
(70)
2,796
2,794
2,558
$
$
$
$
$
$
Average
Exercise
Price
9.76
20.91
5.63
23.86
11.96
20.70
10.99
24.22
11.96
16.31
7.90
17.80
12.18
12.17
11.72
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
3.62
3.62
3.15
$
$
$
12,994
12,994
12,972
During the years ended December 31, 2009, 2008 and 2007, the total intrinsic value of stock options exercised was
$0.6 million, $6.7 million and $3.2 million, respectively, and the total fair value of stock options that vested was $1.0 million,
$3.2 million and $2.8 million, respectively. The Company had $1.6 million of total unrecognized compensation costs related to
stock options at December 31, 2009 that are expected to be recognized over a weighted-average period of 2.2 years.
83
The Company’s restricted share activity for the year ended December 31, 2009 is as follows:
Restricted Stock Awards
Non-vested at December 31, 2008
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2009
Restricted Stock Units
Non-vested at December 31, 2008
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2009
Weighted-
Average
Grant-Date
Fair Value
15.39
$
16.16
14.78
16.11
15.90
$
Shares
(in thousands)
1,197
485
(464)
(117)
1,101
Shares
(in thousands)
280
354
(12)
(77)
545
As of December 31, 2009, there was $22.1 million of unrecognized compensation cost related to RSAs and RSUs. That cost
is expected to be recognized over a weighted average-period of 3.1 years. The total fair value of restricted shares vested during
the year ended December 31, 2009, 2008 and 2007 was $7.1 million, $4.4 million, and $2.8 million, respectively.
RSAs and RSUs may be granted at the discretion of the Board of Directors under the Equity Incentive Plan in connection
with the hiring or retention of key employees and are subject to certain conditions. Restrictions expire at certain dates after the
grant date in accordance with specific provisions in the applicable agreement. During the year ended December 31, 2009, the
Company awarded 485,048 shares of restricted stock awards, which had a fair value at the date of grant ranging from $14.30 —
$21.42. During the year ended December 31, 2008, the Company awarded 310,096 shares of restricted stock awards, which had
a fair value at the date of grant ranging from $16.12 — $24.69. During the year ended December 31, 2007, the Company
awarded 776,359 shares of restricted common stock, which had a fair value at the date of grant ranging from $12.43 — $14.39.
During the year ended December 31, 2009, the Company awarded 354,157 shares of restricted stock units, which had a fair value
at the date of grant ranging from $15.51 — $18.48. During the year ended December 31, 2008, the Company awarded 283,828
shares of restricted stock units, which had a fair value at the date of grant ranging from $16.12 — $24.21. No restricted stock
units were awarded in 2007. Compensation under these restricted stock awards and units was charged to expense over the
restriction period and amounted to $7.4 million, $6.1 million, and $4.4 million in 2009, 2008 and 2007, respectively.
There were no significant stock compensation costs capitalized into assets as of December 31, 2009.
The Company received $0.6 million, $7.1 million, and $1.9 million for the exercise of stock options during the years ended
December 31, 2009, 2008 and 2007, respectively. Cash was not used to settle any equity instruments previously granted. The
Company issued shares pursuant to grants relating to each of the Equity Incentive Plan, 2000 Plan and 2001 Plan from reserves
upon the exercise of stock options and vesting of RSAs. The Company does not currently expect to repurchase shares from any
source to satisfy such obligation under these plans.
84
The following are the stock-based compensation costs recognized in the Company’s consolidated statements of income (in
thousands):
Cost of revenue
Research and development
Selling, general and administrative
Stock-based compensation costs reflected in net income (loss)
Reserved Shares of Common Stock
Year Ended December 31,
2008
2007
2009
$
$
710
1,368
6,082
8,160
$
$
523
1,143
5,585
7,251
$
$
380
810
5,403
6,593
At December 31, 2009 and 2008, the Company had reserved 6,535,475 and 3,873,472 shares of common stock,
respectively, for the issuance of common stock upon the exercise of options, issuance of RSAs, RSUs, purchase of common
stock pursuant to the MSPP or other awards issued pursuant to the Company’s equity plans and arrangements. The following
table summarizes the reserved shares by plan as of December 31, 2009:
2000 Plan
2001 Plan
2006 Equity Incentive Plan
2006 Management Stock Purchase Plan
Tm Plan
Other *
*
Balthrop Option and Tm Warrants
Employee Savings Plans
Options / Warrants
Outstanding
Shares Available Total Shares
for Future Issuance Reserved
1,208,300
462,638
839,534
—
61,161
769,422
3,341,055
—
—
2,695,420
500,000
—
—
3,195,420
1,208,300
462,638
3,534,954
500,000
61,161
769,422
6,536,475
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by section 401(k) of the Internal
Revenue Code. In accordance with the 401(k) plan, all employees are eligible to participate in the plan on the first day of the
month following the commencement of full time employment. For 2009, 2008, and 2007, each employee could contribute a
percentage of compensation up to a maximum of $16,500, $15,500, and $15,500 per year, respectively, with the Company
matching 50% of each employee’s contributions. The Company’s contributions for 2009, 2008 and 2007 were $767,000,
$536,000, and $543,000, respectively.
85
NOTE 15 — COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company has operating leases related primarily to its office and manufacturing facilities with original lease periods up
to 10 years. Rental and lease expense for these operating leases for the years 2009, 2008 and 2007 totaled approximately
$2.6 million, $2.6 million, and $1.2 million, respectively.
Minimum annual lease commitments as of December 31, 2009 under non-cancelable leases for each of the next five years
and in the aggregate were as follows (in thousands):
2010
2011
2012
2013
2014
Thereafter
Total
$
$
2,446
2,414
2,242
2,131
1,670
518
11,421
These non-cancelable lease commitments related to facilities include certain rent escalation provisions which have been
included in the minimum annual rental commitments shown above. These amounts are recorded to expense on a straight-line
basis over the life of the lease. In addition, some of the 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-Cancelable Purchase Commitments
As of December 31, 2009 the Company had approximately $12.7 million in purchase commitments with several of its
inventory suppliers. These commitments require delivery of minimum amounts of components throughout 2017.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives. Generally, certain amounts may
become payable in the event the Company terminates the executives’ employment without cause or the executive resigns for
good reason.
Gain on Settlement of Liability
In 2007, the Company renegotiated a contract acquired as part of the acquisition of Tm Bioscience. As part of the contract
renegotiation there was a settlement of a liability of $2.3 million which the Company has recorded as a gain on settlement of
liability in 2007.
86
Legal Proceedings
On July 24, 2009, Luminex notified Abbott Molecular Inc. of the Company’s intent to convert its right to distribute
Luminex’s xTAG® Respiratory Viral Panel from exclusive to non-exclusive on a worldwide basis under the Distribution
Agreement, dated February 1, 2008, between Abbott Molecular and LMD. On September 11, 2009, Abbott Molecular Inc.
notified the Company that it intended to exercise its right to seek arbitration under the Distribution Agreement. Among other
matters, Abbott disputed LMD’s right to terminate Abbott’s exclusive right to distribute RVP under the Agreement. The
arbitration to resolve this matter was held on December 14-15, 2009. The arbitrator issued his binding ruling on December 30,
2009, instructing Luminex, among other matters, to reinstate Abbott’s exclusive right to distribute RVP outside of the United
States and co-exclusively with Fisher Scientific within the United States. All other terms and conditions of the Distribution
Agreement remain in effect and are unaffected by the Arbitration.
On June 19, 2009, Luminex terminated a long-term supply contract related to its FlexmiR® product line. A payment of
$1 million was made in June 2009 related to this termination. This payment included a purchase of $220,000 of inventory.
NOTE 16 — GUARANTEES
The terms and conditions of the 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 date, the Company has not had to reimburse any of its strategic partners for any losses
arising from such indemnification obligations.
NOTE 17 — SEGMENT AND GEOGRAPHIC INFORMATION
The Chief Operating Decision Maker (CODM) is 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:
Technology 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.
Assay segment — consists of LBG and LMD and is primarily involved in the development and sale of assays on xMAP
technology for use on Luminex’s installed base of systems.
Intersegment sales are recorded at fixed prices which approximate the prices charged to third party strategic partners and
are not a measure of segment operating earnings. Intersegment sales of approximately $14.0 million, $6.5 million, and
$3.5 million for the years ended December 31, 2009, 2008, and 2007 have been eliminated upon consolidation, respectively.
87
Following is selected information for the years ended December 31, 2009 and 2008 or as of December 31, 2009 and 2008
(in thousands):
Technology
Segment
2009
Assay
Technology
Segment
2008
Assay
Segment
Consolidated
Segment Consolidated
Revenues from external customers
$
87,389
$ 33,254
$
120,643
$
83,567
$ 20,880 $
104,447
Depreciation and amortization
4,428
3,901
Segment profit (loss)
21,406
(3,677)
8,329
17,729
3,279
3,722
9,405
(6,348)
7,001
3,057
Segment assets
170,927
77,086
248,013
145,008
72,283
217,291
The table below provides information regarding long-term assets and product revenues from the Company’s sales to
customers within the United States and in foreign countries for the years ended December 31 (in thousands):
Domestic
Foreign:
Europe
Asia
Canada
Other
Sales to Customers
2008
2009
2007
2009
Long-Term Assets
2008
2007
$ 97,842
$ 89,465
$ 63,591
$ 50,045
$ 13,553
$ 10,863
11,398
4,337
4,608
2,458
$ 120,643
9,279
1,204
2,204
2,295
$ 104,447
7,835
739
846
1,999
$ 75,010
1,078
264
54,446[1]
24
$ 105,857
428
—
501
—
56,885[1]
58,676[1]
32
$ 70,898
—
$ 70,040
[1] $39,617 of the long-term assets in Canada represents goodwill from the acquisition of LMD.
Our aggregate foreign currency transaction losses of $214,000 and $465,000 were included in determining our consolidated
results for the year ended December 31, 2009 and 2008, respectively.
88
NOTE 18 — SETTLEMENT OF LITIGATION
On January 16, 2008, Luminex Corporation and LMD were served with a complaint, filed by The Research Foundation of
the State University of New York (SUNY) in Federal District Court for the Northern District of New York, alleging, among
other claims, that LMD breached its license agreement with SUNY by failing to pay royalties allegedly owed under the
agreement. The complaint sought an undetermined amount of damages as well as injunctive relief. On March 27, 2009, Luminex
and LMD settled the pending litigation with SUNY. As part of the settlement, SUNY received a one time cash payment of
approximately $4.4 million, which represents all amounts owed by Luminex as part of the settlement. The cash payment was
made by Luminex in exchange for resolution of the dispute between the companies and a complete release of all claims by
SUNY against Luminex and correspondingly a complete release of all claims by Luminex against SUNY. All other terms of the
agreement are confidential. The parties have formally dismissed the lawsuit, as required by the applicable settlement agreement.
The Company settled its pending litigation with Rules Based Medicine, Inc. (RBM) on October 15, 2007. As part of the
settlement, Luminex received a cash payment of $12.5 million in 2007. The cash payment was made by RBM in exchange for
resolution of the dispute between the companies regarding Biophysical Corporation as well as the retirement of Luminex’s stock
ownership in RBM and the grant of certain additional licensing rights from Luminex. All other terms of the agreement are
confidential. The parties formally dismissed the lawsuit on October 24, 2007, as required by the settlement agreement. The
Company recorded $11.5 million of the $12.5 million payment in the fourth quarter of 2007 as a gain on settlement of litigation.
The remaining $1.0 million has been deferred related to the license agreement with RBM and will be recognized over the term of
the license agreement.
NOTE 19 — RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently amended its guidance on the information that a reporting entity must provide in its financial reports
about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, the new guidance amends
previous guidance related to the concept of a qualifying special-purpose entity, variable interest entities that are qualifying
special-purpose entities and the financial-components approach. The new guidance is effective for transfer of financial assets
occurring on or after January 1, 2010. The Company has not determined the effect that the adoption of the new guidance will
have on its financial position or results of operations but the effect will generally be limited to future transactions. Historically,
the Company has not had any material transfers of financial assets. Additionally, the FASB recently amended its guidance
surrounding a company’s analysis to determine whether its variable interest or interests give it a controlling financial interest in a
variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct
the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation
to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the variable interest entity. This new guidance also requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The guidance is effective for all
variable interest entities and relationships with variable interest entities existing as of January 1, 2010. The Company does not
expect the adoption of this standard to have an impact on its financial position or results of operations.
89
In October 2009, the FASB updated its revenue recognition guidance, amending the criteria for separating consideration in
multiple-deliverable arrangements. The amendments establish a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-
party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific
objective evidence nor third-party evidence is available. The amendments will eliminate the residual method of allocation and
require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative
selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverable’s selling price. This update will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The
Company is currently evaluating the requirements of this update and has not yet determined the impact on the Company’s
consolidated financial statements.
In October 2009, the FASB updated its software guidance, changing the accounting model for revenue arrangements that
include both tangible products and software elements. Tangible products containing software components and non-software
components that function together to deliver the tangible product’s essential functionality are no longer within the scope of the
software revenue guidance. In addition, the amendments require that hardware components of a tangible product containing
software components always be excluded from the software revenue guidance. This update will be effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The Company is currently evaluating the requirements of this update and has not yet determined the impact on the
Company’s consolidated financial statements.
In January 2010, the FASB updated it guidance related to fair value measurements and disclosures. This guidance requires
some new disclosures and clarifies some existing disclosure requirements about fair value measurement in order to improve
these disclosures and, thus, increase the transparency in financial reporting. Specifically, guidance will require a reporting entity
to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers and present separately information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable inputs. In addition, the FASB clarified the disclosure
requirements related to the use of judgment in determining the appropriate classes of assets and liabilities when reporting fair
value measurement for each class and about the valuation techniques and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements. The update is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the requirements of
this update and has not yet determined the impact on the Company’s consolidated financial statements.
90
SELECTED QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods indicated (in thousands, except per share data):
Revenue
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per share
Diluted income (loss) per share
Revenue
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per share
Diluted income (loss) per share
March 31,
2009
June 30,
2009
September 30, December 31,
2009
2009
Quarter Ended
$
$
$
25,557
17,568
1,584
(2,790)
(0.07)
(0.07)
March 31,
2008
$
23,012
15,257
(1,268)
(1,166)
(0.03)
(0.03)
$
27,801
19,300
1,029
1,112
0.03
0.03
$
29,118
18,771
(512)
(609)
(0.01)
(0.01)
38,167
25,655
5,298
20,016
0.49
0.48
Quarter Ended
June 30,
2008
September 30, December 31,
2008
2008
$
24,341
16,563
(514)
(959)
(0.03)
(0.03)
$
28,897
19,554
2,981
3,173
0.08
0.08
28,197
19,572
2,154
2,009
0.05
0.05
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934 (Exchange Act), which are designed to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Company’s disclosure controls and procedure as of the end of the period covered by this
report. Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
91
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2009 based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections
of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our independent registered public accounting firm, Ernst & Young LLP, has issued a report on their assessment of the
effectiveness of our internal control over financial reporting, which is provided at Item 8, page 57.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required
by Exchange Act Rule 13a-15(d) during the fourth quarter of 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item concerning our directors, audit committee, and audit committee financial experts,
code of ethics and compliance with Section 16(a) of the Exchange Act is incorporated by reference to information under the
captions “Proposal 1 — Election of Class I Directors”, “Corporate Governance” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in our definitive proxy statement for our 2010 annual meeting of stockholders to be held on or about
May 20, 2010 (Proxy Statement). It is anticipated that our Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 7, 2010.
Pursuant to General Instruction G(3), certain information with respect to our executive officers is set forth under the caption
“Executive Officers of the Registrant” in Item 4 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the sections of the Proxy Statement entitled “Executive
and Director Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Security
Ownership of Certain Beneficial Owners and Management.”
92
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2009, certain information with respect to shares of our common stock
authorized for issuance under our equity compensation plans.
Number of Securities Remaining
Available for Future Issuance
Number of Securities to Weighted-Average Under Equity Compensation Plans
be Issued Upon Exercise
of Outstanding Options Outstanding Options
Exercise Price of
(Excluding Securities Reflected
in Column (A))
(C)
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not
approved by security holders (1)
Total
(A)
(B)
2,047,834 $
1,293,221 $
3,341,055
7.44
13.55
3,195,420
—
3,195,420
(1) Includes shares issuable upon the exercise of options granted under the Tm Bioscience Corporation Share Option Plan
assumed by Luminex in connection with the acquisition of Tm Bioscience. These options have a weighted average exercise
price of $23.34. No further grants will be made pursuant to this plan. Also includes options to purchase 500,000 shares of
the Company’s common stock issued to Patrick J. Balthrop, Sr. on May 15, 2004 in connection with his hiring. Such option
grants were issued separate and apart from the Company’s stockholder approved equity incentive plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Certain
Relationships and Related Party Transactions” and “Corporate Governance.”
ITEM 14. PRINCIPLE ACCOUNTING FEES AND SERVICES
Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Ratification of
Appointment of Independent Registered Public Accounting Firm.”
93
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item 8 of this report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements
or in the notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
2.1
3.1
3.2
4.1
10.1#
10.2#
10.3#
10.4#
10.5#
Merger Agreement, dated December 14, 2006, by and between the Company and Tm Bioscience Corporation
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed December 15, 2006).
Restated Certificate of Incorporation of the Company (Previously filed as an Exhibit to the Company’s Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
Amended and Restated Bylaws of the Company (Previously filed as an Exhibit to the Company’s Current Report on
Form 8-K, filed September 16, 2008).
Rights Agreement dated as of June 20, 2001 between Luminex Corporation and Mellon Investor Services LLC, as
Rights Agent which includes as Exhibit A the form of Certificate of Designations of Series A Junior Participating
Preferred Stock setting forth the terms of the Series A Junior Participating Preferred Stock, as Exhibit B the form of
Rights Certificate and as Exhibit C the Summary of Rights (Previously filed as an Exhibit to the Company’s
Current Report on Form 8-K dated June 21, 2001 (File No. 000-30109)).
Form of Incentive Stock Option Agreement for the 1996 Stock Option Plan (Previously filed as an Exhibit to the
Company’s Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
2000 Long-Term Incentive Plan of the Company, as amended (Previously filed as an Exhibit to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002 (File No. 000-30109)).
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive Plan (Previously filed as an Exhibit to
the Company’s Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
2001 Broad-Based Stock Option Plan of the Company (Previously filed as an Exhibit to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 000-30109)).
Form of Option Grant Certificate for the 2001 Broad-Based Stock Option Plan (Previously filed as an Exhibit to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (File No. 000-30109)).
94
EXHIBIT
NUMBER
10.6#
10.7
10.8
10.9
10. 10#
10.11#
DESCRIPTION OF DOCUMENT
Form of Indemnification Agreement between the Company and each of the directors and executive officers of the
Company (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed September 16, 2008).
Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex Corporation, as Tenant,
dated October 19, 2001 (Previously filed as an Exhibit to the Company’s Form 10-Q for the quarterly period ended
September 30, 2001 (File No. 000-30109)).
First Amendment to Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex
Corporation as Tenant, dated July 25, 2002. (Previously filed as an Exhibit to the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2002 (File No. 000-30109)).
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and Luminex Corporation, as Tenant, dated
January 27, 2003 (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 (File No. 000-30109)).
Employment Agreement, effective as of October 1, 2003, by and between Luminex Corporation and Harriss T.
Currie (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 (File No. 000-30109)).
Employment Agreement effective as of October 1, 2003, by and between Luminex Corporation and David S. Reiter
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 (File No. 000-30109)).
10.12#
Employment Agreement effective as of May 15, 2004, by and between Luminex Corporation and Patrick J.
Balthrop (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 18, 2004).
10.13#
Employment Agreement effective as of October 25, 2004, by and between Luminex Corporation and Gregory J.
Gosch (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed October 22, 2004).
10.14#
Employment Agreement effective as of May 23, 2005, by and between Luminex Corporation and Russell W.
Bradley (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 25, 2005).
10.15#
2009 Executive Compensation Summary (Previously filed in the Company’s Current Report on Form 8-K filed
March 17, 2009).
10.16#
10.17#
Form of Restricted Stock Agreement for the 2000 Long-Term Incentive Plan and 2001 Broad-Based Stock Option
Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2004 (File No. 000-30109)).
Form of Non-Qualified Stock Option Agreement dated as of May 15, 2004, by and between Luminex Corporation
and Patrick J. Balthrop (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 18,
2004 (File No. 000-30109)).
10.18#
Form of Amendment to Executive Employment Agreements (Previously filed as an Exhibit to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2005).
10.19#
Luminex Corporation Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the
Company’s Current Report on Form 8-K filed May 21, 2009).
10.20#
Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 21, 2009).
10.21#
Form of Restricted Share Award Agreement for Officers & Employees for the Amended and Restated 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 21, 2009).
95
EXHIBIT
NUMBER
10.22#
DESCRIPTION OF DOCUMENT
Form of Restricted Share Award Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 21, 2009).
10.23#
Form of Restricted Share Unit Agreement for Officers & Employees for the Amended and Restated 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 21, 2009).
10.24#
Form of Restricted Share Unit Agreement for Directors for the Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 21, 2009).
10.25#
Luminex Corporation 2006 Management Stock Purchase Plan (Previously filed as Exhibit B to the Company’s
Proxy Statement for its Annual Meeting of Shareholders held on May 25, 2006).
10.26#
10.27#
10.28#
Employment Agreement effective as of March 1, 2007, by and between Luminex Corporation, Tm Bioscience and
Jeremy Bridge-Cook (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2006).
Amendment to Restricted Stock Agreement, dated as of March 25, 2007, by and between Luminex Corporation and
Patrick J. Balthrop, Sr. (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007).
Amendment to Luminex Corporation Amended and Restated 2000 Long-Term Incentive Plan dated as of May 24,
2007 (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2007).
10.29#
Amendment to Luminex Corporation 2001 Broad-Based Stock Option Plan dated as of May 24, 2007 (Previously
filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007).
10.30#
Amendment to Luminex Corporation 2006 Management Stock Purchase Plan dated as of May 24, 2007 (Previously
filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007).
10.31#
Luminex Corporation 2008 Long Term Incentive Plan (Previously filed as an Exhibit to the Company’s Current
Report on Form 8-K filed December 9, 2008).
10.32#
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2008 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed December 9,
2008).
10.33#
Employment Agreement, dated as of July 1, 2009, by and between Luminex Corporation and Michael F. Pintek.
10.34#
Luminex Corporation 2009 Long Term Incentive Plan (Previously filed as an Exhibit to the Company’s Current
Report on Form 8-K filed March 17, 2009).
10.35#
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2009 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed March 17, 2009).
10.36#
Form of Non-Qualified Stock Option Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit
to the Company’s Current Report on Form 8-K filed May 25, 2006).
10.37#
Form of Restricted Share Award Agreement for Officers & Employees for the 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 25, 2006).
96
EXHIBIT
NUMBER
10.38#
DESCRIPTION OF DOCUMENT
Form of Restricted Share Award Agreement for Directors for the 2006 Equity Incentive Plan (Previously filed as an
Exhibit to the Company’s Current Report on Form 8-K filed May 25, 2006).
10.39#
Form of Restricted Stock Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
10.40#
Form of Amendments to Equity Award Agreements (Previously filed as an Exhibit to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2007).
21.1
Subsidiaries of the Company.
23.1
Consent of Independent Registered Public Accounting Firm.
24.1
Power of Attorney (incorporated in the signature page of this report).
31.1
31.2
32.1
32.2
Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d — 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d — 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
#
Management contract or compensatory plan or arrangement.
97
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LUMINEX CORPORATION
By: /s/ Patrick J. Balthrop
Patrick J. Balthrop
President and Chief Executive Officer
Date: February 25, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Patrick J. Balthrop and Harriss T. Currie, each his true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
S-1
SIGNATURES
/s/ Patrick J. Balthrop
Patrick J. Balthrop
/s/ Harriss T. Currie
Harriss T. Currie
/s/ Robert J. Cresci
Robert J. Cresci
/s/ Thomas W. Erickson
Thomas W. Erickson
/s/ Fred C. Goad, Jr.
Fred C. Goad, Jr.
/s/ Jay B. Johnston
Jay B. Johnston
/s/ Jim D. Kever
Jim D. Kever
/s/ G. Walter Loewenbaum II
G. Walter Loewenbaum II
/s/ Kevin M. McNamara
Kevin M. McNamara
/s/ Edward A. Ogunro
Edward A. Ogunro
/s/ Gerard Vaillant
Gerard Vaillant
TITLE
DATE
President and Chief Executive Officer,
February 25, 2010
Chief Financial Officer, Vice President,
February 25, 2010
Finance and Treasurer (Principal Financial Officer
and Principal Accounting Officer)
Director
Director
Director
Director
Director
February 25, 2010
February 25, 2010
February 25, 2010
February 25, 2010
February 25, 2010
Chairman of the Board of Directors
February 25, 2010
Director
Director
Director
S-2
February 25, 2010
February 25, 2010
February 25, 2010
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of July 1, 2009 (the “Effective
Date”) by and between Luminex Corporation, a Delaware corporation (“Luminex”) and Michael F. Pintek (“Executive”).
RECITAL
WHEREAS, Executive is to be employed as the Senior Vice President, Operations for Luminex;
WHEREAS, Luminex and Executive wish to document the terms of the employment of Executive in such capacity; and
WHEREAS, Executive has represented to Luminex and Luminex has relied on Executive’s representation that the
execution of this Agreement by Executive, and the provision of services by Executive to Luminex as contemplated in this
Agreement, will not conflict with, or cause Executive or any other person or entity to be in breach of, (i) any other contract to
which Executive is a party or (ii) any duty which Executive may owe to any other person or entity.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
AGREEMENT
the parties agree as follows:
1. Duties.
1.1 Duties. During the term of this Agreement (including all renewal periods, if any, the “Term”), Executive
agrees to be employed by and to serve as Senior Vice President, Operations and Luminex agrees to employ and retain Executive
in such capacity subject to the provisions of this Agreement. Executive shall have such powers, authority and duties, and shall
render such services of executive and administrative character, or act in such other capacity for Luminex, as the Chief Executive
Officer or the Board of Directors of Luminex (the “Board”) shall from time to time lawfully direct and Executive shall report
directly to the Chief Executive Officer of Luminex. Executive shall devote all of his business time, energy, and skill to the
business of Luminex;
2. Term and Termination.
2.1 Term. Subject to Section 2.2, the term of employment of Executive by Luminex shall be two (2) years
commencing on the Effective Date and shall thereafter automatically renew for successive additional one-year terms unless
either party provides the
Execution Version
Confidential
other with written notice of its intent not to renew this Agreement at least sixty (60) days prior to the end of the Term (unless
terminated earlier pursuant to the provisions of this Agreement).
2.2 Termination of Employment.
2.2.1 Termination For Cause. “Termination For Cause” shall mean the termination by Luminex of Executive’s
employment with Luminex as the result of Executive’s material fraud upon Luminex, violation of the law or Executive’s
material breach of this Agreement after receipt of written notice from Luminex specifying such breach and failure by Executive
to cure such breach within fifteen (15) days from receipt of such notice. Executive’s inability to perform his obligations under
this Agreement despite his best efforts as a result of a permanent or temporary disability (as evidenced by a written determination
from a physician chosen by Executive and reasonably acceptable to Luminex) shall not result in a Termination For Cause. In the
event that Executive fails to cure the breach within the fifteen (15) day cure period, the termination shall be effective as of the
date that Luminex notifies Executive of his termination following the expiration of the fifteen (15) day cure period. Upon any
Termination For Cause, Executive shall be paid the Accrued Obligations (defined below) within three (3) business days
following the effective date of termination.
2.2.2 Termination Other Than For Cause. “Termination Other Than For Cause” shall mean (i) termination by
Luminex of Executive’s employment with Luminex for any reason other than Termination For Cause, Termination by Reason of
Death, Termination by Reason of Incapacity or Termination Upon Expiration of Agreement or (ii) termination by Executive
upon constructive termination of Executive’s employment with Luminex by reason of (A) a reduction in Executive’s Base Salary
(defined below); (B) a reduction in Executive’s title from Chief Operating Officer for Luminex (whether by reason of
Executive’s removal from any of such offices or Luminex’s failure to reappoint Executive to any of such offices); (C) a Material
Diminution (defined below); (D) a requirement that Executive change his principal place of business to a location that is outside
the Office Area (defined below), or (E) Luminex’s continued material breach of this Agreement after receipt of written notice
from Executive specifying such breach and failure by Luminex to cure such breach within fifteen (15) days from receipt of such
notice. Termination Other Than For Cause may be effected by Luminex at any time by providing Executive with written notice
of such termination. The termination shall be effective as of the date of the notice or such later date as may be determined by
Luminex. Executive may also effect a Termination Other Than For Cause upon written notice to Luminex at any time any of the
conditions for constructive termination set forth in clause (ii) above (including without limitation, if applicable, the expiration of
the cure period) have been met. Upon any Termination Other Than For Cause, Executive shall be paid (i) within three
(3) business days following the effective date of termination the amount of the Accrued Obligations and (ii) all severance
compensation provided in Section 4.1. For purposes of this Agreement, “Material Diminution” means a material diminution by
Luminex of Executive’s duties, powers, authority, functions or responsibilities without Executive’s consent, such that Executive
is left with such duties, powers, authority, functions and responsibilities (when viewed in the aggregate) that are materially
diminished compared to both (i) those duties, powers, authority, functions and responsibilities conferred upon Executive at the
Effective Date and (ii) those duties, powers, authority, functions and responsibilities that are most typically conferred upon
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the chief operating officer of companies having both (i) a chief operating officer and (ii) revenues comparable to Luminex (based
on the revenues of Luminex at the time of determination). Luminex and Executive agree that in the event there is an ambiguity
with respect to the interpretation or application of the definition of “Material Diminution”, such ambiguity shall be resolved
according to the reasonable interpretation of such definition most favorable to Luminex. For purposes of this Agreement, “Office
Area” means the geographical area within a 40 mile radius of Luminex’s current principal office at 12212 Technology Blvd.,
Austin, Texas.
2.2.3 Actual Voluntary Termination. “Actual Voluntary Termination” shall mean termination by Executive of
Executive’s employment with Luminex for any reason other than Termination For Cause, Termination Other Than For Cause,
Termination by Reason of Death or Termination by Reason of Incapacity. In the event of an Actual Voluntary Termination,
Executive shall be paid within fifteen (15) business days following the effective date of termination the amount of the Accrued
Obligations.
2.2.4 Termination by Reason of Incapacity. If, during the Term, Executive shall become Permanently Disabled
(defined below), Luminex may terminate Executive’s employment with Luminex effective on the earliest date permitted under
applicable law, if any, and such termination shall be deemed “Termination by Reason of Incapacity”. Upon termination of
employment under this Section, Executive shall be paid (i) within three (3) business days following the effective date of
termination the amount of the Accrued Obligations and (ii) all severance compensation provided in Section 4.2. As used herein,
Executive shall be deemed “Permanently Disabled” if Executive is (i) collecting long-term disability payments under a long-
term disability plan established for the benefit of Luminex’s employees or executives generally or a reasonably similar plan or
(ii) if, and only if, no such long-term disability plan is in effect at the time of determination, a physician selected by Luminex and
reasonably acceptable to Executive makes a written determination that Executive is unable to perform his obligations under this
Agreement despite his best efforts by reason of any medically determinable physical or mental impairment that can be expected
to result in death or that has lasted or can be expected to last for a continuing period of not less than 12 months.
2.2.5 Termination by Reason of Death. In the event of Executive’s death during the Term, Executive’s
employment with Luminex shall be deemed to have terminated as of the date on which his death occurs and the estate of
Executive shall be paid (i) within fifteen (15) days following the effective date of termination the amount of the Accrued
Obligations and (ii) all severance compensation provided in Section 4.3.
2.2.6 Termination Upon Expiration of Agreement. In the event that Luminex refuses for any reason to extend this
Agreement by giving written notice at least 60 days prior to the initial or any renewal period as set forth in Section 2.1,
Executive shall be paid (i) within three (3) business days following the effective date of termination the amount of the Accrued
Obligations and (ii) all severance compensation provided in Section 4.4. In the event that Executive refuses for any reason
(except as otherwise provided herein) to extend this Agreement by giving written notice at least 60 days prior to the initial or any
renewal period as set forth in Section 2.1, the termination shall be deemed an Actual Voluntary Termination.
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2.2.7 Termination of Relationship with Affiliated Entities. Unless agreed by Luminex (or a subsidiary thereof)
and Executive in a separate written agreement (other than corporate minutes, resolutions, charter documents, bylaws and
partnership agreements), upon the termination of Executive’s employment with Luminex for any reason, Executive shall tender a
written resignation of any positions he may have with Luminex and any and all of Luminex’s direct and indirect subsidiaries.
2.2.8 Definition of Accrued Obligations. As used in this Agreement, “Accrued Obligations” means all accrued
but unpaid salary, accrued but unpaid vacation, sick leave, and similar pay (all determined in accordance with Luminex’s
policies then in effect), and any appropriate business expenses incurred by Executive in connection with his duties hereunder, all
to the date of termination.
3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Executive as provided in Section 1 and subject to
the terms and conditions of Section 2, Luminex agrees to pay to Executive a “Base Salary” at the rate of $13,125.00 per each
semi-monthly pay period or $315,000 per annum (or such greater amount as may be determined from time to time by the Board
or the Compensation Committee thereof) payable in accordance with the then-current payroll policies of Luminex.
3.2 Signing Bonus. Executive shall receive an initial signing bonus in the amount of $100,000, payable to
Executive upon the Effective Date of this Agreement (the “Signing Bonus”). Executive may receive an additional discretionary
signing bonus (the “Additional Signing Bonus”) at the sole discretion of the Compensation Committee of the Company’s Board
of Directors. In addition, the Company shall pay an additional amount to Executive, calculated as hereinafter described, designed
to reimburse Executive for any federal and state income and Medicare tax withholdings required by applicable law on the
Signing Bonus and the Additional Signing Bonus (the “Gross-up Amount”). Executive agrees that he shall be obligated to
promptly repay to Company the “pro rata amount” of the aggregate amount of the Signing Bonus and the Additional Signing
Bonus (if any) and the Gross-up Amount (the “Total Signing Bonus”) in the event of “Termination for Cause” pursuant to
Section 2.2.1 or in the event of “Actual Voluntary Termination” pursuant to Section 2.2.3 within three (3) years of the Effective
Date. The “pro rata amount” shall be determined by multiplying the Total Signing Bonus by a fraction determined by dividing
the number of days remaining from the date of the termination event through the date that is three (3) years from the Effective
Date, by 1095. The Gross-up Amount shall be determined by dividing the aggregate amount of the Signing Bonus and, if
applicable the Additional Signing Bonus, by .635, which applies the federal income tax at a 35% rate, Medicare tax at a 1.45%
rate and no state income tax. In the event state income tax shall be applicable to these payments, an appropriate adjustment for
the net applicable state income tax rate shall be made to this calculation.
3.3 Annual Bonus. Executive shall be eligible to receive a bonus each year in an amount up to at least fifty
percent (50%) of your then-current Base Salary (or such other amount as may otherwise be determined by the Company’s Board
of Directors), subject to the
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performance criteria established annually by the Company’s Board of Directors and payable during the first quarter of the
following year or otherwise as consistent with the timing of other employee bonuses. The Board is under no obligation to
declare, and Luminex is under no obligation to pay, any bonus to Executive under the terms of this Agreement. In the event
Executive and Luminex are parties to a written agreement or plan executed by both Luminex and Executive that governs bonus
arrangements, and the provisions thereof conflict with this Section 3.3, the terms of such other written agreement or plan shall
supersede this Section 3.3. Notwithstanding the foregoing, Executive shall be eligible to receive a prorata portion of any bonus
awarded for 2009 based on the number of months Executive is employed by the Company during 2009.
3.4 Change in Control. In the event that both (i) a Change in Control (defined below) of Luminex occurs during
the Term and (ii) Executive’s employment with Luminex (or, as applicable, its successor in interest) terminates for any reason
(including without limitation an Actual Voluntary Termination by Executive) at any time within six (6) months following the
occurrence of the Change in Control of Luminex, in lieu of any Severance Compensation then owed or that otherwise would be
owed in the future to Executive under Section 4 of this Agreement, Luminex (or its successor in interest) shall pay Executive
both the Accrued Obligations and a lump sum payment (the “Change in Control Payment”) in an aggregate amount equal to the
sum of (i) the Bonus Amount (defined below), plus (ii) an amount equal to Executive’s annual Base Salary (at the highest rate in
effect during the period beginning six months immediately prior to the effective date of the Change of Control through the date
of termination) within three (3) business days after the termination of Executive’s employment. In the interest of clarity,
Luminex and Executive agree that, upon the termination of Executive’s employment at any time within six (6) months following
the occurrence of the Change in Control of Luminex, the provisions of Sections 4.1, 4.2, 4.3, 4.4, and 4.6 shall automatically be
deemed null and void and shall not apply with respect to any termination of Executive’s employment (whether such termination
is effected in connection with the Change in Control of Luminex or at any time in the future following the Change in Control of
Luminex), and under no circumstances shall Luminex ever be obligated to pay Executive both a Change in Control Payment and
Severance Compensation under Section 4. For purposes of this Agreement, a “Change in Control” of Luminex shall be deemed
to have occurred if, after the date of this Agreement:
(A) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) (other than an Approved Person (as defined below)) becomes the “Beneficial Owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of a majority or more of the then outstanding Common Stock of
Luminex (“Common Stock”) (such Person, an “Acquiring Person”); or
(B) Luminex merges or consolidates with any other corporation or other entity, in each case other than a merger or
consolidation which results in the voting securities of Luminex outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the
combined voting power of the voting securities of Luminex or such surviving entity outstanding immediately after such merger
or consolidation; or
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(C) Luminex sells or disposes of all or substantially all of Luminex’s assets in one transaction or a series of related
transactions; or
(D) Luminex files a periodic or current report or proxy statement with the Securities and Exchange Commission (the
“SEC”) disclosing that a “change in control” (as such term is used in Item 1 of Form 8-K promulgated by the SEC) of Luminex
has occurred; or
(E) If, as a result of nominations made by a person or group other than the Board of Directors of Luminex, individuals who
prior to such nominations constitute the Directors of Luminex cease for any reason to constitute at least a majority thereof within
the two year period following such nominations.
As used in this Agreement, “Approved Person” means (1) an employee benefit plan of Luminex (or a trustee or other
fiduciary holding securities for such a plan), or (2) a corporation owned, directly or indirectly, by the stockholders of Luminex in
substantially the same proportions as their ownership of stock of Luminex, or (3) a Person not less than a majority of whose
voting securities are Beneficially Owned by Luminex after giving effect to the transaction.
As used in this Agreement, “Bonus Amount” means the annual bonus (if any) received or to be received by Executive under
Section 3.2 in respect of the then most recently completed calendar year, or if no determination concerning bonuses has been
made for the most recently completed calendar year, then the annual bonus (if any) for the previous calendar year.
Any options (“Options”) granted (including without limitation Options that may be granted in the future) and restricted
stock (“Restricted Stock”) issued (including without limitation Restricted Stock that may be issued in the future) to Executive
pursuant to any incentive plan of Luminex shall immediately vest upon a Change in Control. Luminex shall take no action to
facilitate a transaction involving a Change in Control, including without limitation redemption of any rights issued pursuant to
any rights agreement, unless it has taken such action as may be necessary to ensure that Executive has the opportunity to exercise
all Options he may then hold, and obtain certificates containing no restrictive legends in respect of any Restricted Stock he may
then hold, at a time and in a manner that shall give Executive the opportunity to sell or exchange the securities of Luminex
acquired upon exercise of his Options and upon receipt of unrestricted certificates for shares of Common Stock in respect of his
Restricted Stock, if any (collectively, the “Acquired Securities”), at the earliest time and in the most advantageous manner any
holder of the same class of securities as the Acquired Securities is able to sell or exchange such securities in connection with
such Change in Control. Luminex acknowledges that its covenants in the preceding sentence (the “Covenants”) are reasonable
and necessary in order to protect the legitimate interests of Luminex in maintaining Executive as one of its employees and that
any violation of the Covenants by Luminex would result in irreparable injuries to Executive, and Luminex therefore
acknowledges that in the event of any violation of the Covenants by Luminex or its directors, officers or employees, or any of
their respective agents, Executive shall be entitled to obtain from any court of competent jurisdiction temporary, preliminary and
permanent injunctive relief in order to (i) obtain specific performance of the Covenants, (ii) obtain specific performance of the
exercise of his Options, delivery of certificates
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containing no restrictive legends in respect of his Restricted Stock and the sale or exchange of the Acquired Securities in the
advantageous manner contemplated above or (iii) prevent violation of the Covenants; provided nothing in this Agreement shall
be deemed to prejudice Executive’s rights to damages for violation of the Covenants. In the event that the terms of any separate
written agreement concerning Options granted or Restricted Stock issued to Executive conflict with the terms of this paragraph,
the terms of this paragraph shall control.
3.5 Additional Benefits. During the Term, Executive shall be entitled to the following fringe benefits:
3.5.1 Transitional Expenses. The Company will pay for the following additional expenses upon presentation of
applicable receipts: i) the costs of your temporary living until you purchase a home, at a rate of per month to be agreed upon by
you and me for up to a period of three (3) months; ii) the costs of a rental car until your automobile arrives in Austin or you
purchase an automobile, which is expected to be for a period of no more than one (1) month; iii) the costs of your airfare to and
from California for up to two (2) trips per month for a period of up to three (3) months, not to exceed $1,000 per month; iv) the
costs of up to two (2) house hunting trips for you and your spouse.
3.5.2 Benefits and Vacation. Executive shall be eligible to participate in such of Luminex’s benefits and deferred
compensation plans as are now generally available or later made generally available to executive officers of Luminex. A
termination or expiration of this Agreement for any reason or for no reason shall not affect any rights which Executive may have
pursuant to any agreement, policy, plan, program or arrangement of Luminex providing Executive benefits (including under any
stock option agreement or bonus plan or agreement which may exist), which rights shall be governed by the terms thereof.
Executive shall be entitled to four (4) weeks paid vacation each calendar year (prorated for partial years). Unless approved in
advance by the Board or a committee thereof, accrued vacation not taken in any applicable period shall not be carried forward or
used in any subsequent period.
3.5.3 Reimbursement for Expenses.
3.5.3.1 Incidental Expenses. Luminex shall reimburse Executive for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Executive in connection with his duties under this Agreement.
Any such expenses shall be submitted by Executive to Luminex on a periodic basis and will be paid in accordance with standard
Luminex policies and procedures.
3.5.3.2 Moving Expenses. In the event of the relocation of Luminex’s headquarters to a location that is
outside the Office Area and Executive elects to relocate, Luminex shall (i) reimburse Executive for any reasonable, out-of-pocket
and adequately documented moving expenses incurred by Executive in connection with the transfer of his residence and (ii) pay
to an Executive an amount of cash reasonably calculated by Luminex to negate adverse income tax consequences to Executive of
the foregoing reimbursement.
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4. Severance Compensation.
4.1 Severance Compensation in the Event of a Termination Other Than For Cause. In the event Executive’s
employment is terminated as a result of a Termination Other Than for Cause, Executive shall be paid (subject to Section 4.6) the
Severance Compensation (defined below).
4.2 Severance Compensation for Termination by Reason of Incapacity. In the event Executive’s employment is
terminated as a result of a Termination by Reason of Incapacity, Executive shall be paid (subject to Section 4.6) the difference of
(i) the Severance Compensation less (ii) any payment or payments received by Executive during the twelve (12) month period
from the time of termination under any long-term disability plan in effect that provides benefits to Executive.
4.3 Severance Compensation for Termination by Reason of Death. In the event Executive’s employment is
terminated as a result of Executive’s death, the estate of Executive shall be paid the Severance Compensation.
4.4 Severance Compensation In the Event Of A Failure Of Luminex To Renew This Agreement. In the event
Luminex fails or otherwise refuses for any reason to extend this Agreement beyond the Term and any extensions thereof,
Executive shall be paid (subject to Section 4.6) the Severance Compensation.
4.5 No Severance Compensation Upon Other Termination. In the event of an Actual Voluntary Termination or
Termination For Cause, Executive shall not be paid any severance compensation.
4.6 Conditions to Payment; Sole Remedy. Executive shall not be entitled to receive any compensation or other
payment pursuant to Sections 4.1, 4.2 or 4.4 unless Executive shall have executed and delivered to Luminex a release
substantially in the form attached hereto as Exhibit “A” and, provided Luminex has also signed such release within two
(2) business days of execution and delivery by Executive, all revocation and waiting periods applicable to such release have
expired (if Luminex fails to sign such release, then such revocation and waiting periods shall not apply). In addition, in the event
that Executive breaches any of the restrictive covenants set forth in Article 5 at any time, Luminex shall be entitled to
discontinue any compensation or other payments pursuant to Sections 4.1, 4.2 or 4.4 (provided, however, that if it is finally
determined by a court of competent jurisdiction or an arbitrator that Luminex asserted in bad faith that Executive breached any of
the restrictive covenants set forth in Article 5, the payments of the Severance Compensation shall be extended for two months for
each calendar month that payments were delayed. The compensation to be paid to Executive pursuant to Sections 4.1, 4.2, 4.3 or
4.4 shall represent the sole and exclusive remedy of Executive in connection with the termination of his employment and this
Agreement upon a Termination Other Than for Cause, a Termination by Reason of Incapacity, a termination in connection with
Executive’s death, or a refusal by Luminex to extend this Agreement beyond the Term and any extensions thereof.
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4.7 Definition of Severance Compensation. As used in this Agreement, “Severance Compensation” means an
amount equal to the sum of (i) the Bonus Amount plus (ii) an amount equal to Executive’s annual Base Salary (at the highest rate
in effect for the six month period immediately prior to the date of termination), paid in semi-monthly installments for a period of
twelve (12) months from the date of termination. In addition, as part of the Severance Compensation, Luminex also shall pay
(until the earlier of (A) the first annual anniversary of the termination of this Agreement or (B) the date that Executive is eligible
to be covered under a comparable or more favorable health plan of another Person) (i) COBRA payments in respect of the
continuation of health benefits for Executive, his spouse and his children and (ii) payments to fund dental coverage for
Executive, his spouse and his children comparable to the dental coverage that they would have received if Executive had
continued as an employee of Luminex.
5. Protection of Luminex.
5.1 Non-Competition. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive
agrees that during Executive’s employment with Luminex and for a period of one year following termination of employment,
whether such termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not compete directly
or indirectly in any way with the business of Luminex anywhere in the world where Luminex conducted business during the
Term. For purposes of this Agreement, “compete directly or indirectly in any way with the business of Luminex” means to
become an employee, consultant, advisor, manager, member, director of or beneficially own more than three percent of any
individual, company or entity that competes with Luminex in the Core Business (defined below) at the time of determination.
Executive agrees that the assertion or existence of any claim by Executive against Luminex shall not be a defense to the
enforcement of this paragraph by injunction or otherwise. As used in this Agreement, “Core Business” means the development,
manufacturing and/or marketing of multiplexing biological testing technologies with applications in the life-sciences industry.
5.2 Nonsolicitation. Ancillary to the otherwise enforceable agreements set forth in this Agreement, Executive
agrees that, for a period of one (1) year subsequent to the termination of Executive’s employment with Luminex, whether such
termination occurs at the insistence of Executive or Luminex for any reason, Executive shall not recruit, hire, or attempt to
recruit or hire, directly or by assisting others, any other employees of Luminex, nor shall Executive contact or communicate with
any other employees of Luminex for the purpose of inducing other employees to terminate their employment with Luminex. For
purposes of this covenant, “other employees of Luminex” shall refer to employees who are still actively employed by, or doing
business with, Luminex or a subsidiary of Luminex at the time of the attempted recruiting or hiring.
5.3 Remedies. Due to the irreparable and continuing nature of the injury which would result from a breach of the
covenants described in Sections 5.1 and 5.2, Executive agrees that Luminex may, in addition to any remedy which Luminex may
have at law or in equity, apply to any court of competent jurisdiction for the entry of an immediate order to restrain or enjoin the
breach of this covenant and to otherwise specifically enforce the provisions of the covenants set forth in Sections 5.1 and 5.2.
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5.4 Acknowledgment. Executive acknowledges and agrees that the restrictions set forth above are ancillary to an
otherwise enforceable agreement and supported by independent valuable consideration as required by TEX. BUS. & COMM. CODE
ANN. § 15.50. Executive further acknowledges and agrees that the limitations as to time, geographical area, and scope of activity
to be restrained by Sections 5.1 and 5.2 are reasonable and acceptable to Executive, and do not impose any greater restraint than
is reasonably necessary to protect the goodwill and other business interests of Luminex.
5.5 Reformation and Severance. If a judicial determination is made that any of the provisions of the above
restriction constitutes an unreasonable or otherwise unenforceable restriction against Executive, it shall be rendered void only to
the extent that such judicial determination finds such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereby agree that any judicial authority construing this Agreement shall be empowered to sever any portion of the
prohibited business activity from the coverage of this restriction and to apply the restriction to the remaining portion of the
business activities not so severed by such judicial authority. Moreover, notwithstanding the fact that any provisions of this
restriction are determined by a court not to be specifically enforceable through injunctive relief, Luminex shall nevertheless be
entitled to seek to recover monetary damages as a result of the breach of any provision which is not reformed by a court. The
time period during which the restrictions shall apply shall be tolled and suspended as to Executive for a period equal to the
aggregate quantity of time during which Executive violates such prohibitions in any respect.
5.6 Confidential Information and Trade Secrets. As used herein, “Confidential Information” means any data or
information that is important, competitively sensitive, and not generally known by the public or persons involved in the
biological testing or life sciences industries, including, but not limited to, Luminex’s business plans, Prospective Customers,
training manuals, proprietary software, product development plans, bidding and pricing procedures, market plans and strategies,
projections, internal performance statistics, financial data, confidential personnel information concerning employees of Luminex,
operational or administrative plans, policy manuals, and terms and conditions of contracts and agreements. The term
“Confidential Information” shall not apply to information which is (i) already in Executive’s possession (unless such information
was obtained by Executive from Luminex in the course of Executive’s employment by Luminex); (ii) received by Executive
from a third party with, to Executive’s knowledge, no restriction on disclosure or (iii) required to be disclosed by any applicable
law or by an order of a court of competent jurisdiction.
Executive recognizes and acknowledges that the Confidential Information constitutes valuable, special and unique assets of
Luminex and its affiliates. Except as required to perform Executive’s duties as an Executive of Luminex, until such time as they
cease to be Confidential Information through no act of Executive in violation of this Agreement, Executive will not use or
disclose any Confidential Information of Luminex. Upon the request of Luminex and, in any event, upon the termination of this
Agreement for any reason, Executive will surrender to Luminex (i) all memoranda, notes, records, drawings, manuals or other
documents pertaining to Luminex’s business including all copies and/or reproductions thereof and (ii) all materials involving any
Confidential Information of Luminex.
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5.7 Preservation of Luminex Property. Executive acknowledges that from time to time in the course of
employment with Luminex, Executive has had the opportunity to inspect and use certain property of Luminex, both tangible and
intangible, including but not limited to files, records, documents, drawings, specifications, lists, equipment, graphics, designs,
and similar items relating to the business of Luminex. Executive acknowledges and agrees that all such property, including but
not limited to any and all copies thereof, whether prepared by Executive or otherwise in the possession of Executive, are and
shall remain the exclusive property of Luminex, that Executive shall have no right or proprietary interest in such property and
that Executive will safeguard and return to Luminex all such property upon the earlier of (i) Luminex’s request and (ii) the
termination of Executive’s employment with Luminex.
5.8 Assignment of Inventions to Luminex. All computer software, compilations, programs, improvements,
inventions, notes, copyrightable works, and opportunities for additional Luminex business, made, fixed, conceived, or acquired
by Executive during the Term are exclusively owned by Luminex, are Luminex’s works for hire, and fully assigned to Luminex
including without limitation all rights to renewals, extensions, causes of action, reproduce, prepare derivative works, distribute,
display, perform, transfer, make, use and sell and may never be copied, used, or disclosed without Luminex’s express written
consent. Executive will sign on request any documents affirming the same for any particular item. In addition, Executive agrees
to execute Company’s standard Confidentiality and IP Assignment Agreement by the Effective Date.
5.9 Notice to Subsequent Employers. Executive agrees that, prior to commencing any new employment in the
Core Business within twelve months after the termination of this Agreement, Executive will furnish the new employer with a
copy of this Agreement. Executive also agrees that Luminex may advise any new or prospective employer of the existence and
terms of this Agreement and furnish the employer with a copy of this Agreement.
6. Disclosure of Investments. Commencing upon Executive’s execution of this Agreement and at all times during the
Term, Executive shall keep the Board informed in writing of the nature and extent of Executive’s investments, stock holdings, or
retention as a director, advisor or any similar interest in any business or enterprise involved in the Core Business other than
Luminex; provided, however, that Executive shall not be required to disclose any such investments or stock holdings that
constitute less than 1% of such entity’s total obligations or total voting power.
7. Arbitration.
7.1 Exclusive Remedy. Arbitration shall be the sole and exclusive remedy for resolving any claim or dispute
which cannot be mutually resolved between the parties to this Agreement with the exception of disputes arising out of
Executive’s obligations under Article 5 or disputes arising out of Luminex’s obligations under the last paragraph of Section 3.4,
which are not subject to this arbitration provision; provided however, that the parties hereto agree that they may bring action in
any court of competent jurisdiction to enforce any award granted pursuant to arbitration or to otherwise enforce this Article 7.
This includes, but is not limited to,
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termination, interpretation or application of this Agreement or any other agreement or policy of Luminex, any claim of violation
of law relating to the employment relationship, including, without limitation, any claim of employment discrimination or sexual
harassment, or harassment based on any other prohibited basis, or any claim by Luminex against Executive. This Agreement is a
waiver of the right to trial by a jury or court.
7.2 Limitations. The request for arbitration must be made within one (1) year from the date of the occurrence
giving rise to the dispute or claim; or, in the event of a statutory claim, the time set forth by statute.
7.3 Rules and Procedures. The arbitration will be conducted under the rules and procedures for arbitration of
employment disputes of the American Arbitration Association. The arbitration shall take place in Austin, Texas unless the parties
mutually agree to another location.
7.4 Arbitrator’s Authority. Upon finding that a claim is meritorious or in favor of one of the parties to the dispute,
the arbitrator or arbitrators shall have the authority to order legal and equitable remedies appropriate as permitted by law.
7.5 Expenses. Costs of obtaining and paying the arbiter and the costs associated with conducting the arbitration,
including obtaining a facility to be used during the arbitration, shall be paid by Luminex. Other costs of the arbitration or any
litigation associated with any dispute arising under or in connection with this Agreement including, without limitation,
reasonable attorneys’ and experts’ fees and expenses of Luminex and the Executive shall be borne by the party incurring such
expense unless the arbiter or court of law, as the case may be, awards costs to one of the parties.
8. Miscellaneous.
8.1 Waiver. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach of the same or other provision hereof.
8.2 Entire Agreement; Modifications. Except as otherwise provided herein, this Agreement represents the sole,
entire, and complete understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes
any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter
hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation,
bonuses, reimbursements or other payments to Executive from Luminex. All modifications to the Agreement must be in writing
and signed by both Executive and Luminex.
8.3 Notices. All notices and other communications under this Agreement shall be in writing and shall be given by
facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given
three business days after
Execution Version
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mailing or one business day after transmission of a facsimile (with confirmation of receipt) to the respective persons named
below:
If to Luminex:
If to Executive:
Luminex Corporation
Attn: General Counsel
12212 Technology Blvd.
Austin, Texas 78727
Fax: (512) 219-6325
Mr. Michael F. Pintek
5 MacGregor Place
Danville, CA 94526
Any party may change such party’s address for notices by notice duly given pursuant to this Section 8.3.
8.4 Headings. The Section headings herein are intended for reference and shall not by themselves determine the
construction or interpretation of this Agreement.
8.5 Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas. Subject in all respects to Section 7 generally and Section 7.3 in particular, any dispute arising out of or
relating to this Agreement may be brought in a court of competent jurisdiction located in Austin, Texas, and both of the parties to
this Agreement irrevocably submit to the exclusive jurisdiction of such courts in any such dispute, waives any objection it may
now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the dispute shall be heard and
determined only in any such court, and agrees not to bring any dispute arising out of or relating to this Agreement in any other
court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the
knowing, voluntary and bargained agreement among the parties irrevocably to waive any objections to venue or to convenience
of forum. Process in any dispute may be served on any party anywhere in the world.
8.6 Severability. Should any court of competent jurisdiction determine that any provision of this Agreement is
illegal or unenforceable to any extent, such provision shall be enforced to the extent permissible and all other provisions of this
Agreement shall continue to be enforceable to the extent possible.
8.7 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall
constitute one and the same Agreement.
8.8 Assignment. Neither this Agreement nor any duties or obligations hereunder may be assigned by either party
without the other party’s prior written consent; provided, however, that Luminex may assign this Agreement to either (i) a
wholly-owned subsidiary of Luminex (provided, however, that such assignment shall not relieve Luminex of its
Execution Version
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obligations hereunder) or (ii) a Person acquiring substantially all of Luminex’s assets if such acquisition would constitute a
Change in Control.
8.9 Withholding. All compensation and benefits payable to Executive hereunder shall be reduced by all federal,
state, local and other withholdings and similar taxes and payments required by applicable law.
Execution Version
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
Execution Version
LUMINEX CORPORATION
By: /s/ Patrick J. Balthrop
EXECUTIVE
/s/ Michael F. Pintek
MICHAEL F. PINTEK
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EXHIBIT “A”
GENERAL RELEASE AGREEMENT
THIS GENERAL RELEASE AGREEMENT (this “Agreement”) dated as of the day of
, [fill in effective date of termination pursuant to the Employment Agreement] (the “Effective
Date”), is by and between Michael F. Pintek (“Executive”) and Luminex Corporation (“Luminex”).
WHEREAS, Executive’s employment with Luminex has terminated pursuant to that certain Employment Agreement dated
as of July 1, 2009 (the “Employment Agreement”);
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Termination of Employment. Executive and Luminex hereby agree that Executive’s employment with Luminex has
terminated pursuant to Section _____ [fill in applicable section] of the Employment Agreement effective as of the Effective
Date. To the extent he continues to hold any such positions or directorships, Executive hereby resigns all positions and
directorships he holds with Luminex and any and all of Luminex’s subsidiaries and affiliates.
2. Release by Executive. Executive, on his own behalf and on behalf of the Executive Released Parties (defined
below), hereby irrevocably and unconditionally releases and forever discharges Luminex, its respective subsidiaries and other
affiliated and their respective agents, employees, representatives, officers, directors, stockholders, trustees and attorneys, past
and present, and the heirs, successors and assigns of all of the foregoing (collectively, the “Released Parties”) from any and all
debts, liabilities, claims, demands, actions or causes of action, suits, judgments or controversies of any kind whatsoever (except
as set forth below) arising from Executive’s relationship (including without limitation as a stockholder) to, employment with or
service as an employee, officer, director, or manager of Luminex or its subsidiaries and affiliates (collectively, the “Claims”)
against the Released Parties, that now exist or that may arise in the future out of any matter, transaction or event occurring prior
to or on the Effective Date, including without limitation, any claims of breach of contract or for severance or other termination
pay (except as set forth in Section 4 below), or claims of harassment or discrimination (for example, on the basis of age, sex,
race, handicap, disability, religion, color or national origin) under any federal, state or local law, rule or regulation, including, but
not limited to the Age Discrimination in Employment Act of 1967, 29 U.S.C. §621, et seq. Except as set forth below, Executive
further agrees not to file or bring any claim, suit, civil action, complaint, arbitration or administrative action (any of the
foregoing, an “Action”) in any city, state or federal court or agency or arbitration tribunal with respect to any Claim against any
of the Released Parties or (except as may be required by law) assist any other person or entity with any Action against any of the
Released Parties. Notwithstanding anything to the contrary contained in this Agreement, Executive does not release any of the
Released Parties and shall not be
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prohibited from filing or bringing an Action with respect to any right Executive otherwise may have now or in the future to
(i) receive distributions or dividends made in respect of Luminex’s capital stock or (ii) be indemnified by Luminex under the
Certificate of Incorporation or Bylaws of Luminex (as the same are currently in effect), any resolution adopted by the Board of
Directors of Luminex, or any other separate written agreement or instrument requiring Luminex to indemnify Executive or
(iii) receive workers’ compensation claims or (iv) receive Accrued Obligations (as such term is defined in the Employment
Agreement) or (v) receive Severance Compensation (as such term is defined in the Employment Agreement) or (vi) stock,
options, and other equity-based compensation that vested prior to the Effective Date or that vests subsequent to the Effective
Date pursuant to the Employment Agreement or an applicable Luminex long-term incentive plan (which stock, options or other
equity-based compensation shall be governed by the terms and provisions of the applicable written agreement(s) or instrument(s)
and/or the applicable Luminex incentive plan) or (vii) vested benefits payable under retirement and other employee benefit plans
covering Executive (which benefits shall be governed by the terms and provisions of the applicable plan).
3. Release by Luminex. Luminex, on its own behalf and on behalf of the Released Parties, hereby irrevocably and
unconditionally releases and forever discharges Executive and his heirs, successors and assigns (collectively, the “Executive
Released Parties”) from any and all Claims against the Executive Released Parties, that now exist or that may arise in the future.
Except as set forth below, Luminex further agrees not to file or bring any Action in any city, state or federal court or agency or
arbitration tribunal with respect to any Claim against any of the Executive Released Parties or (except as may be required by
law) assist any other person or entity with any Action against any of the Executive Released Parties. Notwithstanding anything to
the contrary contained in this Agreement, Luminex does not release any of the Executive Released Parties and shall not be
prohibited from filing or bringing an Action with respect to (i) a breach by Executive after the Effective Date of any of
Executive’s obligations under the Employment Agreement that by their terms survive termination of the Employment
Agreement, including without limitation the provisions of Article 5 of the Employment Agreement, or (ii) in connection with any
claim for indemnification by Executive, any obligation or burden of proof applicable to Executive that is a condition to
Executive’s right to be indemnified by Luminex under the Certificate of Incorporation or Bylaws of Luminex (as the same are
currently in effect), any resolution adopted by the Board of Directors of Luminex, or any other separate written agreement or
instrument requiring Luminex to indemnify Executive or (iii) any Claims that arise out of any criminal or fraudulent activity,
willful misconduct or gross negligence of Executive.
4. Severance Compensation. In consideration of Executive’s execution of this Agreement, Executive shall be entitled
to receive from Luminex the Severance Compensation under one of Section 4.1, 4.2 or 4.4 in the Employment Agreement.
Executive acknowledges that no other promise or agreements of any kind have been made to Executive or with Executive by any
person or entity whatsoever to cause Executive to sign this Agreement. Executive further acknowledges and agrees that the
Severance Compensation, together with any other payments or benefits that may be due under the terms of the Employment
Agreement, shall constitute full accord and satisfaction of all obligations, including without limitation any and all severance
obligations, in connection with Executive’s employment. Executive would not be entitled to receive the Severance
Compensation but for Executive’s execution of this Agreement.
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5. Disclaimer of Liability. Executive acknowledges that this Agreement shall not in any way be construed as an
admission by Executive or any of the Released Parties of any wrongful or illegal act against the other or any other person, and
that Executive and the Released Parties expressly disclaim any liability of any nature whatsoever arising from or related to the
subject of this Agreement.
6. COMPETENCY. EXECUTIVE ACKNOWLEDGES THE FOLLOWING:
a. THAT HE FULLY COMPREHENDS AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT
AND THEIR LEGAL EFFECTS;
b. THAT HE IS COMPETENT TO EXECUTE THIS AGREEMENT;
c. THAT IT IS EXECUTED KNOWINGLY AND VOLUNTARILY AND WITHOUT RELIANCE UPON ANY
STATEMENT OR REPRESENTATION OF ANY RELEASED PARTY OR ITS REPRESENTATIVES;
d. THAT HE HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING
THIS AGREEMENT AND THAT HE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS
CHOICE REGARDING THIS AGREEMENT;
e. THAT EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE THIS
AGREEMENT IS EXECUTED;
f. THAT EXECUTIVE WAIVES RIGHTS OR CLAIMS UNDER THIS AGREEMENT ONLY IN EXCHANGE
FOR CONSIDERATION IN ADDITION TO ANYTHING OF VALUE TO WHICH THE EXECUTIVE WAS ALREADY
ENTITLED;
g. [THAT HE HAS BEEN PROVIDED THE MATERIALS REGARDING THE CLASS, UNIT, OR GROUP OF
INDIVIDUALS ELIGIBLE FOR THIS COMPENSATION AND THE TIME LIMITS APPLICABLE TO SUCH PROGRAM;]
[This clause to be included if required by or advisable under applicable law.]
h. [THAT HE HAS BEEN PROVIDED THE JOB TITLES AND AGES OF ALL INDIVIDUALS ELIGIBLE OR
SELECTED FOR THE PROGRAM AND THE AGES OF ALL INDIVIDUALS IN THE SAME JOB CLASSIFICATION OR
ORGANIZATIONAL UNIT WHO ARE NOT ELIGIBLE OR SELECTED FOR THE PROGRAM;] [This clause to be included
if required by or advisable under applicable law.]
i. THAT HE HAS HAD A PERIOD OF AT LEAST 21 DAYS [or 45 days, if required by or advisable under
applicable law] WITHIN WHICH TO CONSIDER THIS AGREEMENT;
j. THAT FOR A PERIOD OF SEVEN DAYS FOLLOWING THE EXECUTION OF THIS AGREEMENT,
EXECUTIVE MAY REVOKE THIS AGREEMENT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE SEVEN-DAY PERIOD HAS EXPIRED OR SUCH LATER DATE AS PROVIDED FOR HEREIN.
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7. Parties in Interest. This Agreement is for the benefit of the Released Parties and shall be binding upon Executive
and his representatives and heirs.
8. Governing Law. This Agreement and the rights and obligations of Executive hereunder shall be governed by and
construed and enforced in accordance with the substantive laws of the State of Texas.
9. Amendment. This Agreement may not be clarified, modified, changed or amended except in writing and signed by
Executive and Luminex or a successor-in-interest of Luminex.
10. Non-disparagement. Executive agrees that he will refrain from speaking ill of or making any disparaging comment
about Luminex or Luminex’s management, other employees or contractors, following the termination of his employment except
as may be necessary or advisable, in the reasonable judgment of Executive, to enforce his rights under this Agreement, enforce
claims arising after the Effective Date and not released in this Agreement, or defend a legal action brought against Executive by
any of the Released Party. Luminex agrees that it will refrain from speaking ill of or making any disparaging comment about
Executive following the termination of his employment except as may be necessary or advisable, in the reasonable judgment of
Luminex, to (i) to enforce its rights under the Employment Agreement or this Agreement not released in this Agreement or
(ii) defend a legal action brought against any of the Released Parties by Executive or (iii) comply with applicable securities laws
or protect Luminex from potential liability.
11. Enforcement of Laws. Nothing in this Agreement affects the rights and responsibilities of the Equal Employment
Opportunity Commission (the “Commission”) to enforce the anti-discrimination laws, and this waiver does not affect Executive’s
right to file a charge or participate in an investigation or proceeding with the Commission. However, Executive waives any rights
or claims, known or unknown, to participate in any recovery under any proceeding or investigation by the Commission or any
state or local commission concerned with the enforcement of anti-discrimination laws.
12. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable provision, and there shall be added automatically as part
of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
LUMINEX CORPORATION
By:
EXECUTIVE
Michael F. Pintek, individually
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EXHIBIT 21.1
LIST OF SUBSIDIARIES
Luminex International, Inc., a Delaware corporation
Luminex B.V., a Dutch Private Limited Liability Company
Luminex Molecular Diagnostics, Inc., an Ontario, Canada corporation
Luminex Trading (Shanghai) Co., Ltd., a Chinese Foreign Investment Company
Luminex Japan Corporation Ltd., a Japanese KK
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-141042) pertaining to the Tm
Bioscience Corporation Share Option Plan, in the Registration Statement (Form S-8 No. 333-134450) pertaining to the Luminex
Corporation 2006 Equity Incentive Plan and the Luminex Corporation 2006 Management Stock Purchase Plan, in the
Registration Statement (Form S-8 No. 333-46686) pertaining to the 2000 Long-Term Incentive Plan of Luminex Corporation, in
the Registration Statement (Form S-8 No. 333-87918) pertaining to the 2001 Broad-Based Stock Option Plan of Luminex
Corporation and in the Registration Statement (Form S-8 No. 333-118772) pertaining to the Balthrop Non-Qualified Stock
Option Agreement of Luminex Corporation, in the Registration Statement (Form S-8 No. 333-159382) pertaining to the
Amended and Restated 2006 Equity Incentive Plan and in the Registration Statement (Form S-3 No. 333-151691) of our reports
dated February 25, 2010, with respect to the consolidated financial statements of Luminex Corporation, and the effectiveness of
internal control over financial reporting of Luminex Corporation, included in this Annual Report (Form 10-K) for the year ended
December 31, 2009.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2010
Exhibit 31.1
I, Patrick J. Balthrop, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2010
By: /s/ Patrick J. Balthrop
Patrick J. Balthrop
President and Chief Executive Officer
Exhibit 31.2
I, Harriss T. Currie, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 25, 2010
By: /s/ Harriss T. Currie
Harriss T. Currie
Vice President - Finance
Chief Financial Officer
Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Luminex Corporation (the “Company”) on Form 10-K for the period ended
December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick J.
Balthrop, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ PATRICK J. BALTHROP
Patrick J. Balthrop
President and Chief Executive Officer
February 25, 2010
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Luminex Corporation (the “Company”) on Form 10-K for the period ended
December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harriss T.
Currie, Vice President — Finance, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ HARRISS T. CURRIE
Harriss T. Currie
Vice President - Finance
Chief Financial Officer
Treasurer
February 25, 2010