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[ V I S I O N ]
Breakthrough solutions
to improve health and
advance science.
2012 was a year of growth and investment for Luminex. We
achieved record revenue driven by a 54% increase in assay
sales, an area in which we have invested strategically. We
again shipped close to a thousand multiplexing analyzers
in 2012, nearing 10,000 total systems
installed-to-date.
Our gross margins improved to 70% reflecting an ongoing
product mix shift towards higher-margin items. In addition to
delivering solid financial results, we continued to invest in our
strategic initiatives, building our portfolio and customer support
capabilities for long-term value creation via accelerated growth
in key market segments.
Since our founding in 1995, Luminex has pursued a diversified
growth model. This model includes a long-term commitment
to strategic partners that are market leaders in their respective
segments, such as protein panels in the life science research
market and transplant testing in the diagnostic market. We are
committed to supporting our strategic partners and advancing
the achievement of their goals, which is why we anticipate
continued solid growth from this core foundation. We are
leveraging this foundation to invest in our fast-growing assay
franchise and continue our leadership in the evolving molecular
diagnostics segment.
StrateGic initiativeS
It is an exciting time to be in the molecular diagnostic space.
A new era of molecular medicine is underway due to innovative
technologies, tools, and research that have advanced our
understanding of the complexity of disease. Breakthrough
discoveries continue to drive the expansion of the molecular
diagnostic market, benefiting patients, hospitals and laboratories
worldwide. We are proud to be part of this transformation.
Luminex is known for developing many “firsts” in molecular
diagnostics — including the first FDA cleared test for cystic
fibrosis, the first FDA cleared test for the detection of multiple
respiratory viruses, and most recently the first FDA cleared
test for detection of multiple gastrointestinal pathogens. These
innovative assays are leading the industry’s conversion to
molecular methods, thereby achieving two critical objectives:
improving patient care and delivering cost savings to the global
healthcare system.
As laboratories are increasingly challenged to do more with
less, Luminex is developing solutions that complement the
productivity provided by multiplexing with automation and
simplicity while also
improving throughput and capacity.
Combining multiplexing with automation,
in addition to
improving workflow, capacity and throughput, will help to
address the demands of tomorrow’s customer.
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There are hundreds of assays available on Luminex technology,
to offer the convenience of a one-step workflow with the power of
including assays provided by our market-leading partners.
multiplexing and the throughput of a batch-based system.
Innovative proprietary assays from Luminex continue to grow
and reach new customers. Most recently, we introduced xTAG®
Gastrointestinal Pathogen Panel (GPP), the first comprehensive
FDA-cleared molecular diagnostic assay that tests for greater
than 90% of bacterial, viral, and parasitic causes of infectious
gastroenteritis from a single patient sample. We
launched
NeoPlex4®, our newborn screening assay, outside the U.S., and
plan to gain FDA clearance in 2013. We are very excited about
these new products and how we are transforming the way testing
is performed.
During 2012, we acquired GenturaDx to accelerate market entry of
a high capacity, sample-to-answer instrument in the fast-growing
molecular diagnostic segment. Through our development efforts this
system will represent the next generation of integrated molecular
diagnostic systems. This innovative platform, in combination with
MultiCode®, our proprietary real-time PCR technology, will enable
us to offer the customer both multiplexed assays and low-plex
real-time assays in a way that will be unmatched in the industry.
Additionally this new system is ideal for custom assay development
making it accessible to a greater number of diagnostic labs,
including those with little molecular experience. We believe this
lab-developed test segment is a significant growth opportunity for
Luminex today and in future years.
We are also currently developing a new version of our multiplex
PCR chemistry that will enable customers to perform our assays
more simply and easily, with very little labor and much faster
turnaround times, while retaining the ability to process in high
volumes. This throughput flexibility and capacity is a critical
aspect for tests like RVP, as seasonality and local outbreaks can
cause testing volumes to surge unpredictably. Once we launch our
next generation chemistry, we anticipate being the only company
Our new product offerings and the increased adoption of multiplex
technology are ushering in the next evolutionary step in serving
our customers. Our dedicated sales force allows us to highlight
our entire portfolio of products across our platforms and product
franchises. By representing our first-mover products and managing
customer relationships directly, we are better able to position our
products and respond to customers’ needs more effectively. These
initiatives position the company for strong long-term growth.
LookinG aHead
This is an exciting time. Luminex is pioneering comprehensive yet
simple solutions that are transforming the way biological testing
is performed. With the growth of our core business, the release
of our newest assays xTAG Gastrointestinal Pathogen Panel and
NeoPlex4, the increased adoption of our assay product portfolio and
the investments we have made in the company’s infrastructure, our
commitment to growth is stronger than ever. The progress we have
made and the milestones we have achieved would not be possible
without the hard work and dedication of our employees, for which
I am both proud and grateful. I have the privilege to work alongside
a very talented and dedicated team who are making a difference in
the world. Every day we strive to fulfill our mission to enhance the
health, safety and quality of life for all. Thank you for your continued
support, and I look forward to a bright future for Luminex.
Sincerely,
Patrick J. Balthrop, Sr.
Chief Executive Officer and President
Gross Margin
Total Revenue
($ in millions)
70.0%
65.0%
60.0%
200
150
100
50
0
2007
2008
2009
2010
2011
2012
2007
2008
2009
2010
2011
2012
[ M i s s i o n ]
Luminex transforms the way our customers
perform biological testing. We pioneer
comprehensive yet simple solutions to
improve outcomes and reduce overall costs.
Every day we work to enhance the health,
safety and quality of life for all.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012 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)
74-2747608
(I.R.S. Employer Identification No.)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
(Address of principal executive offices)
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
Name of exchange on which registered
The NASDAQ Global Select 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. Yes [X] 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. Yes [ ] No [X]
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 [X] No [ ]
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 [X] No [ ]
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. [ ]
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
(Check one).
Large accelerated filer [X]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Based on the closing sale price of common stock on The NASDAQ Global Select Market on June 29, 2012, the aggregate market value
of the voting stock held by non-affiliates of the Registrant was $931,105.784 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 41,668,172 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 21, 2013.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 2013 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
TABLE OF CONTENTS
PART I
PAGE
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Financial Statements and Supplementary
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures and Certifications
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32
33
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33
34
37
38
56
57
93
93
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94
94
94
94
94
95
S- 1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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 provide 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, projected consumables sales patterns or bulk purchases,
budgets, anticipated gross margins, 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, plans and objectives
of management for future operations, and acquisition integration and the expected benefit of our acquisitions 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;
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, budget or finance constraints in the current
economic environment, or periodic variability in their purchasing patterns or practices;
the timing of and process for regulatory approvals;
the impact of the ongoing uncertainty in U.S. and global finance markets and changes in government and government
agency funding, including its effects on the capital spending policies of our partners and end users and their ability to
finance purchases of our products;
fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, fluctuations in 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;
risks and uncertainties associated with implementing our acquisition strategy, including our ability to obtain financing,
our ability to integrate acquired companies, such as GenturaDx, Inc. acquired in July 2012, or selected assets into our
consolidated business operations, and the ability to recognize the benefits of our acquisitions;
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;
our increasing dependency on information technology to enable us to improve the effectiveness of our operations and
to monitor financial accuracy and efficiency;
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; and
risks relating to our foreign operations, including fluctuations in exchange rates, tariffs, customs and other barriers to
importing/exporting materials and products in a cost effective and timely manner; difficulties in accounts receivable
collections; the burden of monitoring and complying with foreign and international laws and treaties; and the burden
of complying with and change in international taxation policies.
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® 100/200™, Luminex® XYP™, Luminex® SD™, FLEXMAP 3D®, MicroPlex®,
MAGPIX®, MagPlex®, SeroMAP™, xPONENT®, FlexmiR®, NeoPlex4™, LumAvidin®, MultiCode® and EraGen® 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 and conduct life science research.
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, light emitting diodes (LEDs), digital signal processors, photo detectors, charge-coupled device imaging
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, and for clinical diagnostics, genetic analysis, bio-defense, food safety and biomedical research. In addition to our
xMAP technology, our other offerings include our proprietary MultiCode® technology, used for real-time polymerase chain reaction
(PCR) and multiplexed PCR assays, as well as automation and robotics in the field of dry sample handling. Our business is
currently organized into two reportable segments: the technology and strategic partnerships (TSP) segment and the assays and
related products (ARP) segment. Our products are described below under “Products.”
The TSP segment has been built around strategic partnerships. As of December 31, 2012, we had approximately 55 strategic
partners, 40 of which have developed reagent-based products utilizing our technology. Luminex and these partners have sold
approximately 9,659 xMAP-based instruments in laboratories worldwide as of December 31, 2012. 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.
The ARP segment is primarily involved in the development and sale of assays utilizing xMAP technology on our installed
base of systems. It augments our partnership model with a distribution model, designed to take advantage of our increasing installed
base of xMAP-based instrumentation. The ARP segment is primarily focused on multiplexed applications for the human molecular
clinical diagnostics market. Our ARP segment products are currently focused on three segments of the molecular diagnostic testing
market: human genetics, personalized medicine and infectious disease. We have established our position in the marketplace through
our regulatory compliant manufacturing processes, product development competencies and U.S. Food and Drug Administration
(FDA) compliant manufacturing capabilities.
We have established a significant position in several segments of the life sciences industry by developing and delivering
products that meet customer 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, 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 and 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 in 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. We were reincorporated in the State of Delaware
in February 2000.
1
Recent Events
Acquisition of GenturaDx
On July 11, 2012, we completed the acquisition of privately-held GenturaDx, Inc. (GenturaDx), a molecular diagnostics
company focused on making nucleic acid testing both affordable and practical for any laboratory. We acquired all of the outstanding
capital stock of GenturaDx in exchange for approximately $50 million cash consideration, subject to working capital adjustments,
plus (i) $3 million in consideration contingent upon achieving certain future development and regulatory milestones by December
31, 2013, (ii) up to $7 million in consideration contingent upon achieving certain future development and regulatory milestones
by June 30, 2014 and (iii) additional consideration contingent upon developed products exceeding certain revenue thresholds in
each of 2013, 2014 and 2015. The acquisition was funded by the use of cash on hand. Upon acquisition, GenturaDx was included
in our ARP segment.
GenturaDx is in late stage development of a fully integrated, highly automated, real-time PCR system that employs a
single-use cassette for sample-to-answer workflow. This new system is expected to integrate with our MultiCode-RTx chemistry
to make rapid, high-quality molecular diagnostics accessible to hospitals and patients worldwide. GenturaDx's patented cartridge
design provides automated sample extraction, amplification and detection, thereby improving testing throughput, while reducing
hands on time, turnaround times and sample handling. Luminex anticipates commercial availability of assays for use with this
system in 2014.
Defense Threat Reduction Agency Contract
On August 9, 2012, we were awarded a contract by the Defense Threat Reduction Agency (DTRA) worth up to $11.6
million over three and a half years. The contract is expected to fund development of a prototype instrument that is expected to be
a highly portable, field-deployable diagnostic tool capable of rapid detection of biothreat agents and patient response biomarkers
indicative of systemic disease. This hand-held system is expected to detect both protein and nucleic acid targets to aid diagnosis
of Systemic Inflammatory Response Syndrome, a consequence of blood infection in conventional combat, biowarfare and combat
operations in developing and resource-limited areas.
Available Information
Our shares of common stock are traded on the Nasdaq Global Select Market under the symbol “LMNX.” Our principal
executive offices are located at 12212 Technology Blvd., Austin, Texas 78727, and our telephone number is (512) 219-8020. Our
website address is www.luminexcorp.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, are available free of charge through our website as soon as reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange Commission, or the SEC. Information contained or accessible on our
website is not incorporated by reference into this report and such information should not be considered to be part of this report
except as expressly incorporated herein. The public may read and copy these materials at the SEC’s public reference room at 100
F Street, N.E., Washington, D.C. 20549 or on the SEC’s website at www.sec.govUH. 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.
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:
• 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 or dosing the appropriate drug therapy based on the patient’s genetic makeup, a field
known as pharmacogenetics.
2
The life sciences customer can purchase bioassays in the form of complete off-the-shelf kits, develop them from scratch or
utilize a customized service to meet their specific needs.
The table below briefly describes the key bioassay technologies in the life sciences industry:
KEY TECHNOLOGIES
DESCRIPTION
MARKETS SERVED
BioChips/Microarrays High-density arrays of DNA fragments
Sequencing
Automated Immunoassays
Gels and blots
PCR methods
or proteins attached to a flat glass or
silicon surface
Instruments which “read” the nucleotide
sequence of DNA or ribonucleic acid
(RNA) by a variety of methods
Automated test tube-based instruments
used for detecting antibodies, proteins
and other analytes
Physical separation of molecules or
analytes for visualization
Tests which use PCR technology to test
DNA and RNA
Microfluidics chips Miniaturized liquid handling system on
Microtiter-plate based assays
a chip
Plastic trays with discrete wells in which
different types of assays are performed,
usually Enzyme-Linked Immuno-
Sorbent Assay (ELISA) tests
Genotyping technologies
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
Biomedical research and clinical
diagnostics
Biomedical research and clinical
diagnostics
Clinical diagnostics
Biomedical research and clinical
diagnostics
Nucleic acid testing in clinical
diagnostics and biomedical research
Biomedical research and clinical
diagnostics
Drug discovery, clinical diagnostics
and biomedical research
Drug discovery, clinical diagnostics
and biomedical research
Gene expression technologies
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
Our xMAP Technology
Our xMAP technology combines existing biological testing techniques with illumination, advanced digital signal processing,
detection 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 or LEDs, detectors 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:
• 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.
3
•
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.
• 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 typically restricted to either proteins or nucleic acid, requiring customers to use
two or more technologies from other vendors to get the same information.
• 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 one hour with only a small amount of sample. Rapid sample analysis permits efficient use for high-throughput
applications.
• Ease of use
Most xMAP-based 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.
• 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 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.
Two types of microspheres, polystyrene microspheres and polystyrene magnetic microspheres, are both fundamental
components 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.
To perform a bioassay using xMAP technology on our flow cytometry platforms, 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 such as the Luminex 200 instrument, or LX200, 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.
We have an active product development pipeline of both instrument systems and assays. Our FLEXMAP 3D® instrument
was market released in June 2009. The FLEXMAP 3D system has twice the sample throughput of our LX200 instrument and will
detect, via multiplexing, up to 500 distinct biomarkers simultaneously in a single assay. This is a fivefold 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.
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In July 2010, we commercially released our MAGPIX® instrument that is capable of performing up to 50 tests on a single
sample. MAGPIX is based on an innovative detection mechanism that uses low-cost, high performing light-emitting diodes and
a charge coupled device, or CCD, imaging system, rather than the lasers and detection mechanisms used in our flow cytometry-
based instruments. Like other Luminex instruments, MAGPIX can be used to analyze both nucleic acids and proteins, making it
applicable in many research settings. MAGPIX was designed so that assays available on current Luminex instruments that use
MagPlex magnetic microspheres will be compatible with MAGPIX. The MAGPIX instrument was designed to meet the needs
of laboratories, academic researchers and scientists, who to date have not been able to take advantage of the power of multiplexing
because of resource and space limitations. The MAGPIX instrument is compact, easy for users to install and weighs less than 40
lbs, making it affordable to ship and deploy anywhere in the world and attractive to smaller and lower-volume laboratories and
institutions with limited resources and bench space.
Our xTAG and MultiCode Technology
Our xTAG® technology, developed by the ARP 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.
In June 2011, we acquired EraGen Biosciences, Inc., now referred to as Luminex Madison (LMA), which provided us with
access to a highly complementary portfolio of molecular diagnostic assays based on an innovative and proprietary technology
platform called MultiCode®. This unique assay chemistry is a flexible platform for both real-time PCR and multiplex PCR-based
applications. Our MultiCode technology is powered by a base pair (man made nucleotide pair isoC:isoG in addition to the A:T
and G:C nucleotide pairs found in nature) that does not exist in nature, but can be combined with natural base pairs, and incorporated
into a wide range of molecular diagnostic applications. The MultiCode base pair is recognized by naturally occurring enzymes
and can be used for the specific placement of reporter molecules and to increase the molecular recognition capabilities of
hybridization-based assays. The MultiCode base pair enables solutions to complex molecular challenges that were previously not
possible with natural nucleic acid alone.
We have multiple assay development activities ongoing in the ARP segment. The ARP segment has assay development
programs focused in the areas of human genetics, pharmacogenetics, infectious disease, newborn screening, custom gene expression
assays, agricultural testing, and bio-threat. In 2013, we have plans to submit certain assay products to regulatory authorities,
including the FDA and foreign equivalents, for clearance in order to comply with established guidelines across the jurisdictions
in which we participate.
Business Strategy
Our company’s focus continues to be the establishment of Luminex as an industry leader and our xMAP and Mulitcode-RTx
technologies as the industry standards for performing bioassays by transforming Luminex from a technology-based company to
a market-driven, customer-focused company. To achieve this objective, we have implemented and are pursuing the following
strategies:
•
Focus on key market segments
We have identified the following key market segments: (i) molecular infectious disease, (ii) genetic or inherited disease, (iii)
pharmacogenetic testing, (iv) immunodiagnostics, (v) life sciences research, and (vi) bio-defense, or bio-threat testing. We
will continue to employ a combination of both a partnership driven business model and a product driven business model
focused on selected market segments and bioassay applications.
• Direct sales and customer support in molecular diagnostics
On January 1, 2013, we assumed responsibility from our major distributors to directly serve the customer base that they
supported with a portion of our proprietary molecular diagnostics product line. Our decision to go direct was driven by our
desire to take control of our molecular diagnostics business to drive demand for our products, build on our direct relationship
with the end user customer and benefit from end user customer pricing.
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• Continue to develop strategic partnerships focused in select key market segments
As of December 31, 2012, 40 of our 55 strategic partners have developed and commercialized xMAP based assay products
and are submitting royalties. We also have strategic partners who distribute Luminex products. During 2012, the 40 strategic
partners who have commercialized xMAP based assay products accounted for approximately 76% of our total revenue and
all of our strategic partners represented approximately 81% of our total revenue. We intend to broaden and accelerate market
acceptance of xMAP technology through development, marketing and distribution partnerships with leading companies in
the life sciences markets. 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 xMAP customers with more assay product
options than any one company or Luminex could develop and commercialize individually.
We will continue to focus our commercialization efforts through our strategic partners covering large sectors of the life science
research market where Luminex believes it has competitive advantages over alternative technologies and approaches. We
define strategic partners as those companies in the life sciences markets that develop and distribute assays and tests on xMAP
technology or may only distribute our xMAP technology based systems and consumables. With our partners’ support and
through our direct commercial efforts in the molecular diagnostics clinical laboratory segment, 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.
• 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 can
gain greater control over product development, market penetration and commercialization, thereby realizing a larger percentage
of end-user sales revenue and generating incremental gross profit.
• 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 technologies and market acceptance. Along
with these projects, we are focusing resources on improving the simplicity and ease of use of our mulitplex products through
the development of a new version of our multiplex PCR technology. This new chemistry is expected to enable customers to
perform multiplex assays very simply and easily, with very little labor and much faster turnaround times. We recognize that
the critical aspect of our current technology that we want to preserve for our larger customers is the ability to process anywhere
from 1 to 96 patients in a single batch. This throughput flexibility and capacity is a critical aspect for tests like our
xTAG Respiratory Viral Panel (RVP), in which seasonality and local outbreaks can cause testing volumes to surge
unpredictably. We intend to offer the convenience of a one-step workflow with the throughput of a batch-based system. In
addition, products using this new chemistry are expected to have the convenience of room temperature shipping and storage.
We intend to release a next-generation respiratory panel and new multiplex tests offering these workflow advantages over the
next several years.
In 2012, we added the technology of GenturaDx, with its sample-to-answer prototype instrument. This technology, when
combined with our proprietary real-time PCR chemistry and a new menu of highly automated assays that we are developing,
is expected to enable us to offer a differentiated, sample-to-answer solution.
We have used both strategic acquisitions, as well as research and development, to expand the breadth of technology and
solutions we offer our customers to meet their needs. We have developed a full range of multiplexing instruments and
consumables to cover a broad range of customer applications and budgets. We have developed, and continue to improve, the
xTAG multiplex PCR chemistry for our proprietary multiplex assays in areas such as human genetic testing, personalized
medicine testing and infectious disease testing. We have also acquired the MultiCode RTx real-time PCR technology for both
quantitative and qualitative low-plex real-time assays. We have acquired GenturaDx and its IDBox sample-to-answer platform,
which is compatible with our MultiCode RTx technology, to provide our customers with molecular assays that are very easy
to implement. And we have developed a high-throughput, automated immunodiagnostic analyzer for newborn screening
applications. All of these technology solutions provide our customers with a breadth of innovative solutions to meet their
many testing needs.
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We are also collaborating with industry participants, biomedical research institutions and government entities to develop
additional 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.
• 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 Corporation (Tm
Bioscience), now referred to as Luminex Molecular Diagnostics (LMD) in 2007, the acquisition of Bizpac (Australia) Pty.
Ltd. (BSD) in 2010, the acquisition of LMA in 2011 and the acquisition of GenturaDx in 2012. We actively evaluate
opportunities to enhance our capabilities or our access to targeted markets or technologies, or provide us other advantages in
executing our business strategies in our key markets.
Products
TSP Segment
Instruments
Luminex® LX 100/200™ (LX Systems). The LX Systems 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 semiconductor 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.
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 can simultaneously measure up to 500 analytes from a single
sample and offers increased speed and enhanced ease-of-use and serviceability. Like our LX Systems, the FLEXMAP 3D system
combines semiconductor lasers with digital signal processors and microcontrollers and these systems perform rapid, multi-analyte
profiles under the control of a Windows®-based personal computer and our proprietary software.
MAGPIX®. The MAGPIX system is a versatile multiplexing analyzer capable of performing qualitative and quantitative
analysis of proteins and nucleic acids in a variety of sample matrices. This system is Luminex’s newest instrument and can perform
up to 50 tests in a single reaction volume, reducing sample input, reagents and labor while improving productivity. MAGPIX is
based on an innovative detection mechanism that uses LEDs and a CCD imaging system, rather than the lasers and detection
mechanisms used in our flow cytometry-based instruments.
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 100 distinct color sets.
Each microsphere can carry the reagents of an enzymatic, genetic or immunologic bioassay.
MagPlex® Microspheres. These microspheres feature super-paramagnetic properties that make them ideal for running
automated xMAP-based assays. 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. These microspheres can be moved or held in place by a magnetic field. Many automated systems
utilize magnetic properties to automate the performance of the 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 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 enhanced sensitivity in serum-based assays.
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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
various systems.
Software
xPONENT®. Our xPONENT software is included in all of our new instruments and 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 features, all designed to simplify laboratory workflow and increase productivity, including: 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, FLEXMAP
3D, and MAGPIX systems and is available as an upgrade to the existing LX systems in the marketplace. Sales of this product
during 2012 did not represent a material component of our revenue.
ARP Segment
Assay 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 21, 2013 the following product families are commercially available:
Respiratory Viral Family
This family of products includes RVP, 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.
Gastrointestinal Pathogen Detection Family
The Gastrointestinal Pathogen Panel (GPP) family of products includes IVD assays as well as individual analyte specific
reagents which can be developed by Clinical Laboratory Improvement Amendments labs into laboratory developed tests. These
products enable laboratory end users to identify the pathogens causing infectious gastroenteritis, which is a major cause of morbidity
and mortality globally.
MultiCode® Assays and Products Family
This product family includes our FDA-cleared HSV1/2 kit as well as a number of analyte specific reagents and other
products. These products are generally designed to detect infectious agents in clinical samples using our proprietary MultiCode
RTx real-time PCR chemistry.
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 and the American College of
Obstetricians and Gynecologists include screening for 23 mutations in the cystic fibrosis transmembrane conductance regulator
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.
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Personalized Medicine Product 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. One of the products in this category is the FDA-cleared
CYP2D6 assay used for identifying patients with variants in the CYP2D6 gene, which affects the metabolism and efficacy of some
pharmaceutical compounds. The other two assays are currently Investigational Use Only (IUO) assays.
Newborn Screening Product Family
The Newborn Screening Product Family, including the NeoPlex® System and xMAP NeoPlex4® Assay, CardScan®, BSD
300 Puncher, and xTAG Cystic Fibrosis Kit, is a complete system solution enabling newborn screening laboratories to streamline
their workflow. The NeoPlex System and xMAP NeoPlex4 Assay is a high-throughput multiplexing system that simultaneously
tests four analytes which are indicators of congenital hypothyroidism, congenital adrenal hyperplasia, and CF. CardScan is a
quality-management, automated tool that detects dried blood spot quality, helps enable newborn screening laboratories to improve
workflow and optimize patient samples. BSD 300 Puncher is a semi-automated punching instrument specifically designed to
improve laboratory throughput by multi-punching from a single presentation of sample.
Life Science Research Product Family
This product family consists of customer defined products, such as the custom gene expression assays, that we develop for
the life science research and pharmaceutical development markets.
Specialty Product Family and Instrumentation
This family of products includes a variety of assays targeted towards specialty, niche markets.
In addition to the commercially available assays, we develop custom reagents for certain of our partners. Our ARP segment
also distributes LX Systems, FLEXMAP 3D, MAGPIX and dry sample preparation systems.
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 ARP segment through our distribution partners
or directly to end users in segments where our partners do not participate.
We continue to use strategic partners as the primary distribution channel for our systems, 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 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, 2012, we had approximately 55 strategic partners,
compared to approximately 66 strategic partners as of December 31, 2011. On a regular basis, we update our strategic partner
listing to reflect results of partner consolidations due to mergers and acquisitions, commercial sales inactivity, as well as termination
or expiration of existing non-performing partner agreements, which in 2012 did not account for material revenue. During 2012,
41 strategic partners had released commercialized products utilizing the Luminex platform and were submitting royalties. As of
December 31, 2012, 40 of these strategic partners with commercialized products remain, of which 22 companies principally serve
the clinical diagnostics market and 18 companies principally serve the life science research market. Revenues through these
commercialized, royalty-submitting, strategic partners constituted 76% of our revenues for 2012. 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.
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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 each of the last three years, one or more customers each accounted for more than 10% of our total revenues. Thermo Fisher
Scientific, Inc., including acquired One Lambda, Inc., accounted for 24%, 30% and 23% of our total revenues in 2012, 2011 and
2010, respectively. Laboratory Corporation of America (LabCorp), including acquired Genzyme Genetics, accounted for 19%,
10% and less than 10% of our total revenues in 2012, 2011 and 2010, respectively. Bio-Rad Laboratories, Inc. accounted for 8%,
10%, and 13% of our total revenues in 2012, 2011 and 2010, respectively. No other customer accounted for more than 10% of
our total revenues in 2012, 2011 or 2010. The loss of any of these customers could have a material adverse effect on our business,
financial condition and results of operations.
Thermo Fisher Scientific, Inc., including acquired One Lambda, Inc., accounted for 28%, 33%, and 21% of our total TSP
segment revenues in 2012, 2011 and 2010, respectively. Bio-Rad Laboratories, Inc. accounted for 14%, 14%, and 17% of our total
TSP segment revenues in 2012, 2011 and 2010, respectively. EMD Millipore accounted for 13%, 11%, and 12% of our total TSP
segment revenues in 2012, 2011 and 2010, respectively. LabCorp, including acquired Genzyme Genetics, accounted for 45%,
31%, and 29% of our total ARP segment revenues in 2012, 2011 and 2010, respectively. Thermo Fisher Scientific, Inc. accounted
for 18%, 24%, and 29% of our total ARP segment revenues in 2012, 2011 and 2010, respectively. Abbott Laboratories accounted
for 9%, 10%, and 16% of our total ARP segment revenues in 2012, 2011 and 2010, respectively. No other customer accounted
for more than 10% of total segment revenues in 2012, 2011 or 2010. As a result of our focus on selling directly to the end user,
customer concentration in the ARP segment is expected to decline in future periods.
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, 2012, 2011, and 2010, foreign sales
to customers totaled $34.7 million, $31.9 million, and $23.6 million, respectively, representing 17%, 17%, and 17%, respectively,
of our total revenues for such periods. We have foreign subsidiaries in Canada, the Netherlands, the People’s Republic of China,
Japan and Australia, 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 18 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, as is 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, Australian 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.
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Field Support
We currently have field service and field application personnel based across North America, Europe, China, Japan and Australia
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.
Research and Development
Our research and development groups seek to advance the capabilities of xMAP and MultiCode technology to further penetrate
the life sciences 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, 2012, 2011, and 2010, was $40.8 million, $33.4 million, and $26.8 million, respectively including customer-
sponsored research funding of $1.1 million, $0.6 million, and $0.8 million, respectively.
Our current research and development projects include:
• New product development
Our research and development and marketing teams 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 both the
FLEXMAP 3D and MAGPIX instruments to expand the price and performance options available to our customers. Our
engineering team in Brisbane, Australia is focused on automated sample processing dried biological samples for markets
including neonatal screening, pharmaceutical development and criminal forensics. This team continues to invest in
innovative engineering approaches to meet the demands of these growing market segments. Simultaneously, a subset of
the engineering team is engaged in the focused research necessary to extend our intellectual property position and maintain
the innovative nature of our products.
• Assay development
Our ARP segment 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 food safety markets. All assay applications make use of our xMAP technology
or our MultiCode RTx 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 products include calibrators, controls and microspheres with additional performance characteristics.
Our current beads utilize three common chemistries for the immobilization of assays on its surface. While these chemistries
are well accepted in the industry, it is desirable to expand our bead chemistry capability to enhance market penetration and
adoption. We continue to work on other surface chemistries to provide optimal performance in broader application areas.
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•
Software development
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. 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 to provide better test
results management and wider use of Luminex developed assays.
• 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 technology 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 historically purchased many of the components and raw materials used in our products from numerous suppliers
worldwide. For reasons of quality assurance, sole source availability or cost effectiveness, certain components and raw materials
used in the manufacture of our products are available only from one supplier. We have worked closely with our suppliers to develop
contingency plans to assure continuity of supply while maintaining high quality and reliability, and in some cases, we have
established long-term supply contracts with our suppliers. Due to the high standards and FDA requirements applicable to the
manufacturing of our products, we may not be able to quickly establish additional or replacement sources for certain components
or materials. In the event that we are unable to obtain sufficient quantities of raw materials or components on commercially
reasonable terms or in a timely manner, our ability to manufacture our products on a timely and cost-competitive basis may be
compromised, which may have a material adverse effect on our business, financial condition and results of operations.
We have approximately 41,000 square feet of manufacturing space located at our principal executive offices in Austin,
Texas. We initially certified our Quality Management System (QMS) to the ISO 9001:2000 standard and in 2010 updated our
certification to ISO 9001:2008. ISO 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 have been successfully recertified since
obtaining our original ISO certification. Also, we have our QMS certified to the ISO 13485:2003 Quality Management Standard
and the Canadian Medical Devices Conformity Assessment System (CMDCAS) for Medical Devices. These standards include a
special set of requirements specifically related to the supply of medical devices and related services. Additionally, we manufacture
to current Good Manufacturing Practice requirements and our QMS is implemented in accordance with FDA Quality System
Regulations.
In addition, we have approximately 6,000 square feet of manufacturing space located in Toronto, Canada, approximately 6,000
square feet of manufacturing space located in Madison, Wisconsin and approximately 4,000 square feet of manufacturing space
in Acacia Ridge, Queensland, Australia. The Toronto and Madison facilities and related QMS have been certified to the ISO
13485:2003 standard and registered under the CMDCAS and the Australia facility and the BSD QMS have been certified to the
AS/NZS ISO 9001:2008 standard.
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, 2012, a total of 9,659 Luminex multiplexing analyzers had been sold since inception.
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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 red and near infrared dyes 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.
Assays and Reagents
Contract manufacturers produce certain components of our xMAP-based and MultiCode-based developed reagents. The
remaining assembly and manufacturing of our developed kits are performed at either our facility in Austin, Texas; Toronto, Canada;
or Madison, Wisconsin. The quality control and quality assurance protocols are all performed at our facilities. Reagents,
consumables and other raw material that comprise our kits are obtained from a number of sources.
Increasing regulatory requirements coupled with rising demand for new clinical applications are driving demand for
laboratory developed tests. Our proprietary technologies and platforms offer a unique combination of flexibility and
throughput, as our systems' open architecture, software and standard protocols allow our customers the ability to use our
proprietary reagents to validate and verify a new test, while being able to utilize the same system to handle increasing volumes
once the assay is commercialized.
Automated Punching Systems
At our facility in Brisbane, Australia, we manufacture laboratory equipment used in the preparation, prior to processing, of
biosamples dried on media.
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., Qiagen N.V., Gen-Probe Incorporated, Meso Scale Discovery, a division of Meso Scale Diagnostics LLC, and Sequenom,
Inc., among others.
Our diagnostic market competitors include Abbott Laboratories, Applied Biosystems Inc., BioFire Diagnostics, Inc., Cepheid,
GenMark Dx, 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.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark
and trade secret laws and confidentiality agreements. We have filed for registration or obtained registration for trademarks used
with our products and key technologies.
13
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 current and
anticipated customer base. We currently own 218 issued patents worldwide, including 85 issued patents in the United States. Other
countries in which we have issued patents directed to various aspects and applications of our products and technology include
France, Germany, United Kingdom, Australia, Japan, Italy, Netherlands, Canada, Hong Kong and China, amongst others. In
addition, our patent portfolio includes 210 pending patent applications in the United States and other foreign jurisdictions. 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 patents
covering the precision-dyeing process used in the manufacture of our fluorescent microspheres and patents covering digital over-
sampling to measure the area of a fluorescence pulse instead of “peak detection,” giving increased sensitivity with no lost events.
In addition, multiple granted patents and pending applications describe aspects of MagPix instruments and their use, Multicode
technology, xTAG technology, as well as our recently acquired automated real-time PCR system.
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.
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 FDA 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 LX 100/200 systems for use with diagnostic assay kits that are available through
our strategic partners. For FDA purposes, the Luminex LX 100/200 systems 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 LX 100/200 systems 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. Our partners are also subject to a number
of other requirements in the Food, Drug, and Cosmetic Act and its regulations, such as Good Manufacturing Practice requirements
and Good Clinical Practice requirements. There can be no assurance that such requirements will always be met without interruption,
or that the FDA will file, clear or approve our strategic partners’ submissions.
We also 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). Additionally, the ARP segment manufactures
products that are intended for RUO, those that are IVD cleared (Class II) as well as kits and IUO or clinical applications.
14
In December 2007 we submitted to the FDA our request for 510(k) clearance on our Luminex LX 100/200 Instrument. On
December 13, 2007 the FDA received our 510(k) #k073506 submission for the Luminex LX 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.
Certain of our instruments use lasers to identify the bioassays and measure their results. Therefore, we are required to ensure
that these 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.
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 pre-market 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 ARP 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 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 Luminex 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
The European Community Council Directive 2002/96/EC on waste electrical and electronic equipment, Waste Electrical and
Electronic Equipment (WEEE) outlines the responsibility for the disposal of waste electrical and electronic equipment. Compliance
with WEEE is placed with the manufacturers of such equipment. Those companies should establish an infrastructure for collecting
WEEE, in such a way that users of electrical and electronic equipment from private households should have the possibility of
returning WEEE at least free of charge. All Luminex-manufactured equipment is in compliance with this directive. We are in
compliance with the requirements, beginning on August 13, 2005, regarding the labeling and disposal of our products containing
electronic devices in each of the EU member states where our regulated products are distributed. While we are taking steps to
comply with the requirements of WEEE, we cannot be certain that we will comply with the implementation of WEEE in all EU
member states.
15
RoHS
RoHS stands for “The Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment” and
implements EU Directive 2002/95 which bans the placing on the EU market of new electrical and electronic equipment containing
more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl and polybrominated diphenyl
ether flame retardants.
The Directive directly affects producers who manufacture or assemble electrical or electronic equipment in the EU, importers
of electrical or electronic equipment from outside the EU and companies that re-brand electric producers as their own. The Directive
applies to electrical and electronic equipment falling under the categories 1, 2, 3, 4, 5, 6, 7 and 10 set out in Annex IA of the WEEE
Directive (2002/96/EC). Equipment categories 8 and 9 defined in the WEEE Directive are currently outside the scope of the RoHS
Directive. Luminex IVD equipment is classified as category 8 (Medical Devices) in Annex IA of the WEEE Directive, which is
not covered within the scope of the RoHS Directive. Luminex research equipment is classified as category 9 (Monitoring and
Control Instruments) in Annex IA of the WEEE Directive, which is not covered within the scope of the RoHS Directive.
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 has declared that the LX100 IS, the LX200 IS, the FLEXMAP 3D and the MAGPIX are classified as self-declaration
devices and are 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.
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Sunshine Act
In 2010, Congress enacted a statute commonly known as the Sunshine Act, as part of the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”). The
Sunshine Act aims to promote transparency and requires manufacturers of drugs, devices, biologicals, and medical supplies covered
by Medicare, Medicaid or the Children's Health Insurance Program (“CHIP”) to report annually to the Centers for Medicare and
Medicaid Services (“CMS”) any payments or other transfers of value made to physicians and teaching hospitals, with limited
exceptions. Manufacturers must also disclose to CMS any physician ownership or investment interests. On February 8, 2013,
CMS issued a final rule implementing the Sunshine Act. Entities covered by law, including Luminex, must begin reporting by
March 31, 2014. The first report must address payments and relationships from August 1, 2013 through December 31, 2013. CMS
will release data on a public website by September 30, 2014. Failure to comply with the reporting requirement may result in
substantial penalties.
Other
Further, based on the Health Reform Law, the IRS issued a final rule on December 7, 2012 implementing a Medical Device
Excise Tax on manufacturers that applies to medical devices sold after December 31, 2012. The tax is 2.3% of the sale price on
non-exempt medical devices. We do not expect this tax to have a material impact on our operations.
Employees
As of February 21, 2013 and December 31, 2012, respectively we had a total of 709 and 687 employees and contract employees,
as compared with 601 as of December 31, 2011. The increase from December 31, 2011 to 2012 is primarily the result of the
addition of sales and marketing employees focusing on selling to our end customers directly, as well as personnel added related
to development, production, regulatory clearance, and quality control for our new bead products and assays. 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.
Seasonality
Worldwide sales, including U.S. sales, do not reflect any significant degree of seasonality; however, sales of our
Respiratory Viral products in our ARP segment have demonstrated seasonal fluctuations consistent with the onset and decline of
influenza like illnesses. In addition, we experience periodic fluctuations in the sales of our Respiratory Viral products as they
vary along with the severity and course of general outbreaks of respiratory illnesses.
Segments
Financial information relating to our reportable segments for the years ended December 31, 2012, 2011, and 2010 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 21, 2013
Name
Age
Position
Patrick J. Balthrop
Harriss T. Currie
Jeremy Bridge-Cook, Ph.D
Michael F. Pintek
Russell W. Bradley
Timothy R. Dehne
David S. Reiter
56
51
44
44
48
47
46
President and Chief Executive Officer
Chief Financial Officer, Vice President, Finance and Treasurer
Senior Vice President, R&D
Senior Vice President, Operations
Vice President, Business Development and Strategic Planning
Vice President, Global Marketing
Vice President, General Counsel and Corporate Secretary
17
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.
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 and Treasurer.
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.
Jeremy Bridge-Cook, Ph.D. Dr. Bridge-Cook has served as Senior Vice President, Research and Development 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 Biosciences, 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 and
a B.Sc. in Biology from McMaster University.
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 a number of leadership 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, Inc., a manufacturer of biomedical testing systems and
products, where he served in various roles of increasing responsibility and most recently as the director of the Beckman Coulter
CARES initiative, involved in the company’s clinical HIV monitoring business in developing regions around the globe. During
his tenure at Beckman Coulter, Mr. Bradley was involved in the evaluation, market assessment and commercial launch of multiple
life science technologies and applications. Mr. Bradley holds a B.Sc. in Immunology and Biochemistry from Monash University,
Melbourne, Australia.
Timothy R. Dehne. Mr. Dehne joined Luminex Corporation as Vice President of Systems Research and Development in July
2009 and currently serves as the Vice President of Global Marketing for the Company. Mr. Dehne spent over 21 years at National
Instruments where he held many leadership positions most recently as Senior Vice President, Research and Development from
2003 through 2008. Mr. Dehne is an accomplished executive in engineering, product development, and product strategy with
significant experience in the technology sector. During his tenure at National Instruments his executive responsibilities included
positions in research and development, marketing, and strategic marketing. Mr. Dehne holds a B.S. in Electrical Engineering from
Rice University and serves on the Board of Directors for both Cirrus Logic, Inc. and privately held Asset Intertech Inc.
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. 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.
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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 ARP 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 ARP segment products and our ability to successfully implement our direct assay sales strategy.
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, 2012, we had 41 strategic partners
submitting royalties as compared to 43 for the twelve months ended December 31, 2011. Three customers, Thermo Fisher Scientific
Inc., including acquired One Lambda, Inc., LabCorp and Bio-Rad Laboratories, Inc., accounted for 51% of total revenue (24%,
19% and 8%, respectively) in the twelve months ended December 31, 2012. For comparative purposes, these same three customers
accounted for 50% of total revenue (30%, 10% and 10%, respectively) in the twelve months ended December 31, 2011 and 44%
of total revenue (23%, 8% and 13%, respectively) in the twelve months ended December 31, 2010. No other customer accounted
for more than 10% of total revenue during the twelve months ended December 31, 2012. We had only one additional partner who
individually represented 5% or more of our total revenue for the year ended December 31, 2012. In total, for the year ended
December 31, 2012, our top four partners accounted for 59% of our total revenue. In total, for the year ended December 31, 2011,
our top four partners accounted for 58% 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 ARP 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 ARP segment for any reason, or reduces or postpones current or expected purchase commitments for the
ARP segment’s products, the ARP segment’s results from operations could be materially adversely affected.
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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.
If our direct selling efforts for our products are less successful than anticipated, our business expansion plans could suffer
and our ability to generate revenues could be diminished.
We have a relatively small sales force compared to some of our competitors. If our direct sales force is not successful, or
new additions to our sales team fail to gain traction among our customers, we may not be able to increase market awareness
and sales of our products, or maintain historical sales levels. If we fail to establish our systems in the marketplace, it could have
a negative effect on our ability to sell subsequent systems and hinder the planned expansion of our business.
Our transition to selling more of our molecular diagnostics products on a direct basis and our limited history in selling
directly makes forecasting difficult.
As of January 2013, we will transition to selling more of our molecular diagnostics products on a direct basis. We have
limited historical experience forecasting the direct sales of our molecular diagnostics products. Our ability to produce product
quantities that meet customer demand is dependent upon our ability to forecast accurately, plan production accordingly and
scale our manufacturing efforts.
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. Furthermore, 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
Unfavorable economic conditions and the uncertain economic outlook may adversely impact our business, results of operations,
financial condition or liquidity.
Global economic conditions could adversely affect our results of operations. The credit markets and the financial services
industry continue to experience turmoil and volatility, both domestically and internationally. 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 governmental laws and regulations change in ways that we do not anticipate and if we fail to comply with laws and
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 ARP 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.
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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 a device manufacturer, beginning
March 2014 we are required to annually report to CMS any payments or transfers of value we have made to physicians and teaching
hospitals and any physician ownership or investment interest in the company. As part of the European Council Directive 2002/96
of February 13, 2003, 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, Luminex 200, FLEXMAP 3D and MAGPIX instruments
to the Directive. Our 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 CMDCAS certified in July 2005. 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.
If our technology and products do not become widely used in the life sciences and clinical diagnostics industries, it is unlikely
that we can maintain or increase profitability.
Life sciences companies have historically conducted biological tests using a variety of technologies, including bead-based
analysis. In certain testing areas, our xMAP technology is relatively new and unproven, and the use of our technology by life
sciences companies is limited. The commercial success of our technology depends upon its widespread adoption as a method to
perform bioassays. In order to be successful, we must convince potential partners to utilize our system instead of competing
technologies. Market acceptance depends on many factors, including our ability to:
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convince prospective strategic partners and customers that our technology is an attractive alternative to other technologies
for pharmaceutical, research, clinical, biomedical and genetic testing and analysis;
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encourage these partners to develop and market products using our technology;
• manufacture products in sufficient quantities with acceptable quality and at an acceptable cost;
•
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obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and
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. Additionally, we may have to write off excess or obsolete inventory if sales of our products are not
consistent with our expectations or if the demand for our products changes.
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Our reliance on strategic relationships makes forecasting difficult.
As a result of our reliance on our strategic relationships, it can be difficult to accurately forecast future operating results. For
the following reasons, estimating the timing and amount of sales of our products is particularly difficult:
• We do not control 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 a limited number of geographically focused distributors for a portion of our sales, including several of our key
assay products and the loss of or nonperformance 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.
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Partners tend to order in bulk prior to the production of new lots of their products and prior to major product development
initiatives. The frequency of these bulk purchases is difficult to predict and may cause large fluctuations in microsphere
sales quarter to quarter.
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.
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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 effect 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. Furthermore, 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 currently own 218 issued patents worldwide, including 85 issued patents in the United States. Other countries in which
we have issued patents directed to various aspects and applications of our products and technology include France, Germany,
United Kingdom, Australia, Japan, Italy, Netherlands, Canada, Hong Kong and China, amongst others. In addition, our patent
portfolio includes 210 pending patent applications in the United States and other foreign jurisdictions. We also have patents
covering key aspects of xTAG technology utilized in our assay products.
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 advisers 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 effect on our business,
financial condition and results of operations.
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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.
We may be unsuccessful in implementing our acquisition strategy. We may face difficulties integrating acquired entities with
our existing businesses. Our business may be harmed by prior or future acquisitions.
Acquisitions of assets or entities designed to accelerate the implementation of our strategic plan are an important element of our
long-term strategy. We may be unable to identify and complete appropriate future acquisitions in a timely manner, or at all, 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;
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future acquisitions may require us to incur debt or other obligations, issue additional securities, incur large and immediate
write-offs, issue capital stock potentially dilutive to our stockholders or spend significant cash, or may negatively affect
our operating results and financial condition. For example, the acquisition of GenturaDx is expected to have an anticipated
short term dilutive effect on our earnings per share calculated in accordance with U.S. GAAP primarily due to the
amortization of the intangible assets in connection with the acquisition;
if we spend significant funds or incur additional debt or other obligations, our ability to obtain financing for working capital
or other purposes could decline, and we may be more vulnerable to economic downturns and competitive pressures.
technological advancement or worse than expected performance of acquired businesses may result in the impairment of
intangible assets;
• 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;
• we may fail to successfully obtain appropriate regulatory approval or clearance for products under development of our
acquired businesses;
• we may fail to successfully manage relationships with customers, distributors and suppliers;
• our customers may not accept products of our acquired businesses;
• we may fail to effectively coordinate sales and marketing efforts of our acquired businesses;
• we may fail to combine product offerings and product lines of our acquired businesses quickly and effectively;
• we may fail to effectively enhance acquired technology and products to develop new products relating to the acquired
businesses;
• an acquisition may involve unexpected costs or liabilities, including as a result of pending and future shareholder lawsuits
relating to acquisitions or exercise by shareholders of their statutory appraisal rights, or the effects of purchase accounting
may be different from our expectations;
• an acquisition may involve significant contingent payments that may adversely affect our future liquidity or capital resources;
• acquisitions and subsequent integration of these companies may disrupt our business and distract our management from
other responsibilities; and
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the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
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Other risks of integration of acquired businesses 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;
• unanticipated additional transaction and integration-related costs;
• our current and prospective customers and suppliers may experience uncertainty associated with an acquisition, including
with respect to current or future business relationships with us and may attempt to negotiate changes in existing business;
•
facilities or operations of acquired businesses 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.
As we continue to expand our business, we may experience problems in scaling our manufacturing operations, or delays or
component shortages that could limit the growth of our revenue.
As we continue to expand our manufacturing capabilities in order to meet our growth objectives, we may not be able to
produce sufficient quantities of products 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, in the case
of some components, a single source, and these components 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 products, the failure to find alternative suppliers in the event of any type of 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. If our suppliers discontinue production of a key component, we will be required to revalidate and may be required
to resubmit a previously cleared product. Our reliance on our suppliers and contract manufacturers exposes us to risks including:
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the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with us could
terminate their services at any time without penalty;
natural disasters such as earthquakes, tsunamis, and floods that impact our suppliers;
the potential obsolescence and/or inability of our suppliers to obtain required components;
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the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
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
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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.
If the quality of our products does not meet our customers’ expectations, then our reputation could suffer and ultimately our
sales and operating earnings could be negatively impacted.
In the course of conducting our business, we must adequately address quality issues associated with our products and
services, including defects in our engineering, design, and manufacturing processes, as well as defects in third-party
components included in our products. Because our instruments and consumables are highly complex, the occurrence of defects
may increase as we continue to introduce new products and services and as we rapidly scale up manufacturing to meet
increased demand for our products and services. Although we have established internal procedures to minimize risks that may
arise from product quality issues, there can be no assurance that we will be able to eliminate or mitigate occurrences of these
issues and associated liabilities. In addition, identifying the root cause of quality issues, particularly those affecting reagents
and third-party components, may be difficult, which increases the time needed to address quality issues as they arise and
increases the risk that similar problems could recur. Finding solutions to quality issues can be expensive and we may incur
significant costs or lost revenue in connection with, for example, shipment holds, product recalls, and warranty or other service
obligations. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our
brand image, and our reputation as a producer of high quality products could suffer, which could adversely affect our business,
financial condition, or results of operations.
Our operations in foreign countries expose us to certain risks inherent in doing business internationally, which may
adversely affect our business, results of operations or financial condition.
We expect that revenue from U.S sales will continue to represent the majority of our total revenue, but 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. In fiscal 2012, approximately 17% of our revenue was derived from sales to non-U.S. customers, with approximately
9% of revenue from sales to customers in Europe. As such, a significant slowdown in these foreign economies or lower investments
in new infrastructure could have a negative impact on our sales. We also purchase a portion of the materials included in our products
from overseas sources. As a result of acquisitions and organic growth, we have operations and manufacturing facilities in foreign
countries that expose us to certain risks. For example, fluctuations in exchange rates may affect our revenues, expenses and results
of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other
types of risks, including the following:
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changes in or interpretations of foreign law that may adversely affect our ability to sell our products, perform services or
repatriate profits to the United States;
tariffs, customs and other barriers to importing/exporting materials and products in a cost effective and timely manner;
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;
difficulties in staffing and managing international operations;
the burden of complying with complex and changing foreign regulatory requirements;
difficulties in accounts receivable collections;
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the imposition of restrictive trade policies, including export restrictions;
• worldwide political conditions;
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the imposition of inconsistent laws or regulations;
reduced protection of intellectual property rights and trade secrets in some foreign countries;
the imposition or increase of investment requirements and other restrictions by foreign governments;
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;
the burden of complying with foreign and international laws and treaties;
significant currency fluctuations;
the burden of complying with and changes in international taxation policies;
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.
Our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without
limitation, tariffs, trade barriers, regulations relating to import-export control, technology transfer restrictions, the International
Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott
provisions of the U.S. Export Administration Act. If we fail to comply with these laws and regulations, we could be liable for
administrative, civil or criminal liabilities, and in the extreme case, we could be suspended or debarred from government contracts
or have our export privileges suspended, which could have a material adverse effect on our business.
International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations,
collection issues and taxes. Our international sales are subject to variability as our selling prices become less competitive in
countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies
that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the
U.S. Dollar weakens against the foreign currencies in which we are billed.
We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future
in an effort to manage or hedge our foreign exchange rate risk.
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 general or local economic conditions, 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.
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We had an accumulated deficit of approximately $34.9 million as of December 31, 2012.
We have incurred significant net losses since our inception. At December 31, 2012, we had an accumulated deficit of
approximately $34.9 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, 2012, cash, cash equivalents and short-term and long-term investments totaled $59.4 million,
compared to $107.0 million at December 31, 2011. The decrease since December 31, 2011 is primarily attributable to capital
expenditures, share repurchases and strategic acquisitions and investments, offset by positive operating cash flows.
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 passed comprehensive healthcare reform with The Health Reform Law and is in the process of
implementation. The Health Reform Law could further limit government reimbursement to government-sponsored healthcare
programs. In some cases, commercial third-party payors rely on all or portions of government-sponsored healthcare programs to
determine payment rates. Changes to government-sponsored healthcare programs that reduce payments under these programs may
negatively impact payments from commercial third-party payors. 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 market. Without adequate coverage and reimbursement, consumer demand for tests could
decrease. Decreased demand could cause our strategic partners to reduce purchases or to cancel programs or development activities
and 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 adversely affect our business, profitability and business prospects.
Our success depends on building and sustaining our technology infrastructure
We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and
to maintain financial accuracy and efficiency. If we do not allocate and effectively manage the resources necessary to build,
implement and sustain the proper technology infrastructure, we could be subject to transaction errors, the inability to properly
support and service our customers, processing inefficiencies, loss of customers, business disruptions or loss of or damage to
intellectual property through security breach or cyber attack.
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Our government contracts and administrative processes and systems related to such contracts are subject to audits and cost
adjustments by the federal government, which could reduce our revenue, disrupt our business or otherwise adversely affect
our results of operations.
Federal government agencies, including the Defense Contract Audit Agency (DCAA), routinely audit and investigate
government contracts and government contractors’ administrative processes and systems. These agencies review our
performance on government contracts, pricing practices, cost structure and compliance with applicable laws, regulations and
standards. They also review our compliance with government regulations and policies and the adequacy of our internal control
systems and policies, including our purchasing, accounting, estimating, compensation and management information processes
and systems. Any costs found to be improperly allocated to a specific government contract will not be reimbursed, any such
costs already reimbursed must be refunded and certain penalties may be imposed. Moreover, if any of the administrative
processes and systems related to such contracts is found not to comply with governmental requirements, we may be subjected
to increased government scrutiny that could delay or otherwise adversely affect our ability to compete for or perform
government contracts or collect our revenue in a timely manner. Therefore, an unfavorable outcome of an audit of our
government contracts by the DCAA or another government agency could cause our actual results of operations to differ
materially and adversely from those anticipated. If a government investigation uncovers improper or illegal activities, we may
be subject to civil and criminal penalties and administrative sanctions, including termination, forfeitures of profits, suspension
of payments, fines and suspension or debarment from doing business with the federal government. In addition, we could suffer
serious reputational harm if allegations of impropriety related to such contracts were made against us. Each of these outcomes
could adversely affect our results of operations. We do not know the outcome of any existing or future audits and if any future
audit adjustments significantly exceed our estimates our profitability could be adversely affected.
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.
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.
30
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that have been
accrued.
We are subject to income taxes in the United States and various foreign jurisdictions. Our effective tax rate may be lower or
higher than experienced in the past due to numerous factors, including a change in the mix of our profitability from country to
country and changes in tax laws. In addition, we take certain income tax positions on our tax returns that we recognize in our
financial statements if it is more likely than not they will not withstand challenge by tax authorities. We are subject to tax audits
in various jurisdictions, including the United States, and tax authorities may disagree with certain positions we have taken and
assess additional taxes. There can be no assurance that we will accurately predict the outcomes of these audits, and the actual
outcomes could have a material impact on our net income or financial condition. Any of these factors could cause us to experience
an effective tax rate significantly different from previous periods or our current expectations, which could have an adverse effect
on our business and results of operations.
Changes in tax laws or tax rulings could materially impact our effective tax rate. There are several proposals to reform U.S.
tax rules being considered by U.S. law makers, including proposals that may reduce or eliminate the deferral of U.S. income tax
on our unrepatriated earnings, potentially requiring those earnings to be taxed at the U.S. federal income tax rate, reduce or eliminate
our ability to claim foreign tax credits, and eliminate various tax deductions until foreign earnings are repatriated to the U.S. Our
future reported financial results may be adversely affected by tax rule changes which restrict or eliminate our ability to claim
foreign tax credits or deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our unrepatriated
earnings.
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;
new, or changes in, recommendations, guidelines or studies that could affect the use of our products;
announcements of acquisitions or of technological innovations or new products or services by us or our competitors;
developments in relationships with our customers and suppliers;
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
the success or lack of success of integrating our acquisitions;
conditions or trends in the life science, biotechnology and pharmaceutical industries;
published studies and reports relating to the comparative efficacy of products and markets in which we participate;
additions or departures of key personnel;
developments in patents or other intellectual property rights and litigation;
changes in financial estimates by securities analysts;
general worldwide 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
31
•
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 Select 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
Select Market.
In addition, the stock market in general, and the NASDAQ Global Select 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.
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.”
Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely
affect the trading price of our common stock and our ability to raise funds in new securities offerings.
Future sales of our common stock, the perception that such sales could occur or the availability of shares of our common
stock for future sale could adversely affect the market prices of our common stock and could impair our ability to raise capital
through future offerings of equity or equity-related securities. In addition, we may issue common stock or equity securities
senior to our common stock in the future for a number of reasons, including to finance our operations and business strategy, to
adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of options or for other reasons.
Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could make a third party acquisition of
us difficult.
Our certificate of incorporation and bylaws 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
32
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative facilities are located in Austin, Texas, and consist
of approximately 171,000 square feet of leased space pursuant to lease agreements which expire between April 30, 2015 and June
30, 2017. We maintain an additional 11,905 square feet of leased office space in Oosterhout, Netherlands, approximately 27,000
square feet of leased office and manufacturing space in Toronto, Canada, approximately 27,000 square feet of leased office and
manufacturing space in Madison, Wisconsin, approximately 3,500 square feet of leased office space in Shanghai, People's Republic
of China, approximately 2,500 square feet of leased office space in Tokyo, Japan, and approximately 9,350 square feet of leased
office and manufacturing space in Brisbane, Australia. Our facilities in Austin are used by both the ARP and TSP segments. Our
facilities in Oosterhout, Shanghai and Tokyo are primarily used by our TSP segment, and our Toronto, Madison and Brisbane
facilities are primarily used by the ARP segment.
ITEM 3. LEGAL PROCEEDINGS
On August 30, 2012 Abbott Laboratories (Abbott) was sued by ENZO Life Sciences, Inc. (ENZO) in U.S. District Court in
Delaware for alleged infringement of its US Patent 7,064,197 as a result of Abbott's distribution of Luminex's xTAG Respiratory
Viral Panel. Luminex and Abbott have entered into an agreement requiring Luminex to defend and indemnify Abbott for any
alleged infringement resulting from its distribution of the Respiratory Viral Panel. Abbott filed an answer on October 15, 2012.
On November 30, 2012, Luminex intervened in the lawsuit. On January 2, 2013 ENZO filed additional claims against Luminex,
alleging infringement of US Patent 8,097,405 resulting from Luminex's distribution of its Multicode products. A trial date has
not been set. The parties to the lawsuit have begun engaging in the discovery process.
When and if it appears probable in management's judgment that we will incur monetary damages or other costs in connection
with any claims or proceedings, and such costs can be reasonably estimated, liabilities will be recorded in the financial statements
and charges will be recorded against earnings. There can be no assurance that we will successfully defend this suit or that a
judgment against us would not materially adversely affect our operating results.
ITEM 4. MINE SAFETY DISCLOSURES
None.
33
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “LMNX.”
The following table sets forth the range of high and low sale prices on The NASDAQ Global Select Market, as applicable,
for each quarter during 2012 and 2011. On February 21, 2013, the last reported sale price of our common stock was $17.34 per
share.
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
23.62
25.79
25.75
19.71
High
19.65
21.89
24.70
23.38
$
$
$
$
$
$
$
$
19.50
21.10
16.80
15.58
Low
16.78
18.46
18.33
18.45
As of February 21, 2013, we had 498 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.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities of Luminex during the twelve months ended December 31, 2012.
34
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.
Luminex Corporation
NASDAQ Composite
NASDAQ Biotechnology
12/07
100.00
100.00
100.00
12/08
131.53
59.03
93.40
12/09
91.93
82.25
103.19
12/10
112.56
97.32
113.89
12/11
130.73
98.63
129.12
12/12
103.44
110.78
163.33
35
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2012 was as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share ($)
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (2)
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs (2)
390
375
9,859
10,624
19.21
16.98
16.76
16.86
— $
— $
— $
— $
—
—
—
—
Period
10/1/2012
11/1/2012
12/1/2012
Total Fourth Quarter
(1) Total shares purchased includes shares attributable to the withholding of shares by Luminex to satisfy the payment of
tax obligations related to the vesting of restricted shares.
(2) On February 2, 2012, the Board of Directors authorized the repurchase of common stock up to the lesser of $22.75
million, or 650,000 shares, of its outstanding stock. The amount authorized for repurchase was depleted in the third
quarter of 2012 and this stock repurchase plan expired on December 31, 2012. On February 20, 2013, the Board of
Directors authorized the repurchase of up to the lesser of $22.5 million worth, or 900,000 shares, of outstanding common
stock. The stock repurchase program is scheduled to expire on December 31, 2013.
36
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, 2012, 2011 and 2010 and the consolidated balance sheet data at December 31, 2012 and 2011
are derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The
consolidated results of operations data for the years ended December 31, 2009 and 2008 and the consolidated balance sheet data
at December 31, 2010, 2009 and 2008 are derived from audited consolidated financial statements not included in this Annual
Report on Form 10-K.
Consolidated Results of Operations Data:
Total revenue
Gross profit
Income from operations
Net income
Net income applicable to common stockholders
Net income per common share, basic
Shares used in computing net income per common
share (basic)
Net income per common share, diluted
Shares used in computing net income per common
share (diluted)
$
$
$
Year Ended December 31,
2012
2011
2010
2009
2008
(In thousands, except per share data)
$ 202,582
$ 184,339
$ 141,557
$ 120,643
$ 104,447
142,574
125,490
22,716
12,407
12,407
0.30
$
$
23,843
14,474
14,474
0.35
$
$
96,377
11,251
5,231
5,231
0.13
$
$
81,294
7,399
17,729
17,729
0.44
$
$
70,946
3,353
3,057
3,057
0.08
40,927
41,262
41,030
40,562
37,868
0.30
$
0.34
$
0.12
$
0.43
$
0.08
41,884
42,537
42,438
41,633
39,700
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
At December 31,
2012
2011
2010
2009
2008
(In thousands)
$
42,789
$
58,282
$
89,487
$
90,843
$
81,619
13,607
3,000
102,530
296,999
1,702
42,574
6,151
136,933
282,647
2,573
28,404
6,021
151,938
265,810
3,351
8,511
20,228
122,398
248,013
3,591
40,501
2,000
131,767
217,291
3,359
259,667
250,855
234,865
218,738
194,540
37
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 industry. This industry depends on a broad range of tests, called bioassays, to perform diagnostic tests and conduct
life science research. 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, and for clinical diagnostics, genetic analysis, bio-defense, food safety and
biomedical research. In addition to our xMAP technology, our other offerings include our proprietary MultiCode® technology,
used for real-time PCR and multiplexed PCR assays, as well as automation and robotics in the field of dry sample handling.
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 our partners sell to end users. We develop and manufacture the proprietary xMAP laboratory instrumentation
and the proprietary xMAP microspheres and sell these products to our 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,
2012, Luminex had approximately 55 strategic partners, of which 40 have released commercialized reagent-based products utilizing
our technology.
Luminex has several forms of revenue that result from our business model:
•
System revenue is generated from the sale of our xMAP multiplexing analyzers and peripherals and automated punching
laboratory instruments.
• Consumable revenue is generated from the sale of our dyed polystyrene microspheres and sheath and drive 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 xMAP bead technology used to perform diagnostic and research assays on samples as well as real-time
PCR and multiplexed PCR assays using our proprietary MultiCode technology.
•
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 or pays us for our time and materials to service instruments. 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.
38
2012 Highlights
• Luminex grew total revenue 10% over 2011 revenue to $202.6 million.
• Gross margin percentage of 70%, up from 68% in 2011.
•
•
•
2012 assay revenue increased 54% over the prior calendar year.
System shipments of 981 multiplexing analyzers, resulting in cumulative life-to-date multiplexing analyzer shipments
of 9,659, up 11% from a year ago.
Partners reported over $397 million of royalty bearing end user sales on xMAP technology for the year, a 4% increase
over 2011.
• Extended our global sales and distribution agreement with Bio-Rad Laboratories, Inc. to 2023, including the grant of
global sales and distribution rights for our MAGPIX multiplexing instrument.
• Received CE marking of both the xMAP NeoPlex4® Assay and NeoPlex® System. This system changes the way
newborn screening is performed, providing four assays from one blood spot punch, reducing sample requirements and
improving laboratory efficiency.
• Received a contract of up to $11.6 million over three and a half years by the Defense Threat Reduction Agency of the
U.S. Department of Defense to fund development of a prototype biothreat detection instrument.
• Acquired GenturaDx, a molecular diagnostics company focused on making nucleic acid testing both affordable and
practical for any laboratory.
Consumables Sales and Royalty Revenue Trends
We have experienced significant fluctuations in consumable revenue over the past three years. Overall, the fluctuations
manifested themselves through periodic changes in volume from our largest bulk purchasing partners. From the first quarter of
2010 through the fourth quarter of 2012, we had quarterly bulk purchases varying from $7.0 million to $16.1 million and representing
between 75% and 88% of total consumable revenue. We expect these fluctuations to continue as the ordering pattern of our largest
bulk purchasing partner remains variable; however, our other bulk purchasing customers are less variable in their ordering
patterns. Additionally, even though we experience variability in consumable revenue, the key indicator of the success of our
partners’ commercialization efforts is the rising level of royalties and reported royalty bearing sales during the past several years.
Change in Cash Position
Our cash, cash equivalents and investments decreased by approximately $47.6 million for the year ended December 31, 2012
to $59.4 million from $107.0 million at December 31, 2011. The decrease is primarily attributable to the acquisition of GenturaDx
for $48.2 million net cash, stock repurchases of $20.9 million and capital expenditures of $9.8 million, offset by operating cash
flows of $24.3 million.
Segment Information
Luminex has two reportable segments: the technology and strategic partnerships (“TSP”) segment and the assays and related
products (“ARP”) segment. The TSP segment, which is our original, 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 ARP segment is
primarily involved in the development and sale of assays on xMAP and MultiCode technology for use on Luminex’s installed
base of systems.
Future Operations
We expect our areas of focus over the next twelve months to be:
• maintenance and improvement of our existing products and the timely development, completion and successful
commercial launch of our pipeline products;
39
•
•
•
•
•
•
successful execution of our direct sales strategy, including the infrastructure necessary to support our sales force;
commercialization, regulatory clearance and market adoption of output from the ARP segment, including the
NeoPlex System, NeoPlex4 Assay, CYP2C19, Gastrointestinal Pathogen Panel, and the related clearance of our
MAGPIX and FM3D instruments;
continued execution of our biothreat initiatives;
the expansion and enhancement of our installed base and our market position within our identified target market
segments;
the effect of the ongoing uncertainty in global finance markets and changes in government funding on planned
purchases by end users;
the continued adoption and development of partner products incorporating Luminex technology through effective
partner management; and
•
development of the next generation sample-to-answer platform for our MultiCode-RTx technology.
We anticipate continued revenue concentration in our higher margin items (assays, consumables and royalties) contributing
to favorable, but variable, gross margin percentages. Additionally, we believe that a sustained investment in research and
development is necessary in order to meet the needs of our marketplace and provide a sustainable new product pipeline. We may
experience volatility in research and development expenses as a percentage of revenue on a quarterly basis.
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.
Revenue Recognition. Revenue is generated primarily from the sale of our products and related services, which are primarily
support and maintenance services on our systems. We recognize product revenue at the time the product is shipped provided there
is persuasive evidence of an agreement, no right of return exists, the fee is fixed or determinable and collectability is probable. There
is no customer right of return in our sales agreements. If the criteria for revenue recognition are not met at the time of shipment,
the revenue is deferred until all criteria are met.
We regularly enter into arrangements for system sales that are multiple-element arrangements, including services such as
installation and training, and multiple products. These products or services are generally delivered within a short time frame,
approximately three to six months, of the agreement execution date and can also be performed by one of our third-party
partners. Based on the terms and conditions of the sale, we believe that these services can be accounted for separately from the
delivered system as our delivered products have value to our customers on a stand-alone basis. Items are considered to have stand-
alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone
basis. Accordingly, the estimated selling price of services or products not yet performed or delivered at the time of system shipment
are deferred and recognized as revenue as such services are performed. We have generally been able to determine the selling price
of each deliverable in a multiple-element arrangement based on the price for such deliverable when it is sold separately. If vendor
specific objective evidence (VSOE) is not determinable and when third-party evidence is not available, we use the estimated
selling price of a deliverable which is determined based upon our pricing policies, expected margin of the deliverable, geographical
location and information gathered from customer negotiations.
40
Within the diagnostic portion of our ARP segment, we provide systems and certain other hardware to customers through
reagent rental agreements under which the customers commit to purchasing minimum quantities of disposable products at a stated
price over a defined contract term, which is normally two to three years. Instead of rental payments, we recover the cost of
providing the system and other hardware in the amount we charge for our diagnostic assays and other disposables. Revenue is
recognized over the defined contract term as assays and other disposable products are shipped. The depreciation costs associated
with the system and other hardware are charged to cost of sales on a straight-line basis over the estimated life of the system. The
costs to maintain these instruments in the field are charged to cost of sales as incurred.
Revenue from extended service agreements is deferred and recognized ratably over the term of the agreement. Revenues
from royalties related to agreements with strategic partners are recognized when such amounts are reported to the Company;
therefore, the underlying end user sales may be related to prior periods. Nonrefundable license fees are amortized into revenue
over the estimated life of the license agreements.
Additional revenue is derived from cost-type contracts with the U.S. government. Revenue and profit under cost-plus service
contracts is recognized as costs are incurred plus negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably
over the contract performance period as services are performed. Contract costs include labor and related employee benefits,
subcontracting costs and other direct costs, as well as allocations of allowable indirect costs. For contract change orders, claims
or similar items, judgment is required for estimating the amounts, assessing the potential for realization, and determining whether
realization is probable. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the
extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the
period in which the facts requiring the revision become known. Reimbursements of certain costs, including certain hardware costs
or out-of-pocket expenses are included in revenue with corresponding costs included in cost of revenue as costs are incurred.
Inventory. 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, 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.
41
Goodwill represents the excess of the cost over the fair value of the assets of the acquired business. We evaluate the carrying
value of goodwill on a reporting unit level 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. All of our goodwill relates to one reporting
unit, our ARP segment, for goodwill impairment testing. We have historically estimated the fair value of our ARP segment reporting
unit using a discounted cash flow analysis (“step one” analysis) of our projected future results. The step one analysis we performed
in the fourth quarter of 2010 indicated the fair value our ARP segment reporting unit was significantly higher than the carrying
value. As discussed in the Notes to the Financial Statements, in 2011 we early adopted accounting pronouncements related to our
goodwill impairment analysis. The accounting guidance allows an entity to first assess qualitative factors to determine if it is
more likely than not that the fair value of a reporting unit is less than its carrying amount (“step zero” analysis). In fiscal 2012,
we again used this new guidance in our annual impairment analysis for goodwill because our cash flows for our ARP segment
reporting unit continue to exceed the expectations we had as of our fourth quarter 2010 step one analysis; a review of the estimated
fair value of the assay segment using the market approach as of the fourth quarter of 2012 shows that the estimated fair value of
the assay segment exceeded the carrying amount by over 100%; the gap between the estimated fair value of the ARP segment and
the carrying value of the ARP segment is broadening compared to 2010 and 2011; and the assay segment revenue growth rate in
2012 exceeded the modeled growth rates in our goodwill impairment test performed as of the fourth quarter of 2010.
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.
The GAAP guidance requires recognition of the impact of a tax position in our financial statements only if that position is
more likely than not to be 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. 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.
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. All stock-based compensation cost, including grants of stock options, restricted stock units and shares
issued under the Company’s employee stock purchase plan, 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 options 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.
42
The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the
awards that are ultimately expected to vest. 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. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest, except for the
limited number of market based awards under long term incentive plans. 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.
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development expense
Selling, general and administrative expense
Amortization of acquired intangible assets
Total operating expenses
Income from operations
Interest expense from long-term debt
Other income, net
Income taxes
Net income
Year Ended December 31,
2012
2011
2010
100 %
30 %
70 %
20 %
37 %
2 %
59 %
11 %
— %
— %
(5)%
6 %
100 %
32 %
68 %
18 %
35 %
2 %
55 %
13 %
— %
— %
(5)%
8 %
100 %
32 %
68 %
19 %
40 %
1 %
60 %
8 %
— %
— %
(4)%
4 %
43
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Net income
2012
$
$
$
$
$
202,582
142,574
70%
119,858
22,716
12,407
$
$
$
$
$
Variance
2011
(dollars in thousands)
184,339
125,490
$
$
18,243
17,084
68%
2%
101,647
23,843
14,474
$
$
$
18,211
(1,127)
(2,067)
Variance (%)
10 %
14 %
N/A
18 %
(5)%
(14)%
Revenue. Total revenue increased to $202.6 million for the year ended December 31, 2012 from $184.3 million in 2011. The
increase was primarily attributable to an increase in assay revenue, partially offset by a decrease in consumable and system
sales. The increase in assay revenue of $26.4 million was driven primarily by the inclusion of and growth in sales of our infectious
disease assay products. Consumable sales decreased by $7.4 million resulting primarily from a decrease of $8.7 million in bulk
purchases from one of our partners. System revenue decreased from $35.9 million in 2011 to $31.1 million in 2012. We sold 981
multiplexing analyzers in 2012, which included 420 of our MAGPIX systems as compared to 978 multiplexing analyzers sold in
2011, which included 275 MAGPIX systems, bringing total multiplexing analyzer sales since inception to 9,659 as of December
31, 2012. Also included in system revenue for 2012 were sales of 68 automated punching systems compared to 144 in 2011, a
decrease that was primarily the result of the unpredictable nature of activities in the world surrounding major forensic events; for
example, the Japanese tsunami in 2011. Notwithstanding the slight increase in the number of multiplexing analyzer placements
relative to 2011, system revenue declined primarily as a result of two factors: (i) a shift towards our lower priced MAGPIX systems
and (ii) a decrease in the number of automated punching systems placed.
A breakdown of revenue for the years ended December 31, 2012 and 2011 is as follows (dollars in thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2012
2011
Variance
$
$
31,083
48,012
31,160
75,020
8,079
9,228
202,582
$
$
35,901
55,457
29,205
48,670
7,444
7,662
184,339
$
$
(4,818)
(7,445)
1,955
26,350
635
1,566
18,243
Variance (%)
(13)%
(13)%
7 %
54 %
9 %
20 %
10 %
We continue to have revenue concentration in a limited number of strategic partners, as the top five customers, by revenue,
accounted for 63% of total revenue in 2012 up from 61% of total revenue in 2011. In particular, three customers accounted for
51% of 2012 total revenue (24%, 19% and 8% respectively) up from 50% of 2011 total revenue (30%, 10% and 10%
respectively). The increase was primarily attributable to the increase in sales of our assay products. No other customer accounted
for more than 10% of total revenue. See the segment discussions that follow on pages 47-52 for additional revenue discussion.
As a result of our focus on selling directly to the end user, customer concentration in the ARP segment is expected to decline in
future periods.
Gross Profit. Gross profit increased to $142.6 million for the year ended December 31, 2012, as compared to $125.5 million
for the year ended December 31, 2011. The gross profit margin (gross profit as a percentage of total revenue) was 70% for the
year ended December 31, 2012, up from 68% for the year ended December 31, 2011. Our gross profit margin is highly dependent
upon the mix of revenue components, and our 2012 gross profit margin was impacted by the high concentration of sales in our
higher margin items (assays, consumables and royalties), which represented 76% of revenue for the year ended December 31,
2012 compared to 72% for the year ended December 31, 2011. Additionally, gross profit margin was lower in 2011 as a result of
the inclusion of a $3.3 million incremental expense from recording the LMA inventory acquired at fair value on the date of
acquisition in 2011. We anticipate continued fluctuation in gross profit margin and related gross profit primarily as a result of
variability in consumable and system purchases and seasonality effects inherent in our assay revenue.
44
Research and Development Expense. Research and development expense increased to $40.8 million for the year ended
December 31, 2012 from $33.4 million for the year ended December 31, 2011. As a percentage of revenue, research and
development expense increased to 20% in 2012 compared to 18% in 2011. The increase was primarily attributable to our
acquisitions of LMA in June 2011 and GenturaDx in July 2012, including $0.9 million of acquisition related costs, and increases
in materials, clinical trial costs and additional personnel costs associated with the addition of employees and contract employees
resulting from increased activity in our ARP segment related to the expansion of our product portfolio. Research and development
headcount at December 31, 2012 was 196 as compared to 170 at December 31, 2011. Our current expectation is for research and
development expenses to be in the high teens to 20% of total revenue for 2013.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of
acquired intangible assets, increased to $74.8 million for the year ended December 31, 2012 from $64.9 million for 2011. The
increase was primarily attributable to $3.4 million of acquisition related costs resulting from the purchase of GenturaDx in July
2012, and additional personnel costs and rent, utility and depreciation expenses associated with the addition of employees, growth
in our marketing efforts to support our global initiatives and expansion of our facilities and technology infrastructure. As anticipated
when we completed the acquisition of GenturaDx, in the fourth quarter of 2012 we ceased using the Hayward, California facility,
whose operating lease commitment was acquired under the GenturaDx acquisition in July 2012. We have accrued a liability of
approximately $850,000 based upon the estimated fair value of the costs that will continue to be incurred under the lease, including
an estimate of sublease rental income. Selling, general and administrative headcount at December 31, 2012 was 263 as compared
to 231 at December 31, 2011. As a percentage of revenue, selling, general and administrative expense, excluding the amortization
of acquired intangible assets, increased to 37% in 2012 compared to 35% in 2011.
Income from Operations. Operating profit as a percentage of revenue decreased to 11% in 2012 from 13% in 2011 primarily
as a result of the incremental costs of $4.3 million associated with our acquisition of GenturaDx.
Other Income, net. Other income, net decreased to $0.3 million for the year ended December 31, 2012 from $0.4 million for
the year ended December 31, 2011 due to the decrease in our invested balance and the decrease in the average rate earned on our
current invested balances from 0.3% for the year ended December 31, 2011 to 0.2% for the year ended December 31, 2012. This
decrease is the result of an overall decrease in market rates compared to the prior year period.
Income taxes. Income tax expense increased to $10.4 million for the year ended December 31, 2012 from $9.5 million for
the year ended December 31, 2011 primarily due to increased profitability in the U.S. during 2012. Our effective tax rate for the
year ended December 31, 2012 was 46% compared to 40% for the year ended December 31, 2011. The increase in our effective
tax rate in 2012 is primarily a function of the proportion of positive taxable income attributable to the U.S., an increase in the
proportion of taxable income attributable to tax loss jurisdictions for which no income tax benefit is recognized and recording a
valuation allowance against the deferred tax assets in Australia. Our foreign earnings are generally taxed at lower rates than in
the United States. We continue to assess our business model and its impact in various tax jurisdictions.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Net income
2011
$
$
$
$
$
184,339
125,490
68%
101,647
23,843
14,474
$
$
$
$
$
Variance
2010
(dollars in thousands)
141,557
96,377
$
$
42,782
29,113
68%
—%
85,126
11,251
5,231
$
$
$
16,521
12,592
9,243
Variance (%)
30%
30%
N/A
19%
112%
177%
Revenue. Total revenue increased to $184.3 million for the year ended December 31, 2011 from $141.6 million in 2010. The
increase in revenue was primarily attributable to increases in assay revenue, consumable revenue and royalty revenue. The
increase in assay revenue of $16.5 million was driven significantly by the acquisition of LMA on June 27, 2011 and increased
sales of our CF and RVP products. The increase in consumables and royalties resulted from volume increases in bulk purchases
from one of our partners and expansion of the active installed base coupled with continued menu expansion and growth of end
user sales by our partners.
45
A breakdown of revenue for the years ended December 31, 2011 and 2010 is as follows (dollars in thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2011
2010
Variance
$
$
35,901
55,457
29,205
48,670
7,444
7,662
184,339
$
$
32,984
40,104
22,414
32,204
6,645
7,206
141,557
$
$
2,917
15,353
6,791
16,466
799
456
42,782
Variance (%)
9%
38%
30%
51%
12%
6%
30%
In 2011, we continued to have revenue concentration in a limited number of strategic partners, as the top five customers, by
revenue, accounted for 58% of total revenue in 2011 up from 50% of total revenue in 2010. In particular, three customers accounted
for 50% of 2011 total revenue (30%, 10% and 10% respectively) up from 44% of 2010 total revenue (23%, 8% and 13% respectively),
taking into account the acquisition of One Lambda, Inc. by Thermo Fisher Scientific Inc. in 2012. The increase was primarily
attributable to the increase in bulk purchases of consumables and system sales. No other customer accounted for more than 10%
of total revenue. See the segment discussions that follow on pages 47-52 for additional revenue discussion.
Gross Profit. Gross profit increased to $125.5 million for the year ended December 31, 2011, as compared to $96.4 million
for the year ended December 31, 2010. The gross profit margin percentage (gross profit as a percentage of total revenue) was 68%
for the year ended December 31, 2011, consistent with the year ended December 31, 2010. Our 2011 gross profit margin percentage
was impacted by the high concentration of sales in our higher margin items such as assays, consumables and royalties offset by
the $3.3 million incremental expense resulting from recording the LMA inventory acquired at fair value on the date of
acquisition. The increase in gross profit resulted from the overall increase in revenue coupled with consistent gross profit margins.
Research and Development Expense. Research and development expense increased to $33.4 million for the year ended
December 31, 2011 from $26.8 million for the year ended December 31, 2010. The increase was primarily attributable to our
acquisition of LMA on June 27, 2011 and increases in materials, clinical trial costs and additional personnel costs associated with
the addition of employees and contract employees resulting from increased activity in our ARP segment related to expansion of
our product portfolio. Research and development headcount at December 31, 2011 was 170 as compared to 154 at December 31,
2010. As a percentage of revenue, research and development expense decreased to 18% in 2011 compared to 19% in 2010.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of
acquired intangible assets, increased to $64.9 million for the year ended December 31, 2011 from $56.1 million for 2010. The
increase was primarily attributable to $1.3 million of acquisition costs related to the purchase of LMA, and additional personnel
costs and rent, utility and depreciation expenses associated with the addition of employees, growth in our marketing efforts to
support our global initiatives and expansion of our facilities and technology infrastructure. Selling, general and
administrative headcount at December 31, 2011 was 231 as compared to 191 at December 31, 2010. The additional employees
include employees added from the acquisition of LMA. As a percentage of revenue, selling, general and administrative expense,
excluding the amortization of acquired intangible assets, decreased to 35% in 2011 compared to 40% in 2010.
Income from Operations. Operating profit as a percentage of revenue increased to 13% in 2011 from 8% in 2010 as a result
of our overall control of operating expenses and an increase in our gross profit.
Other Income, net. Other income, net decreased to $0.4 million for the year ended December 31, 2011 from $0.5 million for
the year ended December 31, 2010 due to the decrease in our invested balance and the decrease in the average rate earned on our
current invested balances from 0.4% for the year ended December 31, 2010 to 0.3% for the year ended December 31, 2011. This
decrease is the result of an overall decrease in market rates compared to the prior year period.
Income taxes. Income tax expense increased to $9.5 million for the year ended December 31, 2011 from $6.1 million for the
year ended December 31, 2010 primarily due to increased profitability during 2011. Our effective tax rate for the year ended
December 31, 2011 was 40% compared to 54% for the year ended December 31, 2010. The decrease in our effective tax rate is
primarily a function of the proportion of positive taxable income attributable to the U.S. and an increase in the proportion of taxable
income attributable to lower tax jurisdictions during fiscal year 2011. Our foreign earnings are generally taxed at lower rates than
in the United States. We continue to assess our business model and its impact in various tax jurisdictions.
46
Segment Results of Operations
TSP Segment
Selected financial data for the year ended December 31, 2012 and 2011 of our TSP segment is as follows:
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
2012
$
$
$
$
121,032
83,288
69%
68,241
15,047
$
$
$
$
Variance
2011
(dollars in thousands)
127,779
90,987
$
$
(6,747)
(7,699)
71%
(2)%
61,092
29,895
$
$
7,149
(14,848)
Variance (%)
(5)%
(8)%
N/A
12 %
(50)%
Revenue. Total revenue decreased 5% to $121.0 million for the year ended December 31, 2012 from $127.8 million in
2011. The decrease in revenue was primarily attributable to a decrease of $7.5 million in consumable revenue attributable to
volume decreases in bulk purchases from one of our partners and a decrease in system sales of $2.2 million due to the differing
mix of systems sold and a slight decrease in the total multiplexing analyzer placements, offset by an increase in royalty revenue
of $1.9 million.
A breakdown of revenue in the TSP segment for the years ended December 31, 2012 and 2011 is as follows (dollars in
thousands):
System sales
Consumable sales
Royalty revenue
Service revenue
Other revenue
Year Ended December 31,
2012
2011
Variance
$
$
27,890
47,655
30,852
7,523
7,112
121,032
$
$
30,071
55,159
28,926
6,880
6,743
127,779
$
$
(2,181)
(7,504)
1,926
643
369
(6,747)
Variance (%)
(7)%
(14)%
7 %
9 %
5 %
(5)%
The top five customers, by revenue, accounted for 64% of total TSP segment revenue in 2012 compared to 68% in 2011. In
particular, three customers accounted for 55% of total TSP segment revenue in the year ended December 31, 2012 (28%, 14%
and 13%, respectively). For comparative purposes, these same three customers accounted for 58% of total TSP segment revenue
(33%, 14% and 11%, respectively) in the year ended December 31, 2011. The decrease in percentage of total revenue represented
by our three largest customers is primarily the result of the lower dollar amount of bulk purchases by one of our largest customers. No
other customer accounted for more than 10% of total TSP segment revenue during 2012.
Revenue from the sale of systems and peripheral components decreased 7% to $27.9 million for the year ended December 31,
2012 from $30.1 million for the year ended December 31, 2011, due to the differing mix of systems sold and a slight decrease in
the total multiplexing analyzer placements. The TSP segment sold 960 of the 981 total multiplexing analyzers sold in 2012 as
compared to 967 in 2011. For the year ended December 31, 2012, five of our partners accounted for 801, or 83%, of total TSP
segment multiplexing analyzers sold. Five of our partners accounted for 799, or 83%, of total TSP segment multiplexing analyzers
sold for the year ended December 31, 2011.
47
Consumable sales, comprised of microspheres and sheath fluid, decreased 14% to $47.7 million during 2012 from $55.2
million in 2011. During the year ended December 31, 2012, we had 70 bulk purchases of consumables totaling approximately
$38.1 million (80% of total TSP segment consumable revenue), ranging from $0.1 million to $5.7 million, as compared with 68
bulk purchases totaling approximately $47.4 million (86% of total TSP segment consumable revenue), in the year ended
December 31, 2011. The decrease in consumable revenue was primarily attributable to a volume decrease of $8.7 million in bulk
purchases from one of our partners as a result of a change in the timing of their consumable needs due to a modification to their
inventory management practices, partially offset by an approximate 5% growth in total consumable sales from all other consumable
purchasing customers. We expect these fluctuations to continue as the ordering pattern of our largest bulk purchasing partner
varies due to their efforts to minimize the number of incoming qualification events, control inventory, and allow for longer
development and production runs. Partners who reported royalty bearing sales accounted for $35.0 million, or 73%, of total
consumable sales for the year ended December 31, 2012.
Royalty revenue, which results when our partners sell products or services incorporating our technology, increased 7% to
$30.9 million for the year ended December 31, 2012 from $28.9 million for the year ended December 31, 2011. We believe this
is primarily the result of menu expansion and increased utilization of our partners’ assays on our technology. Our partners’ end
user sales may reflect volatility from quarter to quarter and therefore, that same volatility is reflected in our reported royalty
revenues on a quarterly basis. Additionally, 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, 2012, we had 41 commercial partners
submit royalties as compared with 43 for the year ended December 31, 2011. Additionally, the 41 partners from whom we
recognized $30.9 million in royalties in 2012 represented approximately $28.7 million of the total royalties in 2011, an increase
of approximately 7% over their prior year payments. Total royalty bearing sales reported to us by our partners were approximately
$398.0 million for the year ended December 31, 2012 as compared to $384.0 million for the year ended December 31, 2011.
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract, increased 9% to $7.5
million during 2012 from $6.9 million in 2011. This increase is attributable to increased penetration of the expanded installed
base. At December 31, 2012, we had 1,379 Luminex systems covered under extended service agreements and $3.3 million in
deferred revenue related to those contracts. At December 31, 2011, we had 1,299 Luminex systems covered under extended service
agreements and $3.0 million in deferred revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales, amortized license fees and grant
revenue, increased 5% to $7.1 million for the year ended December 31, 2012 compared to $6.7 million for the year ended
December 31, 2011. This increase is primarily the result of increased grant revenue, offset by decreased parts sales.
Gross Profit. The gross profit margin (gross profit as a percentage of total revenue) for the TSP segment decreased to 69%
for the year ended December 31, 2012 from 71% for the year ended December 31, 2011. The decrease is the result of a slightly
lower concentration of consumable and royalty sales, our highest margin items and the addition of resources, technology and
infrastructure to improve our worldwide logistics. Consumables and royalties comprised $78.5 million, or 65%, of TSP segment
revenue for the year ended December 31, 2012 and $84.1 million, or 66%, for the year ended December 31, 2011. Gross profit
for the TSP segment decreased to $83.3 million for the year ended December 31, 2012, as compared to $91.0 million for the year
ended December 31, 2011.
Operating expenses. Research and development expense increased to $15.0 million for the year ended December 31, 2012
from $12.8 million for the year ended December 31, 2011. The increase in TSP segment research and development expense was
primarily attributable to increases in materials and additional personnel costs associated with increased activity related to product
development. The focus of our TSP segment research and development activities, on continued refinement of our systems and
software to meet the evolving needs of the marketplace including the addition of more automated solutions for assay performance,
remains consistent with the prior year.
Selling, general and administrative expense increased to $53.2 million for the year ended December 31, 2012 from $48.3
million for 2011. The increase was primarily related to the addition of employees and increased technology infrastructure costs
to help ensure that our technology enables us to maintain financial accuracy and operational effectiveness and additional personnel
costs and rent, utility and depreciation expenses associated with expansion of our facilities. TSP segment employees and contract
employees increased to 203 at December 31, 2012 from 158 at December 31, 2011.
48
Selected financial data for the year ended December 31, 2011 and 2010 of our TSP segment is as follows:
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
2011
$
$
$
$
127,779
90,987
71%
61,092
29,895
$
$
$
$
Variance
2010
(dollars in thousands)
105,586
72,899
$
$
22,193
18,088
69%
56,922
15,977
$
$
2%
4,170
13,918
Variance (%)
21%
25%
N/A
7%
87%
Revenue. Total revenue increased 21% to $127.8 million for the year ended December 31, 2011 from $105.6 million in
2010. The increase in revenue was primarily attributable to an increase in consumables sales and royalty revenue of $21.7 million
attributable to volume increases in bulk purchases from one of our partners and expansion of the active installed base coupled
with continued menu expansion by our partners.
A breakdown of revenue in the TSP segment for the years ended December 31, 2011 and 2010 is as follows (dollars in
thousands):
System sales
Consumable sales
Royalty revenue
Service revenue
Other revenue
Year Ended December 31,
2011
2010
Variance
$
$
30,071
55,159
28,926
6,880
6,743
127,779
$
$
30,379
40,004
22,414
6,162
6,627
105,586
$
$
(308)
15,155
6,512
718
116
22,193
Variance (%)
(1)%
38 %
29 %
12 %
2 %
21 %
The top five customers, by revenue, accounted for 68% of total TSP segment revenue in 2011 compared to 62% in 2010. In
particular, three customers accounted for 58% of total TSP segment revenue in the year ended December 31, 2011 (33%, 14% and
11%, respectively). For comparative purposes, these same three customers accounted for 50% of total TSP segment revenue (21%,
17% and 12%, respectively) in the year ended December 31, 2010. The increase in percentage of total revenue represented by
our three largest customers is primarily the result of the higher dollar amount of bulk purchases by one of our largest customers. No
other customer accounted for more than 10% of total TSP segment revenue during 2011.
Revenue from the sale of systems and peripheral components decreased 1% to $30.1 million for the year ended December
31, 2011 from $30.4 million for the year ended December 31, 2010, but sales of total multiplexing analyzers increased by 47 units
due to the differing mix of systems sold. The TSP segment sold 967 of the 978 total multiplexing analyzers sold in 2011. For the
year ended December 31, 2011, five of our partners accounted for 799, or 83%, of total TSP segment multiplexing analyzers
sold. Five of our partners accounted for 753, or 82%, of total TSP segment multiplexing analyzers sold for the year ended December
31, 2010.
Consumable sales, comprised of microspheres and sheath fluid, increased 38% to $55.2 million during 2011 from $40.0
million in 2010. The increase in revenue was primarily attributable to volume increases in bulk purchases from one of our partners
as a result of a change in the timing of their consumable needs due to a modification to their inventory control practices. We also
experienced volume increases from other bulk purchasing customers in 2011 from the prior year period as a result of increased
commercial activity by our partners evidenced by expansion of reported end user sales from $330.0 million in 2010 to $384.0
million in 2011. During 2011, we had 68 bulk purchases of consumables totaling approximately $47.4 million as compared with
62 bulk purchases totaling approximately $32.6 million in the prior year. Partners who reported royalty bearing sales accounted
for $45.3 million, or 82%, of total consumable sales for the year ended December 31, 2011.
49
Royalty revenue increased 29% to $28.9 million for the year ended December 31, 2011 from $22.4 million for the year ended
December 31, 2010. We believe this is primarily the result of menu expansion and increased utilization of our partners’ assays
on our technology. For the year ended December 31, 2011, we had 43 commercial partners submit royalties as compared with 43
for the year ended December 31, 2010. Additionally, the 43 partners from whom we recognized $28.9 million in royalties in 2011
represented approximately $22.3 million of the total royalties in 2010, an increase of approximately 30% over their prior year
payments. Of the 43 partners submitting royalties in 2011, 67% were reporting an increase in royalty bearing sales over their
2010 royalty bearing sales. Total royalty bearing sales reported to us by our partners were approximately $384.0 million for the
year ended December 31, 2011 as compared to $330.0 million for the year ended December 31, 2010.
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract, increased 12% to $6.9
million during 2011 from $6.2 million in 2010. This increase is attributable to increased penetration of the expanded installed
base. At December 31, 2011, we had 1,299 Luminex systems covered under extended service agreements and $3.0 million in
deferred revenue related to those contracts. At December 31, 2010, we had 1,221 Luminex systems covered under extended service
agreements and $2.9 million in deferred revenue related to those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales, amortized license fees and grant
revenue, increased 2% to $6.7 million for the year ended December 31, 2011 compared to $6.6 million for the year ended December
31, 2010. This increase is primarily the result of increased license fee revenue, offset by decreased parts sales.
Gross Profit. The gross profit margin rate (gross profit as a percentage of total revenue) for the TSP segment increased to
71% for the year ended December 31, 2011 from 69% for the year ended December 31, 2010. The increase is primarily the result
of a higher concentration of consumable and royalty sales, our highest margin items. Consumables and royalties comprised $84.1
million, or 66%, of TSP segment revenue for the year ended December 31, 2011 and $62.4 million, or 59%, for the year ended
December 31, 2010. Gross profit for the TSP segment increased to $91.0 million for the year ended December 31, 2011, as
compared to $72.9 million for the year ended December 31, 2010. The increase in gross profit resulted from the overall increase
in revenue coupled with the increase in gross profit margin rate.
Operating expenses. Research and development expense increased to $12.8 million for the year ended December 31, 2011
from $12.5 million for the year ended December 31, 2010. The increase was primarily attributable to an increase in expenses
related to prosecution of the Company's patent portfolio and freedom to operate analysis for the Company's products. As a
percentage of revenue, research and development expense was 10% in 2011 and 12% in 2010.
Selling, general and administrative expense increased to $48.3 million for the year ended December 31, 2011 from $44.5
million for 2010. However, as a percentage of revenue, selling, general and administrative expense decreased from 42% of TSP
segment revenue for the year ended December 31, 2010 to 38% of TSP segment revenue for the year ended December 31, 2011,
which illustrates the leverage inherent in our partnership and distribution business model as revenues increase. The increase in
total selling, general and administrative expense dollars was primarily attributable to additional personnel costs and rent, utility
and depreciation expenses related to growth in our marketing efforts to support our global initiatives and expansion of our facilities
and technology infrastructure.
ARP Segment
Selected financial data for the year ended December 31, 2012 and 2011 of our ARP segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Year Ended December 31,
2012
2011
(dollars in thousands)
Variance
Variance (%)
$
$
$
$
81,550
59,286
73%
51,617
7,669
$
$
$
$
56,560
34,503
61%
40,555
(6,052)
$
$
$
$
24,990
24,783
12%
11,062
13,721
44 %
72 %
N/A
27 %
(227)%
50
A breakdown of revenue in the ARP segment for the years ended December 31, 2012 and 2011 is as follows (dollars in
thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2012
2011
Variance
$
$
3,193
357
308
75,020
556
2,116
81,550
$
$
5,830
298
279
48,670
564
919
56,560
$
$
(2,637)
59
29
26,350
(8)
1,197
24,990
Variance (%)
(45)%
20 %
10 %
54 %
(1)%
130 %
44 %
Revenue. Total ARP segment revenue increased 44% to $81.6 million for the year ended December 31, 2012 from $56.6
million in 2011. The increase in revenue was primarily attributable to a $26.4 million increase in assay revenue, driven primarily
by the growth in our infectious disease assay products. Our assay products are currently divided into two distinct categories:
infectious disease testing and genetic testing, which represented 67% and 33%, respectively, of total assay revenue in 2012 as
compared to 45% and 55% in 2011, respectively. The shift towards infectious disease testing is primarily due to the increase in
MultiCode based assay sales, which are predominantly infectious disease testing, and the growth in sales of GPP. For the year
ended December 31, 2012, direct assay sales comprised 72% of total assay sales compared to 61% for the year ended December
31, 2011. In 2013 we will focus more resources on our direct sales channels which is intended to result in reduced reliance on
our distributors. The top five customers, by revenue, accounted for 76% of total revenue in 2012 compared to 74% in 2011. In
particular, the top three customers in 2012 accounted for 72% of total revenue (45%, 18% and 9%, respectively) compared to the
top three customers of 2011 which accounted for 65% of total revenue (31%, 24% and 10%, respectively). No other customers
accounted for more than 10% of total ARP segment revenue during 2012. Our ARP segment sold 21 multiplexing analyzers and
68 automated punching systems during the year ended 2012 compared to 11 multiplexing analyzers and 144 automated punching
systems in 2011. The decline in sales of automated punching systems was primarily the result of the unpredictable nature of
activities in the world surrounding major forensic events; for example, the Japanese tsunami in 2011. Other revenue includes
shipping revenue, training revenue, contract research and development fees and commercial milestone revenue.
Gross profit. The gross profit margin for the ARP segment increased to 73% in 2012 from 61% in 2011. Gross profit for the
ARP segment increased to $59.3 million in 2012, as compared to $34.5 million in 2011. The increase in gross profit margin in
2012 was primarily attributable to increased sales of high margin assays, the decreased contribution from system sales, and the
inclusion of a $3.3 million expense from recording the LMA inventory acquired at fair value on the date of acquisition in the prior
year.
Operating expenses. Research and development expense increased to $25.8 million for 2012 from $20.6 million for 2011.
The increase in ARP segment research and development expenses was primarily the result of increases in materials and additional
personnel costs associated with the addition of employees resulting from increased activity related to product development,
including clinical trials costs, together with the inclusion of $4.0 million of GenturaDx’s research and development expenses in
the 2012 results. The focus of our ARP segment research and development activities is continued development of our pipeline
products and technologies. Research and development employees and contract employees of the ARP segment increased to 116
at December 31, 2012 from 100 at December 31, 2011, primarily due to employees added by the biodefense group and through
the acquisition of GenturaDx.
Selling, general and administrative expense, excluding the amortization of acquired intangibles, increased to $21.6 million
for 2012 from $16.6 million but decreased as a percentage of revenue to 26% of ARP segment revenue in 2012 from 29% of ARP
segment revenue for 2011. The increase in selling, general, and administrative expenses is primarily due to the inclusion of the
GenturaDx acquisition related costs of $3.4 million and ongoing selling, general and administrative expenses, the inclusion of
LMA for the entire year ended December 31, 2012, strategic study consulting costs and the expansion of the biodefense group.
Additionally, in the fourth quarter of 2012, we ceased using the Hayward, California facility, whose operating lease commitment
was acquired under the GenturaDx acquisition in July 2012. We have accrued a liability of approximately $850,000 based upon
the estimated fair value of the costs that will continue to be incurred under the lease, including an estimate of sublease rental
income. Amortization of acquired intangible assets has increased from $3.4 million in 2011 to $4.2 million in 2012 due to the
inclusion of a full year of amortization of the acquired intangible assets related to the LMA acquisition in June 2011.
51
Selected financial data for the year ended December 31, 2011 and 2010 of our ARP segment is as follows:
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Year Ended December 31,
2011
2010
(dollars in thousands)
Variance
Variance (%)
$
$
$
$
56,560
34,503
61%
40,555
(6,052)
$
$
$
$
35,971
23,478
65%
28,204
(4,726)
$
$
$
$
20,589
11,025
(4)%
12,351
(1,326)
57%
47%
N/A
44%
28%
A breakdown of revenue in the ARP segment for the years ended December 31, 2011 and 2010 is as follows (dollars in
thousands):
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2011
2010
Variance
$
$
5,830
298
279
48,670
564
919
56,560
$
$
2,605
100
—
32,204
483
579
35,971
$
$
3,225
198
279
16,466
81
340
20,589
Variance (%)
124%
198%
100%
51%
17%
59%
57%
Revenue. Total revenue increased 57% to $56.6 million for the year ended December 31, 2011 from $36.0 million in 2010.
The increase in revenue was primarily attributable to a $16.5 million increase in assay revenue, driven by our acquisition of LMA
and increased sales of our CF and RVP product together with a $3.2 million increase in system revenue, driven by the sale of 144
automated punching systems. The top five customers, by revenue, accounted for 74% of total revenue in 2011 compared to 79%
in 2010. In particular, the top three customers in 2011 accounted for 65% of total revenue (31%, 24% and 10%, respectively)
compared to the top three customers of 2010 which accounted for 62% of total revenue (29%, 17% and 16%, respectively). No
other customers accounted for more than 10% of total ARP segment revenue during 2011. The majority of our ARP segment
revenues are generated from the sale of test kits. Our top two product categories were CF and RVP, which together represented
over 72% and 89% of total assay revenue in the years ended December 31, 2011 and 2010, respectively. Our ARP segment sold
11 multiplexing analyzers and 144 automated punching systems during the year ended 2011 compared to 13 multiplexing analyzers
and 60 automated punching systems in 2010. Other revenue includes shipping revenue, training revenue, contract research and
development fees and commercial milestone revenue.
Gross profit. The gross profit margin percentage for the ARP segment decreased to 61% in 2011 from 65% in 2010 primarily
due to the $3.3 million expense of recording the LMA inventory acquired at fair value on the date of acquisition. Gross profit for
the ARP segment increased to $34.5 million in 2011, as compared to $23.5 million in 2010.
Operating expenses. Research and development expense increased to $20.6 million for 2011 from $14.4 million for 2010.
The increase in research and development expense was primarily the result of increases in materials, clinical trials costs and
additional personnel costs associated with the addition of employees and contract employees resulting from increased activity
related to product development menu expansion and the acquisition of LMA. Research and development employees and contract
employees of the ARP segment increased to 100 at December 31, 2011 from 80 at December 31, 2010.
Selling, general and administrative expense, excluding the amortization of acquired intangibles, increased to $16.6 million,
or 29% of ARP segment revenue, for 2011 from $11.7 million, or 33% of ARP segment revenue for 2010. The increase in selling,
general, and administrative expenses is primarily due to $1.3 million of acquisition costs related to the purchase of LMA and the
addition of LMA's selling, general and administrative expense from the date of acquisition, June 27, 2011, to December 31, 2011.
Amortization of acquired intangible assets increased from $2.2 million in 2010 to $3.4 million in 2011 due to the acquisition of
LMA in June 2011.
52
Liquidity and Capital Resources
Cash and cash equivalents
Short-term investments
Long-term investments
December 31, 2012 December 31, 2011
$
$
(in thousands)
42,789
$
13,607
3,000
59,396
$
58,282
42,574
6,151
107,007
At December 31, 2012, we held cash, cash equivalents and short-term and long-term investments of $59.4 million and had
working capital of $102.5 million. At December 31, 2011, we held cash, cash equivalents and short-term and long-term investments
of $107.0 million and had working capital of $136.9 million. Cash, cash equivalents and investments decreased by $47.6 million
during the year ended December 31, 2012. The decline in cash, cash equivalents and investments from the prior year is primarily
attributable to the purchase of GenturaDx in July 2012. Our operating cash flow of $24.3 million funded both our share repurchase
program and capital expenditures.
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 non-government
sponsored 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 $24.3 million for the year ended December 31, 2012 as compared with cash provided by
operations of $38.3 million for the year ended December 31, 2011. Cash used in investing activities was $28.4 million for the
year ended December 31, 2012 as compared with cash used in investing activities of $61.3 million for 2011. The decrease in cash
used in investing activities was primarily attributable to the net sales of our available-for-sale securities of $32.1 million during
2012, compared to net purchases of $14.0 million during 2011, offset by an increase in funds expended on acquisitions. Currently,
exclusive of changes in available-for-sale securities, we expect cash used in investing activities to be primarily for purchases of
property, plant and equipment, additional cost method investments and continued strategic investments or acquisitions.
Cash used by financing activities increased to $11.5 million for the year ended December 31, 2012, from $8.1 million for the
year ended December 31, 2011, primarily attributable to $20.9 million of stock repurchases offset by an excess income tax benefit
from employee stock-based awards of $6.5 million in 2012.
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, the status of competitive products
and potential costs associated with both protecting and defending our intellectual property. Additionally, actions taken as a result
of our ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for
2013. We believe, however, that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital
equipment requirements and other expected ordinary course 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, (iii)
signing partnership agreements which include significant up front license fees, (iv) our stock repurchase program from time to
time, (v) higher than expected contingent earn-out payments related to our acquisition of GenturaDx and (vi) entering into strategic
investment or acquisition agreements requiring significant cash consideration. See also the “Safe Harbor Cautionary Statement”
and Item 1A “Risk Factors” above.
53
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, or to supplement our position through strategic acquisitions.
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. Any downgrade in our credit rating could adversely affect our ability to raise debt capital on favorable
terms, or at all. 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.
Debt
On December 12, 2003, Tm Bioscience entered into an agreement with the Ministry of Industry of the government of Canada
under which the government agreed to invest up to 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. We have 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.
We have agreed to repay the TPC funding through a royalty on revenues. Royalty payments commenced in 2007 at a rate of
1% of total LMD revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty repayment will continue until total
advances plus imputed interest has been repaid or until December 31, 2016, whichever is earlier. The repayment obligation expires
on December 31, 2016 and any unpaid balance will be cancelled and forgiven on that date. Should the term of repayment be
shorter than expected due to higher than expected assay revenue, the effective interest rate would increase as repayment is
accelerated. Actual future sales generating a repayment obligation will vary from our projections, is subject to adjustment based
upon the U.S. and Canadian exchange rate and are subject to the risks and uncertainties described elsewhere in this report, including
under Item 1A “Risk Factors” and “Safe Harbor Cautionary Statement.”
Contractual Obligations
As of December 31, 2012, we had approximately $29.0 million in non-cancellable obligations for the next 12 months. These
obligations are included in our estimated cash usage during 2013. The following table reflects our total current non-cancellable
obligations by period as of December 31, 2012 (in thousands):
Contractual Obligations
Non-cancellable rental obligations
Non-cancellable purchase obligations (1)
Long-term debt obligations (2)
Capital lease obligations
Accrued contingent consideration (3)
Acquisition-related severance and bonus obligations
Minimum royalty commitments (4)
Software license obligations
Resolution of distribution agreements (5)
Insurance premiums
Total (6)
Payment Due By Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$
13,772
$
3,970
$
5,279
$
1,460
$
3,063
16,789
2,925
197
1,370
643
1,083
2,345
7,000
483
14,538
1,138
90
140
465
131
1,055
7,000
483
541
1,787
99
1,230
178
211
1,290
—
—
910
—
8
—
—
211
—
—
—
800
—
—
—
—
530
—
—
—
$
46,607
$
29,010
$
10,615
$
2,589
$
4,393
(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.
54
(2) We have agreed to repay the long term TPC debt obligations through a royalty on revenues. Repayments denominated
in U.S. Dollars are currently projected to be as shown in the table above. The amount due within one year, as shown
in the table above, is our estimated repayment amount based on the sales for the full year 2012.
(3) Amounts represent those recorded in other long-term liabilities on our consolidated balance sheet. See Note 2 for a
more complete description of our contingent earn-out obligations.
(4) Amounts represent minimum royalties due on net sales of products incorporating licensed technology and subject to
a minimum annual royalty payment.
(5) Amount represents the payments related to the resolution of our molecular diagnostic assay distribution agreements.
All payments are expected to be made prior to June 30, 2013.
(6) Due to the uncertainty with respect to the timing of future cash flows associated with Luminex’s unrecognized tax
benefits at December 31, 2012, Luminex is unable to make reasonably reliable estimates of the timing of cash settlement
with the respective taxing authority. Therefore, $1.8 million of unrecognized tax benefits have been excluded from the
contractual obligations table above. See Note 11 to the Consolidated Financial Statements for a discussion on income
taxes. In addition, $1.2 million of milestone payments under a collaboration agreement have not been included in the
table above as it is not possible to estimate when, or even if, we will make these future potential payments.
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 revenue rates.
Recently Adopted Accounting Pronouncements
In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance
clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative
information about the unobservable inputs used in a fair value measurement. This guidance is effective for reporting periods
beginning after December 15, 2011, and has been applied prospectively. The impact of adoption on the Company's financial
position and results of operations was not material.
In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance
eliminated one of the presentation options provided by accounting principles generally accepted in the United States of America
(“U.S. GAAP”) which was to present the components of other comprehensive income as part of the statement of changes in
stockholders’ equity. In addition, it gave an entity the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or
in two separate but consecutive statements. This guidance was effective for reporting periods beginning after December 15, 2011
and has been applied retrospectively. The impact of adoption on the Company’s financial position and results of operations was
not material.
In September 2011, the FASB issued amendments to the goodwill impairment guidance which provides an option for
companies to use a qualitative approach to test goodwill for impairment if certain conditions are met. The amendments are effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption
is permitted). The Company early adopted the amendments in connection with the performance of the Company’s annual goodwill
impairment test. The impact of adoption on the Company’s financial position and results of operations was not material.
Recent Accounting Pronouncements
In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities to converge the
presentation of offsetting assets and liabilities between U.S. GAAP and International Financial Reporting Standards. The guidance
requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset
in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting
arrangement. The guidance will be effective for fiscal years, and interim periods within those years, beginning after January 1,
2013. We are in the process of evaluating the financial and disclosure impact of this guidance. The impact on our financial position
and results of operations is not expected to be material.
55
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, 2012 would yield a less than 0.5% variance in overall investment return, which would not have a material
adverse effect on our financial condition.
Foreign Currency Risk. Our international business is subject to risks, including, but not limited to: foreign exchange rate
volatility, differing tax structures, unique economic conditions, other regulations and restrictions, and changes in political
climate. Accordingly, our future results could be materially adversely impacted by changes in these and other factors.
As of December 31, 2012, as a result of our foreign operations, we have costs, assets and liabilities that are denominated in
foreign currencies, primarily Canadian and Australian 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 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. Sales transactions in our Australian subsidiary are primarily denominated in Australian
or U.S. dollars while fixed asset purchases and expenses are primarily denominated in Australian dollars. 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. dollar, Canadian dollar,
Australian 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 income statement impact of approximately $280,000 on foreign currency denominated asset and liability balances
as of December 31, 2012. 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 currently material.
We regularly assess the market to determine if additional strategies are appropriate to mitigate future risks.
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 rate 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 $215,000 was included in determining our
consolidated results for the year ended December 31, 2012.
56
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 Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
PAGE
58
59
60
61
62
63
64
57
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, 2012, 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, 2012, 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, 2012 and 2011, and the related consolidated statements
of comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012
of Luminex Corporation and our report dated February 22, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 22, 2013
58
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, 2012
and 2011, and the related consolidated statements of comprehensive income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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, 2012 and 2011 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2012, 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, 2012, 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 22, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 22, 2013
59
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share data)
As of December 31,
2011
2012
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable (net of allowance for doubtful accounts of $444 and $117 at December
31, 2012 and 2011, respectively)
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
LIABILITIES AND STOCKHOLDERS' EQUITY
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:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding:
40,824,932 shares at December 31, 2012; 40,968,957 shares at December 31, 2011
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
42,789
—
13,607
33,273
29,937
6,148
4,388
130,142
26,229
65,218
12,819
3,000
51,128
8,463
296,999
9,650
12,690
4,134
1,138
27,612
1,702
2,933
5,085
37,332
$
$
58,282
1,006
42,574
23,016
24,579
5,991
3,529
158,977
25,192
29,437
12,817
6,151
42,763
7,310
282,647
5,941
11,047
4,057
999
22,044
2,573
3,344
3,831
31,792
41
41
—
293,392
1,101
(34,867)
259,667
296,999
$
—
297,104
984
(47,274)
250,855
282,647
$
$
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
60
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Amortization of acquired intangible assets
Total operating expenses
Income from operations
Interest expense from long-term debt
Other income, net
Income before income taxes
Income taxes
Net income
Other comprehensive income
Foreign currency translation adjustments
Unrealized (losses) gains on available-for-sale securities, net of tax
Other comprehensive income (loss)
Comprehensive income
Net income per share, basic
Shares used in computing net income per share, basic
Net income per share, diluted
Shares used in computing net income per share, diluted
$
$
$
$
$
Year Ended December 31,
2011
184,339
58,849
125,490
2012
202,582
60,008
142,574
$
$
2010
141,557
45,180
96,377
40,775
74,840
4,243
119,858
22,716
(198)
262
22,780
(10,373)
12,407
144
(27)
117
12,524
0.30
40,927
0.30
41,884
$
$
$
$
33,394
64,878
3,375
101,647
23,843
(308)
394
23,929
(9,455)
14,474
(79)
(87)
(166)
14,308
0.35
41,262
0.34
42,537
$
$
$
$
26,843
56,119
2,164
85,126
11,251
(419)
519
11,351
(6,120)
5,231
1,070
52
1,122
6,353
0.13
41,030
0.12
42,438
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
61
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2011
2010
2012
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Deferred income tax benefit (expense)
Excess income tax benefit from employee stock-based awards
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
Purchase of property and equipment
Business acquisition consideration, net of cash acquired
Increase in restricted cash
Purchase of cost method investment
Acquired technology rights
Net cash used in investing activities
Cash flows from financing activities:
Payments on debt
Proceeds from issuance of common stock
Payments for stock repurchases
Excess income tax benefit from employee stock-based awards
Net cash (used in) provided by 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
$
12,407
$
14,474
$
5,231
14,364
9,915
2,699
(6,457)
1,157
(10,267)
(5,346)
(617)
3,286
3,463
(321)
24,283
(14,987)
47,117
(9,767)
(48,199)
—
(1,000)
(1,592)
(28,428)
(1,025)
4,022
(20,916)
6,457
(11,462)
114
(15,493)
58,282
42,789
$
11,887
11,417
(592)
(7,614)
232
(899)
4,783
(1,279)
(2,680)
9,324
(763)
38,290
(47,743)
33,753
(9,554)
(33,914)
—
(2,000)
(1,857)
(61,315)
(885)
3,543
(18,340)
7,614
(8,068)
(112)
(31,205)
89,487
58,282
$
8,898
9,436
5,591
—
709
2,199
(5,811)
(332)
(1,776)
(506)
536
24,175
(29,673)
23,693
(11,102)
(5,012)
(1,000)
(2,081)
(1,825)
(27,000)
(895)
2,173
—
—
1,278
191
(1,356)
90,843
89,487
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
62
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common Stock
Balance at December 31, 2009
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Net income
Foreign currency translation
adjustments
Other
Balance at December 31, 2010
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Repurchase and retirement of
common stock
Net income
Tax benefits associated with options
Foreign currency translation
adjustments
Other
Balance at December 31, 2011
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Repurchase and retirement of
common stock
Issuance of common shares under
ESPP
Net income
Tax benefits associated with options
Foreign currency translation
adjustments
Other
Balance at December 31, 2012
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
$
$
28
—
—
—
—
1,070
52
1,150
—
—
—
—
—
—
Total
Stockholders'
Equity
218,738
2,173
(66,979) $
—
—
—
5,231
(1,835)
9,436
5,231
—
—
(61,748) $
—
1,070
52
234,865
3,544
—
—
—
14,474
—
(79)
(87)
984
—
$
—
—
(47,274) $
—
—
—
—
—
—
—
—
—
—
—
12,407
—
(2,486)
11,417
(18,341)
14,474
7,548
(79)
(87)
250,855
3,517
(3,189)
9,915
(20,916)
504
12,407
6,457
$
$
$
Number of
Shares
40,736,340
220,878
287,815
—
—
—
—
41,245,033
304,125
312,101
—
(892,302)
—
—
—
—
40,968,957
486,766
340,216
—
Amount
Additional
Paid-In
Capital
285,648
2,173
$
(1,835)
9,436
—
—
—
295,422
3,543
(2,486)
11,417
(18,340)
—
7,548
—
—
297,104
3,516
(3,189)
9,915
$
$
41
—
—
—
—
—
—
41
1
—
—
(1)
—
—
—
—
41
1
—
—
(1,006,303)
(1)
(20,915)
$
$
$
504
—
6,457
35,296
—
—
—
—
40,824,932
$
—
—
—
—
—
41
—
—
293,392
$
$
144
(27)
1,101
$
—
—
(34,867) $
144
(27)
259,667
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
63
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 diagnostics industries. The Company’s xMAP®
technology, an open architecture, multiplexing technology, allows the Luminex systems to simultaneously perform up to 500
bioassays from a small sample volume, typically a single drop of fluid, by reading biological tests on the surface of microscopic
polystyrene beads called microspheres. xMAP technology combines this miniaturized liquid array bioassay capability with small
lasers, LEDs, digital signal processors and proprietary software to create a system offering advantages in speed, precision, flexibility
and cost. The Company’s xMAP technology is currently being used within various segments of the life sciences industry which
includes the fields of drug discovery and development, and for clinical diagnostics, genetic analysis, bio-defense, food safety and
biomedical research. In addition to our xMAP technology, our other offerings include our proprietary MultiCode® technology,
used for real-time PCR and multiplexed PCR assays, as well as automation and robotics in the field of dry sample handling.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated upon consolidation.
The acquisition of GenturaDx was completed on July 11, 2012; therefore the results of operations of GenturaDx in the
Company’s consolidated financial statements only include GenturaDx’s results since that date. The acquisition of LMA was
completed on June 27, 2011; therefore the results of operations of LMA in the Company’s consolidated financial statements only
include LMA's results since that date.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts and results
could differ from those estimates, and such differences could be material to the financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and highly liquid investments with original maturities of three months or
less when purchased.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase
and reevaluates such determinations at each balance sheet date. Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains
and losses recognized in earnings. Debt securities are classified as held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates fair
value of these investments. Debt securities for which the Company does not have the intent or ability to hold to maturity are
classified as available-for-sale. Debt and marketable equity securities not classified as held-to-maturity or as trading are classified
as available-for-sale, and are carried at fair market value, with the unrealized gains and losses included in the determination of
comprehensive income and reported in stockholders’ equity. Marketable securities are recorded as either short-term or long-term
on the balance sheet based on contractual maturity date. The fair value of all securities is determined by obtaining non-binding
market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active
markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair
value. Declines in fair value below the Company’s carrying value deemed to be other than temporary are charged against net
earnings.
64
Fair Value of Financial Instruments
The fair values of financial instruments are determined by obtaining non-binding market prices from its third-party portfolio
managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets or inputs other
than quoted prices that are observable either directly or indirectly in determining fair value. The Company’s financial instruments
include cash and cash equivalents, short-term investments, accounts receivable, cost-method investments, long-term investments,
accounts payable, accrued liabilities, and long-term debt. Except for the fair value of the Company’s long-term debt, the fair
values of these financial instruments were not materially different from their carrying or contract values at December 31, 2012
and 2011. See Note 12 for further details concerning the fair value of the Company’s long-term debt.
Supplemental Cash Flow Statement Information (in thousands)
Year Ended December 31,
2011
2010
2012
Cash paid during the period for taxes
Cash paid during the period for interest and penalties
Effect of acquisitions:
Fair value of tangible assets acquired
Liabilities assumed
Cost in excess of fair value of assets acquired
Acquired identifiable intangible assets
Deferred tax assets (liabilities), net
In-process research and development
Less accrued contingent consideration
Less cash and cash equivalents acquired
Net cash paid for business acquisition
Concentration of Credit Risk
$
$
761
171
$
1,520
176
946
228
1,682
(1,954)
8,292
—
2,526
40,100
50,646
1,370
1,077
48,199
$
6,048
(164)
532
19,681
7,617
286
34,000
—
86
33,914
$
$
1,550
(116)
2,181
1,209
(136)
583
5,271
41
218
5,012
Financial instruments which potentially subject the Company to concentrations of credit risk consist of short-term and long-
term investments and trade receivables. The Company’s short-term investments consist of investments in high credit quality
financial institutions, non-government sponsored debt securities and corporate issuers.
The Company provides credit, in the normal course of business, to a number of its customers geographically dispersed primarily
throughout the U.S. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its customers and
maintaining adequate allowances for potential credit losses and does not require collateral.
Thermo Fisher Scientific, Inc., which includes One Lambda, Inc., acquired in 2012, accounted for 28%, 33% and 21% of the
Company’s total TSP segment revenues in 2012, 2011 and 2010, respectively. Bio-Rad Laboratories, Inc. accounted for 14%, 14%
and 17% of the Company’s total TSP segment revenues in 2012, 2011 and 2010, respectively. EMD Millipore accounted for 13%,
11% and 12% of the Company's total TSP segment revenues in 2012, 2011, and 2010, respectively. LabCorp, including acquired
Genzyme Genetics, accounted for 45%, 31%, and 29% of the Company's total ARP segment revenues in 2012, 2011 and 2010,
respectively. Thermo Fisher Scientific, Inc. accounted for 18%, 24% and 29% of the Company’s total ARP segment revenues in
2012, 2011 and 2010, respectively. Abbott Laboratories accounted for 9%, 10% and 16% of the Company’s total ARP segment
revenues in 2012, 2011 and 2010, respectively. No other customer accounted for more than 10% of total segment revenues in
2012, 2011 or 2010.
Inventories
Inventories, consisting primarily of raw materials and purchased components, are stated at the lower of cost or market, with
cost determined according to the standard cost method, which approximates the first-in, first-out method. The Company routinely
assesses its on-hand inventory for timely identification and measurement of obsolete, slow-moving or otherwise impaired inventory.
65
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and depreciation. Property and equipment
are generally amortized or depreciated on a straight-line basis over the useful lives of the assets, which range from two to seven
years. Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the shorter of the
remaining term of the lease or the estimated useful life of the improvements and equipment. The Company classifies the carrying
value of Luminex xMAP Instruments placed within the reagent rental program and the instruments on loan to customers in property
and equipment as "Assets on loan/rental".
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost over the fair value of the assets of the acquired business. In accordance with
Accounting Standards Codification (ASC) 350 “Goodwill and Other” (ASC 350), goodwill is reviewed for impairment at least
annually at the beginning of the fourth quarter, or more frequently if impairment indicators arise, on a reporting unit level. All of
the Company's goodwill relates to one reporting unit, our ARP segment, for goodwill impairment testing The Company has
historically estimated the fair value of our ARP segment reporting unit using a discounted cash flow analysis (“step one” analysis)
of the Company’s projected future results. The step one analysis performed by management in the fourth quarter of 2010 indicated
the fair value the ARP segment reporting unit was significantly higher than the carrying value. As discussed in Recent Accounting
Pronouncements, the Company early adopted new accounting pronouncements related to the Company’s goodwill impairment
analysis in 2011. The new accounting guidance allows an entity to first assess qualitative factors to determine if it is more likely
than not that the fair value of a reporting unit is less than its carrying amount (“step zero” analysis). In fiscal 2012 and 2011,
management used this new guidance in the Company’s annual impairment analysis for goodwill because the Company's cash
flows for the Company's ARP segment reporting unit continue to exceed management's expectations as of the fourth quarter 2010
step one analysis; a review of the estimated fair value of the assay segment using the market approach as of the fourth quarter of
2012 shows that the estimated fair value of the assay segment exceeded the carrying amount by over 100%; the gap between the
estimated fair value of the ARP segment and the carrying value of the ARP segment is broadening compared to 2010 and 2011;
and the assay segment revenue growth rate in 2012 exceeded the modeled growth rates in the goodwill impairment test performed
as of the fourth quarter of 2010. No goodwill impairments were recorded in 2012, 2011 or 2010.
Intangible assets are amortized on a straight line basis over their respective estimated useful lives ranging from two to fifteen
years. As a result of the acquisition of GenturaDx in July 2012, the Company acquired in process research and development of
$40.1 million. As a result of the acquisition of LMA in 2011, the Company acquired amortizable identifiable intangible assets
consisting of developed technology of $11.3 million, customer lists and contracts of $6.7 million, licensing and other agreements
of $1.0 million, trade name of $0.7 million and in process research and development of $0.3 million. These will be amortized
over their estimated lives of ten to twelve years for the developed technology; ten years for the customer lists and contracts; five
years for the software related developed technology, eleven years for the licensing and other agreements; and one year for the
trade name and non-compete agreements. As a result of the acquisition of BSD in 2010, the Company acquired amortizable
identifiable intangible assets consisting of developed technology of $825,000, in-process research and development of $583,000,
customer relationships and contracts of $152,000, trade name of $193,000, and a non-compete agreement of $39,000. These will
be amortized over their estimated lives of five years for the developed technology, four years for the customer relationships and
contracts, two years for the trade name, and seven years for the non-compete agreement.
In-process research and development will be an indefinite-lived intangible asset until completion or abandonment at which
point it will be accounted for as a finite-lived intangible asset or written off if abandoned.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the
projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets and is recorded in the period in which the determination was made.
66
Revenue Recognition and Allowance for Doubtful Accounts
Revenue is generated primarily from the sale of the Company’s products and related services, which are primarily support
and maintenance services on our systems. The Company recognizes product revenue at the time the product is shipped provided
there is persuasive evidence of an agreement, no right of return exists, the fee is fixed and determinable and collectability is
probable. There is no customer right of return in the Company’s sales agreements. If the criteria for revenue recognition are not
met at the time of shipment, the revenue is deferred until all criteria are met.
The Company regularly enters into arrangements for system sales that are multiple-element arrangements, including services
such as installation and training, and multiple products. These products or services are generally delivered within a short time
frame, approximately three to six months, of the agreement execution date and can also be performed by one of the Company’s
third-party partners. Based on the terms and conditions of the sale, management believes that these services can be accounted for
separately from the delivered system as the delivered products have value to customers on a stand-alone basis. Items are considered
to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-
alone basis. Accordingly, the estimated selling price of services or products not yet performed or delivered at the time of system
shipment are deferred and recognized as revenue as such services are performed. The Company has generally been able to determine
the selling price of each deliverable in a multiple arrangement based on the price for such deliverable when it is sold separately. If
vendor specific objective evidence (VSOE) is not determinable and when third-party evidence is not available, management uses
the estimated selling price of a deliverable which is determined based upon the Company’s pricing policies, expected margin of
the deliverable, geographical location and information gathered from customer negotiations.
Within the diagnostic portion of our ARP segment, we provide systems and certain other hardware to customers through
reagent rental agreements under which the customers commit to purchasing minimum quantities of disposable products at a stated
price over a defined contract term, which is normally two to three years. Instead of rental payments, we recover the cost of
providing the system and other hardware in the amount we charge for our diagnostic assays and other disposables. Revenue is
recognized over the defined contract term as assays and other disposable products are shipped. The depreciation costs associated
with the system and other hardware are charged to cost of sales on a straight-line basis over the estimated life of the system. The
costs to maintain these instruments in the field are charged to cost of sales as incurred.
Revenue from extended service agreements is deferred and recognized ratably over the term of the agreement. Revenues
from royalties related to agreements with strategic partners are recognized when such amounts are reported to the Company;
therefore, the underlying end user sales may be related to prior periods.
Additional revenue is derived from cost-type contracts with the U.S. government. Revenue and profit under cost-plus service
contracts is recognized as costs are incurred plus negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably
over the contract performance period as services are performed. Contract costs include labor and related employee benefits,
subcontracting costs and other direct costs, as well as allocations of allowable indirect costs. For contract change orders, claims
or similar items, judgment is required for estimating the amounts, assessing the potential for realization, and determining whether
realization is probable. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the
extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the
period in which the facts requiring the revision become known. Reimbursements of certain costs, including certain hardware costs
or out-of-pocket expenses are included in revenue with corresponding costs included in cost of revenue as costs are incurred.
The Company continuously monitors collections and payments from its customers and maintains allowances for doubtful
accounts based upon its historical experience and any specific customer collection issues that have been identified. While such
credit losses have historically been within the Company’s expectations, there can be no assurance that the Company will continue
to experience the same level of credit losses that it has in the past. A significant change in the liquidity or financial position of any
one of the Company’s significant customers, or a deterioration in the economic environment, in general, could have a material
adverse impact on the collectability of the Company’s accounts receivable and its future operating results, including a reduction
in future revenues and additional allowances for doubtful accounts.
67
Product-Related Expenses
The Company provides for the estimated cost of initial product warranties at the time revenue is recognized. While the
Company engages in product quality programs and processes, the Company’s warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be
required. Shipping and handling costs associated with product sales are included in cost of sales. Advertising costs are charged
to operations as incurred. The Company does not have any direct-response advertising. Advertising expenses, which include
trade shows and conventions, were approximately $2.4 million, $3.1 million and $2.8 million for 2012, 2011 and 2010, respectively,
and were included in selling, general and administrative expense in the Consolidated Statements of Operations.
Research and Development Costs
Research and development costs are generally expensed in the period incurred. Nonrefundable advance payments for research
and development activities for materials, equipment, facilities, and purchased intangible assets that have an alternative future use
are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are
performed. In addition, the Company capitalizes certain internally developed products used for evaluation during development
projects that also have alternative future uses. These internally developed assets are generally depreciated on a straight-line basis
over the useful life of the assets, which range from two months to one year.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC 830, “Foreign Currency
Matters”. The reporting currency for the Company is the U.S. dollar. With the exception of its Canadian subsidiary, whose functional
currency is the U.S. dollar, the functional currency of the Company’s foreign subsidiaries is their local currency. Accordingly,
assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each balance sheet date. Before translation,
the Company re-measures foreign currency denominated assets and liabilities, including inter-company accounts receivable and
payable, into the functional currency of the respective entity, resulting in unrealized gains or losses recorded in selling, general
and administrative expenses in the Consolidated Statement of Operations. Revenues and expenses are translated using average
exchange rates during the respective period. Foreign currency translation adjustments are accumulated as a component of other
comprehensive income as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated
in foreign currencies are included in selling, general and administrative expenses in the Consolidated Statement of Operations and
to date have not been material.
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance metrics. Bonus accruals made
throughout the year related to the various incentive plans are based on management’s best estimate of the achievement of the
specific metrics. Adjustments to the accruals are made on a quarterly basis as forecasts of performance are updated. At year-end,
the accruals are adjusted to reflect the actual results achieved.
Income Taxes
The Company accounts for income under the asset and liability method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted
tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. A
valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those
assets will be realized.
The Company recognizes excess tax benefits associated with share-based compensation to stockholders’ equity only when
realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company
follows the with-and-without approach excluding any indirect effects of the excess tax deductions. Under this approach, excess
tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits
available to the Company.
68
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes” which clarifies the accounting
for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s financial
statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the
technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense.
Earnings Per Share
Basic net income per share is computed by dividing the net income for the period by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the
weighted average number of common shares and potential common shares from outstanding stock options, restricted stock units
and contingently issuable shares resulting from an award subject to performance or market conditions determined by applying the
treasury stock method. In periods with a net loss, potentially dilutive securities composed of incremental common shares issuable
upon the exercise of stock options and warrants, and common shares issuable on conversion of preferred stock, would be excluded
from historical diluted loss per share because of their anti-dilutive effect.
Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement
provisions of ASC 718 “Stock Compensation” (ASC 718). ASC 718 requires the recognition of compensation expense, using a
fair-value based method, for costs related to all share-based payments including stock options, restricted stock units and shares
issued under the Company’s employee stock purchase plan. Pursuant to ASC 718, stock-based compensation cost is measured at
the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.
Segment Reporting
Management has determined that the Company has two segments for financial reporting purposes: the TSP segment and the
ARP segment. See Note 18 – Segment and Geographic Information.
NOTE 2 – BUSINESS COMBINATIONS
2012 Acquisition
On July 11, 2012, the Company completed its acquisition of GenturaDx, a British Virgin Islands corporation with operations
in Hayward, California, pursuant to the terms of an Agreement and Plan of Merger, dated July 9, 2012, by and among
Luminex, Grouper Merger Sub, Inc., a British Virgin Islands corporation and a wholly-owned subsidiary of Luminex (“Merger
Sub”), GenturaDx, and a representative of the stockholders and lenders of GenturaDx (the “Agreement”). Pursuant to the terms
of the Agreement, Merger Sub merged with and into GenturaDx and GenturaDx continued as the surviving corporation as a wholly-
owned subsidiary of Luminex (the “Merger”). GenturaDx is a molecular diagnostics company in late stage development of a fully
integrated, highly automated, real-time PCR system that employs a single-use cassette for sample-to-answer workflow. The
integration of Luminex’s MultiCode-RTx chemistry with the GenturaDx instrument is expected to result in a new system for
molecular diagnostic testing.
Under the terms of the Agreement, the Company acquired all of the outstanding capital stock of GenturaDx in exchange for
approximately $49.3 million cash consideration, subject to working capital adjustments, plus (i) $3 million in consideration
contingent upon achieving certain future development and regulatory milestones by December 31, 2013, (ii) up to $7 million in
consideration contingent upon achieving certain future development and regulatory milestones by June 30, 2014 and (iii) additional
consideration contingent upon acquired products exceeding certain revenue thresholds in each of 2013, 2014 and 2015. Pursuant
to ASC 805 "Business Combinations", the Company has recorded an estimate of the fair value of the contingent considerations
liability based upon future revenue estimates and weighted probability assumptions of development and regulatory outcomes. The
discount rate is used in the estimate of fair value and is based on the weighted-average cost of capital of the acquired business
plus a risk premium for a non-performance risk related to the liability. This analysis resulted in an initial contingent consideration
liability of approximately $1.4 million, which will be adjusted periodically as a component of operating expenses based on changes
in the fair value of the liability resulting from changes in the assumptions pertaining to the achievement of the defined milestones
and revenue thresholds. This fair value measurement was based on significant inputs not observable in the market and thus
represented a Level 3 measurement as defined in ASC 820 "Fair Value Measurements and Disclosures". This fair value measurement
is directly impacted by the Company's estimate of future incremental revenue of the business. Accordingly, if actual revenue is
higher or lower than the estimates within the fair value measurement, the Company would record additional charges or benefits,
respectively, as appropriate.
69
Approximately $8.1 million of the upfront consideration was deposited in escrow as security for potential indemnity claims
and certain other expressly enumerated matters of which $100,000 was deposited in escrow to satisfy, in part, any post-closing
adjustments relating to GenturaDx's working capital balance at closing. $65,000 of the $8.1 million escrow was released in the
third quarter of 2012 for payment of fees related to the GenturaDx stockholder and lender representative services and $100,000
was released in the fourth quarter of 2012, of which approximately $78,000 was released to Luminex due to working capital
adjustments and approximately $22,000 was released to the GenturaDx stockholders and lenders. Additionally, up to 30% of the
milestone payments are subject to certain set-off rights of the Company for indemnification claims under the Agreement. The
Company's acquisition of GenturaDx was funded with cash on hand.
The results of operations for GenturaDx have been included in the Company’s consolidated financial statements from the
date of acquisition as part of the Company’s ARP segment.
The preliminary purchase price consideration is as follows (in thousands):
Cash
Contingent consideration
Total purchase price
$
$
49,276
1,370
50,646
The acquisition of GenturaDx has been accounted for as a business combination in accordance with ASC 805 and, as such,
the assets acquired and liabilities assumed have been recorded at their respective fair values. The determination of fair value for
the identifiable tangible and intangible assets acquired and liabilities assumed requires extensive use of estimates and assumptions.
Significant estimates and assumptions include, but are not limited to estimating future cash flows and determining the appropriate
discount rate. The following table summarizes the estimated fair values of GenturaDx’s assets acquired and liabilities assumed at
the acquisition date (in thousands):
Net tangible liabilities assumed as of July 11, 2012
Intangible assets subject to amortization
Deferred tax assets, net
Goodwill
Total purchase price
$
$
(272)
40,100
2,526
8,292
50,646
The $40.1 million of intangible assets subject to amortization have been identified as in-process research and development
(IPR&D) that has not yet reached technological feasibility as of the acquisition date. Technological feasibility is primarily
established by obtaining regulatory approval to perform certain diagnostic testing on the Company's systems. The IPR&D project
relates to GenturaDx's diagnostic testing prototype system designed to run Sample-to-Answer cassettes in clinical settings and the
related cassette design. This project is expected to be completed in 2014. The fair value of the IPR&D has been estimated using
the multi-period excess earnings method, a form of the income approach and cash flow projections were discounted using a rate
of 29.5 percent, which reflects the risk associated with the intangible asset related to the other assets and the overall business
operations of the Company.
The Company has finalized the purchase price allocation for the GenturaDx transaction. If information later becomes
available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recognized in
the income statement. The excess of the purchase price over the fair value of the tangible net assets, liabilities and intangible
assets acquired was recorded to goodwill. The goodwill recognized is mainly attributable to the compatibility between the
Company's MultiCode-RTx chemistry and the prototype system and the expectation that the system together with the Company's
MultiCode-RTx chemistry will allow the Company to leverage years of previous assay development and make custom assay
development accessible to a greater number of diagnostic labs, even those with little molecular diagnostics experience.
Acquisition related costs of $4.3 million have been included in selling, general and administrative costs for 2012. GenturaDx
had no revenue and operating loss of $7.9 million from the date of acquisition to December 31, 2012, including the impact of the
acquisition costs. In the fourth quarter of 2012, the Company ceased using the Hayward, California facility, whose operating
lease commitment was acquired under the GenturaDx acquisition in July 2012. The Company has accrued a liability of
approximately $850,000 based upon the estimated fair value of the costs that will continue to be incurred under the lease, including
an estimate of sublease rental income.
70
Unaudited Pro Forma Financial Information
GenturaDx’s results of operations have been included in the Company’s financial statements since the date of the acquisition.
The unaudited pro forma financial information set forth below assumes that GenturaDx had been acquired at the beginning of
each of the 2012 and 2011 fiscal years, and includes removal of interest expense on GenturaDx’s debt extinguished at the date of
acquisition, removal of acquisition costs and the impact of purchase accounting adjustments, and tax adjustments. This unaudited
pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of
operations that actually would have resulted had the acquisition been in effect at the beginning of the periods presented. In addition,
the unaudited pro forma financial information is not intended to be a projection of future results and does not reflect any operating
efficiencies or cost savings that might be achievable.
Revenue
Income from operations
Net income
Net income per common share, basic
Shares used in computing net income per common share, basic
Net income per common share, diluted
Shares used in computing net income per common share, diluted
2011 Acquisition
Year Ended December 31,
2012
2011
(unaudited, in thousands
except per share data)
$
202,582
$
184,339
16,276
9,118
0.22
40,927
0.22
41,884
$
$
10,224
5,194
0.13
41,262
0.12
42,537
$
$
On June 27, 2011, the Company completed its acquisition of 100% of the outstanding shares of EraGen Biosciences, Inc.,
now referred to as Luminex Madison (LMA), a privately-held molecular diagnostic company in Madison, Wisconsin, which was
founded in 1999, for the aggregate cash purchase price of $34.0 million. This acquisition was undertaken to provide the Company
access to a portfolio of molecular diagnostic assays based on a proprietary technology called MultiCode®. LMA is an innovator
in molecular diagnostic testing technologies for infectious disease and genetic applications.
The results of operations for LMA have been included in the Company’s consolidated financial statements from the date of
acquisition as part of the Company’s ARP segment. $5.6 million of the cash purchase price was deposited in escrow as security
for breaches of representations and warranties and certain other expressly enumerated matters and to satisfy any post-closing
adjustments. $150,000 of this escrow was released in the third quarter of 2011 as the closing balance sheet was finalized, $1.0
million of this escrow was released to a licensor to fund an indemnification claim in the first quarter of 2012 related to a fee due
pursuant to a sublicense agreement, and the remaining $3.5 million of this escrow was released to former shareholders of LMA
and certain other individuals in the second half of 2012 at the conclusion of the escrow period.
The acquisition of LMA has been accounted for as a business combination in accordance with ASC 805 Business Combinations
and, as such, the assets acquired and liabilities assumed have been recorded at their respective fair values. The determination of
fair value for the identifiable tangible and intangible assets acquired and liabilities assumed requires extensive use of estimates
and judgments. Significant estimates and assumptions include, but are not limited to estimating future cash flows and determining
the appropriate discount rate. The following table summarizes the estimated fair values of LMA’s assets acquired and liabilities
assumed at the acquisition date (in thousands):
Net tangible assets assumed as of June 27, 2011
Intangible assets subject to amortization
Deferred tax assets, net
Goodwill
Total purchase price
71
$
$
5,884
19,967
7,617
532
34,000
The Company has finalized the purchase price allocation for the LMA transaction. If information later becomes available
which would indicate adjustments are required to the purchase price allocation, such adjustments will be recognized in the income
statement. Acquisition related costs of $2.1 million have been included in selling, general and administrative costs for
2011. Acquired finished goods and work-in-process inventory was valued at its estimated selling price less the sum of costs of
sales efforts and a reasonable profit allowance for the Company's selling effort and, with respect to work-in-process inventory,
estimated costs to complete. This resulted in a fair value adjustment that increased finished goods inventory by approximately
$3.3 million. As the Company sold the acquired inventory in 2011, its costs of sales reflected the increased valuation of the
inventory, which reduced the Company's gross margins in 2011. LMA had revenue of $7.6 million and operating loss of $4.6
million from the date of acquisition to December 31, 2011, including the impact of the acquisition costs and the fair value adjustment
to inventory above.
2010 Acquisition
On May 24, 2010, the Company completed the acquisition of 100% of the outstanding shares of BSD, an Australia-based,
privately-held, manufacturer and wholesaler of laboratory instruments. This acquisition was undertaken to provide the Company
access to new technology and products, an innovative development team, and an established presence in important strategic
markets.
BSD specializes in automation and robotics in the field of dry sample preparation handling. BSD, founded in 1991, is
headquartered in Brisbane, Queensland, Australia. BSD has established positions in the worldwide newborn screening, forensics,
human identification and several molecular diagnostics markets.
The results of operations for BSD have been included in the Company’s consolidated financial statements from the date of
acquisition as part of the Company’s ARP segment. The Company has concluded that the acquisition of BSD does not represent
a material business combination and therefore no pro forma financial information has been provided herein.
The aggregate purchase price of $5.3 million was comprised of the following components (in thousands):
Cash consideration
Contingent consideration
Total purchase price
$
$
5,230
41
5,271
The acquisition also provided for contingent consideration made up of earn-out payments which the Company recognized at
the acquisition date at its fair value of $41,000. During the fourth quarter of 2011, the Company re-evaluated its assumptions and
updated the revenue and probability assumptions for future earn-out periods and lowered its projections. As a result of these
adjustments, the Company recorded a reversal of expense of $41,000 in the fourth quarter of 2011 to record the contingent
consideration liability at fair value of $0 as of December 31, 2011. No earn-out has been earned or paid as of December 31, 2012.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date
(in thousands):
Net tangible assets assumed as of May 24, 2010
Intangible assets subject to amortization
Goodwill
Total purchase price
Restricted Cash
$
$
1,298
1,792
2,181
5,271
The Company had $1.0 million of restricted cash as of December 31, 2011, representing funds placed in escrow in a
Luminex account for the acquisition of BSD. The Company was holding these funds back from the cash consideration paid to
the sellers of BSD for a term of two years. These funds were released in the second quarter of 2012 to the sellers of BSD in
accordance with the purchase agreement.
72
NOTE 3 – INVESTMENTS
Available-for-sale securities consisted of the following as of December 31, 2012 (in thousands):
Current:
Money Market funds
Non-government sponsored debt securities
Total current securities
Noncurrent:
Non-government sponsored debt securities
Total noncurrent securities
Total available-for-sale securities
Amortized Cost
Gains in
Accumulated Other
Comprehensive
Income (Loss)
Losses in
Accumulated Other
Comprehensive
Income (Loss)
Estimated Fair Value
$
$
16,987
13,602
30,589
3,000
3,000
33,589
$
$
— $
5
5
—
—
5
$
— $
—
—
—
—
— $
16,987
13,607
30,594
3,000
3,000
33,594
Available-for-sale securities consisted of the following as of December 31, 2011 (in thousands):
Current:
Money Market funds
Non-government sponsored debt securities
Total current securities
Noncurrent:
Non-government sponsored debt securities
Total noncurrent securities
Total available-for-sale securities
Amortized Cost
Gains in
Accumulated Other
Comprehensive
Income (Loss)
Losses in
Accumulated Other
Comprehensive
Income (Loss)
Estimated Fair Value
$
$
38,520
42,554
81,074
6,129
6,129
87,203
$
$
— $
32
32
22
22
54
$
— $
(12)
(12)
—
—
(12) $
38,520
42,574
81,094
6,151
6,151
87,245
There were $6 million and $0 in proceeds from the sales of available-for-sale securities during the years ended December 31,
2012 and 2011, respectively. Realized gains and losses on sales of investments are determined using the specific identification
method and are included in other income (expense) in the Consolidated Statement of Comprehensive Income. Net unrealized
holding gains and losses on available-for-sale securities of $5,000, net of $1,000 of tax expense, have been included in accumulated
other comprehensive gain (loss) as of December 31, 2012. All of the Company's available-for-sale securities with gross unrealized
losses as of December 31, 2012 and 2011 had been in a loss position for less than 12 months.
The estimated fair value of available-for-sale debt securities at December 31, 2012, by contractual maturity, was as follows
(in thousands):
Due in one year or less
Due after one year through two years
Estimated Fair Value
13,607
$
3,000
16,607
$
Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
73
NOTE 4 - ACCOUNTS RECEIVABLE AND RESERVES
The Company records an allowance for doubtful accounts based upon a specific review of all outstanding invoices, known
collection issues and historical experience. The Company regularly evaluates the collectability of its trade accounts receivables
and performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and its assessment
of the customer’s current credit worthiness. These estimates are based on specific facts and circumstances of particular orders,
analysis of credit memo data and other known factors. Accounts receivable consisted of the following at December 31 (in
thousands):
Accounts receivable
Less: Allowance for doubtful accounts
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at December 31, 2009
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2010
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2011
Reductions charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2012
NOTE 5 - INVENTORIES, NET
Inventories consisted of the following at December 31 (in thousands):
Parts and supplies
Work-in-progress
Finished goods
2012
2011
$
$
33,717
(444)
33,273
$
$
$
$
$
$
23,133
(117)
23,016
523
(174)
(51)
298
(168)
(13)
117
335
(8)
444
2012
2011
$
$
18,259
4,831
6,847
29,937
$
$
12,382
6,829
5,368
24,579
The Company has non-cancellable purchase commitments with certain of its component suppliers in the amount of
approximately $16.8 million at December 31, 2012. Should production requirements fall below the level of the Company’s
commitments, the Company could be required to take delivery of inventory for which it has no immediate need or incur an increased
cost per unit going forward.
74
NOTE 6 – FAIR VALUE MEASUREMENT
ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles
and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must
maximize the use of observable inputs and minimize the use of unobservable inputs. The ASC describes a fair value hierarchy
based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable
and the last unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its
third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical
assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in
determining fair value. There were no transfers between Level 1, Level 2 or Level 3 measurements for the year ended December 31,
2012.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2012 and 2011 (in thousands):
Assets:
Money Market funds
Non-government sponsored debt securities
$
$
16,987
—
— $
16,607
— $
—
16,987
16,607
Fair Value Measurements at December 31, 2012
Total
Level 1
Level 3
Level 2
Liabilities:
Contingent consideration
Assets:
—
—
1,370
1,370
Fair Value Measurements at December 31, 2011
Total
Level 1
Level 2
Level 3
Money Market funds
Non-government sponsored debt securities
$
$
38,520
—
— $
48,725
— $
—
38,520
48,725
Liabilities:
Contingent consideration
—
—
—
—
Changes in the recurring fair value measurements of financial assets and liabilities using significant unobservable inputs
(Level 3) during the years ended December 31, 2012 and 2011 were as follows:
Beginning balance
Contingent consideration recorded at acquisition
Fair value adjustments
Ending balance
2012
2011
$
$
— $
1,370
—
1,370
$
41
—
(41)
—
Refer to Note 2 for a description of the valuation of contingent consideration and related sensitivities of the estimates.
75
NOTE 7 - 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
2012
2011
$
$
21,155
16,885
7,068
15,756
4,834
3,499
116
69,313
(43,084)
26,229
$
$
19,343
15,822
5,428
12,011
4,260
2,689
116
59,669
(34,477)
25,192
Depreciation expense was $8.8 million, $7.8 million, and $6.4 million for the years ended December 31, 2012, 2011, and
2010, respectively.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
On July 11, 2012, the Company completed the acquisition of GenturaDx. As a result, the Company recorded approximately
$8.3 million of goodwill and approximately $40.1 million of other identifiable intangible assets. In 2011, as a result of the
acquisition of LMA, the Company recorded approximately $0.5 million of goodwill and $20.0 million of other identifiable
intangible assets. For impairment testing purposes, the Company has assigned all of the GenturaDx and LMA goodwill to the
ARP segment. This goodwill is not expected to be deductible for tax purposes.
The changes in the carrying amount of goodwill during the period are as follows (in thousands):
Balance at beginning of year
Acquisition of GenturaDx
Acquisition of LMA
Foreign currency translation adjustments
Balance at end of year
2012
2011
$
$
42,763
8,292
—
73
51,128
$
$
42,250
—
532
(19)
42,763
As a result of the acquisition of LMA in 2011, the Company acquired amortizable identifiable intangible assets consisting of
developed technology of $11.3 million, customer lists and contracts of $6.7 million, licensing and other agreements of $1.0 million,
trade name of $0.7 million and in process research and development of $0.3 million. These will be amortized over their estimated
lives of ten to twelve years for the developed technology; ten years for the customer lists and contracts; five years for the software
related developed technology; eleven years for the licensing and other agreements; and one year for the trade name and non-
compete agreements.
The current in process research and development projects are scheduled to be completed in 2013 and 2014. The estimated
costs to complete these projects are between $10.0 and $15.0 million. During the fourth quarter of 2012, one of the in-process
research and development projects from the BSD acquisition was abandoned and written off for $118,000.
76
The Company’s intangible assets are reflected in the table below (in thousands, except weighted average lives):
Technology,
trade secrets
and know-how
Finite-lived
Customer
lists and
contracts
Other
identifiable
intangible assets
Indefinite-lived
2011
Balance at December 31, 2010
$
18,407
$
1,285
$
Additions due to acquisition of LMA
Completion of IP R&D projects
Write-off of IP R&D projects
Foreign currency translation
adjustments
Balance at December 31, 2011
Less: accumulated amortization:
Accumulated amortization balance at
December 31, 2010
Amortization expense
Foreign currency translation
adjustments
Accumulated amortization balance at
December 31, 2011
Net balance at December 31, 2011
Weighted average life (in years)
2012
Balance at December 31, 2011
Additions due to acquisition of
GenturaDx
Completion of IP R&D projects
Write-off of IP R&D projects
Foreign currency translation
adjustments
Balance at December 31, 2012
Less: accumulated amortization:
$
$
11,332
270
—
(9)
30,000
(7,362)
(2,642)
5
6,697
—
—
(1)
7,981
(308)
(461)
1
(9,999)
20,001
10
$
(768)
7,213
11
$
IP R&D
Total
712
$ 20,687
286
(270)
(92)
(5)
631
—
—
—
19,967
—
(92)
(17)
40,545
(7,743)
(3,375)
10
— (11,108)
$ 29,437
631
283
$
1,652
—
—
(2)
1,933
(73)
(272)
4
(341)
1,592
9
$
30,000
$
7,981
$
1,933
$
631
$ 40,545
—
—
—
30
—
—
—
5
—
—
—
8
40,100
40,100
—
(118)
—
(118)
14
57
30,030
7,986
1,941
40,627
80,584
Accumulated amortization balance at
December 31, 2011
Amortization expense
Foreign currency translation
adjustments
Accumulated amortization balance at
December 31, 2012
Net balance at December 31, 2012
Weighted average life (in years)
$
(9,999)
(3,187)
(7)
(768)
(790)
(2)
(13,193)
$
16,837
10
(1,560)
6,426
11
$
(341)
(266)
(6)
(613)
1,328
9
$
— (11,108)
(4,243)
—
—
(15)
— (15,366)
$ 65,218
40,627
77
The estimated aggregate amortization expense for the next five years and thereafter is as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
IPR&D
$
$
4,121
4,092
3,322
3,107
2,147
7,802
24,591
40,627
65,218
NOTE 9 – OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
Purchased technology rights (net of accumulated amortization of $2,390 and $1,262 in 2012 and
2011, respectively)
Cost-method investments
Other
Less: Current portion
2012
2011
$
$
3,765
5,081
556
9,402
(939)
8,463
$
$
3,513
4,081
146
7,740
(430)
7,310
For the years ended December 31, 2012 and 2011, the Company recognized amortization expense related to the amortization
of these acquired technology rights of approximately $1,304,000 and $693,000, respectively. Future amortization expense is
estimated to be $1,094,000 in 2013, $814,000 in 2014, $532,000 in 2015, $525,000 in 2016, $494,000 in 2017 and $306,000
thereafter.
Non-Marketable Securities and Other-Than-Temporary Impairment
The Company owns a minority interest in two private companies based in the U.S. through its investments of (i) $2.1 million
in the second quarter of 2010 and an additional $2.0 million in the first quarter of 2011 in one private company and (ii) $1.0 million
in the third quarter of 2012 in a second private company. These minority investments in the private companies are included at
cost in other long-term assets on the Company’s Consolidated Balance Sheets as the Company does not have significant influence
over the investees as the Company owns less than 20% of the voting equity and the investees are not publicly traded. The Company
regularly evaluates the carrying value of these cost-method investments for impairment and whether any events or circumstances
are identified that would significantly harm the fair value of the investments. The primary indicators the Company utilizes to
identify these events and circumstances are the investee's ability to remain in business, such as the investees liquidity and rate of
cash use, and the investee’s ability to secure additional funding and the value of that additional funding. In the event a decline in
fair value is judged to be other-than-temporary, the Company will record an other-than-temporary impairment charge in other
income, net in the Consolidated Statements of Operations. As the inputs utilized for the Company's periodic impairment assessment
are not based on observable market data, these cost method investments are classified withing Level 3 of the fair value hierarchy.
To determine the fair value of these investments, the Company uses all available financial information related to the entities,
including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost
method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may have a
significant adverse effect on the fair value of the investment and to do so would be impractical.
78
NOTE 10 - ACCRUED WARRANTY COSTS
Sales of certain of the Company’s systems are subject to a warranty. System warranties typically extend for a period of twelve
months from the date of installation or no more than 15 months from the date of shipment. The Company estimates the amount
of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could
differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted
periodically.
The following table summarizes the changes in the warranty accrual (in thousands):
Accrued warranty costs at December 31, 2009
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2010
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2011
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2012
NOTE 11 - INCOME TAXES
$
$
581
(980)
876
477
(1,131)
1,335
681
(1,119)
1,041
603
The components of income before income taxes for the years ended December 31 are as follows (in thousands):
Domestic
Foreign
Total
2012
2011
2010
$
$
28,241
(5,461)
22,780
$
$
26,373
(2,444)
23,929
$
$
16,625
(5,274)
11,351
The components of the provision (benefit) for income taxes attributable to continuing operations for the years ended December
31 are as follows (in thousands):
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
Total provision for income taxes
2012
2011
2010
$
$
$
4,158
(129)
928
4,957
$
$
3,945
1,179
292
5,416
10,373
$
8,630
494
1,420
10,544
(604)
(207)
(278)
(1,089)
9,455
$
$
$
7,498
(391)
962
8,069
(1,738)
(210)
(1)
(1,949)
6,120
79
The provision for income taxes differs from amount computed by applying the statutory federal rate to pretax income 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
Valuation allowance
Income tax reserves
Other
Year Ended December 31,
2012
2011
2010
35.0 %
3.9 %
2.0 %
0.5 %
(7.1)%
11.6 %
0.1 %
(0.5)%
45.5 %
35.0 %
2.7 %
5.3 %
(0.4)%
(2.5)%
(1.3)%
0.5 %
0.2 %
39.5 %
35.0 %
5.5 %
11.5 %
0.8 %
(37.2)%
39.8 %
(1.5)%
0.0 %
53.9 %
The Company accounts for income taxes using the liability method in accordance with ASC 740 "Income Taxes". Under this
method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial
accounting bases of assets and liabilities at the end of each reporting period. Deferred income taxes are based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation
allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. Significant
components of the Company’s deferred tax assets and liabilities as of December 31 are as follows (in thousands):
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
Depreciation and amortization
Stock compensation
Acquired intangibles
Total noncurrent deferred tax liabilities
Net noncurrent deferred tax asset
Net deferred tax assets
80
2012
2011
2010
$
$
$
$
$
7,447
7,447
(536)
6,911
$
6,830
6,830
(839)
5,991
65,724
2,729
8,194
5,780
82,427
(44,132)
38,295
$
48,633
2,867
7,568
5,904
64,972
(39,229)
25,743
$
4,302
4,302
(77)
4,225
30,312
3,323
7,382
4,527
45,544
(34,756)
10,788
(763) $
(763)
6,148
— $
—
5,991
—
—
4,225
(22,784)
(61)
(2,631)
(25,476)
12,819
18,967
$
(9,352)
(92)
(3,482)
(12,926)
12,817
18,808
$
(883)
(61)
(3,481)
(4,425)
6,363
10,588
Under ASC 740, the Company can only recognize a deferred tax asset to the extent that it is “more likely than not” that these
assets will be realized. In evaluating the need for a valuation allowance, all available evidence, both positive and negative, is
considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. The Company has
established a valuation allowance against a portion of its remaining deferred tax assets because it is more likely than not that
certain deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the Company considered
numerous factors including historical profitability, the amount of future taxable income and the existence of deferred tax liabilities
that can be used to realize deferred tax assets. The valuation allowance increased approximately $4.6 million in 2012 from 2011
primarily due to the Canadian and Australian subsidiaries which have a full valuation allowance recorded against their net deferred
tax assets. In 2012 the Company determined that it was not more likely than not that the deferred tax assets of Australia would
be realized and recorded a valuation allowance of approximately $1.5 million in income tax expense.
At December 31, 2012, the Company had gross federal, state and foreign net operating loss carryforwards of approximately
$80.9 million, $60.2 million, and $22.8 million respectively. These losses expire beginning in 2021, except for $3.2 million of
losses that have unlimited carryforward periods. Approximately $12.6 million of the federal net operating loss carryforward is
attributable to excess employee stock option deductions, the benefit from which will be allocated to additional paid-in capital
rather than current earnings if subsequently realized. Federal and state net operating losses of approximately $68.3 million and
$54.9 million, respectively, were acquired as part of the acquisitions of U.S. companies. These acquired net operating losses are
subject to annual limitations due to the "change of ownership" provisions of Section 382 of the Internal Revenue Code of 1986
and similar state provisions. The Company has federal, state, and foreign credit carryforwards of approximately $7.2 million,
$1.1 million, and $9.8 million, respectively. These credits begin to expire in 2012, except for approximately $3.2 million which
have an indefinite carryforward period. Approximately $4.2 million of the federal credits is attributable to excess employee stock
option deductions, the benefit of which will be allocated to additional paid-in capital rather than current earnings if subsequently
realized. State credits of approximately $1.1 million were acquired as part of the acquisition of GenturaDx in 2012 and are subject
to annual limitations due to the "change of ownership" provisions of Section 382 of the Internal Revenue Code of 1986 and similar
California state tax provisions. In addition, the Company has a gross scientific research and experimental development pool in
Canada of approximately $49.6 million which has an indefinite carryforward period.
The American Taxpayer Relief Act of 2012, enacted January 2, 2013, retroactively reinstated the Federal R&D tax credit to
January 1, 2012. The Company's estimated 2012 Federal R&D tax credit of approximately $0.9 million, net of tax reserves,
has not been reflected in the Company's operating results for the year ended December 31, 2012. The impact of this legislative
change on the Company's financial statements is expected to be reflected in the operating results for the first quarter of 2013.
Undistributed earnings of our foreign subsidiaries are considered permanently reinvested and, accordingly, no provision for
U.S. federal or state income taxes has been provided thereon. The cumulative amount of undistributed earnings of our non-US
subsidiaries was approximately $1.2 million at December 31, 2012, $2.1 million at December 31, 2011, and $1.6 million at
December 31, 2010. The ultimate tax liability related to repatriation of our undistributed earnings is not estimable at the present
time.
As of December 31, 2012 and December 31, 2011, the Company had recorded gross unrecognized tax benefits of approximately
$1.8 million and $1.4 million, respectively. All of the unrecognized tax benefits as of December 31, 2012, if recognized, would
impact the effective tax rate. The Company recognizes interest expense and penalties associated with uncertain tax positions as
a component of income tax expense. During the years ended December 31, 2012 and 2011, the Company recognized approximately
$14,000 and $(1,000) in tax related interest and penalties, respectively. Reserves for interest and penalties as of December 31,
2012 and 2011 are not significant as the Company has net operating loss carryovers.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):
Balance at beginning of year
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 end of year
81
2012
2011
$
$
1,370
390
—
—
—
—
—
1,760
$
$
1,251
119
—
—
—
—
—
1,370
As of December 31, 2012, there were no unrecognized tax benefits that we expect would change significantly over the next
12 months.
We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the United States,
the statute of limitations with respect to the federal income tax returns for tax years after 2008 are open to audit; however, since
the Company has net operating losses, the taxing authority has the ability to review tax returns prior to the 2009 tax year and make
adjustments to these net operating loss carryforwards. In Canada, the statute of limitations with respect to the federal income tax
returns for years after 2004 are open for audit. There are numerous other income tax jurisdictions for which tax returns are not
yet settled, none of which are individually significant. The Internal Revenue Service ("IRS") completed its examination of the
Company's 2009 federal tax returns during the fourth quarter of 2012. The Company received a “no change” letter as a result of
this examination as the IRS did not propose any adjustments. We are currently under audit in Canada for our scientific research
and experimental development pool claims for the 2009 through 2011 tax years. Although we do not expect a material adjustment,
the outcome of the audit is not known at this time. We are not under audit in any other major taxing jurisdictions at this time.
NOTE 12 - LONG-TERM DEBT
On December 31, 2012, long-term debt consisted of a loan payable to TPC valued at $1.7 million and the related short term
interest payable of $1.1 million.
On December 12, 2003, Tm Bioscience entered into an agreement with the Ministry of Industry of the government of Canada
under which the Government agreed to invest up to $7.3 million (Cdn) relating to the development of several genetic tests. This
agreement was amended in March 2009. Funds were advanced from TPC, a special operating program. The actual payments
received by the Company were predicated on eligible expenditures made during the amended project period which ended July 31,
2008. As of December 31, 2012, the Company had received $4.9 million from TPC ($4.9 million (Cdn)) which is expected to be
repaid along with approximately $1.6 million of imputed interest for a total of approximately $6.5 million ($6.5 million
(Cdn)). Approximately $3.6 million ($3.6 million (Cdn)) of the interest and advances has been repaid as of December 31, 2012.
Tm Bioscience agreed to repay the TPC funding through a royalty on revenues. This liability was assumed by the Company
as part of the acquisition and the liability was recorded at fair value as of the date of acquisition. This liability is subject to
adjustments for foreign currency translation effects as it is a foreign currency denominated balance. Royalty payments commenced
in 2007 at a rate of 1% of total LMD revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty repayment will
continue until total advances plus imputed interest has been repaid or until December 31, 2016, whichever is earlier. The repayment
obligation expires on December 31, 2016 and any unpaid balance will be cancelled and forgiven on that date. Should the term of
repayment be shorter than expected due to higher than expected assay revenue, the effective interest rate would increase as
repayment is accelerated. Repayments denominated in U.S. Dollars are currently projected to be as shown in the table below, but
actual future sales generating a repayment obligation will vary from this projection and are subject to the risks and uncertainties
described elsewhere in this report, including under “Risk Factors” and “Safe Harbor Cautionary Statement.” Furthermore, payments
reflected in U.S. Dollars are subject to adjustment based upon applicable exchange rates as of the reporting date.
Estimated repayments on the debt for the next five years and thereafter are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Less: Amount representing implied interest
Total principal repayments
Discount
Total long-term debt
Less: Current portion of long-term debt
82
$
$
$
$
$
1,138
1,270
517
—
—
—
2,925
(56)
2,869
(29)
2,840
(1,138)
1,702
In 2012 and 2011, the Company had imputed interest expense related to its long-term debt of $89,000 and $125,000,
respectively, recorded in the ARP segment. The effective interest rate was 3.90% and 3.96% as of December 31, 2012 and 2011,
respectively. At December 31, 2012 and 2011, the fair value of the Company’s long-term debt was approximately $2.5 million
and $3.2 million, respectively. The Company’s long-term debt is classified as a Level 3 instrument and the Company has used a
discounted cash flow (DCF) model to determine the estimated fair value as of December 31, 2012 and 2011. The assumptions
used in preparing the DCF model include estimates for (i) the amount and timing of future interest and principal payments and
(ii) the rate of return indicative of the investment risk in the ownership of the TPC debt. In making these assumptions, the Company
considered relevant factors including the likely timing of principal repayments and the probability of full repayment considering
the timing of royalty payments based upon total revenue.
NOTE 13 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands, except share and per
share data):
Numerator:
Net income
Denominator:
Year Ended December 31,
2011
2010
2012
$
12,407
$
14,474
$
5,231
Denominator for basic net income per share - weighted average common stock
outstanding
40,927
41,262
41,030
Effect of dilutive securities:
Stock options and awards
Denominator for diluted net income per share - weighted average shares
outstanding - diluted
Basic net income per share
Diluted net income per share
957
1,275
1,408
41,884
0.30
0.30
$
$
42,537
0.35
0.34
$
$
42,438
0.13
0.12
$
$
Restricted stock awards (RSAs) and stock options to acquire 364,000, 141,000, and 836,000 shares for the years ended
December 31, 2012, 2011 and 2010, respectively, were excluded from the computations of diluted earnings per share because the
effect of including the RSAs and stock options would have been anti-dilutive.
NOTE 14 - STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/ LOSS
Preferred Stock
The Company’s Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or
the designation of such series, without further vote or action by the Company’s stockholders. At December 31, 2012 and 2011,
there was no preferred stock issued and outstanding.
Comprehensive Income/Loss
The Company’s comprehensive income or loss is comprised of net income or loss and foreign currency translation and
unrealized gains and losses on available-for-sale securities. Comprehensive income for the year ended December 31, 2012 was
approximately $12.5 million and comprehensive income for the year ended December 31, 2011 was approximately $14.3 million.
83
NOTE 15 - EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Stock-Based Compensation
At December 31, 2012, the Company has one stock-based employee compensation plan pursuant to which grants may be
made: the Second Amended and Restated 2006 Equity Incentive Plan (the “Equity Incentive Plan”) which was approved at the
Company’s Annual Meeting on May 25, 2006 and amended at the Company’s Annual Meetings on each of May 21, 2009 and
May 17, 2012. No further grants shall be made pursuant to the 2000 Long-Term Incentive Plan (the “2000 Plan”), the 2001 Broad-
Based Stock Option Plan (the “2001 Plan”) or the 2006 Management Stock Purchase Plan (the “MSPP”), which was terminated
effective March 7, 2012. In addition, at December 31, 2012, the Company has one plan pursuant to which discount purchases
may be made by the participants in such plan: the Luminex Corporation Employee Stock Purchase Plan (the "ESPP"), which was
approved at the Company's Annual Meeting on May 17, 2012.
Equity Incentive Plans
Under the Company’s Equity Incentive Plan, 2000 Plan, and the 2001 Plan, certain employees, consultants and non-employee
directors have been granted RSAs, restricted share units (RSUs) and options to purchase shares of common stock. The options,
RSAs, and RSUs generally vest in installments over a four to five year period, and the options expire either five or ten years after
the date of grant. Under the Equity Incentive Plan, certain employees, directors of, and consultants to the Company are eligible
to be granted RSAs, RSUs, and options to purchase common stock. The ESPP provides for the granting of rights to certain
employees of the Company to defer an elected percentage, up to 15%, of their base salary through the purchase of the Company's
common stock, discounted by 15%. As of December 31, 2012, there were approximately 4.4 million shares authorized for future
issuance under the Company’s Equity Incentive Plan and 464,704 shares eligible for purchase pursuant to the terms and conditions
thereof under the ESPP as more fully described below.
The Equity Incentive Plan, the ESPP, the 2000 Plan and the 2001 Plan are administered by the Compensation Committee of
the Board of Directors. The Compensation Committee has the authority to determine the terms and conditions under which awards
will be granted from the Equity Incentive Plan, including the number of shares, vesting schedule and term, as applicable. Any
option award exercise prices, as set forth in the Equity Incentive Plan, will be equal to the fair market value on the date of
grant. Under certain circumstances, the Company may repurchase previously granted RSAs and RSUs.
On December 4, 2008, March 11, 2009, March 9, 2010, March 25, 2011 and March 7, 2012 the Board adopted the Luminex
Corporation 2008 Long Term Incentive Plan, the Luminex Corporation 2009 Long Term Incentive Plan (the “2009 LTIP”), the
Luminex Corporation 2010 Long Term Incentive Plan (the “2010 LTIP”), the Luminex Corporation 2011 Long Term Incentive
Plan (the “2011 LTIP”) and the the Luminex Corporation 2012 Long Term Incentive Plan (the "2012 LTIP") respectively. Awards
under all of the LTIP plans were granted by the Board in the form of RSUs and are to be treated as Performance Awards under the
Equity Incentive Plan. Grants of RSUs under the LTIP plans shall initially be unvested and represent the maximum amount of
shares that participants may receive under the plan, assuming achievement of the maximum level of performance goals established
for the grant, and subject to adjustment for certain transactions and other extraordinary or non-recurring events that may affect
Luminex or its financial performance.
On March 11, 2009, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2009 LTIP
for $2,200,000 worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for
an unvested RSU under the 2009 LTIP for $825,000 worth of shares of Luminex Common Stock. The actual maximum number
of shares of 140,395 shares and 52,648 shares for the CEO and CFO, respectively, was determined on May 12, 2009, based upon
the closing price of the common stock on that date. Performance goals under the grants are based on the following components,
with the following weights given to each: 50% on the trading price of Luminex Common Stock at the end of the performance
period and 50% on Luminex’s operating cash flows per diluted share at the end of the performance period.
The 2009 LTIP performance goals are as described below:
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s
Common Stock for the twenty consecutive trading days ending December 31, 2011, inclusive, subject to certain
adjustments as described in the 2009 LTIP. There is a range of trading price targets as follows: a minimum threshold
of $32.38 per share, a target of $36.79 per share, and a maximum goal of $58.42 per share. No shares were earned for
this goal under the 2009 LTIP.
84
•
Partial or complete achievement of the operating cash flow goal is dependent upon the average quarterly “total operating
cash flows” per diluted share for the four quarters ended December 31, 2011, as further described in the 2009 LTIP.
“Total operating cash flows” means Luminex’s GAAP net cash provided by operating activities as shown on its financial
statements for the 12 month period ended December 31, 2011, as further described in the 2009 LTIP. There is a range
of targets as follows: a minimum threshold of $0.134 per share, a target of $0.152 per share, and a maximum goal of
$0.241 per share. The final determination and certification of the shares earned for this goal was made by the
compensation committee of the Board of Directors on February 8, 2012 resulting in the Chief Executive Officer earning
70,198 shares and the Chief Financial Officer earning 26,324 shares.
On March 9, 2010, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2010 LTIP
for $2,200,000 worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for
an unvested RSU under the 2009 LTIP for $825,000 worth of shares of Luminex Common Stock. The actual maximum number
of shares of 132,930 shares and 49,848 shares for the CEO and CFO, respectively, was determined on March 11, 2010, based upon
the closing price of the stock on that date. Performance goals under the grants are based on the following components, with the
following weights given to each: 50% on the trading price of Luminex Common Stock at the end of the performance period and
50% on Luminex’s operating cash flows per diluted share at the end of the performance period.
The 2010 LTIP performance goals are as described below:
•
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s
Common Stock for the twenty consecutive trading days ending December 31, 2012, inclusive, subject to certain
adjustments as described in the 2010 LTIP. There is a range of trading price targets as follows: a minimum threshold
of $22.22 per share, a target of $25.25 per share, and a maximum goal of $40.09 per share. No shares were earned for
this goal under the 2010 LTIP.
Partial or complete achievement of the operating cash flow goal is dependent upon the total operating cash flows per
diluted share for the four quarters ended December 31, 2012, as further described in the 2010 LTIP. Total operating
cash flows means Luminex’s GAAP net cash provided by operating activities as shown on its financial statements for
the 12 month period ended December 31, 2012, as further described in the 2010 LTIP. There is a range of targets as
follows: a minimum threshold of $0.212 per share, a target of $0.241 per share, and a maximum goal of $0.382 per
share. The final determination and certification of the shares earned for this goal will be made by the compensation
committee after the filing of this Annual Report on Form 10-K.
On March 25, 2011, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2011 LTIP
for $2,200,000 worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for
an unvested RSU under the 2011 LTIP for $825,000 worth of shares of Luminex Common Stock. The actual maximum number
of shares of 119,304 shares and 44,740 shares for the CEO and CFO, respectively, was determined on March 25, 2011, based upon
the closing price of the stock on that date. Performance goals under the grants are based on the following components, with the
following weights given to each: 50% on the trading price of Luminex Common Stock at the end of the performance period and
50% on Luminex’s total income from operations per diluted share at the end of the performance period.
The 2011 LTIP performance goals are as described below:
•
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s
Common Stock for the twenty consecutive trading days ending December 31, 2013, inclusive, subject to certain
adjustments as described in the 2011 LTIP. There is a range of trading price targets as follows: a minimum threshold
of $28.50 per share, a target of $32.38 per share, and a maximum goal of $51.42 per share.
Partial or complete achievement of the income from operations goal is dependent upon the total income from operations
per diluted share for the year ended December 31, 2013, as further described in the 2011 LTIP. Total income from
operations means Luminex’s income from operations as reflected on the Company’s Consolidated Statement of
Operations for the year ended December 31, 2013, as further described in the 2011 LTIP. There is a range of targets
as follows: a minimum threshold of $0.73 per share, a target of $0.81 per share, and a maximum goal of $1.19 per
share.
85
On March 7, 2012, the Company’s Chief Executive Officer was granted an award for an unvested RSU under the 2012 LTIP
for $2,200,000 worth of shares of Luminex Common Stock, and the Company’s Chief Financial Officer was granted an award for
an unvested RSU under the 2012 LTIP for $550,000 worth of shares of Luminex Common Stock. The actual maximum number
of shares of 98,434 shares and 24,608 shares for the CEO and CFO, respectively, was determined on March 7, 2012, based upon
the closing price of the stock on that date. Performance goals under the grants are based on the following components, with the
following weights given to each: 50% on the trading price of Luminex Common Stock at the end of the performance period and
50% on Luminex’s total income from operations at the end of the performance period.
The 2012 LTIP performance goals are as described below:
•
•
Partial or complete achievement of the trading price goal is dependent upon the average closing price of Luminex’s
Common Stock for the twenty consecutive trading days ending December 31, 2014, inclusive, subject to certain
adjustments as described in the 2012 LTIP. There is a range of trading price targets as follows: a minimum threshold
of $29.29 per share, a target of $32.54 per share, and a maximum goal of $39.75 per share.
Partial or complete achievement of the total income from operations goal is dependent upon the total income from
operations for the year ended December 31, 2014, as further described in the 2012 LTIP. Total income from operations
means Luminex’s income from operations as reflected on the Company’s Consolidated Statement of Operations for
the year ended December 31, 2014, as further described in the 2012 LTIP. There is a range of targets as follows: a
minimum threshold of $58,663,000, a target of $67,286,000, and a maximum goal of $85,831,000.
In the event that a participant achieves less than the maximum level of the performance goals, the total number of shares
represented by such RSU shall be reduced to reflect where actual performance lies in the range of performance goals and weighted
aggregate corresponding payout opportunities established for the grant. Calculation of shares between threshold and maximum
performance shall be determined based on straight-line interpolation.
Accounting for Stock Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes option-pricing model
on the date of grant for stock options and market value on the date of grant for RSAs. The fair values of stock are amortized as
compensation expense on a straight-line basis over the vesting period of the grants.
In accordance with ASC 718 the Company evaluates the assumptions used in the Black-Scholes model at each grant date
using a consistent methodology for computing expected volatility, expected term and risk-free rate of return. Calculation of expected
volatility is based on historical volatility. The expected term is calculated using the contractual term of the options as well as an
analysis of the Company’s historical exercises of stock options. The estimate of the risk-free rate is based on the U.S. Treasury
yield curve in effect at the time of grant. The Company has never paid cash dividends and does not currently intend to pay cash
dividends, and thus has assumed a 0% dividend yield. The assumptions used are summarized in the following table:
Dividend yield
Expected volatility
Risk-free rate of return
Expected life
Weighted average fair value at grant date
2012
2011
2010
—%
0.5
1.2%
7 years
7.78
$
—%
0.5
2.3%
7 years
7.67
$
—%
0.5
2.6%
7 years
7.62
$
As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and will
also impact the amount of stock compensation expense to be recognized in future periods.
86
The Company’s stock option activity for the years ended December 31, 2010, 2011 and 2012 is as follows:
Stock Options
Outstanding at December 31, 2009
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2010
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2011
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2012
Vested at December 31, 2012 and expected to vest
Exercisable at December 31, 2012
Shares
(in thousands)
2,796
128
(242)
(315)
2,367
84
(304)
(127)
2,020
160
(487)
(17)
1,676
1,674
1,413
$
$
$
$
$
$
Weighted Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(in thousands)
12.18
16.55
10.54
25.41
10.82
18.26
11.65
23.74
10.19
22.53
7.22
20.37
12.13
12.11
10.57
3.33
3.32
2.36
$
$
$
9,078
9,078
9,068
During the years ended December 31, 2012, 2011 and 2010, the total exercise intrinsic value of stock options exercised was
$6.9 million, $2.9 million and $2.3 million, respectively, and the total fair value of stock options that vested was $2.0 million,
$1.9 million and $1.7 million, respectively. Exercise intrinsic value represents the difference between the market value of the
Company's common stock at the time of exercise and the strike price of the stock option. The Company had $1.9 million of total
unrecognized compensation costs related to stock options at December 31, 2012 that are expected to be recognized over a weighted-
average period of 1.7 years.
The Company’s restricted share activity for the years ended December 31, 2011 and 2012 is as follows:
Restricted Stock Awards
Non-vested at December 31, 2010
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2011
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2012
Shares
(in thousands)
Weighted Average
Grant Price
1,093
239
(362)
(67)
903
329
(339)
(75)
818
$
$
$
16.41
18.73
16.11
16.57
17.13
22.50
16.75
18.59
19.32
87
Restricted Stock Units
Non-vested at December 31, 2010
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2011
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2012
Vested at December 31, 2012 and expected to vest
Exercisable at December 31, 2012
Shares
(in thousands)
Weighted Average
Remaining Contractual
Life
Aggregate
Intrinsic Value
(in thousands)
768
269
(58)
(152)
827
246
(80)
(118)
875
658
40
1.93
1.92
0.00
$
$
$
14,693
10,389
664
As of December 31, 2012, there was $17.9 million of unrecognized compensation cost related to RSAs and RSUs. That cost
is expected to be recognized over a weighted average-period of 2.6 years. The total fair value of restricted shares vested during
the year ended December 31, 2012, 2011 and 2010 was $8.3 million, $7.3 million, and $6.1 million, respectively.
RSAs and RSUs may be granted at the discretion of the Board of Directors under the Equity Incentive Plan in connection
with the hiring or retention of key employees and are subject to certain conditions. Restrictions expire at certain dates after the
grant date in accordance with specific provisions in the applicable agreement. During the year ended December 31, 2012, the
Company awarded 329,096 shares of restricted stock awards, which had a fair value at the date of grant ranging from $17.26–
$22.71. During the year ended December 31, 2011, the Company awarded 238,812 shares of restricted stock awards, which had
a fair value at the date of grant ranging from $18.26–$21.00. During the year ended December 31, 2010, the Company awarded
419,449 shares of restricted stock awards, which had a fair value at the date of grant ranging from $15.09–$17.36. During the
year ended December 31, 2012, the Company awarded 246,205 shares of restricted stock units, which had a fair value at the date
of grant ranging from $16.16–$23.82. During the year ended December 31, 2011, the Company awarded 268,882 shares of
restricted stock units, which had a fair value at the date of grant ranging from $18.26–$20.92. During the year ended December 31,
2010, the Company awarded 340,474 shares of restricted stock units, which had a fair value at the date of grant ranging from
$15.09–$17.36. Compensation under these restricted stock awards and units was charged to expense over the restriction period
and amounted to $8.4 million, $10.2 million, and $8.5 million in 2012, 2011 and 2010, respectively.
There were no significant stock compensation costs capitalized into assets as of December 31, 2012, 2011 or 2010.
The Company received $3.5 million, $3.5 million, and $2.2 million for the exercise of stock options during the years ended
December 31, 2012, 2011 and 2010, respectively. Cash was not used to settle any equity instruments previously granted. The
Company issued shares pursuant to grants relating to each of the Equity Incentive Plan, 2000 Plan and 2001 Plan from reserves
upon the exercise of stock options and vesting of RSAs.
Employee Savings Plans and Other Benefit Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by section 401(k) of the Internal Revenue
Code for the Company’s employees in the United States. In accordance with the 401(k) plan, all employees are eligible to participate
in the plan on the first day of the month following the commencement of full time employment. For 2012, 2011, and 2010, each
employee could contribute a percentage of compensation up to a maximum of $17,000, $16,500, and $16,500 per year, respectively,
with the Company matching 50% of each employee’s contributions. Effective January 1, 2010, the Company began contributing
to a deferred profit sharing plan for our Canadian employees. All Canadian employees are eligible to participate in the plan. The
Company’s contributions to these plans for 2012, 2011 and 2010 were $2.1 million, $1.6 million, and $1.3 million, respectively.
Several of the Company’s Netherlands employees are covered by a defined benefit plan. The cost and total liability to the
Company is not significant. Effective January 1, 2011, all of the Company’s new hires in the Netherlands are eligible to participate
in a defined contribution plan.
88
Employee Stock Purchase Plan
In May 2012, the Company's stockholders approved the ESPP Plan, which provides for the granting of up to 500,000
shares of the Company's common stock to eligible employees. The ESPP period is semi-annual and allows participants to
purchase the Company's common stock at 85% of the lesser of (i) the closing market value per share of the common stock on
the first trading date of the option period or (ii) the closing market value per share of the common stock on the last trading date
of the option period. The first plan option period began on July 1, 2012 and 35,296 shares have been issued out of the ESPP as
of December 31, 2012. The related stock-based compensation expense in 2012 was $0.2 million.
The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date using the
following weighted average assumptions:
Assumptions:
Risk-free interest rates
Expected life
Expected volatility
Dividend yield
2012
0.15%
0.5 years
.51
—%
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
Reserved Shares of Common Stock
Year Ended December 31,
2011
2010
2012
$
$
947
2,034
6,934
9,915
$
$
917
2,126
8,374
11,417
$
$
927
1,641
6,868
9,436
At December 31, 2012 and 2011, the Company had reserved 4,827,116 and 4,575,403 shares of common stock, respectively,
for the issuance of common stock upon the exercise of options, issuance of RSAs, RSUs, purchase of common stock pursuant to
the ESPP or other awards issued pursuant to the Company’s equity plans and arrangements. The following table summarizes the
reserved shares by plan as of December 31, 2012:
2000 Plan
2001 Plan
2006 Equity Incentive Plan
ESPP Plan
Balthrop Option
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Lease Arrangements
Options
Outstanding
Shares Available
for Future
Issuance
Total Shares
Reserved
523,500
83,529
1,690,005
—
450,000
2,747,034
—
—
4,362,412
464,704
—
4,827,116
523,500
83,529
6,052,417
464,704
450,000
7,574,150
The Company has operating leases related primarily to its office and manufacturing facilities with original lease periods of
up to ten years. Rental and lease expense for these operating leases for the years 2012, 2011 and 2010 totaled approximately $5.5
million, $3.6 million, and $3.0 million, respectively.
89
In the fourth quarter of 2012, the Company ceased using the Hayward, California facility, whose operating lease commitment
was acquired under the GenturaDx acquisition in July 2012. The Company has accrued a liability of approximately $850,000
based upon the estimated fair value of the costs that will continue to be incurred under the lease, including an estimate of sublease
rental income.
Minimum annual lease commitments as of December 31, 2012 under non-cancellable leases for each of the next five years
and in the aggregate were as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
$
$
3,915
3,489
1,790
798
662
3,063
13,717
These non-cancellable lease commitments related to facilities include certain rent escalation provisions which have been
included in the minimum annual rental commitments shown above. These amounts are recorded to expense on a straight-line
basis over the life of the lease. In addition, some of the Company’s leases contain options to renew the lease for five to ten years
at the then prevailing market rental rate, right of first refusal to lease additional space that becomes available, or leasehold
improvement incentives.
Non-Cancellable Purchase Commitments
As of December 31, 2012 the Company had approximately $16.8 million in purchase commitments with several of its inventory
suppliers. These commitments require delivery of minimum amounts of components throughout 2017.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives. Generally, certain amounts may
become payable in the event the Company terminates the executives’ employment without cause or the executive resigns for good
reason.
Legal Proceedings
On August 30, 2012 Abbott Laboratories (Abbott) was sued by ENZO Life Sciences, Inc. (ENZO) in U.S. District Court in
Delaware for alleged infringement of its US Patent 7,064,197 as a result of Abbott's distribution of the Company's xTAG
Respiratory Viral Panel. The Company and Abbott have entered into an agreement requiring Luminex to defend and indemnify
Abbott for any alleged infringement resulting from its distribution of the Respiratory Viral Panel. Abbott filed an answer on
October 15, 2012. On November 30, 2012, the Company intervened in the lawsuit. On January 2, 2013 ENZO filed additional
claims against the Company, alleging infringement of US Patent 8,097,405 resulting from the Company's distribution of its
Multicode products. A trial date has not been set. The parties to the lawsuit have begun engaging in the discovery process.
When and if it appears probable in management's judgment that we will incur monetary damages or other costs in connection
with any claims or proceedings, and such costs can be reasonably estimated, liabilities will be recorded in the financial statements
and charges will be recorded against earnings. There can be no assurance that we will successfully defend this suit or that a
judgment against us would not materially adversely affect our operating results.
NOTE 17 - GUARANTEES
The terms and conditions of the Company’s development and supply and license agreements with its strategic partners generally
provide for a limited indemnification of such partners, arising from the sale of Luminex systems and consumables, against losses,
expenses and liabilities resulting from third-party claims based on an alleged infringement on an intellectual property right of such
third party. The terms of such indemnification provisions generally limit the scope of and remedies for such indemnification
obligations to a multiple of amounts paid by such strategic partner to Luminex during the previous annual period(s). To date, the
Company has not had to reimburse any of its strategic partners for any losses arising from such indemnification obligations.
90
NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION
The Chief Operating Decision Maker (CODM) is Luminex’s Chief Executive Officer. The CODM allocates resources to and
assesses the performance of each operating segment using information about its revenue and projections. The Company’s reporting
segments reflect the nature of the products offered to customers and the markets served and are comprised of the following:
TSP segment - represents the Company’s base business and consists of system sales to partners, raw bead sales, royalties,
service and support of the technology, and other miscellaneous items.
ARP segment - primarily involved in the development and sale of assays on xMAP technology for use on Luminex’s installed
base of systems, as well as the sale of automated punching systems.
Intersegment sales are recorded at fixed prices which approximate the prices charged to third party strategic partners and are
not a measure of segment operating earnings. Intersegment sales of approximately $11.7 million, $8.8 million, and $6.5 million
for the years ended December 31, 2012, 2011, and 2010 have been eliminated upon consolidation, respectively.
Following is selected information for the years ended December 31, 2012 and 2011 or as of December 31, 2012 and 2011 (in
thousands):
Revenues from external customers
Depreciation and amortization
Operating profit (loss)
Segment assets
TSP Segment
121,032
$
6,930
15,047
179,695
2012
ARP Segment
81,550
$
7,434
7,669
117,304
2011
Consolidated
202,582
$
14,364
22,716
296,999
TSP Segment
127,779
$
6,070
29,895
160,251
ARP Segment
56,560
$
5,817
(6,052)
122,396
Consolidated
184,339
$
11,887
23,843
282,647
The table below provides information regarding long-term assets and product revenues from the Company’s sales to customers
within the United States and in foreign countries for the years ended December 31 (in thousands):
Domestic
Foreign:
Europe
Asia
Canada
Australia
Other
Sales to Customers
2011
$ 152,480
2010
$ 117,947
2012
$ 167,924
17,376
10,877
3,753
963
1,689
$ 202,582
16,029
9,481
2,892
1,344
2,113
$ 184,339
13,708
4,817
2,476
982
1,627
$ 141,557
2012
$ 113,700
1,433
212
48,929
2,567
16
$ 166,857
Long-Term Assets
2011
66,094
$
2010
34,320
$
[1]
[2]
978
280
52,028
4,252
38
$ 123,670
[1]
[2]
$
1,086
451
53,303
4,871
61
94,092
[1]
[1] $39.6 million of the long-term assets in Canada represents goodwill from the acquisition of Tm Bioscience.
[2] $2.7 million of the long-term assets in Australia represent goodwill from the acquisition of BSD.
Our aggregate foreign currency transaction losses of $215,000 and $108,000 were included in determining our consolidated
results for the years ended December 31, 2012 and 2011, respectively.
NOTE 19 - SUBSEQUENT EVENTS
In January, 2013, the Company resolved its molecular distribution agreements and an expense of $7.0 million will be recorded
in selling, general and administrative expenses in the first quarter of 2013. All payments are expected to be made prior to June
30, 2013.
91
NOTE 20 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2011, the FASB issued guidance on disclosures about offsetting assets and liabilities to converge the
presentation of offsetting assets and liabilities between U.S. GAAP and International Financial Reporting Standards. The guidance
requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset
in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting
arrangement. The guidance will be effective for fiscal years, and interim periods within those years, beginning after January 1,
2013. The Company in the process of evaluating the financial and disclosure impact of this guidance. The impact on the Company's
financial position and results of operations is not expected to be material.
In May 2011, the FASB issued amended guidance on fair value measurement and related disclosures. The new guidance
clarified the concepts applicable for fair value measurement of non-financial assets and requires the disclosure of quantitative
information about the unobservable inputs used in a fair value measurement. This guidance is effective for reporting periods
beginning after December 15, 2011, and has been applied prospectively. The impact of adoption on the Company's financial
position and results of operations was not material.
In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amended guidance
eliminated one of the presentation options provided by U.S. GAAP which was to present the components of other comprehensive
income as part of the statement of changes in stockholders’ equity. In addition, it gave an entity the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. This guidance was effective for
reporting periods beginning after December 15, 2011 and has been applied retrospectively. The impact of adoption on the
Company’s financial position and results of operations was not material.
In September 2011, the FASB issued amendments to the goodwill impairment guidance which provides an option for
companies to use a qualitative approach to test goodwill for impairment if certain conditions are met. The amendments are effective
for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption
is permitted). The Company early adopted the amendments in connection with the performance of the Company’s annual goodwill
impairment test. The impact of adoption on the Company’s financial position and results of operations was not material.
NOTE 21 - SELECTED QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods indicated (in thousands, except per share data):
Revenue
Gross profit
Income from operations
Net income
Basic income per common share
Diluted income per common share
Revenue
Gross profit
Income from operations
Net income
Basic income per common share
Diluted income per common share
$
$
March 31,
2012
48,727
33,760
5,608
3,527
0.09
0.08
March 31,
2011
43,275
30,728
8,294
4,461
0.11
0.11
Quarter Ended
$
$
June 30,
2012
48,273
34,412
6,486
2,952
0.07
0.07
September 30,
2012
December 31,
2012
$
$
50,047
35,045
3,367
1,676
0.04
0.04
55,535
39,357
7,255
4,252
0.10
0.10
Quarter Ended
June 30,
2011
47,638
33,826
8,797
4,643
0.11
0.11
$
September 30,
2011
45,557
28,417
2,820
1,928
0.05
0.05
$
December 31,
2011
47,869
32,519
3,932
3,442
0.08
0.08
92
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 procedures 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.
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, 2012 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, 2012. 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 58.
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 2012 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
93
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
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 2013 annual meeting of stockholders to be held on or about May 16, 2013
(Proxy Statement). It is anticipated that our Proxy Statement will be filed with the Securities and Exchange Commission on or
about April 2, 2013.
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 as of February 21, 2013" in Item 1 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to the section 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 section of the Proxy Statement entitled “Security
Ownership of Certain Beneficial Owners and Management.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2012, certain information with respect to shares of our common stock
authorized for issuance under our equity compensation plans.
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
Weighted-
Average
Exercise Price
of Outstanding
Options
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (A))
(A)
(B)
(C)
Equity compensation plans approved by security holders
2,213,505
Equity compensation plans not approved by security
holders (1)
Total
533,529
2,747,034
$
$
6.82
9.82
4,827,116
—
4,827,116
(1) Includes 83,529 shares of common stock subject to unexercised options and awards under the 2001 Plan and unexercised
options to purchase 450,000 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. PRINCIPAL 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.”
94
PART IV
ITEM 15. EXHIBITS, 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
10.1#
10.2#
10.3#
10.4#
10.5#
10.6
10.7
10.8
10. 9#
10.10#
Agreement and Plan of Merger, dated July 9, 2012, by and among Luminex Corporation, Grouper Merger Sub,
Inc., GenturaDx, Inc. and the Seller Representative (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K, filed on July 12, 2012). *
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).
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).
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).
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).
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).
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).
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).
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).
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).
95
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
10.25#
10.26#
10.27#
10.28#
10.29#
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
Employment Agreement, dated as of July 1, 2009, by and between Luminex Corporation and Michael F. Pintek
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009).
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).
96
EXHIBIT
NUMBER
10.30#
10.31#
10.32#
10.33#
10.34#
10.35#
10.36#
10.37#
10.38#
10.39#
10.40#
10.41#
10.42#
10.43#
10.44#
10.45#
10.46#
10.47#
21.1
23.1
24.1
31.1
31.2
DESCRIPTION OF DOCUMENT
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).
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Proxy
Statement for its Annual Meeting of Shareholders held on May 25, 2006).
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).
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).
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).
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).
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).
Luminex Corporation 2010 Long Term Incentive Plan (Previously filed as an Exhibit to the Company’s Current
Report on Form 8-K/A, filed March 16, 2010).
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2010 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K, filed March 15,
2010).
Management Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K, filed
March 15, 2010).
Luminex Corporation 2011 Long Term Incentive Plan (Previously filed as an Exhibit to the Company’s Current
Report on Form 8-K, filed March 31, 2011).
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2011 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K, filed March 31,
2011).
Luminex Corporation 2012 Long Term Incentive Plan (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K, filed March 13, 2012).
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2012 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed March 13,
2012).
Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Annex
to the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 17, 2012).
Luminex Corporation Employee Stock Purchase Plan (Previously filed as an Annex to the Company's Proxy
Statement for its Annual Meeting of Stockholders held on May 17, 2012).
Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and its Executives.
Second Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and Patrick J. Balthrop.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (incorporated in the signature page of this report).
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.
97
EXHIBIT
NUMBER
32.1
32.2
101
DESCRIPTION OF DOCUMENT
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.
The following materials from Luminex Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed
Consolidated Statements of Operations; (iii) Condensed Consolidated Statement of Cash Flows; and (iv) Notes
to Condensed Consolidated Financial Statements.
# Management contract or compensatory plan or arrangement.
*
Schedules, annexes and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. Luminex agrees to furnish a
supplemental copy of omitted schedules to the Securities and Exchange Commission upon request.
98
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 22, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Patrick J. Balthrop and Harriss T. Currie, each his true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
S-1
SIGNATURES
TITLE
/s/ Patrick J. Balthrop
Patrick J. Balthrop
President and Chief Executive Officer, Director
(Principal Executive Officer)
DATE
February 22, 2013
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Vice President of Finance (Principal Financial
Officer and Principal Accounting Officer)
February 22, 2013
/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
Director
Director
Director
Director
Director
/s/ G. Walter Loewenbaum II
G. Walter Loewenbaum II
Chairman of the Board of Directors,
Director
/s/ Kevin M. McNamara
Kevin M. McNamara
/s/ Edward A. Ogunro
Edward A. Ogunro
Director
Director
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
February 22, 2013
S-2
CERTIFICATIONS
Exhibit 31.1
I, Patrick J. Balthrop, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
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 officer(s) 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 officer(s) 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 22, 2012
By:
/s/ Patrick J. Balthrop
Patrick J. Balthrop
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Harriss T. Currie, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
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 officer(s) 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 officer(s) 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 22, 2012
By:
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Vice President of Finance
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, 2012, 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 22, 2012
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, 2012, 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
Chief Financial Officer, Vice President of Finance
February 22, 2012
www.luminexcorp.com
Global Headquarters
12212 Technology Boulevard
Austin, Texas 78727
United States
512.219.8020
Madison, Wisconsin
918 Deming Way, Suite 201
Madison, WI 53717
United States
608.662.9000
Canada
439 University Avenue
Suite 900
Toronto, Ontario M5G 1Y8
Canada
416.593.4323
Europe
Luminex B.V.
Krombraak 15
4906 Oosterhout
The Netherlands
+31.16.240.8333
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 Trading (Shanghai) Co. Ltd
Unit 6405, Building 6
No. 339 Cai Lun Rd.
Zhangjiang Hi-Tech Park
Pudong District
Shanghai 201203
P. R. China
+86.21.61650809/61650810
Australia
Luminex, Brisbane
Unit 15, Pacific Place 10 Old
Chatswood RoadDaisy Hill
Queensland 4127
Australia
+61 7 3387