LETTER TO SHAREHOLDERS
NACHUM “HOMI” SHAMIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Since joining Luminex as President and CEO in October 2014,
I have had the pleasure of meeting with numerous shareholders,
customers, partners, and employees. These conversations have
confirmed my belief that we are well positioned for success in the
marketplace. I believe that our combination of products, people,
and favorable market dynamics have created the opportune time
to begin the transformation of the company into a key player in
the fast growing molecular diagnostics space.
Continual innovation is the key to our success in this
endeavor. While the development of our technology has shaped
much of our culture to date, we are shifting our focus from a
technology-based company to one that is significantly more
market driven. This will be critical to our future success, providing
us the aptitude and capability to adapt and respond quickly to
the constantly evolving needs of our customers. Ultimately,
this strategy should stimulate more effective execution in the
marketplace that fuels an improved growth profile, providing
long-term value to our shareholders.
FINANCIAL RESULTS
In 2014, we achieved revenue of $227 million for the year,
a record for the company, driven largely by solid growth in assay
and royalty revenue. Assay revenue grew by 18% to $87.7 million,
with well-balanced growth across all our major assay product
lines. Royalty revenue increased by 7% and represented total
reported royalty-bearing end user sales on our technology of $456
million. Our gross margins were industry leading at 70 percent for
the year, and we achieved significant operating leverage in 2014.
Furthermore, we ended the year with over $107 million in cash
and investments, strengthened by approximately $49 million in
operating cash flow generated during the year.
In our molecular diagnostics business, we continued to
execute on our pharmacogenetics strategy, with growth in
both of our cleared Cytochrome P450 assays and growth in
the pharmacogenetic laboratory developed test portfolios of
our clinical customers. These tests are used by physicians to
determine how a patient’s genetic makeup can affect drug
metabolism and response to a wide range of medications.
We continue to see growth opportunities ahead of us in this
important and growing field. In addition, we continued to make
strides in the market adoption of our xTAG® Gastrointestinal
Pathogen Panel (GPP). During the year, we received FDA clearance
to add three new clinical targets and an additional sample type
for use with GPP, which we expect will further accelerate the pace
of market adoption. With respect to our genetic testing assays,
we experienced a healthy recovery from the reimbursement
challenges experienced in 2013. We are very pleased with the
overall performance of our molecular diagnostics franchise and
the related achievements of our direct sales force, validating our
decision to go direct several years ago.
ARIES®—POSITIONING FOR ACCELERATED GROWTH
We made tremendous progress with our strategic pipeline
products in 2014, including the completion of our ARIES® platform
during the fourth quarter of the year. ARIES is our new sample-to-
answer molecular diagnostic platform scheduled for launch by the
end of 2015. ARIES will be the first sample-to-answer system that
has been elegantly designed to deliver superior lab performance.
The system includes unique, differentiated features to increase lab
efficiency and fit seamlessly into the diagnostic lab environment;
including universal protocols that enable true walkaway
automation, the ability to automate Laboratory Developed Tests
or LDTs, and a slim design with an integrated touch screen that
maximizes valuable bench space. In addition, we plan to launch
ARIES with a compelling IVD menu, followed by rapid menu
expansion.
Notably, we have had numerous customers evaluate the
system throughout development and the positive feedback has
made us highly confident in the market potential of this innovative
platform. ARIES provides access to large, adjacent segments such
as the real-time PCR market, and as a result will dramatically
increase our addressable market. Consequently, the launch
of ARIES represents a significant new phase in the company’s
history—one which will strategically position us to accelerate
growth in the molecular diagnostics space for years to come.
As we make final arrangements to begin clinical trials shortly, the
excitement is building across the entire organization.
2015—YEAR OF TRANSFORMATION
We expect 2015 to be a transformational year for the
company as we prepare for the launch of our new product, ARIES.
We are increasing our emphasis on the fast-growing molecular
diagnostics business, which we believe will be the long-term
growth engine for the company. Our partnership business
continues to provide profitable, recurring revenue for the company
and has served as a catalyst for our strong cash flows. Our
partnership business is the foundation on which our company was
established, and we remain committed to supporting our strategic
partners in the pursuit of their goals.
In 2015, we expect to face some challenges as well, including
ongoing pressure on consumable revenue resulting from inventory
management requirements at our largest partner. Their continuing
investment in our technology and an expanding royalty stream,
coupled with an open and direct line of communication gives us
confidence that our relationship with this partner remains strong.
In addition, we anticipate pressure on our cystic fibrosis business
due to a competitive technology, although the specific timing
remains uncertain. Despite these challenges, we are focused and
committed to executing on our long-term growth strategy, while
ensuring we take the necessary steps to remain competitive in the
marketplace. We are making changes across the organization to
break down silos and drive operational efficiencies, particularly in
our sales and marketing, manufacturing, and R&D organizations.
Finally, we plan to use our balance sheet, including pursuing
potential tuck-in acquisitions, to expand our growth.
In closing, I would like to express my thanks and appreciation
to our over 700 employees worldwide. Our success is made
possible as a result of their hard work and dedication. We are
proud of our accomplishments to date and expect 2015 to be a
pivotal year for Luminex as we prepare for the commercial launch
of ARIES later in the year, which will strategically position us for
accelerated growth in future years. Finally, I want to say thank you
to our shareholders for your continued support.
Sincerely,
GROSS PROFIT
GROSS PROFIT
($ IN MILLIONS)
($ IN MILLIONS)
TOTAL REVENUE
TOTAL REVENUE
($ IN MILLIONS)
($ IN MILLIONS)
180
160
140
120
100
80
60
40
20
0
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
REVENUE MIX
2012
2013
2014
9%
15%
10%
15%
10%
13%
76%
75%
77%
Royalty, Consumable, and Assay
System
Other
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, 2014 or
/ /
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____.
Commission File No. 000-30109
_______________
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
(Address of principal executive offices)
74-2747608
(I.R.S. Employer Identification No.)
78727
(Zip Code)
(512) 219-8020
(Registrant’s telephone number, including area code)
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
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 30, 2014, the aggregate market value
of the voting stock held by non-affiliates of the Registrant was $659,326,125 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 42,913,973 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 23, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
PART I
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 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
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 Data
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
PAGE
1
19
34
34
34
35
36
39
40
54
55
91
91
91
92
92
92
92
92
93
S- 1
Exhibit 10.7
Exhibit 10.26
Exhibit 10.40
Exhibit 10.42
Exhibit 10.43
Exhibit 10.44
Exhibit 10.45
Exhibit 21.1
Exhibit 23.1
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, impact of the reimbursement landscape, new products including ARIES® and
NxTAG™, assay sales, the projected decline in consumables sales patterns and bulk purchases, budgets, system sales, anticipated
gross margins, liquidity, cash flows, projected costs and expenses, taxes, 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 future 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
risks and uncertainties relating to market demand and acceptance of our products and technology, including ARIES®
and NxTAG™;
the uncertainty relating to increased focus on direct sales to the end user;
dependence on strategic partners for development, commercialization and distribution of products;
concentration of our revenue in a limited number of direct customers and 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 as a
result of material resource planning challenges;
the timing of and process for regulatory approvals;
the impact of the ongoing uncertainty in 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 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;
changes in principal members of our management staff;
potential shortages, or increases in costs, of components or other disruptions to our manufacturing operations;
competition and competitive technologies utilized by our competitors;
our ability to successfully launch new products in a timely manner;
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®, NxTAG™, Luminex® 100/200™, Luminex® XYP™, Luminex® SD™, FLEXMAP 3D®,
MicroPlex®, MAGPIX®, MagPlex®, SeroMAP™, xPONENT®, FlexmiR®, NeoPlex4™, LumAvidin®, MultiCode®, EraGen®
and ARIES® 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
diagnostics and life sciences 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, we have our proprietary MultiCode® technology, used for real-time polymerase chain reaction (PCR) and
multiplexed PCR assays. During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, Luminex
evaluated its historical reporting segments: the technology and strategic partnerships (TSP) segment and the assays and related
products (ARP) segment. As a result of this evaluation and based upon how our new Chief Executive Officer as Chief Operating
Decision Maker (CODM) and our management team collectively is managing our business, we determined that the two former
segments have become so integrated and interrelated that they no longer provide an accurate representation of our current business
when reported separately. Additionally, we have taken actions to consolidate sales and service functions. Therefore, effective
with the fourth quarter of 2014, we no longer have two operating segments and, accordingly, will present our business as one
operating segment and one reporting unit. Accordingly, prior periods' information has been restated to conform to the current
periods' presentation. Our products are described below under “Products.”
Our primary focus for growth is the development and sale of molecular diagnostic assays utilizing xMAP®, xTAG® and
MultiCode technology on our installed base of systems. We utilize a direct sales model for sales of these products, which is
intended to take advantage of our increasing installed base of xMAP-based instrumentation. Our assays are primarily focused on
multiplexed applications for the human molecular clinical diagnostics market. Our assay 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 global regulatory compliant product development and manufacturing
processes,
We have established a 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 per sample in a sequential manner,
and if additional testing was required on a sample, a second procedure would be performed to generate the second result, and so
on until all the necessary tests were performed. We have a full range of instruments in our xMAP line: our LX200 system offers
100-plex testing; our FLEXMAP 3D® system is our high-throughput, 500-plex testing system; and our MAGPIX® system provides
50-plex testing at a lower cost using imaging rather than flow cytometry. By using xMAP technology, the 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.
1
A significant portion of our revenue is derived from our partnership channel. 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. As of
December 31, 2014, we had 66 strategic partners, 46 of which have developed reagent-based products utilizing our technology.
Luminex and these partners have sold approximately 11,700 xMAP-based instruments in laboratories worldwide as of December 31,
2014.
Luminex was incorporated under the laws of the State of Texas in May 1995 and reincorporated in the State of Delaware in
February 2000.
Recent Events
CEO Transition
Our Board of Directors named Nachum "Homi" Shamir as President and CEO effective October 15, 2014. In addition, he
was also elected to our Board of Directors. Patrick J. Balthrop, Sr. retired as President and CEO following ten years of service as
our chief executive and also resigned as a director. Mr. Balthrop continues to serve the Company and its shareholders as a consultant
to the Board and Mr. Shamir, and will be assisting in the transition through April 14, 2015.
Segment Reporting
During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, Luminex evaluated its historical
reporting segments: the TSP segment and the ARP segment. As a result of this evaluation and based upon how our new Chief
Executive Officer as Chief Operating Decision Maker (“CODM”) and our management team collectively is managing our business,
we determined that the two former segments have become so integrated and interrelated that they no longer provide an accurate
representation of our current business when reported separately. Additionally, we have taken actions to consolidate sales and
service functions. Effective with the fourth quarter of 2014, we no longer have two operating segments and, accordingly, will
present our business as one operating segment and one reporting unit. Accordingly, prior periods' information has been restated
to conform to the current periods' presentation.
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.govU. 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
2
•
assist physicians in prescribing or dosing the appropriate drug therapy based on the patient’s genetic makeup, a field
known as pharmacogenetics.
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
Sequencing
Instruments which “read” the nucleotide
sequence of DNA or ribonucleic acid
(RNA) by a variety of methods
including Next Generation Sequencing
methods
BioChips/Microarrays High-density arrays of DNA fragments
Automated Immunoassays
Gels and blots
or proteins attached to a flat glass or
silicon surface
Automated test tube-based instruments
used for detecting antibodies, proteins
and other analytes
Physical separation of molecules or
analytes for visualization
Biomedical research and clinical
diagnostics
Biomedical research and clinical
diagnostics
Clinical diagnostics
Biomedical research and clinical
diagnostics
PCR methods
Tests which use PCR technology to test
DNA and RNA
Nucleic acid testing in clinical
diagnostics and biomedical research
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
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
Biomedical research and clinical
diagnostics
Drug discovery, clinical diagnostics
and biomedical research
Drug discovery, clinical diagnostics
and biomedical research
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, charge-coupled device
imaging 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 a full range of instruments in our xMAP line. Our LX200 system offers 100-plex testing. Our FLEXMAP 3D®
system is our high-throughput, 500-plex testing system and our MAGPIX® system provides 50-plex testing at a lower cost using
imaging rather than flow cytometry.
4
Our xTAG and MultiCode Technologies
Our xTAG technology 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.
Our MultiCode technology is based upon a unique assay chemistry that is a flexible platform for both real-time PCR and
multiplex PCR-based applications. We have multiple molecular diagnostic assays based on the MultiCode platform. 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 and these activities are focused in the areas of infectious disease,
human genetics, pharmacogenetics and bio-threat. In 2015, we have plans to submit certain assay products to regulatory authorities,
including the U.S. Food and Drug Administration (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 current focus is the transition from a technology-based tools company to a market-based diagnostic company
and the establishment of Luminex as an industry leader and our xMAP and MultiCode technologies as the industry standards for
performing molecular diagnostic bioassays. To achieve these objectives, we have implemented and are pursuing the following
strategies:
•
Focus on key markets
We have identified the following key market segments: (i) molecular infectious disease, (ii) genetic or inherited disease, (iii)
human leukocyte antigen (HLA) transplant diagnostics, (iv) pharmacogenetic testing, (v) immunodiagnostics, (vi) life sciences
research, and (vii) 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.
• Develop and deliver market-leading molecular diagnostic platforms and assays
Our acquisitions and research and development have expanded the breadth of technology and solutions we offer our customers
to meet their needs. We acquired the MultiCode RTx real-time PCR technology for both quantitative and qualitative low-
plex real-time assays and 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 easy to implement. A key focus currently is the final
development of our ARIES® system. The ARIES sample-to-answer instrument, when combined with our proprietary real-
time PCR chemistry and a new menu of highly automated assays that we are developing, is designed to enable us to offer a
differentiated, easy to use solution. ARIES is designed to help labs overcome today's challenges: seeking to avoid healthcare
cost increases while maintaining quality, the scarcity of highly trained personnel and limited lab bench space with its barcode
data entry, efficient workflow, importance of slim design that occupies minimal bench space, universal protocols that enable
true walkaway automation, and ability to simplify laboratory developed tests (LDTs).
5
• Develop next generation products
We are focusing resources on improving the simplicity and ease of use of our multiplex products through the development of
a new version of our multiplex PCR technology. This new NxTAG™ chemistry is expected to enable customers to experience
streamlined workflow without sacrificing throughput. We recognize that the crucial 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 crucial 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 our NxTAG Respiratory Pathogen
Panel (RPP) product in 2015. Additionally, we continue 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.
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. All of these
technology solutions provide our customers with a breadth of innovative solutions to meet their many testing needs.
In addition, we are collaborating with industry participants, biomedical research institutions and government entities to develop
additional products. We continuously consider other adjacent markets where our platform and assay offerings would be
beneficial.
• Opportunistically pursue acquisitions that could accelerate our business strategies
We utilize 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 several successful acquisitions historically, including the most recent
acquisition of GenturaDx in 2012, which is the foundation of our new ARIES platform in development. 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.
• Continue to develop the partnership channel focused in select key markets
As of December 31, 2014, 46 of our 66 strategic partners have developed and commercialized xMAP based assay products
and are submitting royalties. We also have strategic partners who distribute Luminex products. During 2014, the 46 strategic
partners who have commercialized xMAP based assay products accounted for approximately 66% of our total revenue and
all of our strategic partners represented approximately 71% of our total revenue. We intend to continue pursuing opportunities
to expand 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.
6
Products
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 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 charge-coupled device (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 decreases 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.
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 markets. 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.
7
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 23, 2015 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 physicians and their 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.
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. Two of the products in this category are the FDA-cleared
CYP2D6 and CYP2C19 assays used for identifying patients with variants that affect the metabolism and efficacy of some
pharmaceutical compounds.
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 are an original equipment manufacturer (OEM) of custom reagents and
instrumentation for certain of our customers.
Sales and Marketing
Our sales and marketing strategy is to expand the installed base and utilization of xMAP, xTAG and MultiCode technologies.
We are focused on generating recurring revenues from the sale of Luminex-developed assays, microspheres and other consumables,
as well as from royalties on bioassay kits and testing services developed or performed by others that use our technology. We have
two key elements of our sales and marketing strategy: i) our dedication to marketing the assays developed internally directly to
end users and ii) 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.
8
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, 2014, we had 66 strategic partners, compared to
approximately 58 strategic partners as of December 31, 2013. 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 2014 did not account for material revenue. During 2014, 48 strategic
partners with commercialized products utilizing xMAP technology submitted royalties. As of December 31, 2014, 46 of these
strategic partners with commercialized products remain, of which 24 companies principally serve the clinical diagnostics market
and 22 companies principally serve the life science research market. Revenues through these commercialized, royalty-submitting,
strategic partners constituted 66% of our revenues for 2014. We also believe our strategic partners provide us with complementary
capabilities in product development, regulatory expertise and sales and marketing. By leveraging our strategic partners’ bioassay
testing competencies, customer relationships and distribution channels, we believe that we can continue to achieve measurable
market penetration and technology adoption.
We also serve as the 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. Laboratory
Corporation of America (LabCorp) accounted for 21%, 18% and 19% of our total revenues in 2014, 2013 and 2012, respectively.
Thermo Fisher Scientific, Inc. accounted for 17%, 17% and 24% of our total revenues in 2014, 2013 and 2012, respectively. No
other customer accounted for more than 10% of our total revenues in 2014, 2013 or 2012; however, Bio-Rad Laboratories, Inc.
accounted for 7%, 9% and 8% of our total revenues in 2014, 2013 and 2012, respectively. The loss of any of these customers could
have a material adverse effect on our business, financial condition and results of operations.
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, 2014, 2013 and 2012, foreign sales
to customers totaled $39.0 million, $35.1 million, and $34.7 million, respectively, representing 17%, 16% and 17%, respectively,
of our total revenues for such periods. We have foreign subsidiaries in Canada, the Netherlands, Australia, the People’s Republic
of China and Japan, which increase our international support, service and marketing capabilities. Our foreign subsidiaries are a
direct and integral component of the U.S. entity’s operations and their efforts support the sales made by our North American
entities. Sales to territories outside of the U.S. are primarily denominated in U.S. dollars. We believe that our activities in some
countries outside the U.S. involve greater risk than our domestic business due to the foreign economic conditions, exchange rate
fluctuations, local commercial and economic policies and political uncertainties. See Note 19 to our Consolidated Financial
Statements.
Technical Operations
Our Technical Operations Group provides technical support to our customers, our distributors, 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 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 and Toronto locations and from
our European, Chinese and Japanese subsidiaries to better serve our customer base. Personnel assist our distributors, 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.
9
Training
Through our training group, we offer comprehensive programs in basic system training, advanced assay development,
instrument field service and technical support functions. A significant part of our training material is now web-based and available
online. For larger customers who have many users, such as our strategic partners, training may be performed on-site at their
locations.
Field Support
We currently have field service and field application personnel based across North America, Europe, China and Japan in areas
of our more significant system concentration. We intend to place additional field service personnel and pursue third-party service
provider agreements through our certified service professional program, as required, in order to ensure responsive and cost-effective
support of our customers worldwide. In addition, several of our distributors and 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 maintaining a high level of customer satisfaction.
Research and Development
Our research and development groups work to develop next generation systems, chemistries, assays and software to provide
new, innovative products to our customers. Our research and development expense for the years ended December 31, 2014, 2013
and 2012, was $43.1 million, $45.0 million and $43.0 million, respectively including customer-sponsored research funding of $0.7
million, $0.8 million, and $1.1 million, respectively.
Our current research and development projects include:
• New platform development
We have continued the development of the ARIES instrument for sample-to-answer molecular diagnostic automated
testing. This involves the final design and development of the instrument, consumables and software, as well as the
development of a menu of assay products based on the ARIES platform. The ARIES system is expected to launch in
2015.
•
Simplified assay products
Our research and development group has been working on the development of a new, easy-to-use chemistry for running
multiplexed tests in 96-well plates. This chemistry is expected to combine our xTAG and xMAP technologies into a
simple to use, closed-tube format. The first product using this streamlined format, the NxTAG RPP, is expected to launch
in 2015.
• Partnership projects
Our research and development group is collaborating with Merck on the development of a companion diagnostic that
will help screen patients into Merck's investigational candidate drug study for Alzheimer's disease. Luminex is also
working with the Defense Threat Reduction Agency of the United States government to develop a hand-held diagnostic
instrument. Luminex on occasion collaborates on other partnered research programs.
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.
10
We have approximately 60,700 square feet of manufacturing space located at our principal executive offices in Austin, Texas.
We recently expanded this space to enable ARIES cassette automation. 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 13485:2012 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 seek to 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 and approximately
10,000 square feet of manufacturing space located in Madison, Wisconsin. The Toronto and Madison facilities and related QMS
have been certified to the ISO 13485:2012 standard and registered under the CMDCAS.
Instruments
Contract manufacturers assemble certain components of our xMAP technology systems. The remaining assembly and
manufacturing of our systems are performed at our facility in Austin, Texas. The quality control and quality assurance protocols
are all performed at our facility. Parts and component assemblies that comprise our xMAP technology system are obtained from
a number of sources. We have identified alternate sources of supply for several of our strategic parts and component
assemblies. Additionally, we have entered into supply agreements with most of our suppliers of strategic parts and component
subassemblies to help ensure component availability and flexible purchasing terms with respect to the purchase of such
components. As of December 31, 2014, a total of 11,687 Luminex multiplexing analyzers had been shipped since inception.
Microspheres
We manufacture as well as procure undyed, standard and magnetic carboxylated polystyrene microspheres. We synthesize
our dyes and manufacture our dyed polystyrene microspheres using a proprietary method in our Austin, Texas manufacturing
facility in large lots. We dye the microspheres with varying intensities of 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 one of our facilities 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.
Backlog
Our backlog as of December 31, 2014 and December 31, 2013 totaled $7.0 million and $5.8 million, respectively. Backlog
consists of customer orders for which a delivery schedule within the next twelve months has been specified. Orders included in
backlog may be canceled or rescheduled by customers without significant penalty. Backlog as of any particular date should not
be relied upon as indicative of our net revenues for any future period.
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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 (a Thermo Fisher Scientific, Inc. brand),
Becton, Dickinson and Company, Illumina, Inc., Qiagen N.V., Meso Scale Discovery (a division of Meso Scale Diagnostics LLC),
and PerkinElmer, Inc., among others.
Our diagnostic market competitors include, among others, Abbott Laboratories, Life Technologies Corporation (a Thermo
Fisher Scientific, Inc. brand), BioFire Diagnostics, Inc. (a bioMérieux company), Cepheid, GenMark Dx, Johnson & Johnson,
Roche Diagnostics, Siemens Medical and Hologic, Inc., Alere, Inc., Quidel Corporation and Illumina, Inc. Some of these companies
have technologies that can perform a variety of established assays. In addition, certain of these companies 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, among others, 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.
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 315 issued patents worldwide, including over 124 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, Netherlands, Canada, Hong Kong and China, amongst others. In addition,
our patent portfolio includes 162 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 Multicode technology, xTAG technology, as well as ARIES,
our automated real-time PCR system, and NxTAG technology.
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. See risk factor on property rights we rely upon to protect
the technology underlying our products on page 22.
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Government Regulation
Food and Drug Administration
The FDA regulates medical devices pursuant to various statutes, including 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 versions of the Luminex instruments for use with diagnostic assay kits that are available through our strategic
partners. For FDA purposes, the Luminex 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 are subject to FDA requirements such as Good Manufacturing
Practices and others, and may be subject to clearance or approval before they can be marketed and sold. After incorporating the
Luminex systems into their products, our strategic partners may be 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 Clinical Practice requirements and Device Registration and Listing 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. A total of 53 Luminex products have been cleared, licensed or registered in 2014, including 3 products cleared for
use by the FDA in the United States and 50 products cleared, licensed or registered for use in foreign jurisdictions.
We also manufacture kit products that are intended for research use only (RUO) applications (not for diagnostic use), as well
as kits that are IVD cleared for diagnostic use (currently regulatory classification of Class I and II), as well as IUO or clinical
applications. Although certain products intended for research use only are not currently subject to clearance or approval by the
FDA, research use only products fall under the FDA’s jurisdiction if they are used for clinical rather than research purposes. Further,
even where a product is not otherwise subject to clearance or approval by the FDA, the FDA, in order to limit sales to those who
use the products for research only, can determine the manner in which we can market and sell our products and/or the types of
customers to which we can market and sell our products.
In addition to the FDA, the U.S. Department of Health and Human Services, state authorities and foreign government regulators
scrutinize genetic analysis tools that are labeled for research use only by clinical laboratories. We cannot predict the nature of
future regulatory or policy initiatives with respect to the sale and use of products for the development of assays by laboratories,
or the extent to which any such initiative will impact our business.
The laboratories that purchase certain of our products are subject to extensive regulation under the Clinical Laboratory
Improvement Amendments of 1988 (CLIA), which require laboratories to meet specified standards in areas such as personnel
qualifications, administration, participation in proficiency testing, patient test management, quality control, quality assurance, and
inspections. Adverse interpretations of current CLIA regulations or future changes in CLIA regulations could have an adverse
effect on sales of any affected products.
13
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 related 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. Subsequent clearances for FLEXMAP 3D and MAGPIX were received by the FDA on
January 9, 2013 and March 21, 2013, respectively.
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. The Radiation Control for Health
and Safety Act, administered by the FDA, imposes performance standards and record keeping, reporting, product testing and
product labeling requirements for devices that emit radiation. These regulations are intended to ensure the safety of laser products
by establishing standards to prevent exposure to excessive 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, are 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 are 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 and our employees. Other regulatory agencies may have similar powers. In addition, various
federal and state statutes and regulations govern or influence the manufacturing, safety and storage of our products and components
of our products, as well as our record-keeping.
Foreign Jurisdictions
Medical device laws and regulations are also in effect in many countries outside of the United States. These range from
comprehensive pre-approval 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. In addition, we may incur
significant initial and/or ongoing costs in obtaining or maintaining our foreign regulatory approvals. Further, the export by us of
products that have not yet been cleared for domestic commercial distribution is subject to FDA or other export requirements and/
or restrictions.
We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various
statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations
could result in suspension of these contracts, or administrative or other penalties, and could have a material adverse effect on our
ability to compete for future government contracts and programs.
We produce 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 and received recertification on October 17,
2013. The MAGPIX System received its registration certificate on June 16, 2014. Such re-certifications are an ongoing requirement
with the People’s Republic of China.
Failure by us, or our strategic partners, to comply with applicable federal, state and foreign medical product laws and regulations
could 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.
14
WEEE
The European Community Council Directive 2002/96/EC on 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 manufacturers are required to establish an infrastructure for collecting WEEE, in such
a way that users of electrical and electronic equipment from private households should have the ability of returning WEEE at least
free of charge. All Luminex-manufactured equipment is in compliance with this directive. We have been in compliance with the
requirements since 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.
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.
15
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.
Sunshine Act
In 2010, Congress enacted a statute called the Transparency Reports and Reporting of Physician Ownership or Investment
Interests (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 most 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. In 2014, the annual reporting requirement applicable to
manufacturers covered by the Sunshine Act, including Luminex entities operating or selling in the US, took effect, and CMS
released datasets for payments made in 2013 to the public through the CMS website. Annual reports addressing transfers of value
and relationships for the preceding calendar year will be published on the CMS website each year. We have provided internal
training regarding the Sunshine Act requirements to relevant personnel and have implemented procedures to track and report any
transfers of value covered by the Sunshine Act. Failure to comply with the reporting requirement may result in substantial monetary
penalties.
Other
Based on the Health Reform Law, the IRS implemented a Medical Device Excise Tax of 2.3% of the sale price on non-exempt
medical devices. This tax on manufacturers has not had, nor do we expect it to have, a material impact on our operations.
Employees
As of February 23, 2015 and December 31, 2014, respectively, we had a total of 741 and 745 employees and contract employees,
as compared with 731 as of December 31, 2013. The year over year increase is primarily the result of the addition of sales and
marketing employees focused on direct sales to our end customers, as well as personnel added related to development, production,
regulatory clearance and quality control for our new sample to answer instrument (ARIES) and our 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.
16
Seasonality
Worldwide sales, including U.S. sales, do not reflect any significant degree of seasonality; however, sales of our Respiratory
Viral products have demonstrated seasonal fluctuations consistent with the onset and decline of influenza-like illnesses.
Segment Reporting
During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, Luminex evaluated its historical
reporting segments: the TSP segment and the ARP segment. As a result of this evaluation and based upon how our new Chief
Executive Officer as Chief Operating Decision Maker and our management team collectively is managing our business, we
determined that the two former segments have become so integrated and interrelated that they no longer provide an accurate
representation of our current business when reported separately. Additionally, we have taken actions to consolidate sales and
service functions. Effective with the fourth quarter of 2014, we no longer have two operating segments and, accordingly, will
present our business as one operating segment and one reporting unit. Accordingly, prior periods' information has been restated
to conform to the current periods' presentation.
Financial information relating to our reportable segment for the years ended December 31, 2014, 2013 and 2012 can be found
in Item 7 “Management’s Discussion and Analysis of Financial Information and Results of Operations” and Item 8 “Financial
Statements and Supplementary Data”.
Executive Officers of the Registrant as of February 23, 2015
Name
Age
Position
Nachum Shamir
Harriss T. Currie
Jeremy Bridge-Cook, Ph.D
Russell W. Bradley
David S. Reiter
Nancy M. Fairchild
61
53
46
51
48
61
President and Chief Executive Officer
Chief Financial Officer, Senior Vice President, Finance and Treasurer
Senior Vice President, Research and Development
Senior Vice President, Corporate Development and Chief Marketing and Sales Officer
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President, Human Resources
Nachum Shamir. Mr. Shamir joined the Company on October 14, 2014 as President and Chief Executive Officer and was
elected to our Board. From 2006 to 2014, Mr. Shamir was the President, Chief Executive Officer and Director of Given Imaging
Ltd. (Given), a developer, manufacturer and marketer of diagnostic products for the visualization and detection of disorders of the
gastrointestinal tract. Prior to joining Given, Mr. Shamir served as Corporate Vice President of Eastman Kodak Company, a
technology company focused on imaging solutions and services for businesses from 2004 to 2006, and as the President of Eastman
Kodak's Transaction and Industrial Solutions Group from 2005 to 2006, which includes several business units, including Kodak
Versamark, Inc. (whose operations were previously those of Scitex Digital Printing Inc.) of which Mr. Shamir had served as
President and Chief Executive Officer. From June 2003 to January 2004, Mr. Shamir served as the President and Chief Executive
Officer of Scitex Corporation, a multinational public company which specialized in producing products, systems and equipment
for the graphic design, printing and publishing markets through its various operating units. From January 2001 to January 2004,
Mr. Shamir served as the President and Chief Executive Officer of Scitex Digital Printing, a subsidiary of Scitex Corporation Ltd.,
having previously served as its Chief Operating Officer since July 2000. Prior thereto, Mr. Shamir was Managing Director and
General Manager of Scitex Digital Printing (Asia Pacific) Pte Ltd., a Singapore-based company, from its incorporation in 1994.
From 1993 until 1994 Mr. Shamir was with the Hong Kong based Scitex Asia Pacific (H.K.) Ltd. Before joining Scitex, Mr. Shamir
held senior management positions at various international companies mainly in the Asia Pacific regions. Mr. Shamir currently
serves on the board of directors of Invendo Medical GmbH, a manufacturer and distributor of a single use and computer-assisted
colonoscopy system. Mr. Shamir holds a Bachelor of Science from the Hebrew University of Jerusalem and a Masters of Public
Administration from Harvard University.
Harriss T. Currie. Mr. Currie served as Vice President, Finance, Treasurer and Chief Financial Officer since October of 2002
and was appointed Senior Vice President, Finance (as well as Chief Financial Officer and Treasurer) in March 2013. 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, a specialized clinical testing
laboratory company, 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.
17
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 Corporation, which was acquired by
Luminex in 2007. Dr. Bridge-Cook joined Tm Bioscience Corporation 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 Corporation, 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.
Russell W. Bradley. Mr. Bradley joined Luminex in May 2005 as Vice President of Business Development and Strategic
Planning and was appointed as Senior Vice President, Corporate Development and Global Marketing in August 2013 and then
promoted to Senior Vice President, Corporate Development and Chief Marketing and Sales Officer in October 2014. 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 including commercial leadership of Beckman Coulter's flow cytometry business and
most recently as the director of the Beckman Coulter CARES initiative, leading 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.
David S. Reiter. Mr. Reiter joined Luminex as Vice President, General Counsel and Corporate Secretary in October 2003 and
was appointed Senior Vice President, General Counsel and Corporate Secretary in March 2013. Prior to becoming General Counsel,
Mr. Reiter was in private practice with the firm of Phillips & Reiter, PLLC from 2002 to 2004, which provides outsourced general
counsel services for early to mid-stage companies. 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. On December 19, 2014, Mr. Reiter
informed the Company of his intention to resign as the Company's Senior Vice President, General Counsel and Corporate Secretary
to pursue other interests. We anticipate Mr. Reiter's resignation will be effective April 1, 2015.
Nancy M. Fairchild. Ms. Fairchild joined Luminex Corporation as Senior Director, Human Resources in March 2010. She
was promoted to a Vice President, Human Resources in August 2012 and then promoted to Senior Vice President, Human Resources
in January 2015. Prior to Luminex, Ms. Fairchild served as Chief Administrative Officer and Vice President of Human Resources
and Organizational Development for the Electric Reliability Council of Texas which provides the energy grid services for Texas,
from 2006 to 2010. In this role she managed Strategic Planning, Project Management, Facilities and Human Resources. Earlier
in her career, she served as Vice President Human Resources for Esoterix, Inc., an international healthcare company specializing
in laboratory services, from 2001 to 2006, the Sr. Vice President of Human Resources for Southern Union Company, a large natural
gas conglomerate, from 1989 to 2001, and President of EnergyWorX, a training subsidiary, from 1996 to 2000. Ms. Fairchild is
currently a member of the Board of Directors and Chair of the Audit Committee for Workforce Solutions, a local workforce
development board in Texas, representing the biotech sector. She graduated with highest honors from Texas State University with
a B.S. degree in Math Education and a Master’s degree in Counseling.
18
ITEM 1A. RISK FACTORS
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth
targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service
introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries
have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial
experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels
to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technologies
that do not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which
case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend
upon several factors, including our ability to:
• accurately anticipate customer needs;
• innovate and develop new technologies and applications;
• obtain required regulatory clearances;
• successfully commercialize new technologies in a timely manner;
• price our products competitively, and manufacture and deliver our products in sufficient volumes and on time; and
• differentiate our offerings from our competitors' offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry
trends and consistently develop new products to meet our customers' expectations. In developing new products, we may be required
to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately
foresee our customers' needs and future activities, we may invest heavily in research and development of products that do not lead
to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our
technology in a timely and efficient manner.
If our current technology and products and our products under development do not become widely used in the life sciences
and clinical diagnostics industries, we may not be able to maintain or increase profitability.
Life sciences companies have historically conducted biological tests using a variety of technologies, including bead-based
analysis. 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 and customers to utilize our system instead of competing technologies.
Market acceptance depends on many factors, including our ability to:
•
timely and successfully launch our products under development;
• manage trends relating to, or the introduction or existence of, competing products or technologies that may be more effective,
cheaper or easier to use than our products and technologies;
• manage our competition, including the presence of competing products sold by companies with longer operating histories,
more recognizable names and more established distribution networks;
•
convince prospective strategic partners and customers that our technology is an attractive alternative to other technologies
for pharmaceutical, research, clinical, biomedical and genetic testing and analysis;
•
encourage these partners to develop and market products using our technology;
• manufacture products in sufficient quantities with acceptable quality and at an acceptable cost;
•
•
obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and
place and service sufficient quantities of our products, including the ability to provide the level of service required in the
mainstream clinical diagnostics market segment.
19
Because of these and other factors, our products may not gain or sustain sufficient market acceptance to 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.
The life sciences industry is highly competitive and subject to rapid technological change, and we may not have the right
technologies and 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 and may have longer operating histories or more recognizable names. 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, including the introduction or
existence of, competing products or technologies that may be more effective, cheaper or easier to use than our products and
technologies. 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.
Several companies provide systems and reagents for DNA amplification or detection. Life Technologies Corporation (a brand
of Thermo Fisher Scientific) and F. Hoffman-La Roche Ltd. (Roche) sell systems integrating DNA amplification and detection
(sequence detection systems) to the commercial market. Roche, Abbott Laboratories, Becton, Dickinson and Company, Qiagen
N.V., Hologic, Inc., Meridian Bioscience, Inc., bioMérieux S.A., Illumina, Inc. and Quidel Corporation sell sequence detection
systems, some with separate robotic batch DNA purification systems and sell reagents to the clinical market. Other companies
offer molecular tests. Additionally, we anticipate that in the future, additional competitors will emerge that offer a broad range of
competing products.
Currently, a limited number of direct customers and strategic partners account for a significant portion of our revenue and
the loss of any one of these or their inability to perform to expectations could have a material adverse effect on our business,
financial condition and results of operations. Our success depends significantly on the establishment and maintenance of
successful relationships with our direct customers and strategic partners.
LabCorp, Thermo Fisher Scientific Inc., and Bio-Rad Laboratories, Inc., accounted for 45% of total revenue (21%, 17% and
7%, respectively) in the twelve months ended December 31, 2014. For comparative purposes, these same three companies
accounted for 44% of total revenue (18%, 17% and 9%, respectively) in the twelve months ended December 31, 2013 and 51%
of total revenue (19%, 24% and 8%, respectively) in the twelve months ended December 31, 2012. No other customer accounted
for more than 7% of total revenue during the twelve months ended December 31, 2014. In total, for the year ended December 31,
2014, our top four customers accounted for 51% of our total revenue. In total, for the year ended December 31, 2013, our top
four customers accounted for 50% of our total revenue. The loss of any of our significant direct customers or strategic partners
could have a material adverse effect on our growth and future results of operations.
20
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 guarantee 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. Delays in implementation
of new products by our strategic partners or their ability to obtain regulatory approval for their products could negatively affect
our business. Termination of strategic relationships, the failure to enter into a sufficient number of additional strategic relationships
on favorable terms, or disputes with our partners could reduce sales of our products, lower margins on our products and limit the
creation of market demand for and acceptance of our products.
In most of our strategic partnerships we have granted 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 many of our existing strategic partner
agreements do not include minimum purchase requirements or minimum royalty commitments. Some of our existing strategic
partner agreements contain minimum purchase requirements for certain years, but unless renegotiated, those minimum purchase
requirements could expire. 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.
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 315 issued patents worldwide, including 124 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, Netherlands, Canada, Hong Kong and China, amongst others. In addition, our patent portfolio
includes 162 pending patent applications in the United States and other foreign jurisdictions. We also have patents covering key
aspects of MultiCode and xTAG technology utilized in our assay products as well as ARIES, our soon to be launched automated
real-time PCR system, and NxTAG.
21
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.
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.
Security breaches and other disruptions could compromise our information, expose us to liability and harm our reputation
and business.
In the ordinary course of our business we collect and store sensitive data, including intellectual property, personal information,
our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable
information of our customers and employees in our data centers and on our networks. The secure maintenance and transmission
of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools
and domestically available monitoring to provide security for processing, transmitting and storing this sensitive data.
Computer hackers may attempt to penetrate our computer systems or our third party IT service providers' systems and, if
successful, misappropriate personal or confidential business information. In addition, an associate, contractor, or other third-party
with whom we do business may attempt to circumvent our security measures in order to obtain such information, and may
purposefully or inadvertently cause a breach involving such information. While we will continue to implement additional protective
measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and the
techniques used in such attacks change rapidly. Despite our cybersecurity measures (including employee and third-party training,
monitoring of networks and systems, and maintenance of backup and protective systems) which are continuously reviewed and
upgraded, the Company’s information technology networks and infrastructure may still be vulnerable to damage, disruptions or
shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses,
telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Any such compromise of
our, or our third party IT service providers' data security and access, public disclosure, or loss of personal or confidential business
information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and
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regulatory penalties, disrupt our operations, damage our reputation and customers’ willingness to transact business with us, and
subject us to additional costs and liabilities any of which could adversely affect our business.
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.
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 our assays are highly volatile and are
based on a number of underlying assumptions that may or may not prove to be valid, including our ability to be successful with
our direct assay sales strategy.
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. Potential acquisitions pose a number of risks,
including, among others, that:
• we may not be able to accurately estimate the financial effect of acquisitions on our business;
•
•
future acquisitions may require us to 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;
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;
23
•
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
•
the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
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.
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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. In addition, our limited history in selling our molecular diagnostics
products on a direct basis makes forecasting difficult.
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.
We transitioned to selling our molecular diagnostics products on a direct basis in 2013, so we only have a two year direct
sales history. As a result, 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.
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 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 given the current condition 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 that we developed internally and distributed, to the extent additional regulatory clearance
is required prior to distribution.
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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.
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
in 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 guarantee 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.
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, Homi
Shamir, and our operations, marketing, research and development, technical support, technical service and sales staff. The loss of
services of key members of management could delay or reduce our product development, marketing and sales and technical support
efforts. In addition, recruiting and retaining qualified scientific and other personnel to perform research and development, technical
support, technical service and marketing and sales work will be critical to our success. There is a shortage in our industry of
qualified management and scientific personnel, and competition for these individuals is intense. There can be no assurance that
we will be able to attract additional and retain existing personnel necessary to achieve our business objectives.
Our reliance on strategic partnerships makes forecasting difficult.
As a result of our reliance on our strategic relationships, it can be difficult to accurately forecast future operating results.
Estimating the timing and amount of sales of our products is particularly difficult for the following reasons (among others):
• 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.
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• 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 or strategy or other material event due to information of which we are not currently aware could adversely impact
partner purchases of our products.
•
Partners tend to order in bulk prior to the production of new lots of their products and prior to major product development
initiatives. The frequency of these bulk purchases is difficult to predict and may cause large fluctuations in microsphere
sales quarter to quarter.
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 government-sponsored healthcare programs (e.g. Medicare, Medicaid,
Tricare), health maintenance organizations, preferred provider organizations and other private or commercial insurers are
continually seeking to reduce healthcare expenses. Increasingly, third-party payors are challenging the utilization of and prices
charged for medical services, including clinical diagnostic tests. Some payors are attempting to contain costs by limiting coverage,
reducing reimbursement and increasing patient cost-sharing obligations. The federal government has implemented and continues
to utilize cost-cutting strategies for government-sponsored healthcare programs, including coverage limitations and reimbursement
rate reductions required by the Health Reform Law. In some cases, commercial payors are influenced by government-sponsored
healthcare programs and policies. Therefore, coverage and reimbursement from commercial payors may be negatively impacted
as a result of changes in government-sponsored healthcare programs. Further, 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 or reimbursement, consumer demand for tests could decrease. Decreased demand could cause
our direct customers or strategic partners to reduce purchases or to cancel programs or development activities, which could cause
sales of our products and services to fall. In addition, decreased demand could place pressure on us, or our direct customers and
strategic partners, to lower prices on these products or services, resulting in lower margins. Reduced sales or margins by us, or
our direct customers and strategic partners, would adversely affect our business, profitability and business prospects.
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.
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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 have 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 we have 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;
the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
the inability to qualify alternate sources without impacting performance claims of our products;
reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or
assemblers; and
•
increases in prices of raw materials and key components.
Consequently, in the event that supplies of components or work performed by any of our assemblers are delayed or interrupted
for any reason, our ability to produce and supply our products could be impaired.
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.
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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 2014, approximately 17% of our revenue was derived from sales to non-U.S. customers, with approximately
8% 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;
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.
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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.
If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur
significant cost and time to comply.
Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including
biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and
future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health
Administration (OSHA) and the Environmental Protection Agency (EPA), and to regulation under the Toxic Substances Control
Act and the Resource Conservation and Recovery Act in the United States OSHA or the EPA may adopt regulations that may
affect our research and development programs. We are unable to predict whether any agency will adopt any regulations that would
have a material adverse effect on our operations.
The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an
accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage
of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.
If a catastrophe strikes our manufacturing or warehousing facilities, we may be unable to manufacture or distribute our
products for a substantial amount of time and we may experience inventory shortfalls, which would cause us to experience
lost revenues.
Our manufacturing facilities are located in Austin, Madison and Toronto. Although we have business interruption insurance,
our facilities and some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-
time. Various types of disasters, including tornadoes, fires, floods and acts of terrorism, may affect our manufacturing facilities.
In the event our existing manufacturing facilities or equipment are affected by man-made or natural disasters, we may be unable
to manufacture products for sale or meet customer demands or sales projections. If our manufacturing operations were curtailed
or ceased, it would seriously harm our business.
30
The "conflict minerals" rule of the Securities and Exchange Commission, or SEC, has caused us to incur additional expenses,
could limit the supply and increase the cost of certain metals used in manufacturing our products, and could make us less
competitive in our target markets.
On August 22, 2012, the SEC adopted a rule requiring disclosure by public companies of the origin, source and chain of
custody of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products
manufactured or contracted to be manufactured. The rule requires companies to obtain sourcing data from suppliers, engage in
supply chain due diligence, and file annually with the SEC a specialized disclosure report on Form SD covering the prior calendar
year, commencing with calendar year 2013. The rule could limit our ability to source at competitive prices and to secure sufficient
quantities of certain minerals used in the manufacture of our products, specifically tantalum, tin, gold and tungsten, as the number
of suppliers that provide conflict-free minerals may be limited. We may incur material costs associated with complying with the
disclosure requirements, such as costs related to the determination of the origin, source and chain of custody of the minerals used
in our products, the adoption of conflict minerals-related governance policies, processes and controls, and possible changes to
products or sources of supply as a result of such activities. Within our supply chain, we may not be able to sufficiently verify the
origins of the relevant minerals used in our products through the data collection and due diligence procedures that we implement,
which may harm our reputation. Furthermore, we may encounter challenges in satisfying those customers that require that all of
the components of our products be certified as conflict free, and if we cannot satisfy these customers, they may choose a competitor’s
products. We continue to investigate the presence of conflict materials within our supply chain.
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.
Our success depends on building and sustaining our technology infrastructure.
We are 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, each of which could materially adversely affect our business.
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.
We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S.
Government contracts. A violation of specific laws and regulations could result in the imposition of fines and penalties or the
termination of our contracts, as well as suspension or debarment. These fines and penalties could be imposed for failing to follow
procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow rules relating to billing
on cost-type contracts, receiving or paying kickbacks, or filing false claims, among other potential violations. In addition, we
could suffer serious reputational harm if allegations of impropriety related to such contracts were made against us.
In addition, our contracts with the U.S. Government are subject to future funding and are subject to the right of the government
to terminate the contracts in whole or in part for its convenience. There is pressure for the U.S. Government to reduce spending,
and non-appropriation of funds or the termination for the government’s convenience of our contracts could cause our actual results
of operations to differ materially and adversely from those anticipated. Further, for U.S. Government contracts that include option
years, the U.S. Government generally has the unilateral right to not exercise option periods, and may not exercise an option period
if the agency is not satisfied with our performance on the contract or does not receive funding to continue the program, among
other reasons.
31
Further, 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, unallowable or unreasonable will not be reimbursed, and 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. 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 in our partnership business 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, regulatory, 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 and regulatory 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 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, the establishment or release of valuation allowances against our deferred tax assets, 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. 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.
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.
32
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;
developments in patents or other intellectual property rights and litigation;
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 partners, customers and suppliers;
additions or departures of key personnel;
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
conditions or trends in the life science, biotechnology and pharmaceutical industries, including the regulatory environment;
published studies and reports relating to the comparative efficacy of products and markets in which we participate;
changes in financial estimates by securities analysts;
general worldwide economic conditions and interest rates;
the success or lack of success of integrating our acquisitions;
instability in the United States and other financial markets and the ongoing and possible escalation of unrest in the Middle
East, other armed hostilities or further acts or threats of terrorism in the United States or elsewhere;
sales of our common stock; and
the potential adverse impact of the secondary trading of our stock on foreign exchanges which are subject to less regulatory
oversight than the NASDAQ Global 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 incur impairment charges on our goodwill and intangible assets which would reduce our earnings.
We are subject to Accounting Standards Codification (ASC) 350 “Goodwill and Other” (ASC 350) which requires that goodwill
and other intangible assets that have an indefinite life be tested at least annually for impairment. Goodwill and other intangible
assets with indefinite lives must also be tested for impairment between the annual tests if a triggering event occurs that would
likely reduce the fair value of the asset below its carrying amount. As of December 31, 2014, goodwill and other intangible assets
with indefinite lives represented approximately 30% of our total assets. In the future, if we determine that there has been impairment,
our financial results for the relevant period would be reduced by the amount of the impairment, net of tax effects, if any.
33
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.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative facilities are located in Austin, Texas, and consist
of approximately 184,000 square feet of leased space pursuant to lease agreements which expire between July 31, 2017 and April
30, 2020. We have options to renew these lease agreements in Austin. We maintain 20,000 square feet of leased office space in
The Netherlands, approximately 34,700 square feet of leased office and manufacturing space in Toronto, Canada and approximately
35,000 square feet of leased office and manufacturing space in Madison, Wisconsin. In addition, we maintain approximately 3,900
square feet and approximately 2,000 square feet of leased office space in Shanghai and Beijing, respectively, People's Republic
of China, approximately 2,900 square feet of lease office space in Hong Kong and approximately 4,000 square feet of leased office
space in Tokyo, Japan.
ITEM 3. LEGAL PROCEEDINGS
On August 30, 2012 Abbott Laboratories, Inc. (Abbott) was named as a defendant in the complaint filed 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 patent infringement resulting from its distribution of Luminex's Respiratory Viral
Panel. The complaint seeks unspecified monetary damages and injunctive relief. Abbott filed an answer to the complaint 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 7,064,197 resulting from Luminex's sale of its xTAG, FlexScript LDA,
SelecTAG, and xMAP Salmonella Serotyping Assay products and alleging infringement of US Patent 8,097,405 resulting from
Luminex's sale of Multicode products. Luminex filed an answer to ENZO's additional claims on January 28, 2013. On October
2, 2013 ENZO filed additional claims against Luminex, alleging infringement of U.S. Patent 6,992,180 resulting from Luminex’s
sale of Multicode products. Luminex filed an answer to ENZO’s additional claims on October 21, 2013. A trial date has not been
set. The parties to the lawsuit have engaged in the discovery process.
On November 1, 2013 Irori Technologies, Inc. (Irori) filed a complaint against Luminex in U.S. District Court in the Southern
District of California, alleging infringement of its U.S. Patent 6,372,428, 6,416,714, and 6,352,854 resulting from Luminex’s sale
of its xMAP and xTAG based products. Luminex filed a motion to dismiss on January 9, 2014. Irori filed its response to our
motion to dismiss on February 7, 2014. The court granted the motion to dismiss without prejudice on February 25, 2014. On
March 18, 2014, Irori filed an amended complaint, again alleging infringement of its US Patent 6,372,428, 6,416,714, and 6,352,854
resulting from Luminex’s sale of its xMAP and xTAG based products. The complaint seeks unspecified monetary damages and
injunctive relief. Luminex filed an answer to Irori’s amended complaint on April 2, 2014. On June 10, 2014, Luminex filed with
the USPTO’s Patent Trial and Appeal Board a total of five petitions for inter partes review seeking to invalidate the claims of the
three patents involved in the litigation. On June 17, 2014 Luminex filed a motion to stay proceedings in the district court pending
the USPTO’s resolution of the inter partes review of Irori’s patents. Irori filed its opposition to the motion to stay on July 7, 2014,
and Luminex filed a reply on July 14, 2014. On July 16, 2014, the court granted Luminex’s motion to stay the case until the earlier
of i) a determination by the United States Patent and Trademark Office that reexamination proceedings will not take place or ii)
the conclusion of reexamination proceedings and appeals. On December 11, 2014, the USPTO's Patent Trial and Appeal Board
instituted review on all five inter partes review petitions that Luminex filed. Irori’s responses to the petitions
are due February 26, 2015, and oral argument (if requested by either party) is scheduled for August 5, 2015.
34
When and if it appears probable in management's judgment, and based upon consultation with outside counsel, that we will
incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably estimated,
we record the estimated liability in the financial statements. If only a range of estimated losses can be estimated, we record an
amount within the range that, in management's judgment, reflects the most likely outcome; if none of the estimates within that
range is a better estimate than any other amount, we record the liability at the low end of the range of estimates. Any such accrual
would be charged to expense in the appropriate period. We disclose significant contingencies when the loss is not probable and/
or the amount of the loss is not estimable, when we believe there is at least a reasonable possibility that a loss has been incurred.
We recognize costs associated with legal proceedings in the period in which the services were provided. There can be no assurance
that we will successfully defend these suits or that a judgment against us would not materially adversely affect our operating
results.
ITEM 4. MINE SAFETY DISCLOSURES
None.
35
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the NASDAQ Global 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 2014 and 2013. On February 23, 2015, the last reported sale price of our common stock was $16.21 per
share.
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
20.39
20.24
20.00
21.69
High
19.39
21.52
24.10
20.52
$
$
$
$
$
$
$
$
17.22
15.74
16.05
17.04
Low
16.23
15.39
19.52
17.15
As of February 23, 2015, we had 477 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. Luminex does not currently have a credit facility.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities of Luminex during the twelve months ended December 31, 2014.
36
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
12/09
100.00
100.00
100.00
12/10
122.44
117.61
106.73
12/11
142.20
118.70
122.40
12/12
112.52
139.00
166.72
12/13
129.94
196.83
286.55
12/14
125.65
223.74
379.71
37
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2014 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
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
212
—
1,481
1,693
19.77
—
18.76
18.89
— $
— $
— $
— $
—
—
—
—
Period
10/1/2014 - 10/31/2014
11/1/2014 - 11/30/2014
12/1/2014 - 12/31/2014
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.
38
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 comprehensive
income data for the years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheet data at December 31,
2014 and 2013 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, 2011 and 2010 and the consolidated balance
sheet data at December 31, 2012, 2011 and 2010 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,
2014
2013
2012
2011
2010
(in thousands, except per share data)
$ 226,983
$ 213,423
$ 202,582
$ 184,339
$ 141,557
159,852
143,626
142,574
125,490
28,137
39,043
39,043
0.94
$
$
4,767
7,096
7,096
0.17
$
$
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
41,558
40,799
40,927
41,262
41,030
0.93
$
0.17
$
0.30
$
0.34
$
0.12
42,156
41,986
41,884
42,537
42,438
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,
2014
2013
2012
2011
2010
(in thousands)
$
91,694
$
67,924
$
42,789
$
58,282
$
89,487
—
15,975
146,654
357,526
—
4,517
—
117,874
306,046
463
13,607
3,000
100,989
297,175
1,702
42,574
6,151
136,933
282,647
2,573
28,404
6,021
151,938
265,810
3,351
319,994
269,620
259,667
250,855
234,865
39
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
diagnostics and life sciences 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, 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 (Polymerase Chain Reaction) and multiplexed PCR assays. Our
MultiCode 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.
Our end user customers and partners, which include laboratory professionals performing research, clinical laboratories
performing tests on patients as ordered by physicians and other laboratories, have a fundamental need to perform high quality
testing as efficiently as possible. Luminex employs a two-pronged business model. 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, 2014, Luminex had 66 strategic partners, of
which 46 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.
• Consumable revenue is generated from the sale of our dyed polystyrene microspheres, along with 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.
40
• 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.
2014 Highlights
• Consolidated revenue was $227.0 million for 2014, representing a 6% increase over revenue for 2013.
•
System shipments of 950 multiplexing analyzers, which included 372 MAGPIX systems, resulting in cumulative life-
to-date multiplexing analyzer shipments of 11,687, up 9% from a year ago.
• Royalty revenue reflecting over $456 million of royalty bearing end user sales on our technology for the year, a 7%
increase in royalty revenue over the prior year.
• Assay revenue of $87.7 million, an 18% increase over 2013
• Received FDA clearance to add new clinical targets and additional sample type for use with xTAG® Gastrointestinal
Pathogen Panel.
Reimbursement Landscape
Over the past two years, the molecular diagnostic market has experienced what we believe to be a temporary deceleration in
the utilization of molecular assays, particularly in the human genetics segment. This deceleration was driven by administrative
issues associated with the new molecular diagnostic code system implemented by the Centers for Medicare and Medicaid Services
(CMS) in 2013. After implementation of the new molecular diagnostic codes, a number of our laboratory customers experienced
Medicare fee schedule reductions, delays in pricing and implementation of key molecular codes, denials of coverage for existing
tests and delays in payment for tests performed by some payers, all of which resulted in lower than anticipated testing volumes
for our customers and, therefore, decreased assay revenues in 2013. In addition, effective January 1, 2014, CMS began bundling
Medicare payment for most clinical laboratory tests into hospital payment rates. As a result, most independent laboratories must
now obtain payment from the hospital rather than directly billing Medicare. Despite these changes, based on feedback from our
customers regarding the 2014 Medicare Clinical Laboratory Fee Schedule and the reinstatement in 2013 of coverage for Cystic
Fibrosis genetic testing, the single largest test that was not being reimbursed, we believe that reimbursement challenges diminished
in 2014. However, we may be impacted by future changes to the reimbursement landscape. Commercial payors may adopt coding
and bundling requirements that are similar to those made by Medicare. Further, in April 2014, the Protecting Access to Medicare
Act (PAMA) was enacted. Beginning in 2016, PAMA requires clinical laboratories to report to CMS the volume of each laboratory
test and the price paid by private payors. CMS must set future Medicare fee schedules using weighted medians from these datasets.
This requirement could exert downward pressure on Medicare reimbursement, because reimbursement rates for clinical laboratory
services of commercial payors are often lower than rates paid by Medicare. We will continue to monitor the reimbursement
landscape closely.
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. These customers account
for more than 75% of our total consumable sales volume. During 2015, we expect a contraction of approximately $10 million in
consumable sales as the result of transient inventory challenges that our largest bulk purchasing partner is experiencing. We expect
this lower level of purchasing to continue over the next several years. However, 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. We believe that our relationship with our largest bulk purchasing partner remains strong and they
are continuing to invest in our technology. The royalty stream from our largest bulk purchasing partner has grown steadily,
indicating further penetration and use of our technology within their market.
Change in Cash Position
Our cash, cash equivalents and investments increased by approximately $35.3 million for the year ended December 31, 2014
to $107.7 million from $72.4 million at December 31, 2013. The increase in cash, cash equivalents and investments is primarily
attributable to strong operating cash flows of $49.3 million, coupled with $4.7 million in proceeds from our employee stock
purchase plan (ESPP) and stock option exercises, which funded our capital expenditures of $17.1 million.
41
Segment Information
During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, Luminex evaluated its historical
reporting segments: the TSP segment and the ARP segment. As a result of this evaluation and based upon how our new Chief
Executive Officer as Chief Operating Decision Maker (“CODM”) and our management team collectively is managing our business,
we determined that the two former segments have become so integrated and interrelated that they no longer provide an accurate
representation of our current business when reported separately. Additionally, we have taken actions to consolidate sales and
service functions. Effective with the fourth quarter of 2014, we no longer have two operating segments and, accordingly, will
present our business as one operating segment and one reporting unit. Accordingly, prior periods' information has been restated
to conform to the current periods' presentation.
Future Operations
We expect our areas of focus over the next twelve months to be:
•
•
•
•
•
clinical validation and preparation for commercial launch of our ARIES system, the next generation sample-to-
answer platform for our MultiCode-RTx technology, including in vitro diagnostic (IVD) assays;
development of the next generation multiplex chemistry, including the next generation of our Respiratory Viral
Panel line of IVD assays;
continued execution of our pharmacogenetic (PGx) strategy;
continued execution of our direct sales strategy, including developing the infrastructure necessary to support our
sales force and decreasing reliance on our distributors;
commercialization, regulatory clearance and market adoption of products, including commercialization of
MultiCode analyte specific reagents outside of the United States;
• maintenance and improvement of our existing products and the timely development, completion and successful
commercial launch of our pipeline products;
•
•
adoption and use of our platforms and consumables by our customers for testing services;
expansion and enhancement of our installed base and our market position within our identified target market
segments;
• monitoring and mitigating the effect of the ongoing uncertainty in global finance markets and changes in
government funding on planned purchases by end users; and
•
continued adoption and development of partner products incorporating Luminex technology through effective
partner management.
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 as a result of the timing
of development expenses, clinical validation and clinical trials in advance of the commercial launch of our new products.
42
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 primarily 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 typically 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.
Within the diagnostic portion of our business, 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. All of these reagent rental agreements are operating leases.
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. We may also
be entitled to milestone payments that are contingent upon our achieving a predefined objective. We follow the milestone method
of recognizing revenue from milestones and milestone payments are recorded as revenue in full upon achievement of the milestone.
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.
43
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.
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, on October 1st of each year, 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. As of October 1,
2014, all of our goodwill related to one reporting unit, our previous ARP segment, for goodwill impairment testing. As the change
to one reporting segment was made after October 1, 2014, we performed our analysis on goodwill under the ARP segment as of
October 1, 2014. We have historically estimated the fair value of our ARP segment reporting unit using a discounted cash flow
(DCF) analysis (“step one” analysis) of our projected future results or using a more qualitative analysis (“step zero” analysis)
under the accounting guidance which 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. In fiscal 2012, we used the "step zero" analysis in our annual
impairment analysis for goodwill. In performing the impairment test in the fourth quarter of 2013 and 2014, we used the "step
one" analysis. This analysis requires a comparison of the carrying value of the reporting unit to the estimated fair value of the
reporting unit. Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions.
Our annual test, performed on the first day of the fourth quarter, did not result in an impairment charge for 2014 as the estimated
fair value of the ARP segment reporting unit exceeded the carrying value by a significant enough amount that any reasonably
likely change in the assumptions used in the analysis would not cause the carrying value to exceed the estimated fair value for the
reporting unit as determined under our "step one" analysis.
We utilize an income approach based on a DCF analysis to determine fair value estimates, and then use market comparisons
as a reasonableness check to ensure that neither the income approach nor the market comparisons yielded significantly different
results. The income approach calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and
then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Our estimates are based on revenue
projections by product line, and include judgment based on historical growth and scheduled product approvals by the various
governmental authorities. We believe our assumptions are consistent with the plans and estimates used to manage the underlying
businesses. The most significant assumptions used in the DCF methodology are the discount rate, based upon the estimated
weighted average cost of capital (WACC), and the terminal growth rate, based upon strategic studies we commissioned and our
own internal analysis. We used a WACC rate of 14.5% and a terminal growth rate of 2.9% in our 2014 analysis. To determine
our WACC rate, we performed a peer company analysis and considered the weighted average return on debt and equity, the updated
risk-free interest rate, beta, equity risk premium, and entity specific size risk premium.
Our analysis yielded an estimated fair value in excess of the carrying value by over 25% for 2014. Concurrent with the above
analysis, we performed a sensitivity analysis based upon reasonably likely changes to determine if our DCF analysis would result
in impairment if the following changes were made to our assumptions: i) assumed the fair value of the reporting unit was lower
by 10% or ii) future revenue was 75% of our projections in the DCF model. Neither of these sensitivity analyses resulted in an
estimated fair value less than the carrying amount of the reporting unit.
44
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 having a material impact on our consolidated results of operations. 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. We benefit from the tax credit incentives under the U.S. research and experimentation tax credit extended to taxpayers engaged
in qualified research and experimental activities while carrying on a trade or business. The tax credit expired on December 31,
2014, and if not renewed under similar terms as in prior years, the result could have a material impact on our financial results.
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.
In March 2010, significant reforms to the healthcare system were adopted as law in the U.S. The law includes provisions that,
among other things, imposes new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize
healthcare reform in the form of a 2.3% excise tax on U.S. sales of certain medical devices effective January 1, 2013. Our products
which have received FDA approval fall under the government classification and are subject to the excise tax.
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.
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.
45
Consolidated Results of Operations
The following table sets forth the percentage of total revenue of certain items in the Consolidated Results 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
Restructuring
Total operating expenses
Income from operations
Interest expense from long-term debt
Other income, net
Income taxes
Net income
Year Ended December 31,
2014
2013
2012
100 %
30 %
70 %
19 %
36 %
2 %
1 %
58 %
12 %
— %
— %
5 %
17 %
100 %
33 %
67 %
21 %
41 %
2 %
1 %
65 %
2 %
— %
3 %
(2)%
3 %
100 %
30 %
70 %
21 %
36 %
2 %
— %
59 %
11 %
— %
— %
(5)%
6 %
46
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Net income
2014
$
$
$
$
$
226,983
159,852
70%
131,715
28,137
39,043
$
$
$
$
$
Variance
2013
(dollars in thousands)
213,423
143,626
$
$
13,560
16,226
67%
138,859
4,767
7,096
$
$
$
3%
(7,144)
23,370
31,947
Variance (%)
6 %
11 %
N/A
(5)%
490 %
450 %
Revenue. Total revenue increased to $227.0 million for the year ended December 31, 2014 from $213.4 million in 2013. The
increase was primarily attributable to an increase of $13.6 million in assay revenue and $2.5 million in royalty revenue, partially
offset by a decrease of $2.6 million in system revenue. The increase in assay revenue is attributable to growth in both of our
primary assay portfolios; infectious disease assays and genetic testing assays, which grew at 18% and 20%, respectively, over the
prior year. The increase in royalty revenue was driven by our partners' continued menu expansion and increased utilization of our
partners’ assays on our technology. System revenue decreased from $31.8 million in 2013 to $29.2 million in 2014. We sold 950
multiplexing analyzers in 2014, which included 372 of our MAGPIX systems, as compared to 1,078 multiplexing analyzers sold
in 2013, which included 495 MAGPIX systems, bringing total multiplexing analyzer shipments since inception to 11,687 as of
December 31, 2014. Additionally, system revenue generated in our Brisbane, Australia facility, which was closed in 2014, declined
by $1.2 million in 2014 from the prior year.
A breakdown of revenue for the years ended December 31, 2014 and 2013 is as follows:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2014
2013
(dollars in thousands)
Variance
Variance (%)
$
$
29,200
48,300
39,409
87,653
9,377
13,044
226,983
$
$
31,786
48,540
36,950
74,101
8,939
13,107
213,423
$
$
(2,586)
(240)
2,459
13,552
438
(63)
13,560
(8)%
— %
7 %
18 %
5 %
— %
6 %
We continue to have revenue concentration in a limited number of customers. In 2014, the top five customers, by revenue,
accounted for 55% of total revenue up from 54% of total revenue in 2013. In particular, two customers accounted for 38% of
2014 total revenue (21% and 17%, respectively) up from 34% of 2013 total revenue (18% and 16%, respectively). No other
customer accounted for more than 10% of total revenue in 2014 or 2013.
Revenue from the sale of systems and peripheral components decreased 8% to $29.2 million for the year ended December 31,
2014 from $31.8 million for the year ended December 31, 2013, due to the decrease in the total multiplexing analyzer placements.
We sold 950 total multiplexing analyzers in 2014 as compared to 1,078 in 2013. We anticipate that our increased focus on direct
sales will drive the placement of reagent rental multiplexing analyzer systems in lieu of multiplexing analyzer system sales to
distributors. For the year ended December 31, 2014, five of our partners accounted for 721, or 76%, of total multiplexing analyzers
sold. Five of our partners accounted for 895, or 83%, of total multiplexing analyzers sold for the year ended December 31, 2013.
47
Consumable sales, comprised of microspheres and sheath fluid, decreased to $48.3 million during 2014 from $48.5 million
in 2013. During the year ended December 31, 2014, we had 68 bulk purchases of consumables totaling approximately $37.6
million (78% of total consumable revenue), ranging from $0.1 million to $4.8 million, as compared with 74 bulk purchases totaling
approximately $38.8 million (80% of total consumable revenue), in the year ended December 31, 2013. The decrease in bulk
purchases in 2014 is the primary driver to the decrease in consumable revenue from the prior year and is primarily the result of
transient inventory challenges experienced by our largest partner, which is expected to affect consumable sales over the next
several years. Partners who reported royalty bearing sales accounted for $38.3 million, or 79%, of consumable sales for the year
ended December 31, 2014 compared to $38.4 million, or 79%, of the total consumable sales for the year ended December 31,
2013.
Royalty revenue, which results when our partners sell products or services incorporating our technology, increased 7% to
$39.4 million for the year ended December 31, 2014 from $37.0 million for the year ended December 31, 2013. 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. Total royalty bearing sales on xMAP and MultiCode technology reported to us were $452.6 million
and $3.6 million, respectively, for the year ended December 31, 2014 as compared to $443.5 million and $2.9 million, respectively,
for the year ended December 31, 2013.
Assay revenue increased 18% to $87.7 million for the year ended December 31, 2014 from $74.1 million for the year ended
December 31, 2013. The increase in assay revenue is driven primarily by an increase in both of our primary assay portfolios:
infectious disease testing and genetic testing assay products which increased 18% and 20% from 2013, respectively. Additionally,
infectious disease testing and genetic testing assay products represented 67% and 33%, respectively, of total assay revenue in
2014, consistent with 2013. Our top customer, by revenue, accounted for 51% of total assay revenue for the year ended December 31,
2014 compared to 49% for the year ended December 31, 2013. No other customer accounted for more than 10% of total assay
revenue during those periods. For the years ended December 31, 2014 and December 31, 2013, direct assay sales comprised 99%
and 97% of total assay sales, respectively. Certain genetic testing assay products revenue from our largest customer is under
significant pressure from competing technologies and, although timing is uncertain, a loss of a significant portion of that revenue
is expected within the next twelve months.
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract and time and materials
for billable service work not under an extended warranty contract, increased 5% to $9.4 million during 2014 from $8.9 million in
2013. This increase is attributable to increased penetration of the expanded installed base. At December 31, 2014, we had 1,522
Luminex systems covered under extended service agreements and $4.1 million in deferred revenue related to those contracts. At
December 31, 2013, we had 1,516 Luminex systems covered under extended service agreements and $3.8 million in deferred
revenue related to those contracts.
Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees, milestone
payments from our development agreement with Merck and revenue from agreements with U.S. government agencies, decreased
to $13.0 million for the year ended December 31, 2014 compared to $13.1 million for the year ended December 31, 2013.
Gross Profit. Gross profit increased to $159.9 million for the year ended December 31, 2014, as compared to $143.6 million
for the year ended December 31, 2013. Gross margin (gross profit as a percentage of total revenue) was 70% for the year ended
December 31, 2014, up from 67% for the year ended December 31, 2013. Gross margin was higher in 2014 primarily as a result
of the inclusion in 2013 of $2.6 million of impairment of inventory related to our restructuring plan focused on our Newborn
Screening Group and our Brisbane, Australia office. Additionally, concentration of sales in our higher margin items (assays,
consumables and royalties) was higher than in the prior year, representing 77% of revenue for the year ended December 31, 2014
compared to 75% for the year ended December 31, 2013. We anticipate continued fluctuation in gross margin and related gross
profit primarily as a result of variability in consumable and system purchases and seasonality effects inherent in our assay revenue.
Research and Development Expense. Research and development expense decreased to $43.1 million, or 19% of total revenue,
for the year ended December 31, 2014 from $45.0 million, or 21% of total revenue, for the year ended December 31, 2013. The
decrease in research and development expense was primarily the result of the savings in materials spending associated with
advancement in the ARIES development phases, including transitioning from alpha system builds in the prior year to wrapping
up development and preparing for clinical trials in the current year, and the savings realized from our restructuring activities in
the prior year. The focus of our research and development activities has been the development and clinical validation of our next
generation sample-to-answer platform for our ARIES system.
48
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of
acquired intangible assets, decreased to $82.8 million for the year ended December 31, 2014 from $87.3 million for 2013. The
decrease was primarily attributable to an expense of $7.0 million related to the termination of our molecular diagnostics distribution
agreements and our full allowance against all accounts receivable balances related to the bankruptcy of a previous customer totaling
$3.9 million each reflected in our 2013 results, partially offset by increased personnel costs due to incremental headcount and
increased
Selling, general and
administrative headcount at December 31, 2014 was 290 as compared to 281 at December 31, 2013. As a percentage of revenue,
selling, general and administrative expense, excluding the amortization of acquired intangible assets, decreased to 36% in 2014
compared to 41% in 2013.
incentive compensation as well as additional
litigation expenditures
in 2014.
Restructuring costs. We recorded total pre-tax restructuring charges of $3.1 million in 2014. The portion of these charges
that pertained to the non-cash impairment of inventory and certain of the employee separation costs, $1.2 million, was recorded
to cost of revenue. The portion of these charges that pertained to the non-cash loss on disposal of our Brisbane, Australia business,
the non-cash impairment of intangible assets, fixed assets, certain employee separation costs and facility exit costs, $1.9 million,
was recorded to restructuring costs in our operating expenses. We recorded total pre-tax restructuring charges of $5.0 million in
2013. The portion of these charges that pertained to the non-cash impairment of inventory and certain of the employee separation
costs, $2.6 million, was recorded to cost of revenue. The portion of these charges that pertained to the non-cash impairment of
intangible assets, fixed assets and certain employee separation costs, $2.4 million, was recorded to restructuring costs in our
operating expenses. As a result of the organizational change, the Company eliminated approximately 5% of its aggregate workforce.
Other Income, net. Other income, net decreased to a loss of $46,000 for the year ended December 31, 2014 from income of
$6.7 million for the year ended December 31, 2013. The 2013 amount was due to the liquidation of our minority interest in a
private company in 2013, which resulted in a gain of $5.4 million and a reduction in the contingent consideration liability established
in connection with the 2012 acquisition of GenturaDx from $1.4 million to $0 during 2013.
Income taxes. Our effective tax rate for the year ended December 31, 2014 was a benefit of 39%, or $11.0 million, as compared
to an expense of 38%, or $4.3 million, for the year ended December 31, 2013. The favorable effective tax rate for 2014 reflects
an income tax benefit recorded in the fourth quarter resulting from the partial release of the Canadian deferred tax assets valuation
allowance, the recognition of benefits in the Netherlands which were generated by the waiver of intercompany debt and restructuring
losses related to the Australian entity and the establishment of a tax asset associated with tax paid on intercompany profits. Further
release of the Canadian deferred tax assets valuation allowance will be contingent upon future projections of profitability of our
Canadian subsidiary. We will record income tax expense on profits generated in our Canadian subsidiary over the near term and
as a result expect our consolidated effective tax rate to be in the 25% to 35% range over the next several years, absent any other
significant discrete items. We continue to assess our business model and its impact in various tax jurisdictions.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Operating income
Net income
2013
$
$
$
$
$
213,423
143,626
67%
138,859
4,767
7,096
$
$
$
$
$
Variance
2012
(dollars in thousands)
202,582
142,574
10,841
1,052
$
$
70%
(3)%
119,858
22,716
12,407
$
$
$
19,001
(17,949)
(5,311)
Variance (%)
5 %
1 %
N/A
16 %
(79)%
(43)%
Revenue. Total revenue increased to $213.4 million for the year ended December 31, 2013 from $202.6 million in 2012. The
increase was primarily attributable to a $5.8 million increase in royalty revenue and $3.9 million in other revenue. The increase
in royalty revenue was driven by our partners' continued menu expansion and increased utilization of our partners’ assays on our
technology. The increase in other revenue was driven by our contracts with the U.S. government and our development agreement
with Merck. In addition, system revenue increased from $31.1 million in 2012 to $31.8 million in 2013. We sold 1,078 multiplexing
analyzers in 2013, which included 495 of our MAGPIX systems, as compared to 981 multiplexing analyzers sold in 2012, which
included 420 MAGPIX systems, bringing total multiplexing analyzer sales since inception to 10,737 as of December 31, 2013.
Also included in system revenue for 2013 were sales of 45 automated punching systems compared to 68 in 2012.
49
A breakdown of revenue for the years ended December 31, 2013 and 2012 is as follows:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2013
2012
(dollars in thousands)
Variance
Variance (%)
$
$
31,786
48,540
36,950
74,101
8,939
13,107
213,423
$
$
31,083
48,012
31,160
75,020
8,079
9,228
202,582
$
$
703
528
5,790
(919)
860
3,879
10,841
2 %
1 %
19 %
(1)%
11 %
42 %
5 %
In 2013, the top five customers, by revenue, accounted for 54% of total revenue down from 63% of total revenue in 2012. In
particular, three customers accounted for 43% of 2013 total revenue (18%, 16% and 9%, respectively) down from 51% of 2012
total revenue (19%, 24% and 8% respectively). No other customer accounted for more than 10% of total revenue in 2013.
Revenue from the sale of systems and peripheral components increased 2% to $31.8 million for the year ended December 31,
2013 from $31.1 million for the year ended December 31, 2012, due to the increase in the total multiplexing analyzer placements
from 981 in 2012 to 1,078 in 2013. For the year ended December 31, 2013, five of our partners accounted for 895, or 83%, of
total multiplexing analyzers sold. Five of our partners accounted for 811, or 83%, of total multiplexing analyzers sold for the year
ended December 31, 2012.
Consumable sales, comprised of microspheres and sheath fluid, increased 1% to $48.5 million during 2013 from $48.0
million in 2012. During the year ended December 31, 2013, we had 74 bulk purchases of consumables totaling approximately
$38.8 million (80% of total consumable revenue), ranging from $0.1 million to $4.3 million, as compared with 70 bulk purchases
totaling approximately $38.1 million (79% of total consumable revenue), in the year ended December 31, 2012. The increase in
bulk purchases was the primary driver to the increase in consumable revenue from the prior year. Partners who reported royalty
bearing sales accounted for $38.4 million, or 79%, of total consumable sales for the year ended December 31, 2013.
Royalty revenue, which results when our partners sell products or services incorporating our technology, increased 19%
to $37.0 million for the year ended December 31, 2013 from $31.2 million for the year ended December 31, 2012. We believe
this was 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. Total royalty bearing sales on xMAP and MultiCode technology reported to us were $443.5 million
and $2.9 million, respectively, for the year ended December 31, 2013 as compared to $397.8 million and $4.7 million, respectively,
for the year ended December 31, 2012.
Assay revenue decreased 1% to $74.1 million for the year ended December 31, 2013 from $75.0 million for the year ended
December 31, 2012. The modest decline in assay revenue was driven primarily by decreased infectious disease assay
sales. Infectious disease testing and genetic testing assays represented 67% and 33%, respectively, of total assay revenue in both
2013 and 2012. For the year ended December 31, 2013, direct assay sales comprised 97% of total assay sales compared to 72%
for the year ended December 31, 2012. In 2013, we focused more resources on our direct sales channels which resulted in less
reliance on our distributors. The top customer, by revenue, accounted for 49% of total assay revenue in both 2013 and 2012. No
other customer accounted for more than 10% of total assay revenue in 2013. In 2012, before our focus on selling directly to the
end user, the second and third largest customers represented 18% and 9%, respectively of total assay revenue.
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract, increased 11% to $8.9
million during 2013 from $8.1 million in 2012. This increase was attributable to increased penetration of the expanded installed
base. At December 31, 2013, we had 1,516 Luminex systems covered under extended service agreements and $3.8 million in
deferred revenue related to those contracts. 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.
50
Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees, milestone
payments from our development agreement with Merck and revenue from agreements with U.S. government agencies,
increased 42% to $13.1 million for the year ended December 31, 2013 compared to $9.2 million for the year ended December 31,
2012. This increase was primarily the result of payments related to minimum purchase obligations and our development agreements
with Merck and U.S. government agencies.
Gross Profit. Gross profit increased to $143.6 million for the year ended December 31, 2013, as compared to $142.6 million
for the year ended December 31, 2012. Gross margin (gross profit as a percentage of total revenue) was 67% for the year ended
December 31, 2013, down from 70% for the year ended December 31, 2012. Gross margin was lower in 2013 primarily as a result
of the inclusion of $2.6 million of impairment of inventory related to our restructuring plan focused on our Newborn Screening
Group and our Brisbane, Australia office. Additionally, concentration of sales in our higher margin items (assays, consumables
and royalties) was modestly lower than in the prior year, representing 75% of revenue for the year ended December 31, 2013
compared to 76% for the year ended December 31, 2012.
Research and Development Expense. Research and development expense increased to $45.0 million for the year ended
December 31, 2013 from $43.0 million for the year ended December 31, 2012, but remained flat as a percentage of revenue, at
21% in both 2013 and 2012. The increase in expense was primarily associated with (i) the development of a new version of our
multiplex PCR technology and (ii) our sample-to-answer instrumentation and assays.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of
acquired intangible assets, increased to $87.3 million for the year ended December 31, 2013 from $72.6 million for 2012. The
increase was primarily attributable to an expense of $7.0 million related to the termination of our molecular diagnostics distribution
agreements effective as of the first quarter of 2013, an increase of our allowance for bad debts of $3.9 million related to all of the
receivables from a previous customer that filed for Chapter 11 bankruptcy and additional infrastructure and personnel and related
expenses focused on our direct sales channels. Selling, general and administrative headcount at December 31, 2013 was 281 as
compared to 259 at December 31, 2012. As a percentage of revenue, selling, general and administrative expense, excluding the
amortization of acquired intangible assets, increased to 41% in 2013 compared to 36% in 2012.
Restructuring costs. We recorded total pre-tax restructuring charges of $5.0 million in 2013. The portion of these charges
that pertained to the non-cash impairment of inventory and certain of the employee separation costs, $2.6 million, was recorded
to cost of revenue. The portion of these charges that pertained to the non-cash impairment of intangible assets, fixed assets and
certain employee separation costs, $2.4 million, was recorded to restructuring costs in our operating expenses. As a result of the
organizational change, the Company eliminated approximately 5% of its workforce.
Other Income, net. Other income, net increased to $6.7 million for the year ended December 31, 2013 from $0.3 million for
the year ended December 31, 2012 due to the liquidation of our minority interest in a private company, which resulted in a gain
of $5.4 million and a reduction in the contingent consideration liability established in connection with the 2012 acquisition of
GenturaDx from $1.4 million to $0 during 2013.
Income taxes. Income tax expense decreased to $4.3 million for the year ended December 31, 2013 from $10.4 million for
the year ended December 31, 2012 primarily due to decreased profitability in the U.S. during 2013. Our effective tax rate for the
year ended December 31, 2013 was 38% compared to 46% for the year ended December 31, 2012. The decrease in our effective
tax rate in 2013 was primarily a function of the decrease in the proportion of taxable income attributable to the U.S., an extension
of the U.S. federal research and experimentation tax credit in 2013, and an increase in the taxable losses in our foreign jurisdictions
for which no income tax benefit is recognized. Our foreign earnings are generally taxed at lower rates than in the United States.
51
Liquidity and Capital Resources
Cash and cash equivalents
Short-term investments
Long-term investments
December 31, 2014 December 31, 2013
$
$
(in thousands)
91,694
$
—
15,975
107,669
$
67,924
4,517
—
72,441
At December 31, 2014, we held cash, cash equivalents and long-term investments of $107.7 million and had working capital
of $146.7 million. At December 31, 2013, we held cash, cash equivalents and short-term investments of $72.4 million and had
working capital of $117.9 million. Cash, cash equivalents and investments increased by $35.2 million during the year ended
December 31, 2014. The increase in cash, cash equivalents and investments from the prior year is primarily attributable to
significant operating cash flows, coupled with $4.7 million in proceeds from the Company's employee stock purchase plan and
stock option exercises, which funded our capital expenditures of $17.1 million.
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 $49.3 million for the year ended December 31, 2014 as compared with cash provided by
operations of $26.9 million for the year ended December 31, 2013. Cash used in investing activities was $28.5 million for the
year ended December 31, 2014 as compared with cash provided by investing activities of $2.7 million for 2013. The change in
cash flows of investing activities was primarily attributable to the $9.5 million in proceeds received from the sale of our minority
interest investment in a private company in the prior year and a decrease in the net sales of our available-for-sale securities of
$14.6 million. Currently, exclusive of changes in available-for-sale securities, we expect cash used in investing activities to be
primarily for purchases of property and equipment, additional cost-method investments and continued strategic investments or
acquisitions.
Cash provided by financing activities increased to $3.4 million for the year ended December 31, 2014, from cash used in
financing activities of $4.4 million for the year ended December 31, 2013, primarily attributable to a decrease in stock repurchases
of $14.6 million, partially offset by decreases of $3.9 million in proceeds from the Company's employee stock purchase plan and
stock option exercises and of $2.3 million in excess income tax benefit from employee stock-based awards of in 2014 as compared
to 2013.
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,
loss of a significant portion of our revenue stream, and potential costs associated with both protecting and defending our intellectual
property. Additionally, actions taken as a result of the appointment of our new CEO and his ongoing internal evaluation of our
business could result in expenditures not currently contemplated in our estimates for 2015.
During 2015, we expect a contraction of approximately $10 million in consumable sales as the result of transient inventory
challenges that our largest bulk purchasing partner is experiencing. We expect this lower level of purchasing to continue over the
next several years. Additionally, certain genetic testing assay products revenue from our largest customer is under significant
pressure from competing technologies and, although timing is uncertain, a loss of a significant portion of that revenue is expected
within the next twelve months.
52
One of the short term significant capital requirements is the completion of our current in-process research and development
project related to our acquisition of GenturaDx, the foundation of our ARIES System, which is scheduled to be completed with
initial commercialization in 2015. The estimated aggregate cost to complete this project is between $2.0 million and $4.0 million.
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 and (v) entering
into strategic investment or acquisition agreements requiring significant cash consideration. See also the “Safe Harbor Cautionary
Statement” and Item 1A “Risk Factors” above.
To the extent our capital resources are insufficient to meet future capital requirements we will have to raise additional funds
to continue the development and deployment of our technologies, 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. 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
In May 2014, the Company repaid all of its outstanding debt. See Note 14 to the Consolidated Financial Statements for a
discussion on long-term debt.
Contractual Obligations
As of December 31, 2014, we had approximately $24.2 million in non-cancellable obligations for the next 12 months. These
obligations are included in our estimated cash usage during 2015. The following table reflects our total current non-cancellable
obligations by period as of December 31, 2014 (in thousands):
Contractual Obligations
Non-cancellable rental obligations
Non-cancellable purchase obligations (1)
Capital lease obligations
Minimum royalty commitments (2)
Consulting Agreement with Patrick J. Balthrop, Sr.
Insurance premiums
Total (3)
Payment Due By Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$
24,452
$
4,283
$
8,122
$
7,137
$
4,910
20,087
1,015
207
233
636
18,678
327
25
233
636
559
426
40
—
—
450
262
29
—
—
400
—
113
—
—
$
46,630
$
24,182
$
9,147
$
7,878
$
5,423
(1) Purchase obligations predominantly relate to 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 as well as other operating commitments.
(2) Amounts represent minimum royalties due on net sales of products incorporating licensed technology and subject to
a minimum annual royalty payment.
(3) Due to the uncertainty with respect to the timing of future cash flows associated with Luminex’s unrecognized tax
benefits at December 31, 2014, Luminex is unable to make reasonably reliable estimates of the timing of cash settlement
with the respective taxing authority. Therefore, $2.3 million of unrecognized tax benefits have been excluded from the
contractual obligations table above. See Note 13 to the Consolidated Financial Statements for a discussion on income
taxes.
53
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 April 2014, the FASB amended guidance to clarify the accounting for disposals of groups of assets and business units. The
amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major
effect on an entity's operations and finances. For the Company, the changes should be applied in fiscal years that start on December
15, 2014, or later, but the changes can be applied ahead of the effective date for asset disposals that have not been reported in a
set of financial statements. Management applied this new guidance for the automated punching group and the related closure of
the Brisbane, Australia manufacturing facility in the third quarter of 2014.
Recent Accounting Pronouncements
In May 2014, the FASB issued a new standard on revenue recognition which outlines a single comprehensive model to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement
users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating
the impact of the adoption of this standard on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our interest income is sensitive to changes in the general level of domestic interest rates, particularly since
our investments are in long-term instruments available-for-sale. A 50 basis point fluctuation from average investment returns at
December 31, 2014 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, 2014, as a result of our foreign operations, we have costs, assets and liabilities that are denominated in
foreign currencies, primarily Canadian dollars and to a lesser extent the Euro, Renminbi, and Yen. For example, some fixed asset
purchases and certain expenses are denominated in Canadian dollars while sales of products are primarily denominated in U.S.
dollars. All transactions in our Netherlands and Japanese subsidiaries are denominated in Euros and Yen, respectively. All
transactions, with the exception of our initial capital investment, in our Chinese subsidiary are denominated in Renminbi. As a
consequence, movements in exchange rates could cause our foreign currency denominated expenses to fluctuate as a percentage
of net revenue, affecting our profitability and cash flows. A significant majority of our revenues are denominated in U.S. dollars.
The impact of foreign exchange on foreign denominated balances will vary in relation to changes between the U.S. dollar, Canadian
dollar, Euro, Yen, and Renminbi exchange rates. A 10% change in these exchange rates in relation to the U.S. dollar would result
in an income statement impact of approximately $496,000 on foreign currency denominated asset and liability balances as of
December 31, 2014. 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 $16,000 was included in determining our
consolidated results for the year ended December 31, 2014.
54
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
56
57
58
59
60
61
62
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Luminex Corporation
We have audited Luminex Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (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, 2014, 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, 2014 and 2013, and the related consolidated statements
of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014
of Luminex Corporation and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2015
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Luminex Corporation
We have audited the accompanying consolidated balance sheets of Luminex Corporation (the Company) as of December 31, 2014
and 2013, and the related consolidated statements of comprehensive income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2014. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Luminex Corporation at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2014, 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),
Luminex Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2015
57
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable (net of allowance for doubtful accounts of $4,357 and $4,579 at
December 31, 2014 and 2013, 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:
41,805,962 shares at December 31, 2014; 41,133,653 shares at December 31, 2013
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive (loss) income
Retained earnings (accumulated deficit)
Total stockholders' equity
Total liabilities and stockholders' equity
As of December 31,
2013
2014
$
$
91,694
—
67,924
4,517
29,095
36,616
12,203
7,412
177,020
39,945
56,382
15,400
15,975
49,619
3,185
357,526
11,841
14,118
4,407
—
30,366
—
2,297
4,869
37,532
$
$
30,948
30,487
7,265
5,229
146,370
32,793
60,295
11,913
—
50,738
3,937
306,046
10,698
11,624
4,980
1,194
28,496
463
2,482
4,985
36,426
42
41
—
309,424
(744)
11,272
319,994
357,526
$
—
296,931
419
(27,771)
269,620
306,046
$
$
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
58
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
Restructuring costs
Total operating expenses
Income from operations
Interest expense on long-term debt
Other income (expense), net
Income before income taxes
Income tax benefit (expense)
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Unrealized losses on available-for-sale securities, net of tax
Other comprehensive (loss) income
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,
2013
213,423
69,797
143,626
2014
226,983
67,131
159,852
$
$
2012
202,582
60,008
142,574
43,135
82,785
3,913
1,882
131,715
28,137
(6)
(46)
28,085
10,958
39,043
(1,146)
(17)
(1,163)
37,880
0.94
41,558
0.93
42,156
$
$
$
$
45,041
87,301
4,099
2,418
138,859
4,767
(76)
6,733
11,424
(4,328)
7,096
(681)
(1)
(682)
6,414
0.17
40,799
0.17
41,986
$
$
$
$
42,989
72,626
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
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
59
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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
Loss (gain) on sale of assets
Non-cash restructuring charges
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
Sales and maturities of available-for-sale securities
Purchases of property and equipment
Business acquisition consideration, net of cash acquired
Purchase of cost-method investment
Proceeds from sale of assets and investments
Acquired technology rights
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Payments on debt
Proceeds from employee stock plans and issuance of common stock
Payments for stock repurchases
Excess income tax benefit from employee stock-based awards
Net cash provided by (used in) financing activities
Effect of foreign currency exchange rate on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
Year Ended December 31,
2013
2012
2014
$
39,043
$
7,096
$
12,407
14,205
9,548
(8,549)
(287)
181
2,836
(347)
1,964
(7,046)
(2,888)
841
564
(814)
49,251
(18,999)
7,509
(17,078)
—
—
98
(64)
(28,534)
(1,621)
4,746
—
287
3,412
(359)
23,770
67,924
91,694
$
15,922
9,221
551
(2,569)
(5,173)
4,137
(1,209)
2,346
(3,005)
(1,470)
962
(324)
417
26,902
(10,005)
22,128
(18,088)
—
—
9,598
(930)
2,703
(1,105)
8,677
(14,556)
2,569
(4,415)
(55)
25,135
42,789
67,924
$
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
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
60
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
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
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, 2013
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Tax benefits associated with options
Foreign currency translation
adjustments
Other
Balance at December 31, 2014
(1,006,303)
(1)
(20,915)
Common Stock
Number of
Shares
40,968,957
486,766
340,216
—
Amount
$
41
1
—
—
35,296
—
—
—
—
40,824,932
834,581
$
264,555
—
—
—
—
—
—
41
1
—
—
71,226
—
—
—
(9,158)
41,133,653
346,053
$
251,377
—
74,879
—
—
—
—
41,805,962
$
—
—
—
—
—
41
1
—
—
—
—
—
—
—
42
Additional
Paid-In
Capital
297,104
3,516
$
Accumulated
Other
Comprehensive
Income (Loss)
984
$
—
Retained
Earnings
(Accumulated
Deficit)
$
(47,274) $
—
Total
Stockholders'
Equity
250,855
3,517
—
—
293,392
7,561
$
$
144
(27)
1,101
—
$
—
—
(34,867) $
—
(3,189)
9,915
504
—
6,457
(2,352)
9,214
1,102
—
2,569
—
—
—
—
—
—
—
—
—
—
12,407
—
—
—
—
—
—
—
—
—
—
—
7,096
—
(3,189)
9,915
(20,916)
504
12,407
6,457
144
(27)
259,667
7,562
(2,352)
9,214
(14,556)
1,102
7,096
2,569
—
—
296,931
3,645
$
$
(681)
(1)
419
—
$
—
—
(27,771) $
—
(681)
(1)
269,620
3,646
(2,093)
9,544
1,110
—
287
—
—
—
—
—
—
—
309,424
$
$
(1,146)
(17)
(744) $
—
—
—
39,043
—
—
—
11,272
(2,093)
9,544
1,110
39,043
287
(1,146)
(17)
319,994
$
(852,483)
(1)
(14,555)
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
61
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 the Company's xMAP technology, its other offerings include its proprietary MultiCode
technology, used for real-time PCR and multiplexed PCR assays.
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.
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 the Company's 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.
62
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 and accrued liabilities. The fair values of these financial instruments were not materially different from their
carrying or contract values at December 31, 2014 and 2013. See Note 7 for further details concerning fair value measurements.
Supplemental Cash Flow Statement Information (in thousands)
Year Ended December 31,
2013
2012
2014
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
Deferred tax assets, 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
$
$
$
$
1,193
157
$
1,284
124
761
171
— $
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
— $
1,682
(1,954)
8,292
2,526
40,100
50,646
1,370
1,077
48,199
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.
Laboratory Corporation of America (LabCorp) accounted for 21%, 18% and 19% of our total revenues in 2014, 2013 and
2012, respectively. Thermo Fisher Scientific, Inc. accounted for 17%, 17% and 24% of our total revenues in 2014, 2013 and 2012,
respectively. Bio-Rad Laboratories, Inc. accounted for 7%, 9% and 8% of our total revenues in 2014, 2013 and 2012,
respectively. No other customer accounted for more than 10% of our total revenues in 2014, 2013 or 2012.
63
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. As a developer and
manufacturer of high technology medical equipment, the Company may be exposed to a number of economic and industry factors
that could result in portions of inventory becoming either obsolete or in excess of anticipated usage. These factors include, but
are not limited to, technological changes in the Company's markets, ability to meet changing customer requirements, competitive
pressures on products and prices, and reliability and replacement of and the availability of key components from suppliers. The
Company's policy is to establish inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated
demand or is obsolete based upon the Company's assumptions about future demand for products and market conditions. The
Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including the following:
historical usage rates, forecasted sales or usage, product expiration or end of life dates, estimated current and future market values
and new product introductions. Assumptions used in determining the Company's estimates of future product demand may prove
to be incorrect, in which case the provision required for excess and obsolete inventory would have to be adjusted. If inventory is
determined to be overvalued, excess or obsolete, the Company would be required to record impairment charges within cost of
goods sold at the time of such determination. Although considerable effort is made to ensure the accuracy of forecasts of future
product demand, any significant unanticipated changes in demand or expected usage could have a significant negative impact on
the value of inventory and the Company's operating results. When recorded, reserves are intended to reduce the carrying value of
inventory to its net realizable value.
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and depreciation. Property and equipment
are typically 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. As of
October 1, 2014, all of the Company's goodwill related to one reporting unit, the Company's previous ARP segment, for goodwill
impairment testing. As the change to one reporting segment was made after October 1, 2014, management performed the analysis
on goodwill under the ARP segment as of October 1, 2014. The Company has historically estimated the fair value of our previous
ARP segment reporting unit using a discounted cash flow (DCF) analysis (“step one” analysis) of the Company’s projected future
results. In 2012, the Company applied the accounting guidance which 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 performing
the impairment test in the fourth quarter of 2013 and 2014, the Company used the "step one" analysis. This analysis requires a
comparison of the carrying value of the reporting unit to the estimated fair value of the reporting unit. Determining the fair value
of goodwill is subjective in nature and often involves the use of estimates and assumptions. The Company's annual test did not
result in an impairment charge in 2014 as the estimated fair value of the ARP segment reporting unit continued to exceed the
carrying value by a significant enough amount such that any reasonably likely change in the assumptions used in the analysis
would not cause the carrying value to exceed the estimated fair value for the reporting unit as determined under our "step one"
analysis. No goodwill impairments were recorded in 2014, 2013 or 2012.
The Company utilizes the income approach based on a DCF analysis to determine fair value estimates, and then uses market
comparisons as a reasonability check to ensure that neither the income approach nor the market comparisons yielded significantly
different results. The income approach calculates the fair value by estimating the after-tax cash flows attributable to a reporting
unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. The Company's estimates
are based on revenue projections by product line, and include judgment based on historical growth and scheduled product approvals
by the various governmental authorities. The Company believes its assumptions are consistent with the plans and estimates used
to manage the underlying businesses. The most significant assumptions used in the DCF methodology are the discount rate, based
upon the estimated weighted average cost of capital (WACC), and the terminal growth rate, based upon strategic studies the
Company commissioned and the Company's internal analysis.
64
The Company used the following rates in 2014:
Assumptions
WACC
Terminal Growth Rate
2014
14.5%
2.9%
To determine the Company's WACC rate, management performed a peer company analysis and considered the weighted
average return on debt and equity, the updated risk-free interest rate, beta, equity risk premium, and entity specific size risk
premium. The Company's analysis yielded an estimated fair value in excess of the carrying value by over 25% for 2014.
Concurrent with the above analysis, management performed a sensitivity analysis based upon reasonably likely changes to
determine if the DCF analysis would result in impairment if the following changes were made to management's assumptions: i)
assumed the fair value of the reporting unit was lower by 10% or ii) future revenue was 75% of the Company's projections in the
DCF model. Neither of these sensitivity analyses resulted in an estimated fair value less than the carrying amount of the reporting
unit.
Intangible assets are amortized on a straight line basis over their respective estimated useful lives ranging from 5 to 15 years.
As a result of the acquisition of GenturaDx in July 2012, the Company acquired in process research and development of $40.1
million. In-process research and development will be an indefinite-lived intangible asset until completion or abandonment at
which point it will be accounted for as a finite-lived intangible asset or written off if abandoned.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the
projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets and is recorded in the period in which the determination was made.
Revenue Recognition and Allowance for Doubtful Accounts
Revenue is generated primarily from the sale of the Company’s products and related services, which are primarily support
and maintenance services on the Company's 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 or 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 primarily 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 typically 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,
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.
The Company provides 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, the Company recovers the cost of providing the system and other
hardware in the amount charged for 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.
65
Revenue from extended service agreements is deferred and recognized ratably over the term of the agreement. The Company
may also be entitled to milestone payments that are contingent upon achieving a predefined objective. The Company follows the
milestone method of recognizing revenue from milestones and milestone payments are recorded as revenue in full upon achievement
of the milestone. Revenues from royalties related to agreements with strategic partners are recognized when such amounts are
reported to the Company; therefore, the underlying end user sales may be related to prior periods.
Additional revenue is derived from cost-type contracts with the U.S. government. Revenue and profit under cost-plus service
contracts is recognized as costs are incurred plus negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably
over the contract performance period as services are performed. Contract costs include labor and related employee benefits,
subcontracting costs and other direct costs, as well as allocations of allowable indirect costs. For contract change orders, claims
or similar items, judgment is required for estimating the amounts, assessing the potential for realization, and determining whether
realization is probable. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the
extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the
period in which the facts requiring the revision become known. Reimbursements of certain costs, including certain hardware costs
or out-of-pocket expenses are included in revenue with corresponding costs included in cost of revenue as costs are incurred.
The Company continuously monitors collections and payments from its customers and maintains allowances for doubtful
accounts based upon its historical experience and any specific customer collection issues that have been identified. While such
credit losses have historically been within the Company’s expectations, there can be no assurance that the Company will continue
to experience the same level of credit losses that it has in the past. A significant change in the liquidity or financial position of any
one of the Company’s significant customers, or a deterioration in the economic environment, in general, could have a material
adverse impact on the collectability of the Company’s accounts receivable and its future operating results, including a reduction
in future revenues and additional allowances for doubtful accounts.
Product-Related Expenses
The Company provides for the estimated cost of initial product warranties at the time revenue is recognized. While the
Company engages in product quality programs and processes, the Company’s warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be
required. Shipping and handling costs associated with product sales are included in cost of sales. Advertising costs are charged
to operations as incurred. The Company does not have any direct-response advertising. Advertising expenses, which include
trade shows and conventions, were approximately $2.3 million, $2.6 million and $2.4 million for 2014, 2013 and 2012, respectively,
and were included in selling, general and administrative expense in the Consolidated Statements of Comprehensive Income.
Research and Development Costs
Research and development costs are 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 one to two years.
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 Comprehensive Income. 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 Comprehensive Income and to date have not been material.
66
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance metrics. Bonus accruals made
throughout the year related to the various incentive plans are based on management’s best estimate of the achievement of the
specific metrics. Adjustments to the accruals are made on a quarterly basis as forecasts of performance are updated. At year-end,
the accruals are adjusted to reflect the actual results achieved.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted
tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. A
valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those
assets will be realized.
The Company recognizes excess tax benefits associated with share-based compensation to stockholders’ equity only when
realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company
follows the with-and-without approach excluding any indirect effects of the excess tax deductions. Under this approach, excess
tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits
available to the Company.
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes” which clarifies the accounting
for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s financial
statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the
technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected as a component of
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
During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, the Company evaluated its historical
reporting segments: the technology and strategic partnerships (TSP) segment and the assays and related products (ARP) segment.
As a result of this evaluation and based upon how the new Chief Executive Officer as Chief Operating Decision Maker (“CODM”)
and the Company's management team collectively is managing its business, management determined that the two former segments
have become so integrated and interrelated that they no longer provide an accurate representation of the Company's current business
when reported separately. Additionally, management has taken actions to consolidate sales and service functions. Effective with
the fourth quarter of 2014, the Company no longer has two operating segments and, accordingly, will present the Company's
business as one operating segment and one reporting unit. Accordingly, prior periods' information has been restated to conform
to the current periods' presentation. See Note 19 – Segment and Geographic Information.
67
NOTE 2 — RESTRUCTURING
In August 2013, the Company announced a restructuring plan focused on its Newborn Screening Group and its Brisbane,
Australia office where automated punching systems were designed and manufactured. The Company halted development of the
newborn screening assay in 2013. In the first quarter of 2014, management determined that it would close the manufacturing
facility in Brisbane, Australia and the facility was closed in the third quarter of 2014. The Company reviewed the requirements
for held-for-sale and discontinued operations presentation and determined the manufacturing facility in Brisbane, Australia did
not meet the altered definition of a discontinued operation under the amended accounting guidance as it was not a strategic shift
with a major effect on the Company's operations and finances. Management has applied this new guidance for the facility in
Brisbane, Australia.
The Company has recorded pre-tax restructuring charges primarily consisting of the non-cash impairment of inventory,
intangible assets, property and equipment, together with employee separation costs. The Company measured and accrued the
liabilities associated with employee separation costs at fair value as of the date the plan was announced and terminations were
communicated to employees, which primarily included severance pay and other separation costs such as outplacement services
and benefits. As a result of the organizational change, the Company eliminated approximately 5% of its aggregate workforce. In
conjunction with the restructuring plan, the Company evaluated its tangible and intangible assets for estimated impairment and
recorded non-cash impairment charges of $4.1 million in 2013 and a further impairment of $2.8 million in 2014, including a write-
down of goodwill of $1.2 million resulting from the disposal of the manufacturing facility in Brisbane, Australia. The Company
determined the fair value of the assets based upon prices for similar assets. The amount of goodwill the Company included in the
carrying amount of the disposed manufacturing facility in Brisbane, Australia was based upon the relative fair value of that business
compared to the portion of the reporting unit that was retained. See Note 9 — Goodwill and Other Intangible Assets. Pretax loss
related to the Brisbane, Australia facility was $2.8 million, $3.9 million and $2.5 million for the years ended December 31, 2014,
2013 and 2012, respectively.
The Company measured and accrued the facilities exit costs at fair value upon the Company's exit in the third quarter of
2014. Facilities exit costs primarily consist of cease-use losses recorded upon vacating the facilities.
2013 Restructuring Plan
Non-cash impairment charges:
Inventory
Property and equipment
Intangible Assets
Goodwill
Employee separation costs
Facility exit costs
Other
Total charges
Recorded to cost of revenue
Recorded to restructuring costs
Rollforward of Accrued Restructuring
Balance at beginning of year
Total charges
Non-cash impairment charges
Employee separation payments
Facility exit costs
Foreign exchange and other adjustments
Balance at end of period
Twelve Months Ended December 31,
2014
2013
1,183
$
494
—
1,159
154
69
41
3,100
1,218
1,882
$
$
2,326
1,110
700
—
783
—
50
4,969
2,551
2,418
December 31, 2014
December 31, 2013
128
$
3,100
(2,836)
(286)
(69)
(37)
— $
—
4,969
(4,136)
(655)
—
(50)
128
$
$
$
$
$
68
NOTE 3 – BUSINESS COMBINATIONS
2012 Acquisition
On July 11, 2012, the Company completed its acquisition of GenturaDx, Inc., a British Virgin Islands corporation with
operations in Hayward, California (GenturaDx). GenturaDx was a molecular diagnostics company in late stage development of
a fully integrated, highly automated, real-time polymerase chain reaction (PCR) system that employs a single-use cassette for
sample-to-answer workflow. Under the terms of the acquisition 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) $3.0 million in consideration contingent upon achieving certain future development and regulatory milestones by December
31, 2013, (ii) up to $7.0 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. No additional amounts have been paid or are expected to be paid related to the contingent consideration
and our original contingent consideration liability estimate of $1.4 million adjusted to $0 in 2013 as a component of other income,
net 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.
Of the approximately $8.1 million related to the GenturaDx acquisition that was deposited in escrow as security for potential
indemnity claims and certain other expressly enumerated matters, approximately $5.0 million remains in escrow as of December 31,
2014. 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.
The 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 had 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, renamed ARIES, is expected to be completed in 2015. 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%, which reflects the risk associated with the intangible asset related to the other assets and the
overall business operations of the Company.
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.
69
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, which ends in August 2015, was acquired under the GenturaDx acquisition in July 2012. The Company accrued
a liability based upon the estimated fair value of the costs that will continue to be incurred under the lease, including sublease
rental income. The total minimum rentals the Company is expected to receive under the non-cancellable sublease for the Hayward,
California facility was approximately $350,000 as of December 31, 2014.
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
2012, 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 2012. 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
NOTE 4 – INVESTMENTS
Year Ended
December 31, 2012
(unaudited, in
thousands except
per share data)
$
$
$
202,582
16,276
9,118
0.22
40,927
0.22
41,884
Available-for-sale securities consisted of the following as of December 31, 2014 (in thousands):
Current:
Money Market funds
Total current securities
Noncurrent:
Government sponsored debt securities
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
$
$
$
3,569
3,569
10,000
6,002
16,002
19,571
$
— $
—
—
—
—
— $
— $
—
(11)
(16)
(27)
(27) $
3,569
3,569
9,989
5,986
15,975
19,544
70
Available-for-sale securities consisted of the following as of December 31, 2013 (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
$
$
46,422
4,517
50,939
—
—
50,939
$
$
— $
—
—
—
—
— $
— $
—
—
—
—
— $
46,422
4,517
50,939
—
—
50,939
There were $0 in proceeds from the sales of available-for-sale securities during the years ended December 31, 2014 and
2013. 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 losses on available-
for-sale securities are included in accumulated other comprehensive (loss) income as of December 31, 2014. All of the Company's
available-for-sale securities with gross unrealized losses as of December 31, 2014 and 2013 had been in a loss position for less
than 12 months.
The estimated fair value of available-for-sale debt securities at December 31, 2014, by contractual maturity, was as follows
(in thousands):
Due in one year or less
Due after one year through two years
Estimated Fair Value
—
$
15,975
15,975
$
Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
NOTE 5 - 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 creditworthiness. 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
2014
2013
$
$
33,452
(4,357)
29,095
$
$
35,527
(4,579)
30,948
71
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at December 31, 2011
Increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2012
Increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2013
Recoveries charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2014
NOTE 6 - INVENTORIES, NET
Inventories consisted of the following at December 31 (in thousands):
Parts and supplies
Work-in-progress
Finished goods
$
$
$
$
117
335
(8)
444
4,604
(469)
4,579
(123)
(99)
4,357
2014
2013
$
$
19,354
8,687
8,575
36,616
$
$
19,002
4,747
6,738
30,487
The Company has non-cancellable purchase commitments with certain of its component suppliers in the amount of
approximately $20.1 million at December 31, 2014. Should production requirements fall below the level of the Company’s
commitments, the Company could be required to take delivery of inventory for which it has no immediate need or incur an increased
cost per unit going forward.
NOTE 7 – 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,
2014.
72
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, 2014 and 2013 (in thousands):
Fair Value Measurements at December 31, 2014
Total
Level 1
Level 2
Level 3
Assets:
Money Market funds
Government sponsored debt securities
Non-government sponsored debt securities
Assets:
Money Market funds
Non-government sponsored debt securities
$
$
3,569
—
—
$
— $
9,989
5,986
— $
—
—
3,569
9,989
5,986
Fair Value Measurements at December 31, 2013
Total
Level 1
Level 3
Level 2
$
46,422
—
— $
4,517
— $
—
46,422
4,517
The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date.
The Company determines the fair value of the contingent consideration based primarily on the timing and probability of success
of clinical events or regulatory approvals, the timing and probability of success of meeting commercial milestones, such as sales
levels of a specific product, and discount rates. The contingent consideration liability arose in connection with the GenturaDx
acquisition. The Company re-evaluates its assumptions for its contingent consideration fair value determinations each quarter.
Changes to the fair value of contingent consideration obligations can result from adjustments to discount rates, accretion of the
discount rates due to the passage of time, changes in our estimates of the likelihood of or timing of achieving any development
or commercial milestones, changes in the probability of certain clinical events or changes in the assumed probability associated
with regulatory approval. As a result of changes in assumptions surrounding the probability of success of meeting the timing of
commercial milestones contemplated in the GenturaDx acquisition agreement, the Company adjusted the contingent consideration
liability related to the GenturaDx acquisition to $0 in 2013. The assumptions related to determining the value of contingent
consideration include a significant amount of judgment, and any changes in the underlying estimates could have a material impact
on the amount of contingent consideration expense recorded in any given period.
Changes in the recurring fair value measurements of financial assets and liabilities using significant unobservable inputs
(Level 3) during the years ended December 31, 2014 and 2013 were as follows (in thousands):
Beginning balance
Contingent consideration recorded at acquisition
Fair value adjustments
Ending balance
2014
2013
— $
—
—
— $
1,370
—
(1,370)
—
$
$
73
NOTE 8 - 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 depreciation
2014
2013
$
$
33,137
26,119
7,659
20,440
4,754
5,229
1,321
98,659
(58,714)
39,945
$
$
27,519
22,881
7,415
18,843
4,903
4,027
116
85,704
(52,911)
32,793
Depreciation expense was $8.9 million, $10.2 million, and $8.8 million for the years ended December 31, 2014, 2013, and
2012, respectively.
NOTE 9 - 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. 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
Allocation in disposal of Brisbane, Australia business (See Note 2)
Foreign currency translation adjustments
Balance at end of year
2014
2013
$
$
50,738
(1,159)
40
49,619
$
$
51,128
—
(390)
50,738
The current in process research and development project is scheduled to be completed in 2015. The estimated costs to complete
this project are between $2.0 million and $4.0 million.
74
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
IP R&D
Total
2013
Balance at December 31, 2012
$
30,030
$
Write-off/Impairment
Foreign currency translation
adjustments
Balance at December 31, 2013
Less: accumulated amortization:
Accumulated amortization balance at
December 31, 2012
Amortization expense
Foreign currency translation
adjustments
Accumulated amortization balance at
December 31, 2013
Net balance at December 31, 2013
Weighted average life (in years)
2014
Balance at December 31, 2013
Foreign currency translation
adjustments
Balance at December 31, 2014
Less: accumulated amortization:
Accumulated amortization balance at
December 31, 2013
Amortization expense
Foreign currency translation
adjustments
Accumulated amortization balance at
December 31, 2014
Net balance at December 31, 2014
Weighted average life (in years)
$
$
$
(214)
(140)
29,676
$
7,986
(7)
(27)
7,952
(13,193)
(3,172)
(1,560)
(787)
93
21
(16,272)
$
13,404
10
(2,326)
5,626
11
$
$
1,941
(20)
(41)
1,880
(613)
(140)
38
(715)
1,165
9
$
40,627
(454)
$ 80,584
(695)
(73)
40,100
(281)
79,608
— (15,366)
(4,099)
—
—
152
— (19,313)
$ 60,295
40,100
29,676
$
7,952
$
1,880
$
40,100
$ 79,608
28
29,704
6
7,958
(16,272)
(3,025)
(2,326)
(753)
(28)
(6)
10
1,890
(715)
(135)
(10)
(19,325)
10,379
10
$
(3,085)
4,873
11
$
(860)
1,030
11
$
—
44
40,100
79,652
— (19,313)
(3,913)
—
—
(44)
— (23,270)
$ 56,382
40,100
The estimated aggregate amortization expense for the next five years and thereafter is as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
IPR&D
$
$
3,232
3,100
2,144
1,954
1,954
3,898
16,282
40,100
56,382
75
NOTE 10 — OTHER COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income represents a measure of all changes in equity that result from recognized transactions and other
economic events other than those resulting from investments by and distributions to shareholders. Other comprehensive (loss)
income for the Company includes foreign currency translation adjustments and net unrealized holding gains and losses on available-
for-sale investments.
The following table presents the changes in each component of accumulated other comprehensive (loss) income, net of tax
(in thousands):
Beginning balance, December 31, 2013
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive loss
Ending balance, December 31, 2014
Foreign
Currency
Items
Available for
Sale
Investments
Accumulated
Other
Comprehensive
Income Items
$
$
$
419
(1,146)
—
(1,146)
(727) $
— $
(10)
(7)
(17)
(17) $
419
(1,156)
(7)
(1,163)
(744)
The following table presents the tax (expense) benefit allocated to each component of other comprehensive (loss) income
(in thousands):
Twelve Months Ended December 31,
2014
Foreign currency translation adjustments
Unrealized (losses) gains on available-for-sale investments
Other comprehensive (loss) income
$
$
NOTE 11 – OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
Before Tax
— $
Tax Benefit Net of Tax
(1,146)
(17)
(1,163)
10
10
$
(1,146) $
(27)
(1,173) $
Purchased technology rights (net of accumulated amortization of $3,392 and $3,965 in 2014 and
2013, respectively)
Cost-method investments
Other
Less: Current portion
2014
2013
$
$
1,543
1,000
642
3,185
—
3,185
$
$
2,943
1,000
959
4,902
(965)
3,937
For the years ended December 31, 2014 and 2013, the Company recognized amortization expense related to the amortization
of purchased technology rights of approximately $1,410,000 and $1,639,000, respectively. Future amortization expense is
estimated to be $392,000 in 2015, $166,000 in 2016, $148,000 in 2017, $102,000 in 2018, $90,000 in 2019 and $645,000 thereafter.
Non-Marketable Securities and Other-Than-Temporary Impairment
The Company owns a minority interest in a private company based in the U.S. through its investment of $1.0 million in the
third quarter of 2012. This minority interest is 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 investee as the Company owns less than 20% of the voting
equity and the investee is not publicly traded.
76
The Company's other minority interest in a private company was acquired by a third party in July 2013 and, as a result, the
Company's minority interest in that private company was sold. The Company realized a gain of $5.4 million on this minority
interest investment in the third quarter of 2013.
The Company regularly evaluates the carrying value of 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 investee's 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 within Level 3 of the fair value
hierarchy. To determine the fair value of these investments, the Company uses all available financial information related to the
entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a
cost-method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may
have a significant adverse effect on the fair value of the investment and to do so would be impractical.
NOTE 12 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31 (in thousands):
Compensation and employee benefits
Income and other taxes
Warranty costs
Other
2014
2013
$
9,960
$
870
488
2,800
6,619
1,314
721
2,970
$
14,118
$
11,624
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, 2011
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2012
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2013
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2014
$
$
681
(1,119)
1,041
603
(1,150)
1,268
721
(914)
681
488
77
NOTE 13 - INCOME TAXES
The components of income before income taxes for the years ended December 31 are as follows (in thousands):
Domestic
Foreign
Total
2014
2013
2012
$
$
12,762
15,323
28,085
$
$
20,301
(8,877)
11,424
$
$
28,241
(5,461)
22,780
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 (benefit) provision for income taxes
2014
2013
2012
$
$
$
2,191
(1,833)
305
663
$
$
(2,471)
(10,329)
1,179
(11,621)
(10,958) $
4,024
406
720
5,150
(381)
(1)
(440)
(822)
4,328
$
$
$
4,158
(129)
928
4,957
3,945
1,179
292
5,416
10,373
The provision for income taxes differs from the 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
Deferred charge
Worthless stock deduction
Nontaxable cancellation of debt
Other
Year Ended December 31,
2014
2013
2012
35.0 %
4.9 %
(1.9)%
(3.0)%
(9.5)%
(39.5)%
(0.4)%
(9.1)%
(6.2)%
(10.7)%
1.4 %
(39.0)%
35.0 %
0.3 %
(4.6)%
3.1 %
(43.0)%
42.6 %
4.9 %
0.0 %
0.0 %
0.0 %
(0.4)%
37.9 %
35.0 %
3.9 %
2.0 %
0.5 %
(7.1)%
11.6 %
0.1 %
0.0 %
0.0 %
0.0 %
(0.5)%
45.5 %
78
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
Deferred revenue
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
2014
2013
$
12,220
1,674
13,894
(691)
13,203
47,597
867
8,099
5,231
61,794
(24,321)
37,473
$
7,114
1,820
8,934
(792)
8,142
68,973
927
7,899
4,871
82,670
(49,294)
33,376
(1,000) $
(1,000)
12,203
(877)
(877)
7,265
(21,097)
(50)
(927)
(22,074)
15,399
27,602
$
(19,788)
(53)
(1,622)
(21,463)
11,913
19,178
$
$
$
$
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 taxable temporary
differences that can be used to realize deferred tax assets. The valuation allowance decreased approximately $25.1 million in 2014
from 2013 primarily due to our Canadian subsidiary which recorded a partial release to valuation allowances on its net deferred
tax assets. Based on our recent history of generating income in Canada and our expectation to continue to generate future income
in Canada for the next several years, we determined that it was more likely than not that a portion of Canadian deferred tax assets
would be realized.
79
At December 31, 2014, the Company had gross federal, state and foreign net operating loss carryforwards of approximately
$71.4 million, $49.7 million, and $8.5 million respectively. These losses expire beginning in 2015, except for $1.3 million of
losses that have unlimited carryforward periods. Approximately $19.5 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 $51.9 million and
$49.7 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 $10.7 million,
$2.2 million, and $12.8 million, respectively. These credits begin to expire in 2018, except for approximately $4.0 million which
have an indefinite carryforward period. Approximately $7.0 million of the federal credits are attributable to excess employee
stock option deductions, the benefit of which has been allocated to additional paid-in capital rather than current earnings when
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 $54.0 million which has an indefinite carryforward period.
Undistributed earnings of the Company's foreign subsidiaries are considered permanently reinvested and, accordingly, no
provision for U.S. federal or state income taxes has been provided thereon. The cumulative amount of undistributed earnings of
the Company's non-US subsidiaries was approximately $1.3 million at December 31, 2014, $0.9 million at December 31, 2013,
and $1.2 million at December 31, 2012. Determination of the amount of unrecognized deferred income tax liabilities on these
earnings is not practicable at this time because such liability, if any, is dependent upon circumstances existing if and when remittance
occurs.
In the fourth quarter of 2014, the Company recognized an income tax benefit of approximately $3.0 million to record deferred
charges related to intercompany profits on sales of assets for which the assets had not been disposed of as of December 31, 2014.
Taxes due and paid on such intercompany profits are required to be recognized as a prepaid expense tax until the assets are sold
to a third party. Approximately $2.5 million of this income tax benefit is attributable to years prior to 2014. The Company has
concluded that the correction of the error of the prior period amounts is not material to any previously reported periods.
As of both December 31, 2014 and December 31, 2013, the Company had recorded gross unrecognized tax benefits of
approximately $2.3 million. All of the unrecognized tax benefits as of December 31, 2014, 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, 2014 and 2013, the Company recognized approximately $31,900
and $14,000 in tax related interest and penalties, respectively. Reserves for interest and penalties as of December 31, 2014 and
2013 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
Lapse of statute of limitations
Balance at end of year
2014
2013
2,333
156
58
(131)
(98)
2,318
$
$
1,760
335
238
—
—
2,333
$
$
As of December 31, 2014, there were no unrecognized tax benefits that the Company expects would change significantly
over the next 12 months.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the
United States and Canada, the statute of limitations with respect to the federal income tax returns for tax years after 2010 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 2010 tax year and make adjustments to these net operating loss carryforwards. There are numerous other income tax jurisdictions
for which tax returns are not yet settled, none of which are individually significant. We are currently under audit in Canada for
the Company’s scientific research and experimental development pool claims for the 2011 tax year. 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.
80
NOTE 14 - LONG-TERM DEBT
On December 31, 2013, long-term debt consisted of a loan payable to Technology Partnerships Canada in the amount of $1.6
million.
In May 2014, the Company repaid all of its outstanding debt. In 2014 and 2013, the Company had imputed interest expense
related to its long-term debt of $6,000 and $48,000, respectively. The effective interest rate was 3.90% as of December 31, 2013. At
December 31, 2013, the fair value of the Company’s long-term debt was approximately $1.5 million. The Company’s long-term
debt was classified as a Level 3 instrument.
NOTE 15 - 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,
2013
2012
2014
$
39,043
$
7,096
$
12,407
Denominator for basic net income per share - weighted average common stock
outstanding
41,558
40,799
40,927
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
598
1,187
957
42,156
0.94
0.93
$
$
41,986
0.17
0.17
$
$
41,884
0.30
0.30
$
$
Restricted stock awards (RSAs) and stock options to acquire 442,000, 381,000, and 364,000 shares for the years ended
December 31, 2014, 2013 and 2012, 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 16 - STOCKHOLDERS' EQUITY, EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
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, 2014 and 2013,
there was no preferred stock issued and outstanding.
Stock-Based Compensation
At December 31, 2014, 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, 2014, 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.
81
Equity Incentive Plans
Under the Company’s Equity Incentive Plan and the 2000 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 three 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, 2014, there were approximately 2.6 million shares authorized for future issuance
under the Company’s Equity Incentive Plan and approximately 319,000 shares eligible for purchase pursuant to the terms and
conditions of the ESPP as more fully described below.
The Equity Incentive Plan, the ESPP and the 2000 Plan are administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the authority to determine the terms and conditions under which awards will be
granted from the Equity Incentive Plan, including the number of shares, vesting schedule and term, as applicable. Any option
award exercise prices, as set forth in the Equity Incentive Plan, will be equal to the fair market value on the date of grant. Under
certain circumstances, the Company may repurchase previously granted RSAs and RSUs.
On March 25, 2011, March 7, 2012 and March 19, 2013 the Compensation Committee of the Board adopted the Luminex
Corporation 2011 Long Term Incentive Plan (the “2011 LTIP”), the Luminex Corporation 2012 Long Term Incentive Plan (the
"2012 LTIP"), and the 2013 Long Term Incentive Plan (the "2013 LTIP"), respectively. Awards under all of the LTIP plans were
granted by the Compensation Committee 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 25, 2011, the Company’s former chief executive officer (CEO) was granted an award for an unvested RSU under
the 2011 LTIP for up to $2,200,000 worth of shares (grant date fair value) of Luminex common stock, and the Company’s chief
financial officer (CFO) was granted an award for an unvested RSU under the 2011 LTIP for up to $825,000 worth of shares (grant
date fair value) of Luminex common stock. The actual maximum number of shares of 119,304 shares and 44,740 shares for the
former 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. No shares were earned for
this goal under the 2011 LTIP.
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
Comprehensive 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. 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 26, 2014 resulting in no shares earned for this goal
under the 2011 LTIP.
82
On March 7, 2012, the Company’s former CEO was granted an award for an unvested RSU under the 2012 LTIP for up to
$2,200,000 worth of shares (grant date fair value) of Luminex common stock, and the Company’s CFO was granted an award for
an unvested RSU under the 2012 LTIP for up to $550,000 worth of shares (grant date fair value) of Luminex common stock. The
actual maximum number of shares of 98,434 shares and 24,608 shares for the former 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. No shares were earned for
this goal under the 2012 LTIP.
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 Comprehensive
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. The
final determination and certification of the shares earned for this goal will be made by the Compensation Committee
of the Board of Directors after the filing of this Annual Report on From 10-K, but we expect no shares will be earned
for this goal under the 2012 LTIP.
On March 19, 2013, the Company’s former CEO was granted an award for an unvested RSU under the 2013 LTIP for up to
$1,200,000 worth of shares (grant date fair value) of Luminex common stock, and the Company’s CFO was granted an award for
an unvested RSU under the 2013 LTIP for up to $300,000 worth of shares (grant date fair value) of Luminex common stock. The
actual maximum number of shares of 71,727 shares and 17,931 shares for the former CEO and CFO, respectively, was determined
on March 19, 2013, based upon the closing price of the stock on that date. The performance goal under the grants is based on
Luminex’s fully diluted earnings per share at the end of the performance period (Adjusted EPS Goal). Partial or complete
achievement of the Adjusted EPS Goal is dependent upon Luminex's fully diluted earnings per share for the year ended December
31, 2015, as further described in the 2013 LTIP. There is a range of targets as follows: a minimum threshold of $1.06 per share,
a target of $1.18 per share, and a maximum goal of $1.36 per share.
In the event that a participant achieves less than the maximum level of the performance goal, 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 and stock options
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 life 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:
83
Dividend yield
Expected volatility
Risk-free rate of return
Expected life
Weighted average fair value at grant date
2014
2013
2012
—%
0.5
1.8%
7 years
10.75
$
—%
0.5
1.2%
7 years
8.79
$
—%
0.5
1.2%
7 years
7.78
$
As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and will
also impact the amount of stock compensation expense to be recognized in future periods.
The Company’s stock option activity for the years ended December 31, 2012, 2013 and 2014 is as follows:
Stock Options
Outstanding at December 31, 2011
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2012
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2013
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2014
Vested at December 31, 2014 and expected to vest
Exercisable at December 31, 2014
Shares
(in thousands)
2,020
160
(487)
(17)
1,676
159
(835)
(33)
967
250
(348)
(44)
825
817
445
$
$
$
$
$
$
Weighted Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(in thousands)
10.19
22.53
7.22
20.37
12.13
17.24
9.06
19.80
15.35
21.10
10.59
20.17
18.84
18.82
17.57
6.06
6.05
5.12
$
$
$
1,047
1,046
910
During the years ended December 31, 2014, 2013 and 2012, the total exercise intrinsic value of stock options exercised was
$2.8 million, $8.7 million and $6.9 million, respectively, and the total fair value of stock options that vested was $2.4 million,
$2.5 million and $2.0 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 price paid by the employee to exercise the options. The Company had
$3.2 million of total unrecognized compensation costs related to stock options at December 31, 2014 that are expected to be
recognized over a weighted-average period of 2.8 years.
84
The Company’s restricted share activity for the years ended December 31, 2012, 2013 and 2014 is as follows:
Restricted Stock Awards
Non-vested at December 31, 2011
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2012
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2013
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2014
Restricted Stock Units
Non-vested at December 31, 2011
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2012
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2013
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2014
Vested at December 31, 2014 and expected to vest
Exercisable at December 31, 2014
Shares
(in thousands)
Weighted Average
Grant Price
903
329
(339)
(75)
818
354
(267)
(79)
826
637
(286)
(78)
1,098
$
$
$
$
17.13
22.50
16.75
18.59
19.32
17.28
18.83
19.15
18.62
20.21
18.09
19.27
19.63
Shares
(in thousands)
Weighted Average
Remaining Contractual
Life
Aggregate
Intrinsic Value
(in thousands)
827
246
(80)
(118)
875
199
(79)
(162)
833
139
(74)
(241)
658
376
40
1.58
1.56
0.00
$
$
$
12,336
6,312
741
As of December 31, 2014, there was $22.3 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, 2014, 2013 and 2012 was $6.5 million, $7.2 million, and $8.3 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, 2014, the
Company awarded 637,184 shares of restricted stock awards, which had a fair value at the date of grant ranging from $16.82–
$21.10. During the year ended December 31, 2013, the Company awarded 353,537 shares of restricted stock awards, which had
a fair value at the date of grant ranging from $16.18–$18.11. 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, 2014, the Company awarded 139,417 shares of restricted stock units, which had a fair value at the date
of grant ranging from $17.91–$20.14. During the year ended December 31, 2013, the Company awarded 199,051 shares of
restricted stock units, which had a fair value at the date of grant ranging from $16.73–$20.51. 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. Compensation under these restricted stock awards and units was charged to expense over the restriction period
and amounted to $8.1 million, $7.5 million, and $8.4 million in 2014, 2013 and 2012, respectively.
85
There were no significant stock compensation costs capitalized into assets as of December 31, 2014, 2013 or 2012.
The Company received $3.7 million, $7.6 million, and $3.5 million for the exercise of stock options during the years ended
December 31, 2014, 2013 and 2012, 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 2014, 2013 and
2012, each employee could contribute a percentage of compensation up to a maximum of $17,500, $17,500, and $17,000 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 its Canadian employees. All Canadian employees are eligible to participate in
the plan. The Company’s contributions to these plans for 2014, 2013 and 2012 were $2.5 million, $2.4 million, and $2.1 million,
respectively.
Several of the Company’s Netherlands employees are covered by a defined benefit plan. The cost and total liability to the
Company is not significant. Effective January 1, 2011, all of the Company’s new hires in the Netherlands are eligible to participate
in a defined contribution plan.
Employee Stock Purchase Plan
In May 2012, the Company's stockholders approved the ESPP, 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. As of December 31, 2014, 2013 and 2012, 181,401 shares, 106,522
shares and 35,296 shares, respectively had been issued out of the ESPP. The related stock-based compensation expense was $0.4
million, $0.4 million and $0.2 million for 2014, 2013 and 2012, respectively.
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
2014
0.07% to 0.09%
0.5 years
0.49
—%
The following are the stock-based compensation costs recognized in the Company’s consolidated statements of comprehensive
income (in thousands):
Cost of revenue
Research and development
Selling, general and administrative
Stock-based compensation costs reflected in net income
Year Ended December 31,
2013
2012
2014
$
$
981
2,573
5,994
9,548
$
$
856
2,553
5,812
9,221
$
$
947
2,034
6,934
9,915
86
Reserved Shares of Common Stock
At December 31, 2014 and 2013, the Company had reserved 4,790,386 and 6,034,452 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, 2014:
2000 Plan
Equity Incentive Plan
ESPP
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Lease Arrangements
Options
Outstanding
Shares Available
for Future
Issuance
Total Shares
Reserved
15,000
1,870,592
—
1,885,592
—
2,586,195
318,599
2,904,794
15,000
4,456,787
318,599
4,790,386
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 2014, 2013 and 2012 totaled approximately $4.5
million, $5.1 million, and $5.5 million, respectively.
In the fourth quarter of 2012, the Company ceased using the Hayward, California facility, whose operating lease commitment
was acquired under the GenturaDx acquisition in July 2012. The Company has accrued a liability 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, 2014 under non-cancellable leases for each of the next five years
and in the aggregate were as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
$
$
3,744
3,808
3,608
3,493
3,460
4,910
23,023
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, 2014 the Company had approximately $20.1 million in purchase commitments primarily with several
of its inventory suppliers as well as other operating commitments. Certain of our supply agreements require purchase and delivery
of minimum amounts of components through 2018, and purchases under these arrangements were $2.4 million, $1.8 million and
$2.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.
87
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 named as a defendant in the complaint filed 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. The
complaint seeks unspecified monetary damages and injunctive relief. Abbott filed an answer to the complaint 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 7,064,197 resulting from the Company's sale of its xTAG, FlexScript LDA,
SelecTAG, and xMAP Salmonella Serotyping Assay products and alleging infringement of US Patent 8,097,405 resulting from
the Company's sale of Multicode products. The Company filed an answer to ENZO's additional claims on January 28, 2013. On
October 2, 2013 ENZO filed additional claims against the Company, alleging infringement of U.S. Patent 6,992,180 resulting
from the Company’s sale of Multicode products. The Company filed an answer to ENZO’s additional claims on October 21, 2013.
A trial date has not been set. The parties to the lawsuit have engaged in the discovery process.
On November 1, 2013 Irori Technologies, Inc. filed a complaint against the Company in U.S. District Court in the Southern
District of California, alleging infringement of its U.S. Patent numbers 6,372,428, 6,416,714, and 6,352,854 resulting from the
Company’s sale of its xMAP and xTAG based products. The complaint seeks unspecified monetary damages and injunctive relief.
The Company filed a motion to dismiss on January 9, 2014. Irori filed its response to our motion to dismiss on February 7, 2014.
The matter is currently before the court. On December 11, 2014, the USPTO's Patent Trial and Appeal Board instituted review
on all five inter partes review petitions that Luminex filed. Irori’s responses to the petitions are due February 26, 2015, and oral
argument (if requested by either party) is scheduled for August 5, 2015.
When and if it appears probable in management's judgment, and based upon consultation with outside counsel, that the
Company will incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably
estimated, the Company records the estimated liability in the financial statements. If only a range of estimated losses can be
estimated, the Company records an amount within the range that, in management's judgment, reflects the most likely outcome; if
none of the estimates within that range is a better estimate than any other amount, the Company records the liability at the low
end of the range of estimates. Any such accrual would be charged to expense in the appropriate period. The Company discloses
significant contingencies when the loss is not probable and/or the amount of the loss is not estimable, when the Company believes
there is at least a reasonable possibility that a loss has been incurred. The Company recognizes costs associated with legal
proceedings in the period in which the services were provided. There can be no assurance that the Company will successfully
defend these suits or that a judgment against the Company would not materially adversely affect operating results.
Other Matters
In January 2013, the Company finalized the termination of its molecular diagnostics distribution agreements and an expense
of $7.0 million was recorded in selling, general and administrative expenses in the first quarter of 2013. All payments were made
in the second quarter of 2013.
NOTE 18 - 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.
88
NOTE 19 – SEGMENT AND GEOGRAPHIC INFORMATION
During the fourth quarter of 2014, in conjunction with the appointment of our new CEO, the Company evaluated its historical
reporting segments: the technology and strategic partnerships (TSP) segment and the assays and related products (ARP) segment.
As a result of this evaluation and based upon how the new Chief Executive Officer as Chief Operating Decision Maker (“CODM”)
and the Company's management team collectively is managing its business, management determined that the two former segments
have become so integrated and interrelated that they no longer provide an accurate representation of the Company's current business
when reported separately. Additionally, management has taken actions to consolidate sales and service functions. Effective with
the fourth quarter of 2014, the Company no longer has two operating segments and, accordingly, will present the Company's
business as one operating segment and one reporting unit. Accordingly, prior periods' information has been restated to conform
to the current periods' presentation.
The table below provides information regarding product revenues and property and equipment, net from the Company’s sales
to customers within the United States and in foreign countries for the years ended December 31 (in thousands):
Domestic
Foreign:
Europe
Asia
Canada
Other
Sales to Customers
2013
$ 178,276
2012
$ 167,924
2014
$ 187,945
17,819
14,863
3,664
2,692
$ 226,983
16,690
12,287
3,025
3,145
$ 213,423
17,376
10,877
3,753
2,652
$ 202,582
Property and Equipment, net
2012
2013
2014
23,421
30,847
36,826
$
$
1,093
261
1,746
19
39,945
$
1,013
234
640
59
32,793
$
1,433
212
888
275
26,229
$
$
The Company's aggregate foreign currency transaction losses of $16,000, $385,000 and $215,000 were included in determining
the consolidated results for the years ended December 31, 2014, 2013 and 2012, respectively.
NOTE 20 - RECENT ACCOUNTING PRONOUNCEMENTS
In April 2014, the FASB amended guidance to clarify the accounting for disposals of groups of assets and business units. The
amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major
effect on an entity's operations and finances. For the Company, the changes should be applied in fiscal years that start on December
15, 2014, or later, but the changes can be applied ahead of the effective date for asset disposals that have not been reported in a
set of financial statements. Management applied this new guidance for the automated punching group and the related closure of
the Brisbane, Australia manufacturing facility in the third quarter of 2014.
In May 2014, the FASB issued a new standard on revenue recognition which outlines a single comprehensive model to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement
users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is currently
evaluating the impact of the adoption of this standard on its consolidated financial statements.
89
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 (1)
Basic income per common share
Diluted income per common share
Revenue
Gross profit
(Loss) income from operations (2), (3)
Net (loss) income (2), (4)
Basic (loss) income per common share
Diluted (loss) income per common share
Quarter Ended
March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
$
56,561
$
55,632
$
56,684
$
39,954
38,147
39,010
8,185
5,966
0.14
0.14
4,771
4,725
0.11
0.11
4,996
5,550
0.13
0.13
58,106
42,741
10,185
22,802
0.55
0.54
Quarter Ended
March 31,
2013
June 30,
2013
September 30,
2013
December 31,
2013
$
53,200
$
54,287
$
50,780
$
37,957
(1,552)
(2,511)
(0.06)
(0.06)
38,057
5,041
3,695
0.09
0.09
30,781
(4,194)
796
0.02
0.02
55,156
36,831
5,472
5,116
0.12
0.12
(1) Net income in the fourth quarter of 2014 included an income tax benefit from the release of a portion of the valuation
allowance on deferred tax assets in Canada and the recognition of a tax benefit related to intercompany profits on sales of assets
for which the assets had not been disposed of as of December 31, 2014. See Note 13 – Income Taxes.
(2) Loss from operations and net loss in the first quarter of 2013 included a $7.0 million charge associated with the termination
of the Company's prior molecular diagnostic distribution agreements.
(3) Loss from operations in the third quarter of 2013 included an expense for the full allowance against accounts receivable
balances related to the bankruptcy of a customer totaling $3.9 million and restructuring charges of $4.3 million.
(4) Net income in the third quarter of 2013 included a $5.4 million gain on the sale of a minority interest in a private company
and an adjustment of the fair value of the Company's contingent consideration liability to $0, which was established as part of
the GenturaDx acquisition.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion.
90
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, 2014 based on the 1992 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, 2014. 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 56.
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 2014 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
91
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 III Directors”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive proxy statement for our 2015 Annual Meeting of Stockholders to be held on or about May 14, 2015
(Proxy Statement). It is anticipated that our Proxy Statement will be filed with the Securities and Exchange Commission on or
about March 30, 2015.
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 23, 2015" 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, 2014, 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
1,885,592
$
Equity compensation plans not approved by security
holders
Total
— $
1,885,592
8.24
—
2,904,794
—
2,904,794
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.”
92
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 (File No. 000-30109), 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 (File No. 000-30109) 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).
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 (File No.
000-30109), 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 Quarterly Report on Form 10-Q (File
No. 000-30109) 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 (File No. 000-30109) for the quarterly 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 (File No.
000-30109) for the fiscal year ended December 31, 2002).
Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation, as Tenant, dated
September 30, 2014.
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 (File No. 000-30109) 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 (File No. 000-30109) for
the fiscal year ended December 31, 2003).
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 (File No. 000-30109),
filed May 18, 2004).
93
EXHIBIT
NUMBER
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#
DESCRIPTION OF DOCUMENT
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 (File No. 000-30109),
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 (File No.
000-30109) for the quarterly period ended September 30, 2004).
Form of Amendment to Executive Employment Agreements (Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K (File No. 000-30109) 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 (File No. 000-30109), 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 (File No. 000-30109), 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 (File No.
000-30109), 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 (File No. 000-30109), 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 (File No.
000-30109), 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 (File No. 000-30109), 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 (File
No. 000-30109) for the fiscal year ended December 31, 2006).
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 (File No. 000-30109)
for the quarterly period ended June 30, 2007).
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Proxy
Statement (File No. 000-30109) 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 (File No. 000-30109), 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 (File No. 000-30109), 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 (File No. 000-30109), filed May 25, 2006).
First Amendment to Employment Agreement, effective as of March 30, 2006, by and between Luminex
Corporation and Russell W. Bradley.
Form of Restricted Share Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit to
the Company's Annual Report on Form 10-K (File No. 000-30109) 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 (File No. 000-30109) for the quarterly period ended June 30, 2007).
Management Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File
No. 000-30109), filed March 15, 2010).
94
EXHIBIT
NUMBER
10.30#
10.31#
10.32#
10.33#
10.34#
10.35#
10.36#
10.37#
10.38#
10.39#
DESCRIPTION OF DOCUMENT
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).
Form of Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and its Executives, (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2012).
Second Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and Patrick J. Balthrop (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2012).
Luminex Corporation 2013 Long Term Incentive Plan (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K, filed March 25, 2013).
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2013 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed March 25,
2013).
Consulting Agreement, dated October 14, 2014, between Luminex Corporation and Patrick J. Balthrop, Sr.
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed October 20, 2014).
Employment Agreement, dated October 14, 2014, between Luminex Corporation and Nachum Shamir
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed October 20, 2014).
10.40#
Employment Agreement, dated August 14, 2012, by and between Luminex Corporation and Nancy M. Fairchild.
10.41#
10.42#
10.43#
10.44#
10.45#
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Consulting Agreement, dated December 19, 2014, between Luminex Corporation and David S. Reiter
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed December 27, 2014).
Second Amendment to Employment Agreement, effective as of February 6, 2014, by and between Luminex
Corporation and Nancy M. Fairchild.
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Nancy M. Fairchild.
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Russell W. Bradley.
Omnibus Amendment to the Luminex Corporation Restricted Share Unit Award Agreements (2012 and 2013
LTIPs).
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.
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.
95
EXHIBIT
NUMBER
101
DESCRIPTION OF DOCUMENT
The following materials from Luminex Corporation's Annual Report on Form 10-K for the year ended
December 31, 2014, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed
Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statements 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.
96
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/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Date: February 25, 2015
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
Nachum Shamir 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/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer, Director
(Principal Executive Officer)
DATE
February 25, 2015
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Senior Vice President of Finance (Principal
Financial Officer and Principal Accounting Officer)
February 25, 2015
/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 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
S-2
EXHIBIT
NUMBER
EXHIBIT INDEX
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#
10.11#
10.12#
10.13#
10.14#
10.15#
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 (File No. 000-30109), 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 (File No. 000-30109) 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).
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 (File No.
000-30109), 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 Quarterly Report on Form 10-Q (File
No. 000-30109) 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 (File No. 000-30109) for the quarterly 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 (File No.
000-30109) for the fiscal year ended December 31, 2002).
Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation, as Tenant, dated
September 30, 2014.
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 (File No. 000-30109) 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 (File No. 000-30109) for
the fiscal year ended December 31, 2003).
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 (File No. 000-30109),
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 (File No. 000-30109),
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 (File No.
000-30109) for the quarterly period ended September 30, 2004).
Form of Amendment to Executive Employment Agreements (Previously filed as an Exhibit to the Company's
Annual Report on Form 10-K (File No. 000-30109) 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 (File No. 000-30109), 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 (File No. 000-30109), filed May
21, 2009).
EXHIBIT
NUMBER
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#
10.30#
10.31#
10.32#
10.33#
10.34#
DESCRIPTION OF DOCUMENT
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 (File No.
000-30109), 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 (File No. 000-30109), 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 (File No.
000-30109), 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 (File No. 000-30109), 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 (File
No. 000-30109) for the fiscal year ended December 31, 2006).
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 (File No. 000-30109)
for the quarterly period ended June 30, 2007).
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Proxy
Statement (File No. 000-30109) 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 (File No. 000-30109), 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 (File No. 000-30109), 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 (File No. 000-30109), filed May 25, 2006).
First Amendment to Employment Agreement, effective as of March 30, 2006, by and between Luminex
Corporation and Russell W. Bradley.
Form of Restricted Share Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit to
the Company's Annual Report on Form 10-K (File No. 000-30109) 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 (File No. 000-30109) for the quarterly period ended June 30, 2007).
Management Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File
No. 000-30109), filed March 15, 2010).
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).
Form of Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and its Executives, (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2012).
EXHIBIT
NUMBER
10.35#
10.36#
10.37#
10.38#
10.39#
DESCRIPTION OF DOCUMENT
Second Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and Patrick J. Balthrop (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2012).
Luminex Corporation 2013 Long Term Incentive Plan (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K, filed March 25, 2013).
Form of Restricted Share Unit Award Agreement for Awards under the Luminex Corporation 2013 Long Term
Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed March 25,
2013).
Consulting Agreement, dated October 14, 2014, between Luminex Corporation and Patrick J. Balthrop, Sr.
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed October 20, 2014).
Employment Agreement, dated October 14, 2014, between Luminex Corporation and Nachum Shamir
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed October 20, 2014).
10.40#
Employment Agreement, dated August 14, 2012, by and between Luminex Corporation and Nancy M. Fairchild.
10.41#
10.42#
10.43#
10.44#
10.45#
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Consulting Agreement, dated December 19, 2014, between Luminex Corporation and David S. Reiter
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K, filed December 27, 2014).
Second Amendment to Employment Agreement, effective as of February 6, 2014, by and between Luminex
Corporation and Nancy M. Fairchild.
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Nancy M. Fairchild.
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Russell W. Bradley.
Omnibus Amendment to the Luminex Corporation Restricted Share Unit Award Agreements (2012 and 2013
LTIPs).
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.
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, 2014, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed
Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statements 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.
LIST OF SUBSIDIARIES
Exhibit 21.1
Luminex International, Inc., a Delaware corporation
Luminex B.V., a Netherlands Private Company with limited liability
Luminex 2 B.V., a Netherlands Private Company with limited liability
Luminex 3 B.V., a Netherlands Private Company with limited liability
Luminex Debt Holding, LLC, a Delaware limited liability company
Luminex Molecular Diagnostics, Inc., an Ontario, Canadian corporation
Luminex Trading (Shanghai) Company Limited, a limited liability company under the laws of the PRC
Luminex Japan Corporation Ltd., a Japanese KK
Luminex (Australia) Pty. Ltd, an Australian Proprietary company, limited by shares (d/b/a BSD Robotics)
Labpac Pty Ltd, an Australian Proprietary company, limited by shares
Bizpac (Australia) Pty Ltd., an Australian Proprietary company, limited by shares
Luminex Hong Kong Limited, a Hong Kong company limited by shares
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-181485) pertaining to the Luminex
Corporation Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 333181484) pertaining to the Luminex
Corporation Second Amended and Restated 2006 Equity Incentive Plan, in the Registration Statement (Form S-8 No. 333-141042)
pertaining to the Tm Bioscience Corporation Share Option Plan, in the Registration Statement (Form S-8 No. 333-134450)
pertaining to the Luminex Corporation 2006 Equity Incentive Plan and the Luminex Corporation 2006 Management Stock Purchase
Plan, in the Registration Statement (Form S-8 No. 333-46686) pertaining to the 2000 Long-Term Incentive Plan of Luminex
Corporation, in the Registration Statement (Form S-8 No. 333-87918) pertaining to the 2001 Broad-Based Stock Option Plan of
Luminex Corporation, in the Registration Statement (Form S-8 No. 333-118772) pertaining to the Balthrop Non-Qualified Stock
Option Agreement of Luminex Corporation, in the Registration Statement (Form S-8 No. 333-159382) pertaining to the Amended
and Restated 2006 Equity Incentive Plan and in the Registration Statement (Form S-3 No. 333-151691) pertaining to the Automatic
Shelf Registration of Securities of Luminex Corporation of our reports dated February 25, 2015, with respect to the consolidated
financial statements of Luminex Corporation, and the effectiveness of internal control over financial reporting of Luminex
Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2014.
/s/ Ernst & Young LLP
Austin, Texas
February 25, 2015
CERTIFICATIONS
Exhibit 31.1
I, Nachum Shamir, 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 25, 2015
By:
/s/ Nachum Shamir
Nachum Shamir
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 25, 2015
By:
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Senior 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, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nachum Shamir, 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/ NACHUM SHAMIR
Nachum Shamir
President and Chief Executive Officer
February 25, 2015
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX
CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON
REQUEST.
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, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harriss T. Currie, Senior
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, Senior Vice President of Finance
February 25, 2015
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX
CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON
REQUEST.