UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 2009
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or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
to
.
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Commission File Number: 000-30109
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
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74-2747608
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
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78727
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(Address of principal executive offices)
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(Zip Code)
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(512) 219-8020
(Registrants telephone number, including area code)
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
þ
No
o
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
o
No
o
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):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
There were 41,798,043 shares of the Companys Common Stock, par value $0.001 per share,
outstanding on November 2, 2009.
PART I. FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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LUMINEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
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September 30,
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December 31,
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2009
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2008
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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78,740
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$
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81,619
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Short-term investments
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16,516
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40,501
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Accounts receivable, net
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19,116
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11,024
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Inventory, net
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12,697
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11,589
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Other
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1,641
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1,660
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Total current assets
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128,710
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146,393
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Property and equipment, net
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17,168
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12,567
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Intangible assets, net
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13,428
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14,901
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Long-term investments
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19,722
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2,000
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Goodwill
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39,617
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39,617
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Other
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1,370
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1,813
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Total assets
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$
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220,015
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$
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217,291
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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5,116
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$
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4,580
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Accrued liabilities
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6,496
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7,181
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Deferred revenue
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3,180
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2,671
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Current portion of long term debt
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516
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445
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Total current liabilities
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15,308
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14,877
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Long-term debt
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3,672
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2,914
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Deferred revenue and other
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4,768
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4,960
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Total liabilities
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23,748
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22,751
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Stockholders equity:
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Common stock
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41
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40
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Additional paid-in capital
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283,102
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279,255
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Accumulated other comprehensive gain (loss)
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119
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(47
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)
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Accumulated deficit
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(86,995
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)
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(84,708
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)
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Total stockholders equity
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196,267
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194,540
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Total liabilities and stockholders equity
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$
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220,015
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$
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217,291
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See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
1
LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2009
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2008
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2009
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2008
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(unaudited)
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(unaudited)
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Revenue
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$
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29,118
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$
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28,897
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$
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82,476
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$
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76,250
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Cost of revenue
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10,347
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9,343
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26,837
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24,876
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Gross profit
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18,771
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19,554
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55,639
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51,374
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Operating expenses:
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Research and development
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5,643
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4,443
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15,246
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13,899
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Selling, general and administrative
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13,640
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12,130
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38,292
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36,276
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Total operating expenses
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19,283
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16,573
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53,538
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50,175
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Income (loss) from operations
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(512
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)
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2,981
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2,101
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1,199
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Interest expense from long-term debt
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(116
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)
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(137
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)
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(358
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)
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(406
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Settlement of litigation
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(4,350
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)
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Other income, net
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144
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490
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593
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629
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Income (loss) before income taxes
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(484
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)
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3,334
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(2,014
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)
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1,422
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Income taxes
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(125
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)
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(161
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)
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(273
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)
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(374
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)
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Net income (loss)
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$
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(609
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)
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$
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3,173
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$
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(2,287
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)
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$
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1,048
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Net income (loss) per share, basic
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$
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(0.01
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)
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$
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0.08
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$
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(0.06
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)
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$
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0.03
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Shares used in computing net income (loss)
per share, basic
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40,661
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40,002
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40,515
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37,056
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Net income (loss) per share, diluted
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$
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(0.01
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)
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$
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0.08
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$
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(0.06
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)
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$
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0.03
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Shares used in computing net income (loss)
per share, diluted
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40,661
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42,173
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40,515
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38,957
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See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
2
LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended
|
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Nine Months Ended
|
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September 30,
|
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September 30,
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2009
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2008
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2009
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2008
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(unaudited)
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(unaudited)
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Cash flows from operating activities:
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Net income (loss)
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$
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(609
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)
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$
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3,173
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$
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(2,287
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)
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$
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1,048
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Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
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Depreciation and amortization
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|
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2,116
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1,821
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5,995
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5,125
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Stock-based compensation and
other
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2,231
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1,781
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5,817
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5,202
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Loss on disposal of assets
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25
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7
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Other
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676
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(131
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)
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1,257
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467
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Changes in operating assets and liabilities:
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Accounts receivable, net
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(898
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)
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(2,771
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)
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(7,988
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)
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|
(985
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)
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Inventory, net
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(286
|
)
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|
|
(1,034
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)
|
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(1,108
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)
|
|
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(3,039
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)
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Prepaids and other
|
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|
405
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|
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139
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(26
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)
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(793
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)
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Accounts payable
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1,437
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|
|
|
465
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|
376
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|
|
|
1,103
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Accrued liabilities
|
|
|
1,295
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|
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|
(290
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)
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(3,023
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)
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|
(1,346
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)
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Deferred revenue
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(28
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)
|
|
|
530
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|
313
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|
1,122
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Net cash provided by (used in) operating activities
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6,339
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3,683
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(649
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)
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7,911
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|
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|
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Cash flows from investing activities:
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|
|
|
|
|
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|
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Net purchases of available-for-sale investments
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(12,003
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)
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|
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(56,649
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)
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|
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Maturities of available-for-sale investments
|
|
|
17,986
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|
|
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|
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22,980
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Net purchases of held-to-maturity investments
|
|
|
|
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|
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(28,651
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)
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|
|
|
|
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(36,541
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)
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Maturities of held-to-maturity investments
|
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3,938
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|
|
|
1,477
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|
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40,078
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|
|
6,435
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|
Purchase of property and equipment
|
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|
(3,502
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)
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|
|
(852
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)
|
|
|
(8,618
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)
|
|
|
(2,747
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)
|
Acquisition activity
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|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
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(505
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)
|
Proceeds from sale of assets
|
|
|
|
|
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|
20
|
|
|
|
|
|
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|
20
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Acquired technology rights
|
|
|
|
|
|
|
(234
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)
|
|
|
(21
|
)
|
|
|
(1,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
6,419
|
|
|
|
(28,333
|
)
|
|
|
(2,230
|
)
|
|
|
(34,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on debt
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
(134
|
)
|
Proceeds from secondary offering, net of offering costs
|
|
|
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
74,675
|
|
Proceeds from debt
|
|
|
|
|
|
|
|
|
|
|
454
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
77
|
|
|
|
3,668
|
|
|
|
362
|
|
|
|
6,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
77
|
|
|
|
3,564
|
|
|
|
376
|
|
|
|
80,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash
|
|
|
(246
|
)
|
|
|
25
|
|
|
|
(376
|
)
|
|
|
49
|
|
Change in cash and cash equivalents
|
|
|
12,589
|
|
|
|
(21,061
|
)
|
|
|
(2,879
|
)
|
|
|
54,385
|
|
Cash and cash equivalents, beginning of period
|
|
|
66,151
|
|
|
|
102,679
|
|
|
|
81,619
|
|
|
|
27,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
78,740
|
|
|
$
|
81,618
|
|
|
$
|
78,740
|
|
|
$
|
81,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
3
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by
Luminex Corporation (the Company or Luminex) in accordance with United States generally
accepted accounting principles for interim financial information and the rules and regulations of
the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the
information and footnotes required by United States generally accepted accounting principles for
complete financial statements. The condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. In the opinion of management, all adjustments
(consisting of normal recurring entries) considered necessary for a fair presentation have been
included. Operating results for the three and nine months ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2009.
These financial statements should be read in conjunction with the financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
Certain items in prior financial statements have been reclassified to conform to the current
presentation.
The Companys comprehensive income or loss is comprised of net income or loss, unrealized
gains and losses on securities classified as available for sale, and foreign currency translation.
Comprehensive loss, net of tax, for the three and nine months ended September 30, 2009 was
approximately $555,000 and $2.1 million, respectively, and comprehensive income, net of tax, for
the three and nine months ended September 30, 2008 was approximately $3.1 million and $1.0 million
respectively.
The Company has two segments for financial reporting purposes: the Technology Segment and the
Assay Segment. See Note 6 Segment Information.
The Company has evaluated subsequent events through the time of filing this Form 10-Q with the
SEC on November 5, 2009. No material subsequent events have occurred since September 30, 2009 that
required recognition or disclosure in these financial statements.
NOTE 2 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.
Cash and cash equivalents consist of cash deposits and highly liquid investments with original
maturities of three months or less when purchased. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold the securities to
maturity. Debt securities for which the Company does not have the intent or ability to hold to
maturity are classified as available for sale. Held-to-maturity securities are stated at amortized
cost, which approximates fair value of these investments. Marketable securities that are bought and
held principally for the purpose of selling them in the near term are classified as trading
securities and are reported at fair value, with unrealized gains and losses recognized in earnings.
Debt and marketable equity securities not classified as held-to-maturity or as trading are
classified as available for sale, and are carried at fair market value, with the unrealized gains
and losses, net of tax, included in the determination of comprehensive income and reported in
stockholders equity. Marketable securities are recorded as either short-term or long-term on the
balance sheet based on contractual maturity date. The fair value of all securities is determined
by quoted market prices.
Held-to-maturity securities as of September 30, 2009 and December 31, 2008 consisted of
government sponsored debt obligations of $2.5 million and $42.8 million, respectively.
4
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Held-to-maturity securities consisted of the following as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
Cost
|
|
Interest
|
|
Amortized Cost
|
Due in one year or less
|
|
$
|
2,423
|
|
|
$
|
76
|
|
|
$
|
2,499
|
|
Held-to-maturity securities consisted of the following as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
Cost
|
|
|
Interest
|
|
|
Amortized Cost
|
|
Due in one year or
less
|
|
$
|
40,501
|
|
|
$
|
283
|
|
|
$
|
40,784
|
|
Due after one year through two
years
|
|
|
2,000
|
|
|
|
20
|
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
|
$
|
42,501
|
|
|
$
|
303
|
|
|
$
|
42,804
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities consisted of the following as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains in
|
|
|
Losses in
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
Amortized
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Fair Value
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market funds
|
|
$
|
63,224
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,224
|
|
Non-government sponsored debt securities
|
|
|
23,982
|
|
|
|
33
|
|
|
|
|
|
|
|
24,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current securities
|
|
|
87,206
|
|
|
|
33
|
|
|
|
|
|
|
|
87,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-government sponsored debt securities
|
|
|
17,590
|
|
|
|
89
|
|
|
|
(9
|
)
|
|
|
17,670
|
|
Government sponsored debt securities
|
|
|
2,042
|
|
|
|
11
|
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent
securities
|
|
|
19,632
|
|
|
|
100
|
|
|
|
(9
|
)
|
|
|
19,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
106,838
|
|
|
$
|
133
|
|
|
$
|
(9
|
)
|
|
$
|
106,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no proceeds from the sales of available-for-sale securities during the three months
or nine months ended September 30, 2009 or 2008. Net unrealized holding gains and losses on
available-for-sale securities have been included in accumulated other comprehensive gain (loss).
5
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The estimated fair value of available-for-sale debt securities at September 30, 2009, by
contractual maturity, was as follows (in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
24,015
|
|
Due after one year through two years
|
|
|
19,723
|
|
|
|
|
|
|
|
$
|
43,738
|
|
|
|
|
|
Expected maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment penalties.
The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (the Codification) 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 Codification
describes a fair value hierarchy based on the following three levels of inputs that may be used to
measure fair value, of which the first two are considered observable and the last unobservable:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The following table represents the Companys fair value hierarchy for its financial assets
(cash equivalents and investments) measured at fair value on a recurring basis as of September 30,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money Market funds
|
|
$
|
63,224
|
|
|
|
|
|
|
|
|
|
|
$
|
63,224
|
|
Non-government sponsored debt obligations
|
|
|
44,184
|
|
|
|
|
|
|
|
|
|
|
|
44,184
|
|
Government sponsored debt obligations
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,461
|
|
|
|
|
|
|
|
|
|
|
$
|
109,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
73,223
|
|
|
|
|
|
|
|
|
|
|
$
|
73,223
|
|
Short-term investments
|
|
|
16,516
|
|
|
|
|
|
|
|
|
|
|
|
16,516
|
|
Long-term investments
|
|
|
19,722
|
|
|
|
|
|
|
|
|
|
|
|
19,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,461
|
|
|
|
|
|
|
|
|
|
|
$
|
109,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 INVENTORY, NET
Inventory is stated at the lower of cost or market, with cost determined according to the
standard cost method. Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Parts and
supplies
|
|
$
|
5,385
|
|
|
$
|
5,213
|
|
Work-in-progress
|
|
|
4,266
|
|
|
|
3,939
|
|
Finished goods
|
|
|
3,046
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
$
|
12,697
|
|
|
$
|
11,589
|
|
|
|
|
|
|
|
|
NOTE 4 EARNINGS PER SHARE
A reconciliation of the denominators used in computing per share net income, or EPS, is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(609
|
)
|
|
$
|
3,173
|
|
|
$
|
(2,287
|
)
|
|
$
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss) per share -
weighted average common stock
outstanding
|
|
|
40,661
|
|
|
|
40,002
|
|
|
|
40,515
|
|
|
|
37,056
|
|
Dilutive common stock equivalents common stock
options and awards
|
|
|
|
|
|
|
2,171
|
|
|
|
|
|
|
|
1,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income (loss) per share -
weighted average common stock outstanding and
dilutive common stock equivalents
|
|
|
40,661
|
|
|
|
42,173
|
|
|
|
40,515
|
|
|
|
38,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
Diluted net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
Basic net income (loss) per share is computed by dividing the net income (loss) for the period
by the weighted average number of common shares outstanding during the period. Diluted net income
(loss) per share is computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the period. Restricted
stock awards, or RSAs, restricted stock units, or RSUs, and stock options to acquire 1.1 million
and 2.3 million shares for the three months ended September 30, 2009 and 2008, respectively, and
1.1 million and 2.0 million shares, respectively, for the nine months ended September 30, 2009 and
2008 were excluded from the computations of diluted EPS because the effect of including the RSAs,
RSUs, and stock options would have been anti-dilutive.
7
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 STOCK-BASED COMPENSATION
The Companys stock option activity for the nine months ended September 30, 2009 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise
|
|
Stock Options
|
|
(in thousands)
|
|
|
Price
|
|
Outstanding at December 31,
2008
|
|
|
2,771
|
|
|
$
|
11.96
|
|
Granted
|
|
|
167
|
|
|
|
16.31
|
|
Exercised
|
|
|
(38
|
)
|
|
|
9.59
|
|
Cancelled or expired
|
|
|
(70
|
)
|
|
|
17.81
|
|
|
|
|
|
|
|
|
Outstanding at September 30,
2009
|
|
|
2,830
|
|
|
$
|
12.10
|
|
The Company had $1.9 million of total unrecognized compensation costs related to stock options
at September 30, 2009 that are expected to be recognized over a weighted average period of
2.5 years.
The Companys restricted shares activity for the nine months ended September 30, 2009 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant-Date
|
|
Restricted Stock Awards
|
|
(in thousands)
|
|
|
Fair Value
|
|
Non-vested at December 31,
2008
|
|
|
1,197
|
|
|
$
|
15.39
|
|
Granted
|
|
|
473
|
|
|
|
16.18
|
|
Vested
|
|
|
(450
|
)
|
|
|
14.70
|
|
Cancelled or expired
|
|
|
(101
|
)
|
|
|
16.04
|
|
|
|
|
|
|
|
|
Non-vested at September 30,
2009
|
|
|
1,119
|
|
|
$
|
15.94
|
|
|
|
|
|
|
|
|
Shares
|
|
Restricted Stock Units
|
|
(in thousands)
|
|
Non-vested at December 31, 2008
|
|
|
280
|
|
Granted
|
|
|
353
|
|
Vested
|
|
|
(11
|
)
|
Cancelled or expired
|
|
|
(77
|
)
|
|
|
|
|
Non-vested at September 30, 2009
|
|
|
545
|
|
As of September 30, 2009, there was $18.0 million and $6.4 million of unrecognized
compensation cost related to RSAs and RSUs, respectively. That cost is expected to be recognized
over a weighted average period of 3.3 years for the RSAs and 2.7 years for the RSUs.
The following are the stock-based compensation costs recognized in the Companys condensed
consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Cost of revenue
|
|
$
|
204
|
|
|
$
|
140
|
|
|
$
|
493
|
|
|
$
|
374
|
|
Research and development
|
|
|
381
|
|
|
|
312
|
|
|
|
923
|
|
|
|
812
|
|
Selling, general and
administrative
|
|
|
1,646
|
|
|
|
1,329
|
|
|
|
4,401
|
|
|
|
4,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
costs
|
|
$
|
2,231
|
|
|
$
|
1,781
|
|
|
$
|
5,817
|
|
|
$
|
5,202
|
|
8
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 SEGMENT INFORMATION
Management has determined that the Company has two segments for financial reporting purposes:
the Technology Segment and the Assay Segment. The accounting principles of the segments are the
same as those described in the Summary of Significant Accounting Policies in the Companys Annual
Report on Form 10-K for the year ended December 31, 2008. Following is selected segment information
for and as of the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
|
Technology
|
|
Assay
|
|
|
|
|
|
Technology
|
|
Assay
|
|
|
|
|
Segment
|
|
Segment
|
|
Consolidated
|
|
Segment
|
|
Segment
|
|
Consolidated
|
Revenues from external
customers
|
|
$
|
22,031
|
|
|
$
|
7,087
|
|
|
$
|
29,118
|
|
|
$
|
22,582
|
|
|
$
|
6,315
|
|
|
$
|
28,897
|
|
Depreciation and
amortization
|
|
|
1,102
|
|
|
|
1,014
|
|
|
$
|
2,116
|
|
|
|
829
|
|
|
|
992
|
|
|
$
|
1,821
|
|
Segment profit (loss)
|
|
|
558
|
|
|
|
(1,167
|
)
|
|
$
|
(609
|
)
|
|
|
3,590
|
|
|
|
(417
|
)
|
|
$
|
3,173
|
|
Segment assets
|
|
|
147,130
|
|
|
|
72,885
|
|
|
$
|
220,015
|
|
|
|
141,670
|
|
|
|
69,940
|
|
|
$
|
211,610
|
|
Following is selected segment information for and as of the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
|
Technology
|
|
Assay
|
|
|
|
|
|
Technology
|
|
Assay
|
|
|
|
|
Segment
|
|
Segment
|
|
Consolidated
|
|
Segment
|
|
Segment
|
|
Consolidated
|
Revenues from external
customers
|
|
$
|
62,595
|
|
|
$
|
19,881
|
|
|
$
|
82,476
|
|
|
$
|
61,496
|
|
|
$
|
14,754
|
|
|
$
|
76,250
|
|
Depreciation and
amortization
|
|
|
3,130
|
|
|
|
2,865
|
|
|
$
|
5,995
|
|
|
|
2,404
|
|
|
|
2,721
|
|
|
$
|
5,125
|
|
Segment profit (loss)
|
|
|
3,915
|
|
|
|
(6,202
|
)
|
|
$
|
(2,287
|
)
|
|
|
6,900
|
|
|
|
(5,852
|
)
|
|
$
|
1,048
|
|
Segment assets
|
|
|
147,130
|
|
|
|
72,885
|
|
|
$
|
220,015
|
|
|
|
141,670
|
|
|
|
69,940
|
|
|
$
|
211,610
|
|
NOTE 7 INCOME TAXES
At the end of each interim reporting period, an estimate is made of the effective tax rate
expected to be applicable for the full year. The estimated full years effective tax rate is used
to determine the income tax rate for each applicable interim reporting period. 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. The effective tax rate for the nine months ended
September 30, 2009 was 10.13%. The Companys tax expense was less than the Federal statutory rate
primarily as a result of the utilization of a portion of the Companys U.S. deferred tax assets
which had been subjected to a valuation allowance.
The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, Canada, China, Japan and various states. Due to net operating losses, the U.S. tax
returns dating back to 1996 can still be reviewed by the taxing authorities. With respect to
Canada, tax returns dating back to 2003 can still be reviewed by the authorities. The Company does
not expect any material changes to the estimated amount of liability associated with its uncertain
tax positions within the next twelve months. For the nine months ended September 30, 2009, there
were no material changes to the total amount of unrecognized tax benefits. The Company recognizes
interest and penalties related to uncertain tax positions in the provision for income taxes.
9
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 COMMITMENTS AND CONTINGENCIES
On January 16, 2008, Luminex Corporation and Luminex Molecular Diagnostics, Inc. (LMD) were
served with a complaint, filed by The Research Foundation of the State University of New York
(SUNY) in Federal District Court for the Northern District of New York, alleging, among other
claims, that LMD breached its license agreement with SUNY by failing to pay royalties allegedly
owed under the agreement. The complaint sought an undetermined amount of damages as well as
injunctive relief. On March 27, 2009, Luminex and LMD settled the pending litigation with SUNY.
As part of the settlement, SUNY received a one time cash payment of approximately $4.4 million,
which represents all amounts owed by Luminex as part of the settlement. The cash payment was made
by Luminex in exchange for resolution of the dispute between the companies and a complete release
of all claims by SUNY against Luminex and correspondingly a complete release of all claims
by Luminex against SUNY. All other terms of the agreement are confidential. The parties have
formally dismissed the lawsuit, as required by the applicable settlement agreement.
On June 19, 2009, Luminex terminated a long-term supply contract related to its
FlexmiR
®
product line. A payment of $1 million was made in June 2009 related to this
termination. This payment included a purchase of $220,000 of inventory.
On July 24, 2009, the Company notified Abbott Molecular Inc. of the Companys intent to convert its right to distribute Luminexs
xTAG® Respiratory Viral Panel (RVP) from exclusive to non-exclusive on a worldwide basis under the Distribution
Agreement, dated February 1, 2008, between Abbott Molecular and LMD. On September 11, 2009, Abbott Molecular Inc.
notified the Company that it intended to exercise its right to seek arbitration under the Distribution Agreement. Among
other matters, Abbott is disputing LMDs right to terminate Abbotts exclusive right to distribute RVP under the
Agreement. Irrespective of the result of the arbitration, Abbott will continue to maintain the right to distribute
RVP. The binding arbitration is currently scheduled for December 14, 2009. At this time, the Company cannot assess
the probability of the various potential outcomes of this arbitration.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
On June 3, 2009, the FASB approved the FASB Accounting Standards Codification, or the
Codification, as the single source of authoritative nongovernmental Generally Accepted Accounting
Principles, or GAAP, in the United States. The Codification is effective for interim and annual
periods ending after September 15, 2009. The Codification is the single source of authoritative
accounting principles to be applied by all nongovernmental U.S. entities. All other accounting
literature not included in the Codification is considered non-authoritative. The adoption of the
Codification did not have an impact on the Companys financial position or results of operations.
The FASB recently amended its guidance on the information that a reporting entity must
provide in its financial reports about a transfer of financial assets; the effects of a transfer on
its financial position, financial performance, and cash flows; and a transferors continuing
involvement in transferred financial assets. Specifically, among other aspects, the new guidance
amends previous guidance related to the concept of a qualifying special-purpose entity, variable
interest entities that are qualifying special-purpose entities and the financial-components
approach. The new guidance is effective for transfer of financial assets occurring on or after
January 1, 2010. The Company has not determined the effect that the adoption of the new guidance
will have on its financial position or results of operations but the effect will generally be
limited to future transactions. Historically, the Company has not had any material transfers of
financial assets. Additionally, the FASB recently amended its guidance surrounding a companys
analysis to determine whether its variable interest or interests give it a controlling financial
interest in a variable interest entity. The primary beneficiary of a variable interest entity is
the enterprise that has both (1) the power to direct the activities of a variable interest entity
that most significantly impact the entitys economic performance and (2) the obligation to absorb
losses of the entity that could potentially be significant to the variable interest entity or the
right to receive benefits from the entity that could potentially be significant to the variable
interest entity. This new guidance also requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity. The guidance is effective for all variable
interest entities and relationships with variable interest entities existing as of January 1, 2010.
The Company does not expect the adoption of this standard to have an impact on its financial
position or results of operations.
10
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In October 2009, the FASB updated its revenue recognition guidance, amending the criteria for
separating consideration in multiple-deliverable arrangements. The amendments establish a selling
price hierarchy for determining the selling price of a deliverable. The selling price used for each
deliverable will be based on vendor-specific objective evidence if available, thirdparty evidence
if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. The amendments will
eliminate the residual method of allocation and require that arrangement consideration be allocated
at the inception of the arrangement to all deliverables using the relative selling price method.
The relative selling price method allocates any discount in the arrangement proportionally to each
deliverable on the basis of each deliverables selling price. This update will be effective
prospectively for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. We are currently evaluating the
requirements of this update and have not yet determined the impact on our consolidated financial
statements.
In October 2009, the FASB updated its software guidance, changing the accounting model
for revenue arrangements that include both tangible products and software elements. Tangible
products containing software components and nonsoftware components that function together to
deliver the tangible products essential functionality are no longer within the scope of the
software revenue guidance. In addition, the amendments require that hardware components of a
tangible product containing software components always be excluded from the software revenue
guidance. This update will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. We are currently evaluating the requirements of this update and have not yet determined
the impact on our consolidated financial statements.
11
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following information should be read in conjunction with the condensed consolidated
financial statements and the accompanying notes included in Part I, Item 1 of this Report, and the
Risk Factors included in Part II Item 1A of this Report and Part I, Item 1A of our Annual Report
on Form 10-K for the year ended December 31, 2008 (the 2008 10-K).
SAFE HARBOR CAUTIONARY STATEMENT
This quarterly report on Form 10-Q contains statements that are forward-looking statements
under the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our
current expectations of forecasts of future events. All statements other than statements of current
or historical fact contained in this report, including statements regarding our future financial
position, business strategy, new products, assay sales, budgets, liquidity, cash flows, projected
costs, litigation costs, including the costs or impact of any litigation settlements or orders,
regulatory approvals or the impact of any laws or regulations applicable to us, and plans and
objectives of management for future operations, are forward-looking statements. The words
anticipate, believe, continue, should, estimate, expect, intend, may, plan,
projects, will, and similar expressions, as they relate to us, are intended to identify
forward-looking statements. These statements are based on our current plans and actual future
activities, and our financial condition and results of operations may be materially different from
those set forth in the forward-looking statements as a result of known or unknown risks and
uncertainties, including, among other things:
|
|
|
risks and uncertainties relating to market demand and acceptance of our products and
technology;
|
|
|
|
|
dependence on strategic partners for development, commercialization and distribution of
products;
|
|
|
|
|
the impact of the ongoing uncertainty in global finance markets and changes in
government funding, including its effects on the capital spending policies of our partners
and end-users and their ability to finance purchases of our products;
|
|
|
|
|
concentration of our revenue in a limited number of strategic partners, some of which
may be experiencing decreased demand for their products utilizing or incorporating our
technology and budget or finance constraints in the current economic environment or
periodic variability in their purchasing patterns or practices;
|
|
|
|
|
fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, bulk
purchases of consumables, fluctuations in product mix, and the seasonal nature of some of
our assay products;
|
|
|
|
|
our ability to scale manufacturing operations and manage operating expenses, gross
margins and inventory levels;
|
|
|
|
|
potential shortages, or increases in costs, of components;
|
|
|
|
|
competition;
|
|
|
|
|
our ability to successfully launch new products;
|
|
|
|
|
the timing of regulatory approvals;
|
|
|
|
|
the implementation, including any modification, of our strategic operating plans;
|
|
|
|
|
the uncertainty regarding the outcome or expense of any litigation brought against or
initiated by us;
|
|
|
|
|
risks relating to our foreign operations; and
|
|
|
|
|
risks and uncertainties associated with implementing our acquisition strategy including
our ability to obtain financing, our ability to integrate acquired companies or selected
assets into our consolidated business operations, and the ability to recognize the benefits
of our acquisitions.
|
12
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 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 the section titled Risk Factors below and in the 2008 10-K. In light of these
risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in
this 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 report and our other
annual and periodic reports.
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 report.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to
Luminex, the Company, we, us and our refer to Luminex Corporation and its subsidiaries.
OVERVIEW
We develop, manufacture and sell proprietary biological testing technologies and products with
applications throughout the life sciences and diagnostics industries. These industries depend on a
broad range of tests, called bioassays, to perform diagnostic tests, discover and develop new drugs
and identify genes. Our xMAP
®
(Multi-Analyte Profiling) technology, an open
architecture, multiplexing technology, allows simultaneous analysis of up to 500 bioassays from a
small sample volume, typically a single drop of fluid, by reading biological tests on the surface
of microscopic polystyrene beads called microspheres. xMAP technology combines this miniaturized
liquid array bioassay capability with small lasers, digital signal processors and proprietary
software to create a system offering advantages in speed, precision, flexibility and cost. Our xMAP
technology is currently being used within various segments of the life sciences industry which
includes the fields of drug discovery and development, clinical diagnostics, genetic analysis,
bio-defense, protein analysis and biomedical research.
Our end-user customers and partners, which include laboratory professionals performing
research, clinical laboratories performing tests on patients as ordered by a physician and other
laboratories, have a fundamental need to perform high quality testing as efficiently as possible.
Luminex has adopted a business model built around strategic partnerships. We have licensed our xMAP
technology to partner companies, which in turn develop products that incorporate the xMAP
technology into products that the partners sell to end-users. Luminex develops and manufactures the
proprietary xMAP laboratory instrumentation and the proprietary xMAP microspheres and sells these
products to its partners. Our partners then sell xMAP instrumentation and xMAP-based reagent
consumable products, which run on the instrumentation, to the end-user laboratory. Luminex was
founded on this model, and our success to date has been due to this model. As of September 30,
2009, Luminex had approximately 62 strategic partners and these partners have purchased from
Luminex over 6,500 xMAP-based systems. Of the 62 strategic partners, 39 have released
commercialized reagent-based products utilizing our technology.
Beginning in 2006, we began developing proprietary assays. This development was supplemented
in 2007 by our acquisition of Tm Bioscience, which we named Luminex Molecular Diagnostics, or LMD.
Our Assay Segment focuses on the molecular diagnostics market and certain specialty markets.
13
Luminex has several forms of revenue that result from our business model:
|
|
|
System revenue is generated from the sale of our xMAP systems and peripherals.
Currently, system revenue is derived from the sale of the Luminex 100 and 200 analyzers,
our FLEXMAP 3D system, optional XY Platform and Sheath Delivery Systems.
|
|
|
|
|
Consumable revenue is generated from the sale of our dyed polystyrene microspheres and
sheath fluid. Our larger commercial and development partners often purchase these
consumables in bulk to minimize the number of incoming qualification events and to allow
for longer development and production runs.
|
|
|
|
|
Royalty revenue is generated when a partner sells 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 purchase prepared kits and have specific testing needs, or testing
service companies that provide assay results to pharmaceutical research companies or
physicians.
|
|
|
|
|
Assay revenue is generated from the sale of our kits which are a combination of chemical
and biological reagents and our proprietary bead technology used to perform diagnostic and
research assays on samples.
|
|
|
|
|
Service revenue is generated when a partner or other owner of a system purchases a
service contract from us after the standard warranty has expired. Service contract revenue
is amortized over the life of the contract and the costs associated with those contracts
are recognized as incurred.
|
|
|
|
|
Other revenue consists of items such as training, shipping, parts sales, license
revenue, grant revenue, contract research and development fees, milestone revenue and other
items that individually amount to less than 5% of total revenue.
|
Third Quarter 2009 Highlights
|
|
|
Consolidated revenue of $29.1 million for the quarter ended September 30, 2009,
representing a 1% increase over revenue for the third quarter of 2008
|
|
|
|
|
Consolidated gross profit margin of 64% compared with third quarter 2008 gross profit
margin of 68%
|
|
|
|
|
System shipments of 259 including 11 shipments of FLEXMAP 3D, resulting in cumulative
life-to-date shipments of 6,514; this represents an 8% increase in the number of system
shipments and an 18% increase in system sales over the third quarter of 2008
|
|
|
|
|
Higher margin items (assays, consumables and royalty revenues) of $17.0 million or 58%
of third quarter 2009 revenue
|
|
|
|
|
Received 510(k) clearance from the FDA for a new cystic fibrosis test: the xTAG Cystic
Fibrosis 39 Kit v2
|
|
|
|
|
Establishment of an office in Tokyo, Japan to provide commercial support and service to
customers and partners in the area
|
|
|
|
|
Received FDA clearance for an update to the xTAG(R) Respiratory Viral Panel package
insert
|
|
|
|
|
Our partners reported over $74 million of royalty bearing end user sales on xMAP
technology for the quarter, a 17% increase over the third quarter of 2008
|
14
We have experienced the fifth sequential quarter of consumable revenue decline since the third
quarter of 2008. After thorough analysis of the decline, we have identified several factors
contributing to the decline, none of which individually appear to be systemic in nature or
indicative of future results. Overall, the decline manifested itself through a decline in activity
at varying times from our largest, bulk purchasing partners. In the third quarter of 2008, fourth
quarter of 2008, first quarter of 2009, second quarter of 2009, and third quarter of 2009 we had
bulk purchases totaling $7.0 million, $6.8 million, $6.1 million, $5.5 million and $4.3 million in
consumables, respectively. Alternatively, non bulk consumable sales varied within a much smaller
range between $1.2 million and $1.8 million with the largest amount of non bulk sales taking place
in the third quarter of 2009 with $1.8 million of consumables. We believe the decrease in bulk
purchases can be attributed to several factors including (1) purchases in prior periods of
significant volumes of consumables related to the conversion of our partners assay product
portfolios from carboxyl beads to magnetic beads primarily in anticipation of the release of our
new MagPix system in 2010; (2) volume reductions in bulk purchases from several of our partners as
a result of a reduction in total consumable needs subsequent to the regulatory clearance and
commercialization phases of development of new products and transitioning product lines; (3)
increased attention on inventory management by our partners during 2009 as a result of the macro
economic climate and (4) an increase in our partners focus on generating current revenue from
commercialized products. The success of our partners commercialization efforts is reflected in
the rising level of royalties and reported royalty bearing sales during the period over which the
consumable revenue has declined. Reported royalty bearing sales have increased by 17% from $63.6
million in the third quarter of 2008 to $74.6 million in the third quarter of 2009.
Segment Information
Luminex has two reportable segments: the Technology Segment and the Assay Segment. The
Technology Segment, which is our base business, consists of system sales to partners, raw bead
sales, royalties, service and support of the technology, and other miscellaneous items. The Assay
Segment is primarily involved in the development and sale of assays on xMAP technology for use on
Luminexs installed base of systems.
Future Operations
We expect continued revenue growth to be driven by continued adoption of our core technology
coupled with assay introduction and commercialization by the Assay Segment and our partners. We
anticipate continued revenue concentration in our high margin items (assays, consumables and
royalties) contributing to favorable, but variable gross margin percentages. Additionally, we
believe that a sustained investment in R&D is necessary in order to meet the needs of our
marketplace and provide a sustainable new product pipeline. Therefore, we estimate that R&D
expenditures will increase in absolute dollars over time, but decrease as a percentage of total
revenue towards our long term target of 15% of revenue. We could experience volatility in R&D
expenses as a percentage of revenue on a quarterly basis.
We expect our primary challenges throughout the remainder of 2009 to be:
|
|
|
the timing effect of the ongoing uncertainty in global finance markets and changes
in government funding on planned purchases by end users;
|
|
|
|
|
continued adoption and development of partner products incorporating Luminex
technology;
|
|
|
|
|
commercialization, regulatory acceptance and market adoption of output from the
Assay Segment; and
|
|
|
|
|
the expansion and enhancement of our installed base and leadership position within
our identified target market segments.
|
15
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based
upon our condensed consolidated financial statements, which have been prepared in accordance with
United States generally accepted accounting principles for interim financial statements. 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. Estimates and assumptions are reviewed periodically.
Actual results may differ from these estimates under different assumptions or conditions.
Management believes there have been no significant changes during the quarter ended September
30, 2009 to the items that we disclosed as our critical accounting policies and estimates in
Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2008
10-K.
16
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008
Selected consolidated financial data for the three months ended September 30, 2009 and 2008 is
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
29,118
|
|
|
$
|
28,897
|
|
Gross profit
|
|
$
|
18,771
|
|
|
$
|
19,554
|
|
Gross profit margin
percentage
|
|
|
64
|
%
|
|
|
68
|
%
|
Operating expenses
|
|
$
|
19,283
|
|
|
$
|
16,573
|
|
Income (loss) from operations
|
|
$
|
(512
|
)
|
|
$
|
2,981
|
|
Total revenue increased to $29.1 million for the three months ended September 30, 2009
from $28.9 million for the comparable period in 2008. We experienced revenue growth in system
placements, due to the return of demand for our LX 200 instrument as capital budgets became
available and the introduction of our 3D product in the second quarter of 2009 and an increase in
assay and royalty revenue as a result of the success of our Cystic Fibrosis (CF) and Respiratory
Viral Panel (RVP) product lines. This revenue growth was largely offset by a decrease in
consumable sales. System sales for the third quarter of 2009 increased to 259 systems from 239
systems for the corresponding prior year period bringing total system sales since inception to
6,514 as of September 30, 2009.
A breakdown of revenue for the three months ended September 30, 2009 and 2008 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
9,166
|
|
|
$
|
7,788
|
|
Consumable sales
|
|
|
6,062
|
|
|
|
8,340
|
|
Assay revenue
|
|
|
6,199
|
|
|
|
5,897
|
|
Royalty revenue
|
|
|
4,699
|
|
|
|
3,865
|
|
Service contracts
|
|
|
1,491
|
|
|
|
1,429
|
|
Other revenue
|
|
|
1,501
|
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
$
|
29,118
|
|
|
$
|
28,897
|
|
|
|
|
|
|
|
|
We continue to experience revenue concentration in a limited number of strategic
partners. Two customers accounted for 27% of consolidated total revenue in the third quarter of
2009 (14% and 13%, respectively). For comparative purposes, these same two customers accounted for
35% of total revenue (17% and 18%, respectively) in the third quarter of 2008. The decrease in
percentage of total revenue represented by our two largest customers is due to the decrease in the
dollar amount of bulk purchases by these two customers due to the varying consumable needs during
the regulatory clearance and commercialization phases of development of our partners products in a
new market and the economic environment as discussed in the Overview section above. No other
customer accounted for more than 10% of total revenue in this quarter.
17
Gross profit margin percentage decreased to 64% for the three months ended September 30, 2009
from 68% for the comparable period in 2008 due to the increase in system sales, a lower margin
item, in the three months ended September 30, 2009. The increase in operating expenses from
$16.6 million for the third quarter of 2008 to $19.3 million for the third quarter of 2009 is
primarily a result of additional personnel costs and the related stock compensation and travel
costs associated with the increase in employees and contract employees as headcount has increased
from 381 to 423 from September 30, 2008 to September 30, 2009. Net operating income decreased due
to the decrease in gross profit margin percentage and the increase in operating expenses. See
additional discussions by segment below.
Technology Segment
Selected financial data for our Technology Segment for the three months ended September 30,
2009 and 2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
22,031
|
|
|
$
|
22,582
|
|
Gross profit
|
|
$
|
13,767
|
|
|
$
|
14,541
|
|
Gross profit margin
percentage
|
|
|
62
|
%
|
|
|
64
|
%
|
Operating expenses
|
|
$
|
13,218
|
|
|
$
|
11,313
|
|
Income from operations
|
|
$
|
549
|
|
|
$
|
3,228
|
|
Revenue.
Total revenue for our Technology Segment decreased by 2% to $22.0 million for
the three months ended September 30, 2009 from $22.6 million for the comparable period in 2008. The
decrease in revenue was primarily attributable to a decrease in consumable sales offset by an
increase in system sales and royalty revenue. Two customers accounted for 35% of total Technology
Segment revenue in the third quarter of 2009 (19% and 16%, respectively). For comparative
purposes, these same two customers accounted for 44% of total Technology Segment revenue 21% and
23%, respectively) in the third quarter of 2008. The decrease in percentage of total revenue
represented by our two largest customers is due to a decrease in the dollar amount of bulk
purchases by our two largest customers as discussed in the Overview section above.
A breakdown of revenue in the Technology Segment for the three months ended September 30, 2009
and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
8,501
|
|
|
$
|
7,483
|
|
Consumable sales
|
|
|
6,052
|
|
|
|
8,328
|
|
Royalty revenue
|
|
|
4,699
|
|
|
|
3,865
|
|
Service contracts
|
|
|
1,419
|
|
|
|
1,403
|
|
Other revenue
|
|
|
1,360
|
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
|
$
|
22,031
|
|
|
$
|
22,582
|
|
|
|
|
|
|
|
|
System and peripheral component sales increased by 14% to $8.5 million for the three
months ended September 30, 2009 from $7.5 million for the comparable period of 2008. The Technology
Segment sold 243 of the 259 total system sales in the three months ended September 30, 2009. For
the three months ended September 30, 2009, five of our partners accounted for 194, or 80%, of total
Technology Segment systems sold for the period. In
the three months ended September 30, 2008, the top five partners purchased 178, or 77%, of
total Technology Segment system sales.
18
Consumable sales, comprised of microspheres and sheath fluid, decreased 27% to $6.1 million
for the three months ended September 30, 2009 from $8.3 million for the three months ended
September 30, 2008. This is primarily the result of a decrease in bulk purchases as described in
the Overview above. A bulk purchase is defined as the purchase of $100,000 or more of consumables
in a quarter. During the three months ended September 30, 2009, we had 13 bulk purchases of
consumables totaling approximately $4.3 million as compared with 14 bulk purchases totaling
approximately $7.0 million in the three months ended September 30, 2008. Partners who reported
royalty bearing sales accounted for $4.2 million, or 69%, of total consumable sales for the three
months ended September 30, 2009 compared to $7.7 million, or 92%, of total consumable sales for the
three months ended September 30, 2008.
Royalty revenue, which results when our partners sell products or services incorporating our
technology, increased by 22% to $4.7 million for the three months ended September 30, 2009 compared
with $3.9 million for the three months ended September 30, 2008. We believe this is primarily the
result of our increased cumulative instrument placements, menu expansion, and utilization of our
partners assays on our technology. We expect modest fluctuations in the number of commercial
partners submitting royalties quarter to quarter based upon the varying contractual terms,
consolidations among partners, differing reporting and payment requirements, and the addition of
new partners. For the three months ended September 30, 2009, we had 30 commercial partners
submitting royalties as compared to 32 for the three months ended September 30, 2008. One of our
partners reported royalties totaling approximately $1.7 million or 36% of total royalties for the
quarter ended September 30, 2009 compared to $1.4 million or 36% for the quarter ended September
30, 2008. Two other customers reported royalties totaling approximately $1.2 million or 25% (14%
and 11%, respectively) of total royalties for the quarter ended September 30, 2009. No other
customer accounted for more than 10% of total royalty revenue for the quarter ended September 30,
2009. Total royalty bearing sales reported to us by our partners were over $74 million for the
quarter ended September 30, 2009 compared with over $63 million for the quarter ended September 30,
2008.
Service contracts revenue, comprised of extended warranty contracts earned ratably over the
term of a contract, remained flat at $1.4 million for the third quarter of 2009 compared to $1.4
million for the third quarter of 2008. At September 30, 2009 and 2008, we had 1,053 and 981 Luminex
systems, respectively, covered under extended service agreements.
Other revenues, comprised of training revenue, shipping revenue, miscellaneous part sales,
amortized license fees, reagent sales, and grant revenue, decreased by 9% to $1.4 million for the
three months ended September 30, 2009 from $1.5 million for the three months ended September 30,
2008. This decrease is primarily the result of a decrease in shipping revenue and miscellaneous
part sales.
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the Technology Segment decreased to 62% for the three months ended September 30, 2009
from 64% for the three months ended September 30, 2008. Gross profit for the Technology Segment
decreased to $13.8 million for the three months ended September 30, 2009, as compared to
$14.5 million for the three months ended September 30, 2008. The decrease in gross profit margin
percentage was primarily attributable to changes in revenue mix between our higher and lower gross
margin items. System sales, a lower margin item, comprised 39% of total Technology Segment revenue
for the three months ended September 30, 2009 compared to 33% for the three months ended September
30, 2008. Consumables, one of our higher margin items, comprised $6.1 million, or 27%, of
Technology Segment revenue for the three months ended September 30, 2009 and $8.3 million, or 37%,
of Technology Segment revenue for the quarter ended September 30, 2008. The decrease in gross
profit was primarily attributable to the overall decrease in revenue coupled with the decrease in
gross margin.
Research and development expense
. Research and development expenses for the Technology Segment
increased to $3.1 million for the three months ended September 30, 2009 from $2.6 million for the
comparable period in 2008. The increase was primarily related to increases in materials and
supplies for the expansion and development of our systems and applications for use on our platforms
as well as additional personnel costs related to the appointment of our new Vice President of
Systems Research and Development in the third quarter of 2009.
19
Selling, general and administrative expense
. Selling, general and administrative expense for
the Technology Segment increased to $10.1 million for the three months ended September 30, 2009
from $8.7 million for the comparable period in 2008. The increase was primarily related to
additional personnel costs and the related stock compensation and travel costs associated with the
increase in selling, general, and administrative employees and contract employees of the Technology
Segment to 111 at September 30, 2009 from 97 at September 30, 2008.
Other income, net
. Other income decreased to $144,000 for the three months ended September 30,
2009 from $490,000 for the comparable period in 2008. The decrease is primarily due to the decrease
in the average rate earned on our current invested balances from 2.0% at September 30, 2008 to 0.5%
at September 30, 2009. This decrease is the result of an overall decrease in market rates compared
to the prior year period.
Assay Segment
Selected financial data for our Assay Segment for the three months ended September 30, 2009
and 2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
7,087
|
|
|
$
|
6,315
|
|
Gross profit
|
|
$
|
5,004
|
|
|
$
|
5,013
|
|
Gross profit margin
percentage
|
|
|
71
|
%
|
|
|
79
|
%
|
Operating expenses
|
|
$
|
6,065
|
|
|
$
|
5,260
|
|
Loss from operations
|
|
$
|
(1,061
|
)
|
|
$
|
(247
|
)
|
A breakdown of revenue in the Assay Segment for the three months ended September 30, 2009
and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
665
|
|
|
$
|
305
|
|
Consumable sales
|
|
|
10
|
|
|
|
12
|
|
Assay revenue
|
|
|
6,199
|
|
|
|
5,897
|
|
Service contracts
|
|
|
72
|
|
|
|
26
|
|
Other revenue
|
|
|
141
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
$
|
7,087
|
|
|
$
|
6,315
|
|
|
|
|
|
|
|
|
Revenue.
Total revenue for our Assay Segment increased by 12% to $7.1 million for the
three months ended September 30, 2009 from $6.3 million for the comparable period in 2008. The
increase in revenue was primarily attributable to an increase in system revenue and assay revenue,
driven primarily by increased sales of our RVP product due to the 2009 novel influenza H1N1. The
majority of our Assay Segment revenues are generated from the sale of test kits. As a result of
the launch of our RVP product in January 2008, our top two products in the third quarter of 2009
were CF and RVP, which represented over 87% of total assay revenue for the three months ended
September 30, 2009. The top five customers, by revenue, accounted for 83% of total Assay Segment
revenue for the three months ended September 30, 2009 compared to 71% of total Assay Segment
revenue for the three months ended September 30, 2008. In particular, three customers accounted for
67% of total Assay Segment revenue (36%, 18% and 13%, respectively) for the three months ended
September 30, 2009. No other customer accounted for more than 10% of total Assay Segment revenue.
During the three months ended September 30, 2009, our Assay Segment sold sixteen systems. Other
revenue includes shipping revenue and training revenue.
20
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the Assay Segment decreased to 71% for the three months ended September 30, 2009 from
79% for the three months ended September 30, 2008. Gross profit for the Assay Segment remained flat
at $5.0 million for the three months ended September 30, 2009 and September 30, 2008. The decrease
in gross profit margin percentage was primarily attributable to a contractual amendment with a
partner resulting in a positive pricing adjustment of $327,000 in the third quarter of 2008 and
accelerated amortization of a license agreement related to the termination of a supply contract
associated with our FlexmiR product line.
Research and development expense.
Research and development expenses for our Assay Segment were
$2.5 million and $1.9 million for the three months ended September 30, 2009 and 2008, respectively.
The increase in research and development expenses was primarily due to increased activity for
clinical trials and FDA submissions related to our assay development.
Selling, general and administrative expense
. Selling, general and administrative expenses,
including the amortization of acquired intangibles, for the Assay Segment were $3.5 million and
$3.4 million for the three months ended September 30, 2009 and 2008, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008
Selected consolidated financial data for the nine months ended September 30, 2009 and 2008
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
82,476
|
|
|
$
|
76,250
|
|
Gross profit
|
|
$
|
55,639
|
|
|
$
|
51,374
|
|
Gross profit margin
percentage
|
|
|
67
|
%
|
|
|
67
|
%
|
Operating expenses
|
|
$
|
53,538
|
|
|
$
|
50,175
|
|
Income from operations
|
|
$
|
2,101
|
|
|
$
|
1,199
|
|
Total revenue increased by 8% to $82.5 million for the nine months ended September 30,
2009 from $76.3 million for the comparable period in 2008. The increase in revenue was attributable
to an increase of $4.9 million in assay revenue in the Assay Segment and continued growth in
royalty revenue in the Technology Segment, offset by a decrease in consumable sales. System sales
for the nine months ended September 30, 2009 decreased to 620 systems from 662 systems for the nine
months ended September 30, 2008 bringing total system sales since inception to 6,514 as of
September 30, 2009.
A breakdown of revenue for the nine months ended September 30, 2009 and 2008 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
21,404
|
|
|
$
|
20,733
|
|
Consumable sales
|
|
|
20,347
|
|
|
|
23,397
|
|
Assay revenue
|
|
|
18,164
|
|
|
|
13,268
|
|
Royalty revenue
|
|
|
13,524
|
|
|
|
10,855
|
|
Service contracts
|
|
|
4,347
|
|
|
|
3,926
|
|
Other revenue
|
|
|
4,690
|
|
|
|
4,071
|
|
|
|
|
|
|
|
|
|
|
$
|
82,476
|
|
|
$
|
76,250
|
|
|
|
|
|
|
|
|
21
We continue to experience revenue concentration in a limited number of strategic
partners. Two customers accounted for 29% of consolidated total revenue in the nine months ended
September 30, 2009 (17% and 12%, respectively). For comparative purposes, these same two customers
accounted for 36% of total revenue (20% and 16%, respectively) in the nine months ended September
30, 2008. No other customer accounted for more than 10% of total revenue in the nine months ended
September 30, 2009. Our two largest customers are customers of our Technology Segment. The
decrease in percentage of total revenue represented by our two largest customers is the result of
the shift in revenue allocation from the Technology Segment to the Assay Segment. For the nine
months ended September 30, 2009, Assay Segment revenue represented 24% of total revenue, while
Assay Segment revenue represented 19% of total revenue for the nine months ended September 30,
2008. In addition, there was a decrease in the dollar amount of bulk purchases by our two largest
customers due to the varying consumable needs during the regulatory clearance and commercialization
phases of development of our partners products and the economic environment as discussed in the
Overview section above.
Gross profit margin percentage remained flat at 67% for the nine months ended September 30,
2009 and September 30, 2008. The increase in operating expenses from $50.2 million for the nine
months ended September 30, 2008 to $53.5 million for the nine months ended September 30, 2009
reflects growth in the Assay Segment, additional personnel costs and the related stock compensation
and travel costs associated with the increase in employees and contract employees to 423 at
September 30, 2009 from 381 at September 30, 2008, and a payment of $780,000 made related to the
termination of a supply contract associated with our FlexmiR product line. We launched our next
generation FlexmiR product line in July 2009. This termination is not expected to affect FlexmiR
product supply to customers. Net operating income increased as a result of the increase in
revenues in 2009. Other income, net decreased to $593,000 for the nine months ended September 30,
2009 from $629,000 for the comparable period in 2008 due to a decrease in the average rate earned
on invested balances offset by $412,000 in costs recorded in the nine months ended September 30,
2008 related to a potential acquisition that did not occur. The average rate earned on current
invested balances decreased to 0.7% for the nine months ended September 30, 2009 from 2.5% for the
nine months ended September 30, 2008. This decrease in the average rate earned is the result of an
overall decrease in market rates compared to the prior year period. See additional discussions by
segment below.
Technology Segment
Selected financial data for our Technology Segment for the nine months ended September 30,
2009 and 2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
62,595
|
|
|
$
|
61,496
|
|
Gross profit
|
|
$
|
41,308
|
|
|
$
|
40,356
|
|
Gross profit margin percentage
|
|
|
66
|
%
|
|
|
66
|
%
|
Operating expenses
|
|
$
|
35,855
|
|
|
$
|
33,768
|
|
Income from operations
|
|
$
|
5,453
|
|
|
$
|
6,588
|
|
Revenue.
Total revenue for our Technology Segment increased by 2% to $62.6 million for
the nine months ended September 30, 2009 from $61.5 million for the comparable period in 2008. The
increase in revenue was primarily attributable to an increase in royalty revenue as a result of the
continued acceptance and utilization of our
technology in the marketplace offset by decreases in consumable sales. Two customers
accounted for 38% of total Technology Segment revenue in the nine months ended September 30, 2009
(23% and 15%, respectively). For comparative purposes, these same two customers accounted for 45%
of total Technology Segment revenue (25% and 20%, respectively) in the nine months ended September,
30 2008. The decrease in percentage of total revenue represented by our two largest customers is
due to a decrease in the dollar amount of bulk purchases by our two largest customers as discussed
in the Overview section above.
22
A breakdown of revenue in the Technology Segment for the nine months ended September 30, 2009
and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
20,231
|
|
|
$
|
19,506
|
|
Consumable sales
|
|
|
20,302
|
|
|
|
23,365
|
|
Royalty revenue
|
|
|
13,524
|
|
|
|
10,855
|
|
Service contracts
|
|
|
4,144
|
|
|
|
3,888
|
|
Other revenue
|
|
|
4,394
|
|
|
|
3,882
|
|
|
|
|
|
|
|
|
|
|
$
|
62,595
|
|
|
$
|
61,496
|
|
|
|
|
|
|
|
|
System and peripheral component sales increased by 4% to $20.2 million for the nine
months ended September 30, 2009 from $19.5 million for the comparable period of 2008. The
Technology Segment sold 591 of the 620 total system sales in the nine months ended September 30,
2009. For the nine months ended September 30, 2009, five of our partners accounted for 400, or
68%, of total technology segment system sales for the period. Five of our partners accounted for
455, or 72%, of total technology segment system sales for the nine months ended September 30, 2008.
Consumable sales decreased by 13% to $20.3 million for the nine months ended September 30,
2009 from $23.4 million for the nine months ended September 30, 2008. This is primarily the result
of a decrease in the number and average dollar amount of bulk purchases as described in the
Overview section above. During the nine months ended September 30, 2009, we had 37 bulk purchases
of consumables totaling approximately $15.8 million, or 78% of total consumable sales for the nine
months ended September 30, 2009 as compared with 39 bulk purchases totaling approximately $19.4
million, or 83% of total consumable sales for the nine months ended September 30, 2008. Partners
who reported royalty bearing sales accounted for $16.4 million, or 81%, of total consumable sales
for the nine months ended September 30, 2009. As the number of applications available on our
platform expands, we anticipate that the overall level of consumable sales, and related bulk
purchases, will continue to fluctuate.
Royalty revenue increased by 25% to $13.5 million for the nine months ended September 30, 2009
compared with $10.9 million for the nine months ended September 30, 2008. We believe this is
primarily the result of the increased use and acceptance of our technology. We expect modest
fluctuations in the number of commercial partners submitting royalties period to period based upon
the varying contractual terms, consolidations among partners, differing reporting and payment
requirements, and the addition of new partners. For the nine months ended September 30, 2009, we
had 39 commercial partners submitting royalties as compared to 34 for the nine months ended
September 30, 2008. One of our partners reported royalties totaling approximately $4.6 million or
34% of total royalties for the nine months ended September 30, 2009 compared to $3.4 million or 29%
of total royalties for the nine months ended September 30, 2008. Two other customers reported
royalties totaling approximately $3.2 million or 24% (14% and 10%, respectively) of total royalties
for the nine months ended September 30, 2009. No other customer accounted for more than 10% of
total royalty revenue for the nine months ended September 30, 2009. Total royalty bearing sales
reported to us by our partners were over $206 million for the nine months ended September 30, 2009,
compared with over $172 million for the nine months ended September 30, 2008 and over $238 million
for the year ended December 31, 2008.
Service contracts revenue increased by 7% to $4.1 million for the nine months ended September
30, 2009 from $3.9 million for the nine months ended September 30, 2008. This increase is
attributable to additional resources
allocated to the sale of extended service agreements resulting in increased penetration. At
September 30, 2009 and 2008, we had 1,053 and 981 Luminex systems, respectively, covered under
extended service agreements.
Other revenues increased by 13% to $4.4 million for the nine months ended September 30, 2009
from $3.9 million for the nine months ended September 30, 2008. This increase is primarily the
result of an increase in grant revenue.
23
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the Technology Segment remained flat at 66% for the nine months ended September 30,
2009 and September 30, 2008. Gross profit for the Technology Segment increased to $41.3 million for
the nine months ended September 30, 2009, as compared to $40.4 million for the nine months ended
September 30, 2008. The increase in gross profit margin percentage was primarily attributable to
changes in revenue mix between our higher and lower gross margin items. The increase in gross
profit was primarily attributable to the overall increase in revenue. Royalties, one of our higher
margin items, comprised $13.5 million, or 22%, of Technology Segment revenue for the nine months
ended September 30, 2009 and $10.9 million, or 18%, of Technology Segment revenue for the nine
months ended September 30, 2008. We anticipate continued fluctuation in gross margin rate and
related gross profit for the Technology Segment primarily as a result of variability in partner
bulk purchases and absolute number of quarterly system sales.
Research and development expense
. Research and development expenses for the Technology Segment
remained at $8.0 million for the nine months ended September 30, 2009 and for the comparable period
in 2008. The number of research and development employees and contract employees for the
Technology Segment remained relatively flat at 74 at September 30, 2009 from 73 at September 30,
2008.
Selling, general and administrative expense
. Selling, general and administrative expense for
the Technology Segment increased to $27.9 million for the nine months ended September 30, 2009 from
$25.8 million for the comparable period in 2008. The increase was primarily related to additional
personnel costs and the related stock compensation and travel costs associated with the increase in
selling, general, and administrative employees and contract employees of the Technology Segment to
111 at September 30, 2009 from 97 at September 30, 2008.
Assay Segment
Selected financial data for our Assay Segment for the nine months ended September 30, 2009 and
2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Revenue
|
|
$
|
19,881
|
|
|
$
|
14,754
|
|
Gross profit
|
|
$
|
14,331
|
|
|
$
|
11,018
|
|
Gross profit margin percentage
|
|
|
72
|
%
|
|
|
75
|
%
|
Operating expenses
|
|
$
|
17,683
|
|
|
$
|
16,407
|
|
Loss from operations
|
|
$
|
(3,352
|
)
|
|
$
|
(5,389
|
)
|
24
A breakdown of revenue in the Assay Segment for the nine months ended September 30, 2009 and
2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
System sales
|
|
$
|
1,173
|
|
|
$
|
1,227
|
|
Consumable sales
|
|
|
45
|
|
|
|
32
|
|
Assay revenue
|
|
|
18,164
|
|
|
|
13,268
|
|
Service contracts
|
|
|
203
|
|
|
|
38
|
|
Other revenue
|
|
|
296
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
$
|
19,881
|
|
|
$
|
14,754
|
|
|
|
|
|
|
|
|
Revenue.
Total revenue for our Assay Segment increased by 35% to $19.9 million for the nine
months ended September 30, 2009 from $14.8 million for the comparable period in 2008. The increase
in revenue was primarily attributable to a 37% increase in assay revenue, driven primarily by
increased sales of RVP due to the 2009 novel influenza H1N1. The majority of our Assay Segment
revenues are generated from the sale of test kits. Historically, over 70% of our total assay
revenue was derived from our CF product line. As a result of the launch of our RVP product in
January 2008, our top two products in the nine months ended September 30, 2009 were CF and RVP,
which together represented 85% of total assay revenue. The top five customers, by revenue,
accounted for 76% of total Assay Segment revenue for the nine months ended September 30, 2009. In
particular, three customers accounted for 61% of total assay segment revenue (28%, 18%, and 15%,
respectively) for the nine months ended September 30, 2009. Three customers accounted for 56% of
total assay segment revenue (25%, 21% and 10%, respectively) for the nine months ended September
30, 2008. No other customer accounted for more than 10% of total Assay Segment revenue. During
the nine months ended September 30, 2009, our Assay Segment sold 29 systems. Other revenue
includes shipping revenue and training revenue.
Gross profit
. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the Assay Segment decreased to 72% for the nine months ended September 30, 2009 from
75% for the nine months ended September 30, 2008. Gross profit for the Assay Segment increased to
$14.3 million for the nine months ended September 30, 2009, as compared to $11.0 million for the
nine months ended September 30, 2008. The decrease in gross profit margin percentage was primarily
attributable to a contractual amendment with a partner resulting in a positive pricing adjustment
of $327,000 in the third quarter of 2008 and accelerated amortization of a license agreement
related to the termination of a supply contract associated with our FlexmiR product line. The
increase in gross profit was primarily attributable to the overall increase in revenue offset by
the decrease in gross margin.
Research and development expense.
Research and development expenses for our Assay Segment were
$7.2 million and $5.9 million for the nine months ended September 30, 2009 and 2008, respectively.
The increase in research and development expenses was primarily related to additional personnel
costs and the related stock compensation and travel costs associated with the increase in research
and development employees and contract employees of the Assay Segment to 57 at September 30, 2009
from 47 at September 30, 2008.
Selling, general and administrative expense
. Selling, general and administrative expenses,
including the amortization of acquired intangibles, for the Assay Segment were $10.4 million and
$10.5 million for the nine months ended September 30, 2009 and 2008, respectively. The slight
decrease in selling, general, and administrative expenses is primarily due to a decrease in
marketing expenses, outside services and legal fees, offset by a payment of $780,000 made related
to the termination of a supply contract associated with our FlexmiR product line. We launched our
next generation FlexmiR in July 2009. This termination is not expected to affect FlexmiR product
supply to customers.
25
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
78,740
|
|
|
$
|
81,619
|
|
Short-term investments
|
|
|
16,516
|
|
|
|
40,501
|
|
Long-term investments
|
|
|
19,722
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
$
|
114,978
|
|
|
$
|
124,120
|
|
|
|
|
|
|
|
|
At September 30, 2009, we held cash and cash equivalents, short-term investments, and
long-term investments of $115.0 million and had working capital of $113.4 million. At December 31,
2008, we held cash and cash equivalents, short-term investments, and long-term investments of
$124.1 million and had working capital of $131.5 million. The decrease in cash, cash equivalents
and short-term investments is primarily attributable to capital expenditures and an increase in our
accounts receivable as of September 30, 2009.
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 secondary
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 government sponsored
debt obligations and non-government sponsored debt obligations. We do not have any investments in
asset-backed commercial paper, auction rate securities, mortgage backed or sub-prime style
investments.
Cash provided by operating activities was $6.3 million for the three months ended September
30, 2009, compared with cash provided by operating activities of $3.7 million for the three months
ended September 30, 2008. Significant items affecting operating cash flows for the three months
ended September 30, 2009 were an increase in accounts payable of $1.4 million, depreciation and
amortization of $2.1 million and stock-based compensation of $2.2 million.
Cash provided by investing activities was $6.4 million for the three months ended September
30, 2009, compared with cash used in investing activities of $28.3 million for the three months
ended September 30, 2008. In the third quarter of 2009, our purchases of securities decreased as
we decided to hold maturing short-term investments in cash and cash equivalents. In addition, our
capital expenditures for property, plant, and equipment increased to $3.5 million and $8.6 million
for the three and nine months ended September 30, 2009, respectively, compared to $0.9 million and
$2.7 million for the three and nine months ended September 30, 2008, respectively. The capital
expenditures were primarily related to leasehold improvements for additional space leased in the
U.S. and the Netherlands, acquisitions of FLEXMAP 3D systems for internal use, and purchases of
equipment for our business continuity site.
Our operating expenses during the three months ended September 30, 2009 were $19.3 million, of
which $5.6 million was research and development expense and $13.6 million was selling, general and
administrative expense, including the amortization of acquired intangibles. We expect our
investment in research and development will increase in absolute dollars, but decrease as a
percentage of revenue as a result of our continuing investment in the research and development
pipeline to support our strategy and expanded focus on product and platform development. In the
longer term, we expect total expense as a percentage of revenue to decrease towards our long term
target of 15% of total revenue. We currently expect selling, general, and administrative expenses
as a percentage of revenue for 2009, excluding the impact of foreign exchange on foreign
denominated balances, to be lower than in 2008.
26
Our future capital requirements will depend on a number of factors, including our success in
developing and expanding markets for our products, payments under possible future strategic
arrangements, continued progress of our research and development of potential products, the timing
and outcome of regulatory approvals, the need to acquire licenses to new technology, costs
associated with strategic acquisitions including integration costs and assumed liabilities,
litigation expense, the status of competitive products and potential costs associated with both
protecting and defending our intellectual property. We believe, however, that our existing cash
and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements
and other expected liquidity requirements for the coming twelve months. Factors that could affect
this estimate are discussed in the Safe Harbor Cautionary Statement of this report and the Risk
Factors in our 2008 10-K.
To the extent 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
the acquisition of new products or technologies. There can be no assurance that debt or equity
funds will be available on favorable terms, if at all, particularly given the current state of the
capital markets. To the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of those securities could result in dilution to our
stockholders. Moreover, incurring debt financing could result in a substantial portion of our
operating cash flow being dedicated to the payment of principal and interest on such indebtedness,
could render us more vulnerable to competitive pressures and economic downturns and could impose
restrictions on our operations. If adequate funds are not available, we may be required to curtail
operations significantly or to obtain funds through entering into agreements on unattractive terms.
27
Contractual Obligations
As of September 30, 2009, we had approximately $10.6 million in non-cancelable obligations for
the following 12 months. These obligations are included in our estimated cash usage described
below. The following table reflects our total current non-cancelable obligations by period as of
September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due By Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
Non-cancelable rental
obligations
|
|
$
|
11,119
|
|
|
$
|
2,227
|
|
|
$
|
4,369
|
|
|
$
|
3,617
|
|
|
$
|
906
|
|
Non-cancelable purchase
obligations
(1)
|
|
$
|
12,568
|
|
|
|
7,700
|
|
|
|
1,348
|
|
|
|
1,288
|
|
|
|
2,232
|
|
Long-term debt
obligations
(2)
|
|
$
|
5,247
|
|
|
|
672
|
|
|
|
2,050
|
|
|
|
1,356
|
|
|
|
1,169
|
|
Capital lease obligations
|
|
$
|
27
|
|
|
|
26
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(3)
|
|
$
|
28,961
|
|
|
$
|
10,625
|
|
|
$
|
7,768
|
|
|
$
|
6,261
|
|
|
$
|
4,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Purchase obligations include contractual arrangements in the form of purchase orders
primarily as a result of normal inventory purchases or minimum payments due resulting when
minimum purchase commitments are not met.
|
|
(2)
|
|
On December 12, 2003, LMD entered into an agreement with the Ministry of Industry of
the Government of Canada under which the Government agreed to invest up to Canadian (Cdn)
$7.3 million relating to the development of several genetic tests. This agreement was
amended in March 2009. Funds were advanced from Technology Partnerships Canada (TPC), a
special operating program. The actual payments we received were predicated on eligible
expenditures made during the amended project period which ended July 31, 2008. LMD has
received Cdn $4.9 million from TPC which is expected to be repaid along with approximately
Cdn $1.6 million of imputed interest for a total of approximately Cdn $6.5 million.
|
|
|
|
LMD has agreed to repay the TPC funding through a royalty on revenues. Royalty payments
commenced in 2007 at a rate of 1% of total revenue and at a rate of 2.5% for 2008 and
thereafter. Aggregate royalty repayment will continue until total advances plus imputed
interest has been repaid or until December 31, 2016, whichever is earlier. The repayment
obligation expires on December 31, 2016 and any unpaid balance will be cancelled and
forgiven on that date. Should the term of repayment be shorter than expected due to higher
than expected assay revenue, the effective interest rate would increase as repayment is
accelerated. Repayments denominated in U.S. Dollars are currently projected to be as shown
in the table above, but actual future sales generating a repayment obligation will vary from
this projection and are subject to the risks and uncertainties described elsewhere in this
report, including under Risk Factors and Safe Harbor Cautionary Statement. The amount
due within one year, as shown in the table above, is our estimated repayment amount based on
the current projected sales for the full year 2009. Furthermore, payments reflected in U.S.
Dollars are subject to adjustment based upon applicable exchange rates as of the reporting
date.
|
|
(3)
|
|
Due to the uncertainty with respect to the timing of future cash flows associated with
Luminexs unrecognized tax benefits at September 30, 2009, Luminex is unable to make
reasonable reliable estimates of the timing of cash settlement with the respective taxing
authority. Therefore, $251,000 of unrecognized tax benefits have been excluded from the
contractual obligations table above.
|
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk.
Our investment portfolio includes cash and cash equivalents, short-term
investments and long-term investments. Our interest income is sensitive to changes in the general
level of domestic interest rates. A 50 basis point fluctuation from average investment returns at
September 30, 2009 would yield an approximate 1.4% variance in overall investment return. Due to
the types of investments that we hold, we believe that there is currently no material market risk
exposure.
Foreign Currency Risk.
As of September 30, 2009, as a result of our foreign operations, we
have costs, assets and liabilities that are denominated in foreign currencies, primarily Canadian
dollars and to a lesser extent the Euro, Renminbi, and Yen. For example, some fixed asset
purchases, certain expenses, and the TPC debt of our Canadian subsidiary, LMD, are denominated in
Canadian dollars while sales of products are primarily denominated in U.S. dollars. All
transactions in our Netherlands and Japanese subsidiaries are denominated in Euros and Yen,
respectively. All transactions, with the exception of our initial capital investment, in our
Chinese subsidiary are denominated in Renminbi. As a consequence, movements in exchange rates
could cause our foreign currency denominated expenses to fluctuate as a percentage of net revenue,
affecting our profitability and cash flows. A significant majority of our revenues are denominated
in U.S. dollars. The impact of foreign exchange on foreign denominated balances will vary in
relation to changes between the U.S. and Canadian Dollar, Euro, Yen, and Renminbi exchange rates. A
10% change in these exchange rates in relation to the U.S. dollar would result in an immaterial
foreign exchange impact. As a result of our efforts to expand globally, in the future we will be
exposed to additional foreign currency risk in multiple currencies; however, at this time, our
exposure to foreign currency fluctuations is not material.
In addition, the indirect effect of fluctuations in interest rates and foreign currency
exchange rates could have a material adverse effect on our business financial condition and results
of operations. For example currency exchange rate fluctuations could affect international demand
for our products. In addition, interest 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. Aggregate foreign currency transaction loss of
$57,000 was included in determining our consolidated results of operations for the three months
ended September 30, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934 (Exchange Act), which are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is accumulated and communicated
to our management, including our 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 our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as of the end of the period covered by this quarterly report.
Based on the evaluation and criteria of these disclosure controls and procedures, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective.
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 quarter ended
September 30, 2009 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 24, 2009, we notified Abbott Molecular Inc. of our intent to convert its right to distribute Luminexs xTAG®
Respiratory Viral Panel (RVP) from exclusive to non-exclusive on a worldwide basis under the Distribution Agreement,
dated February 1, 2008, between Abbott Molecular and LMD. On September 11, 2009, Abbott Molecular Inc. notified us
that it intended to exercise its right to seek arbitration under the Distribution Agreement. Among other matters,
Abbott is disputing LMDs right to terminate Abbotts exclusive right to distribute RVP under the Agreement.
Irrespective of the result of the arbitration, Abbott will continue to maintain the right to distribute RVP. The
binding arbitration is currently scheduled for December 14, 2009. At this time, we cannot assess the probability of
the various potential outcomes of this arbitration.
When and if it appears probable in managements judgment that we will incur monetary damages
or other costs in connection with any claims or proceedings, and such costs can be reasonably
estimated, liabilities will be recorded in the financial statements and charges will be recorded
against earnings. Though there can be no assurances, our management believes that the resolution of
existing routine matters and other incidental claims, taking into account accruals and insurance,
will not have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
Reference is made to the factors set forth under the caption Safe Harbor Cautionary
Statement in Part I, Item 2 of this report and other risk factors described in Part I, Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2008, which are incorporated herein
by reference. There have been no material changes from the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The stock repurchase activity for the third quarter of 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
Appromixate Dollar Value of
|
|
|
Total Number of
|
|
Average Price
|
|
Purchased as Part of
|
|
Shares that May Yet Be
|
|
|
Shares
|
|
Paid per Share
|
|
Publicly Announced
|
|
Purchased Under the Plans or
|
Period
|
|
Purchased
|
|
(1)($)
|
|
Plans or Programs
|
|
Programs
|
|
07/01/09 - 07/31/09
|
|
|
650
|
|
|
|
17.70
|
|
|
|
|
|
|
|
|
|
08/01/09 - 08/31/09
|
|
|
16,257
|
|
|
|
17.71
|
|
|
|
|
|
|
|
|
|
09/01/09 - 09/30/09
|
|
|
72
|
|
|
|
18.13
|
|
|
|
|
|
|
|
|
|
|
Total Third Quarter
|
|
|
16,979
|
|
|
|
17.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Shares purchased are attributable to the withholding of shares by Luminex to satisfy the
payment of tax obligations related to the vesting of restricted shares.
|
30
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
|
31.1
|
|
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
31
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
Date: November 5, 2009
|
LUMINEX CORPORATION
|
|
|
By:
|
/s/ Harriss T. Currie
|
|
|
|
Harriss T. Currie
|
|
|
|
Vice President, Finance, Chief Financial
Officer and Treasurer (Principal Financial
Officer)
|
|
|
|
|
|
|
By:
|
/s/ Patrick J. Balthrop, Sr.
|
|
|
|
Patrick J. Balthrop, Sr.
|
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
S-1
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Documents
|
|
|
|
31.1
|
|
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
S-2
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