10-Q
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 March 31, 2009
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 .
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 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
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78727 |
(Address of principal executive offices)
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(Zip Code) |
(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.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o (Do not check if smaller reporting company)
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Smaller reporting company o |
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 41,413,047 shares of the Companys Common Stock, par value $0.001 per share,
outstanding on May 4, 2009.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUMINEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
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March 31, |
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December 31, |
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2009 |
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2008 |
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(unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
70,715 |
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$ |
81,619 |
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Short-term investments |
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37,903 |
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40,784 |
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Accounts receivable, net |
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13,922 |
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11,024 |
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Inventory, net |
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11,446 |
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11,589 |
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Other |
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1,069 |
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1,377 |
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Total current assets |
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135,055 |
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146,393 |
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Property and equipment, net |
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12,805 |
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12,567 |
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Intangible assets, net |
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14,410 |
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14,901 |
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Long-term investments |
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13,531 |
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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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1,640 |
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1,813 |
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Total assets |
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$ |
217,058 |
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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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$ |
8,064 |
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$ |
4,580 |
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Accrued liabilities |
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4,227 |
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7,181 |
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Deferred revenue |
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3,032 |
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2,671 |
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Current portion of long term debt |
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538 |
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445 |
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Total current liabilities |
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15,861 |
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14,877 |
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Long-term debt |
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3,322 |
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2,914 |
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Deferred revenue and other |
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4,714 |
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4,960 |
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Total liabilities |
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23,897 |
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22,751 |
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Stockholders equity: |
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Common stock |
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40 |
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40 |
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Additional paid-in capital |
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280,723 |
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279,255 |
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Accumulated other comprehensive loss |
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(104 |
) |
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(47 |
) |
Accumulated deficit |
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(87,498 |
) |
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(84,708 |
) |
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Total stockholders equity |
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193,161 |
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194,540 |
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Total liabilities and stockholders equity |
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$ |
217,058 |
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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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March 31, |
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2009 |
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2008 |
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(unaudited) |
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Revenue |
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$ |
25,557 |
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$ |
23,012 |
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Cost of revenue |
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7,989 |
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7,755 |
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Gross profit |
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17,568 |
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15,257 |
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Operating expenses: |
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Research and development |
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4,626 |
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4,431 |
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Selling, general and administrative |
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11,358 |
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12,094 |
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Total operating expenses |
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15,984 |
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16,525 |
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Income (loss) from operations |
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1,584 |
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(1,268 |
) |
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Interest expense from long-term debt |
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(118 |
) |
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(135 |
) |
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Settlement of litigation |
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(4,350 |
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Other income, net |
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271 |
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320 |
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Loss before income taxes |
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(2,613 |
) |
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(1,083 |
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Income taxes |
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(177 |
) |
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(83 |
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Net loss |
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$ |
(2,790 |
) |
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$ |
(1,166 |
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Net loss per share, basic |
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$ |
(0.07 |
) |
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$ |
(0.03 |
) |
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Shares used in computing net loss
per share, basic |
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40,347 |
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35,422 |
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Net loss per share, diluted |
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$ |
(0.07 |
) |
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$ |
(0.03 |
) |
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Shares used in computing net loss
per share, diluted |
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40,347 |
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35,422 |
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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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March 31, |
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2009 |
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2008 |
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(unaudited) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(2,790 |
) |
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$ |
(1,166 |
) |
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities: |
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Depreciation and amortization |
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1,963 |
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1,656 |
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Stock-based compensation and other |
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1,771 |
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1,729 |
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Loss on disposal of assets |
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10 |
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Other |
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(131 |
) |
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609 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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(3,100 |
) |
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51 |
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Inventory, net |
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142 |
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(929 |
) |
Prepaids and other |
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559 |
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(294 |
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Accounts payable |
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3,481 |
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290 |
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Accrued liabilities |
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(3,309 |
) |
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(2,519 |
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Deferred revenue |
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116 |
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625 |
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Net cash (used in) provided by operating activities |
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(1,288 |
) |
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52 |
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Cash flows from investing activities: |
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Net (purchases) of available-for-sale investments |
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(31,481 |
) |
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(981 |
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Maturities of held-to-maturity investments |
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22,699 |
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Purchase of property and equipment |
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(1,531 |
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(787 |
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Acquired technology rights |
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(7 |
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Net cash (used in) investing activities |
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(10,320 |
) |
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(1,768 |
) |
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Cash flows from financing activities: |
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Proceeds from debt |
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454 |
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Proceeds from issuance of common stock |
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139 |
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808 |
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Net cash provided by financing activities |
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593 |
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808 |
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Effect of foreign currency exchange rate on cash |
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111 |
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35 |
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Change in cash and cash equivalents |
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(10,904 |
) |
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(873 |
) |
Cash and cash equivalents, beginning of period |
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81,619 |
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27,233 |
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Cash and cash equivalents, end of period |
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$ |
70,715 |
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$ |
26,360 |
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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. 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 months ended March 31, 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 months ended March 31, 2009 and 2008 was
approximately $2.8 million and approximately $1.1 million, respectively.
The Company has two segments for financial reporting purposes: the Technology Segment and the
Assay Segment. See Note 6 Segment Information.
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.
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 recorded as either short term or long term on the Balance Sheet based on contractual
maturity date and 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.
The fair value of all securities is determined by quoted market prices. The estimated fair
value of securities for which there are no quoted market prices is based on similar types of
securities that are traded in the market.
The amortized costs of held-to-maturity debt securities at March 31, 2009, by contractual
maturity, are shown below (in thousands):
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Amortization |
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and Accretion |
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of Premiums |
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Amortized |
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Cost |
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and Discounts |
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Cost |
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Due in one year or less |
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$ |
19,803 |
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$ |
147 |
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$ |
19,950 |
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4
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Available-for-sale securities consist of the following at March 31, 2009 (in thousands):
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Gains in |
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Losses in |
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Accumulated |
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Accumulated |
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Other |
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Other |
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Comprehensive |
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Comprehensive |
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Estimated |
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Cost |
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Loss |
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Loss |
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Fair Value |
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Current: |
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Money Market funds |
|
$ |
70,715 |
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$ |
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$ |
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$ |
70,715 |
|
Federal agency debt securities |
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|
17,942 |
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15 |
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|
17,957 |
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Total current securities |
|
|
88,657 |
|
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|
15 |
|
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|
88,672 |
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Noncurrent: |
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Federal agency debt securities |
|
|
13,491 |
|
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|
36 |
|
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|
13,527 |
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Total noncurrent securities |
|
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13,491 |
|
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|
36 |
|
|
|
|
|
|
|
13,527 |
|
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Total available-for-sale securities |
|
$ |
102,148 |
|
|
$ |
51 |
|
|
$ |
|
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|
$ |
102,199 |
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There were no proceeds from the sales of available-for-sale securities during the three months
ended March 31, 2009 or 2008. Net unrealized holding gains on available-for-sale securities in the
amount of $51,000 for the three months ended March 31, 2009 have been included in accumulated other
comprehensive loss.
The estimated fair value of available-for-sale debt securities at March 31, 2009, by
contractual maturity, is as follows (in thousands):
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Estimated |
|
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Fair Value |
|
Due in one year or less |
|
$ |
17,957 |
|
Due in 12 years |
|
|
13,527 |
|
|
|
|
|
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$ |
31,484 |
|
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|
Expected maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment penalties.
Financial Accounting Standard (FAS) 157 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 under FAS 157 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 under FAS 157
must maximize the use of observable inputs and minimize the use of unobservable inputs. The
standard 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.
5
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In accordance with FAS 157, 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 March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Money Market funds |
|
$ |
70,715 |
|
|
|
|
|
|
|
|
|
|
$ |
70,715 |
|
Federal agency debt securities |
|
|
51,434 |
|
|
|
|
|
|
|
|
|
|
|
51,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
122,149 |
|
|
|
|
|
|
|
|
|
|
$ |
122,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
70,715 |
|
|
|
|
|
|
|
|
|
|
$ |
70,715 |
|
Short-term investments |
|
|
37,903 |
|
|
|
|
|
|
|
|
|
|
|
37,903 |
|
Long-term investments |
|
|
13,531 |
|
|
|
|
|
|
|
|
|
|
|
13,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
122,149 |
|
|
|
|
|
|
|
|
|
|
$ |
122,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 INVENTORY, NET
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Parts and supplies |
|
$ |
5,416 |
|
|
$ |
5,756 |
|
Work-in-progress |
|
|
4,238 |
|
|
|
4,022 |
|
Finished goods |
|
|
2,530 |
|
|
|
2,588 |
|
|
|
|
|
|
|
|
|
|
|
12,184 |
|
|
|
12,366 |
|
|
|
|
|
|
|
|
|
|
Less: Allowance for excess and obsolete inventory |
|
|
(738 |
) |
|
|
(777 |
) |
|
|
|
|
|
|
|
|
|
$ |
11,446 |
|
|
$ |
11,589 |
|
|
|
|
|
|
|
|
NOTE 4 EARNINGS PER SHARE
In accordance with FAS No. 128, Earnings Per Share, basic and diluted net income 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.
6
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A reconciliation of the denominators used in computing per share net income, or EPS, is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,790 |
) |
|
$ |
(1,166 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic net loss per share
weighted average common stock outstanding |
|
|
40,347 |
|
|
|
35,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per share
weighted average common stock outstanding and
dilutive common stock equivalents |
|
|
40,347 |
|
|
|
35,422 |
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
Diluted net loss per share |
|
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
Basic net loss per share is computed by dividing the net loss for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss per share is
computed by dividing the net 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 2.0 million and 2.3 million shares
for the three months ended March 31, 2009 and 2008, respectively, were excluded from the
computations of diluted EPS because the effect of including the RSAs, RSUs, and stock options would
have been anti-dilutive.
NOTE 5 STOCK-BASED COMPENSATION
The Companys stock option activity for the quarter ended March 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise |
|
Stock Options |
|
(in thousands) |
|
|
Price |
|
Outstanding at December 31, 2008 |
|
|
2,771 |
|
|
$ |
11.96 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(14 |
) |
|
|
10.28 |
|
Cancelled or expired |
|
|
(47 |
) |
|
|
16.91 |
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
2,710 |
|
|
$ |
11.88 |
|
The Company had $1.2 million of total unrecognized compensation costs related to stock options
at March 31, 2009 that are expected to be recognized over a weighted average period of 1.7 years.
7
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Companys restricted shares activity for the quarter ended March 31, 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 |
|
|
3 |
|
|
|
21.42 |
|
Vested |
|
|
(87 |
) |
|
|
14.44 |
|
Cancelled or expired |
|
|
(99 |
) |
|
|
15.93 |
|
|
|
|
|
|
|
|
Non-vested at March 31, 2009 |
|
|
1,014 |
|
|
$ |
15.43 |
|
|
|
|
|
|
|
|
Shares |
|
Restricted Stock Units |
|
(in thousands) |
|
Non-vested at December 31, 2008 |
|
|
280 |
|
Granted |
|
|
|
|
Vested |
|
|
(1 |
) |
Cancelled or expired |
|
|
(77 |
) |
|
|
|
|
Non-vested at March 31, 2009 |
|
|
202 |
|
As of March 31, 2009, there was $13.5 million and $4.8 million of unrecognized compensation
cost related to RSAs and RSUs, respectively. That cost is expected to be recognized over a weighted
average period of 2.5 years for the RSAs and 3.2 years for the RSUs.
The following are the stock-based compensation costs recognized in the Companys condensed
consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Cost of revenue |
|
$ |
127 |
|
|
$ |
112 |
|
Research and development |
|
|
302 |
|
|
|
244 |
|
Selling, general and administrative |
|
|
1,342 |
|
|
|
1,373 |
|
|
|
|
|
|
|
|
Total stock-based compensation costs |
|
$ |
1,771 |
|
|
$ |
1,729 |
|
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 information as of
or for the three months ended March 31, 2009 and 2008 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
Technology |
|
|
Assay |
|
|
|
|
|
|
Technology |
|
|
Assay |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Consolidated |
|
|
Segment |
|
|
Segment |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
21,098 |
|
|
$ |
4,459 |
|
|
$ |
25,557 |
|
|
$ |
18,656 |
|
|
$ |
4,356 |
|
|
$ |
23,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
972 |
|
|
|
991 |
|
|
$ |
1,963 |
|
|
|
777 |
|
|
|
879 |
|
|
$ |
1,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
2,478 |
|
|
|
(5,268 |
) |
|
$ |
(2,790 |
) |
|
|
1,154 |
|
|
|
(2,320 |
) |
|
$ |
(1,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
145,978 |
|
|
|
71,080 |
|
|
$ |
217,058 |
|
|
|
58,313 |
|
|
|
65,696 |
|
|
$ |
124,009 |
|
8
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 three months ended
March 31, 2009 was 7.2%. 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 and various states. Due to net operating losses, the U.S. tax returns dating
back to 1996 can still be reviewed by the 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 three months ended March 31, 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.
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 is reflected in accounts payable at March 31, 2009 and 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.
NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS
In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157 (the FSP). The FSP delayed, for one year, the effective date of FAS No. 157,
Fair Value Measurements (FAS 157) for all nonfinancial assets and liabilities, except those that
are recognized or disclosed in the financial statements on at least an annual basis. The
implementation of FAS 157 for financial assets and financial liabilities, effective January 1,
2008, did not have a material impact on the Companys consolidated financial position and results
of operations.
In October 2008, the FASB issued FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active (FAS 157-3). FAS 157-3 clarifies the application of
FAS 157 in a market that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that financial asset is not
active. The FSP is effective upon issuance, including for prior periods for which financial
statements have not been issued. Revisions resulting from a change in the valuation technique or
its application should be accounted for as a change in accounting estimate following the guidance
in FASB Statement No. 154, Accounting Changes and Error Corrections. However, the disclosure
provisions in Statement 154 for a change in accounting estimate are not required for revisions
resulting from a change in valuation technique or its application. The Company believes the impact
of this pronouncement on the Companys consolidated financial statements to be immaterial.
9
LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In December 2007, the FASB issued FAS No. 141 (Revised 2007), Business Combinations (FAS
141R) which replaces FAS No. 141, Business Combinations and FAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements (FAS 160). FAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. FAS 141R also establishes disclosure requirements that will enable users
to evaluate the nature and financial effects of the business combination. FAS 160 clarifies the
classification of noncontrolling interests in the financial statements and the accounting for and
reporting of transactions between the reporting entity and holders of such noncontrolling
interests. FAS 141R and FAS 160 are effective for the Companys fiscal year 2009 and must be
applied prospectively to all new acquisitions closing on or after January 1, 2009. Upon adoption,
these standards did not have a material impact on the Companys consolidated financial position and
results of operations. However, if the Company enters into any business combinations after the
adoption of FAS 141R, a transaction may significantly impact the Companys consolidated financial
position and results of operations as compared to the Companys 2007 Tm Bioscience acquisition,
accounted for under the prior GAAP requirements, due to the changes described above.
In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statements No. 142, Goodwill and Other Intangible Assets. FSP FAS
142-3 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The implementation of this standard did not
have a material impact on the Companys financial position or results of operations.
In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (FAS 162). FAS 162 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy). FAS 162 will become effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". Based on
its current operations, the Company does not expect that the adoption of FAS 162 will have a
material impact on its financial position or results of operations.
10
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 on us and our strategic
partners and their customers, including its effects on their capital spending policies and
their ability to finance purchases of our products; |
|
|
|
concentration of our revenue in a limited number of strategic partners; |
|
|
|
fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, bulk
purchases of consumables, 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; |
|
|
|
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. |
11
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 100 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. Products we are currently developing and that
are anticipated for market release in 2009 will be able to perform up to 500 simultaneous bioassays
from a small sample volume. 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 companies, which then develop products that incorporate the xMAP technology into
products that they sell to the end-user. 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 March 31, 2009, Luminex had approximately
61 strategic partners and these partners have purchased from Luminex over 6,000 xMAP-based systems.
Of the 61 strategic partners, 36 have released commercialized reagent-based products utilizing our
technology.
12
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.
Luminex has several forms of revenue that result from this partner 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 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. |
First Quarter 2009 Highlights
|
|
|
Consolidated revenue of $25.6 million for the quarter ended March 31, 2009,
representing an 11% increase over revenue for the first quarter of 2008 |
|
|
|
Consolidated gross profit margin of 69% compared with first quarter 2008 gross profit
margin of 66% |
|
|
|
System shipments of 203 including 2 shipments of FLEXMAP 3D, representing the tenth
consecutive quarter of system shipments of 200 or more and resulting in cumulative
life-to-date shipments of 6,097 |
|
|
|
First quarter consumables revenue of $7.6 million and royalty revenue of $4.5 million |
|
|
|
Our partners reported over $65 million of royalty bearing end user sales on xMAP
technology for the quarter, a 21% increase over the first quarter of 2008 |
|
|
|
Settlement of SUNY lawsuit, resulting in one-time charge of approximately $4.4 million |
We have experienced a decrease in sequential total revenue from the fourth quarter of 2008
of approximately 9%, or $2.6 million. This decrease was a result of several factors.
|
|
|
The historical decline in system placements from each fourth quarter to the first
quarter of the subsequent year that we have consistently experienced, primarily
attributable to customer spending behavior. The variability in customer spending patterns
is one of the factors contributing to the broad range of expected system placements we have
communicated of between 175 and 225 LX100/200 systems per quarter. |
13
|
|
|
The decline in bulk consumable purchases in the first quarter of 2009. In the fourth
quarter of 2008, we had bulk purchases totaling $6.8 million in consumables. In the first
quarter of 2009, bulk purchases constituted $6.1 million of consumables, primarily as a
result of one less bulk purchaser in the first quarter. We have previously indicated that
variability is expected in the absolute number of bulk purchasers and purchases per quarter
and we expect this variability to continue. Non-bulk purchases for the same periods
remained essentially unchanged at approximately $1.5 million. |
|
|
|
The decline in total assay revenue from $5.4 million in the fourth quarter of 2008 to
$4.2 million in the first quarter of 2009. The decline in total assay revenue is a result
of expected volatility in individual assay sales coupled with a lighter than anticipated
flu season, resulting in xTAG RVP sales falling below expectations. Assay volatility will
continue to exist as our customers buy product to meet current expected needs and manage
their inventory, and as a result of economic and other external conditions that may impact
a particular product, such as a mild flu season with respect to our xTAG RVP products. In
the aggregate, we do not believe that our anticipated assay sales will experience any long
term decline based on the first quarter results and experience, and with the introduction
of new products currently in the pipeline, assay sales are expected to grow long term. |
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 anticipated 2009 revenue growth to be driven by sustained adoption of our core
technology coupled with assay introduction and commercialization by the Assay Segment. We
anticipate a continued shift in revenue concentration towards the higher margin items, such as
assays, consumables and royalties, which will remain a significant portion of our revenue mix,
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; however, we
estimate that R&D expenditures for the year ended December 31, 2009 will decline as a percentage of
revenue from 18% in 2008 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 continued adoption
of partner products incorporating Luminex technology, the current economic condition and its
potential impact on the purchases and sales of our partners and customers, our ability to improve
or maintain our operating margins, commercialization, regulatory acceptance and market adoption of
output from the Assay Segment, our ability to manage our costs, and the expansion of our footprint
and reputation within our identified target market segments.
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 March 31,
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 our Annual
Report on Form 10-K for the year ended December 31, 2008.
14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008
Selected consolidated financial data for the three months ended March 31, 2009 and 2008 is as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
25,557 |
|
|
$ |
23,012 |
|
Gross profit |
|
$ |
17,568 |
|
|
$ |
15,257 |
|
Gross profit margin percentage |
|
|
69 |
% |
|
|
66 |
% |
Operating expenses |
|
$ |
15,984 |
|
|
$ |
16,525 |
|
Income (loss) from operations |
|
$ |
1,584 |
|
|
$ |
(1,268 |
) |
Total revenue increased by 11% to $25.6 million for the three months ended March 31, 2009 from
$23.0 million for the comparable period in 2008. The increase in revenue was primarily attributable
to growth in consumable and royalty revenues in the Technology Segment as a result of the expansion
of the installed instrument base and the corresponding increased aggregate consumption which
contributed $2.1 million or 81% of the overall increase. System sales for the first quarter of 2009
decreased to 203 Systems from 220 Systems for the corresponding prior year period bringing total
system sales since inception to 6,097 as of March 31, 2009.
A breakdown of revenue for the three months ended March 31, 2009 and 2008 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
System sales |
|
$ |
6,127 |
|
|
$ |
6,627 |
|
Consumable sales |
|
|
7,603 |
|
|
|
6,554 |
|
Royalty revenue |
|
|
4,527 |
|
|
|
3,518 |
|
Assay revenue |
|
|
4,195 |
|
|
|
3,846 |
|
Service contracts |
|
|
1,432 |
|
|
|
1,219 |
|
Other revenue |
|
|
1,673 |
|
|
|
1,248 |
|
|
|
|
|
|
|
|
|
|
$ |
25,557 |
|
|
$ |
23,012 |
|
|
|
|
|
|
|
|
We continue to experience revenue concentration in a limited number of strategic partners. Two
customers accounted for 34% of consolidated total revenue in the first quarter of 2009 (21% and
13%, respectively). For comparative purposes, these same two customers accounted for 32% of total
revenue (17% and 15%, respectively) in the first quarter of 2008. No other customer accounted for
more than 10% of total revenue in this quarter.
Gross profit margin percentage increased to 69% for the three months ended March 31, 2009 from
66% for the comparable period in 2008 due to the continued shift in revenue concentration towards
higher margin items: consumables and royalties. The decrease in operating expenses from $16.5
million for the first quarter of 2008 to $16.0 million for the three months ended March 31, 2009
reflects our cost containment efforts. Net operating income increased due to the increase in
revenue and gross profit margin percentage. See additional discussions by segment below.
15
Technology Segment
Selected financial data for our Technology Segment for the three months ended March 31, 2009
and 2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
21,098 |
|
|
$ |
18,656 |
|
Gross profit |
|
$ |
14,583 |
|
|
$ |
11,989 |
|
Gross profit margin percentage |
|
|
69 |
% |
|
|
64 |
% |
Operating expenses |
|
$ |
11,065 |
|
|
$ |
11,090 |
|
Income from operations |
|
$ |
3,518 |
|
|
$ |
899 |
|
Revenue. Total revenue for our Technology Segment increased by 13% to $21.1 million for the
three months ended March 31, 2009 from $18.7 million for the comparable period in 2008. The
increase in revenue was primarily attributable to an increase in consumable and royalty revenue as
a result of the expansion of the installed instrument base and the corresponding increased
aggregate consumption. Two customers accounted for 41% of total Technology Segment revenue in the
first quarter of 2009 (25% and 16%, respectively). For comparative purposes, these same two
customers accounted for 40% of total Technology Segment revenue (21% and 19%, respectively) in the
first quarter of 2008.
A breakdown of revenue in the Technology Segment for the three months ended March 31, 2009 and
2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
System sales |
|
$ |
6,011 |
|
|
$ |
6,163 |
|
Consumable sales |
|
|
7,590 |
|
|
|
6,545 |
|
Royalty revenue |
|
|
4,527 |
|
|
|
3,518 |
|
Service contracts |
|
|
1,372 |
|
|
|
1,219 |
|
Other revenue |
|
|
1,598 |
|
|
|
1,211 |
|
|
|
|
|
|
|
|
|
|
$ |
21,098 |
|
|
$ |
18,656 |
|
|
|
|
|
|
|
|
System and peripheral component sales decreased by 2% to $6.0 million for the three months
ended March 31, 2009 from $6.2 million for the comparable period of 2008. The Technology Segment
sold 199 of the 203 total system sales in the three months ended March 31, 2009. For the three
months ended March 31, 2009, five of our partners accounted for 132, or 66%, of total Technology
Segment system sales for the period. The top five partners purchased 162, or 74%, of total
Technology Segment system sales in the three months ended March 31, 2008.
Consumable sales, comprised of microspheres and sheath fluid, increased 16% to $7.6 million
for the three months ended March 31, 2009 from $6.5 million for the three months ended March 31,
2008. This is primarily the result of an increase in bulk purchases due to increased commercial
activity by our partners. A bulk purchase is defined as the purchase of $100,000 or more of
consumables in a quarter. During the three months ended March 31, 2009, we had 11 bulk purchases of
consumables totaling approximately $6.1 million as compared with 11 bulk purchases totaling
approximately $5.2 million in the three months ended March 31, 2008. Partners who reported royalty
bearing sales accounted for $6.6 million, or 87%, of total consumable sales for the three months
ended March 31, 2009.
16
Royalty revenue, which results when our partners sell products or services incorporating our
technology, increased by 29% to $4.5 million for the three months ended March 31, 2009 compared
with $3.5 million for the three months ended March 31, 2008. We believe this is primarily the
result of our efforts to accelerate instrument
placements, menu expansion, and increased 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 March 31, 2009, we had 36 commercial partners submitting royalties as compared to 31
for the three months ended March 31, 2008. One of our partners reported royalties totaling
approximately $1.5 million or 32% of total royalties for the current quarter compared to $950,000
or 25% for the quarter ended March 31, 2008. Two other customers reported royalties totaling
approximately $949,000 or 21% (12% and 9%, respectively) of total royalties for the current
quarter. No other customer accounted for more than 10% of total royalty revenue for the current
quarter. Total royalty bearing sales reported to us by our partners were over $65 million for the
quarter ended March 31, 2009 compared with over $53 million for the quarter ended March 31, 2008.
Service contracts revenue, comprised of extended warranty contracts earned ratably over the
term of a contract, increased by 13% to $1.4 million for the first quarter of 2009 from $1.2
million for the first quarter of 2008. This increase is attributable to additional resources
allocated to the sale of extended service agreements resulting in increased penetration of the
expanded installed base. At March 31, 2009, we had 1,016 Luminex systems covered under extended
service agreements and $2.5 million in deferred revenue related to those contracts. At March 31,
2008, we had 841 Luminex systems covered under extended service agreements and $2.3 million in
deferred revenue related to those contracts.
Other revenues, comprised of training revenue, shipping revenue, miscellaneous part sales,
amortized license fees, reagent sales, and grant revenue, increased by 32% to $1.6 million for the
three months ended March 31, 2009 from $1.2 million for the three months ended March 31, 2008. This
increase is primarily the result of an increase in grant revenue.
Gross profit. The gross profit margin percentage (gross profit as a percentage of total
revenue) for the Technology Segment increased to 69% for the three months ended March 31, 2009 from
64% for the three months ended March 31, 2008. Gross profit for the Technology Segment increased to
$14.6 million for the three months ended March 31, 2009, as compared to $12.0 million for the three
months ended March 31, 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 coupled with
the increase in gross margin. Consumables and royalties, two of our higher margin items, comprised
$12.1 million, or 57%, of Technology Segment revenue for the current quarter and $10.1 million, or
54%, of Technology Segment revenue for the quarter ended March 31, 2008.
Research and development expense. Research and development expenses for the Technology Segment
decreased to $2.5 million for the three months ended March 31, 2009 from $2.7 million for the
comparable period in 2008. The slight decrease was primarily related to the timing of expenses
related to our various R&D projects, while headcount remained flat compared to the three months
ended March 31, 2008.
Selling, general and administrative expense. Selling, general and administrative expense for
the Technology Segment increased to $8.5 million for the three months ended March 31, 2009 from
$8.4 million for the comparable period in 2008.
Other income, net. Other income increased to $877,000 for the three months ended March 31,
2009 from $320,000 for the comparable period in 2008. The increase is due to the interest income on
the net proceeds from our secondary offering offset by the decrease in the average rate earned on
current invested balances which decreased to 1.0% at March 31, 2009 from 3.7% at March 31, 2008.
This decrease in the average rate earned is the result of an overall decrease in market rates
compared to the prior year period.
17
Assay Segment
Selected financial data for our Assay Segment for the three months ended March 31, 2009 and
2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
4,459 |
|
|
$ |
4,356 |
|
Gross profit |
|
$ |
2,985 |
|
|
$ |
3,268 |
|
Gross profit margin percentage |
|
|
67 |
% |
|
|
75 |
% |
Operating expenses |
|
$ |
4,919 |
|
|
$ |
5,435 |
|
Loss from operations |
|
$ |
(1,934 |
) |
|
$ |
(2,167 |
) |
A breakdown of revenue in the Assay Segment for the three months ended March 31, 2009 and 2008
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
System sales |
|
$ |
116 |
|
|
$ |
464 |
|
Consumable sales |
|
|
13 |
|
|
|
9 |
|
Service contracts |
|
|
|
|
|
|
1 |
|
Assay revenue |
|
|
4,195 |
|
|
|
3,845 |
|
Other revenue |
|
|
135 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
$ |
4,459 |
|
|
$ |
4,356 |
|
|
|
|
|
|
|
|
Revenue. Total revenue for our Assay Segment increased by 2% to $4.5 million for the three
months ended March 31, 2009 from $4.4 million for the comparable period in 2008. The increase in
revenue was primarily attributable to an increase in assay revenue and other revenue offset by a
decrease in system sales. 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 Cystic Fibrosis
(CF) product line. As a result of the launch of our Respiratory Viral Panel (RVP) product in
January 2008, our top two products in the current quarter were CF and RVP, which represented over
82% of total assay revenue. The top five customers, by revenue, accounted for 71% of total Assay
Segment revenue for the three months ended March 31, 2009. In particular, four customers accounted
for 64% of total Assay Segment revenue (23%, 19%, 11% and 11%, respectively) for the three months
ended March 31, 2009. No other customer accounted for more than 10% of total Assay Segment revenue.
During the three months ended March 31, 2009, our Assay Segment sold four 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 67% for the three months ended March 31, 2009 from 75%
for the three months ended March 31, 2008. Gross profit for the Assay Segment decreased to $3.0
million for the three months ended March 31, 2009, as compared to $3.3 million for the three months
ended March 31, 2008. The decrease in gross profit margin percentage was primarily attributable to
an increase in indirect Assay Segment sales through distributors from 19% of total Assay Segment
revenue for the three months ended March 31, 2008 to 35% for the three months ended March 31, 2009
and the impact of the depreciation of the Canadian dollar against the U.S. dollar on the sales made
in Canadian dollars. The lower margins experienced with distributors are offset by the broader
commercial access to global and decentralized markets.
Research and development expense. Research and development expenses for our Assay Segment were
$2.1 million and $1.7 million for the three months ended March 31, 2009 and 2008, respectively. The
increase in research and development expenses was primarily due to increased activity related to
assay development.
18
Selling, general and administrative expense. Selling, general and administrative expenses,
including the amortization of acquired intangibles, for the Assay Segment were $2.8 million and
$3.7 million for the three months ended March 31, 2009 and 2008, respectively. The overall decrease
in selling, general, and administrative expenses is primarily due to a decrease in legal expenses
and external marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
70,715 |
|
|
$ |
81,619 |
|
Short-term investments |
|
|
37,903 |
|
|
|
40,784 |
|
Long-term investments |
|
|
13,531 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
$ |
122,149 |
|
|
$ |
124,403 |
|
|
|
|
|
|
|
|
At March 31, 2009, we held cash and cash equivalents, short-term investments, and long-term
investments of $122.1 million and had working capital of $119.2 million. At December 31, 2008, we
held cash and cash equivalents, short-term investments, and long-term investments of $124.4 million
and had working capital of $131.5 million. The decrease in cash, cash equivalents and short-term
investments is primarily attributable to an increase in our accounts receivable in the quarter
ended March 31, 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 obligations of the
United States government or agencies thereof and U.S. corporate debt securities. We do not have any
investments in asset-backed commercial paper, auction rate securities, mortgage backed or sub-prime
style investments.
Cash used in operating activities was $1.3 million for the three months ended March 31, 2009,
compared with cash provided by operating activities of $52,000 for the three months ended March 31,
2008. Significant items affecting operating cash flows for the three months ended March 31, 2009
were our net loss of $2.8 million, depreciation and amortization of $2.0 million and stock-based
compensation of $1.8 million, offset by a decrease in accrued liabilities of $3.3 million as a
result of payments of bonuses and commissions related to 2008 activity and decreased legal fees.
Cash used in investing activities was $10.3 million for the three months ended March 31, 2009,
compared with cash used in investing activities of $1.8 million for the three months ended March
31, 2008. In the first quarter of 2009, our purchases of securities increased as we invested cash
and cash equivalents in long-term investments with one to two year terms to take advantage of
higher interest rates
Our operating expenses during the three months ended March 31, 2009 were $16.0 million, of
which $4.6 million was research and development expense and $11.4 million was selling, general and
administrative expense, including the amortization of acquired intangibles. We expect research and
development expense as a percent of revenue to be between 15% and 18% of total revenue for the
remainder of 2009. While research and development expense as a percentage of revenue is expected to
decrease, we expect the absolute dollars of research and development expense to scale with our
revenue growth 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. We do not currently
expect selling, general, and administrative expenses in 2009, excluding the impact of foreign
exchange on foreign denominated balances, to increase at the same rate as in prior years.
19
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. Additionally, actions taken as a result of the
ongoing internal evaluation of our business could result in expenditures not currently contemplated
in our estimates for 2009. 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.
On March 1, 2007, we entered into a senior revolving credit facility with JPMorgan Chase Bank,
N.A. which provided borrowings of up to a maximum aggregate principal amount outstanding of $15.0
million based on availability under a borrowing base consisting of eligible accounts and inventory.
We never drew on this facility during the periods in which this facility was outstanding. This
credit facility matured on February 26, 2009, and we elected not to renew this credit facility
given our significant cash, cash equivalents, and investment balance and in light of our projected
capital needs for the foreseeable future.
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.
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.
20
Contractual Obligations
As of March 31, 2009, we had approximately $6.2 million in non-cancelable obligations for the
next 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 March 31,
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 |
|
$ |
10,352 |
|
|
$ |
1,885 |
|
|
$ |
3,367 |
|
|
$ |
3,506 |
|
|
$ |
1,594 |
|
Non-cancelable purchase
obligations (1) |
|
$ |
8,928 |
|
|
|
3,859 |
|
|
|
1,549 |
|
|
|
1,288 |
|
|
|
2,232 |
|
Long-term debt
obligations (2) |
|
$ |
4,995 |
|
|
|
435 |
|
|
|
1,506 |
|
|
|
2,459 |
|
|
|
595 |
|
Capital lease obligations |
|
$ |
40 |
|
|
|
29 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (3) |
|
$ |
24,315 |
|
|
$ |
6,208 |
|
|
$ |
6,433 |
|
|
$ |
7,253 |
|
|
$ |
4,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. Furthermore,
payment reflected in U.S. Dollars is 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 March 31, 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. |
21
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
March 31, 2009 would yield an approximate 2% variance in overall investment return. Due to the
types of investments that we hold, we have concluded that there is no material market risk
exposure.
Foreign Currency Risk. As of March 31, 2009, as a result of our foreign operations, we have
costs, assets and liabilities that are denominated in foreign currencies, primarily Canadian
dollars and to a lesser extent the Euro. 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
subsidiary are denominated in Euros. 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 exchange rates. A 10% change in the Canadian dollar in
relation to the U.S. dollar could 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. Our aggregate foreign currency transaction gain of
$27,000 was included in determining our consolidated results of operations for the three months
ended March 31, 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
March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 16, 2008, Luminex and LMD were served with a complaint, filed by 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 $4.4 million, which is reflected
in accounts payable at March 31, 2009 and which represents all amounts owed by Luminex as part of
the settlement. The cash payment was made by Luminex in exchange for resolution of the dispute
between the companies and a complete release of all claims by SUNY against Luminex and
correspondingly a complete release of all claims by Luminex against SUNY. All other terms of the
agreement are confidential. The parties have formally dismissed the lawsuit, as required by the
settlement agreement.
ITEM 1A. RISK FACTORS
Reference is made to the factors set forth under the caption Safe Harbor Cautionary
Statement in Part I, Item 2 of this report and other risk factors described in Part I, Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2008, which are incorporated herein
by reference. There have been no material changes from the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The stock repurchase activity for the first quarter of 2009 was as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Appromixate Dollar Value of |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
|
|
Shares |
|
|
Paid per Share |
|
|
Publicly Announced |
|
|
Purchased Under the Plans or |
|
Period |
|
Purchased |
|
|
(1)($) |
|
|
Plans or Programs |
|
|
Programs |
|
01/01/09 01/31/09 |
|
|
688 |
|
|
|
21.07 |
|
|
|
|
|
|
|
|
|
02/01/09 02/28/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/01/09 03/31/09 |
|
|
25,246 |
|
|
|
16.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total First Quarter |
|
|
25,934 |
|
|
|
17.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Documents |
|
|
|
|
|
|
10.1 |
|
|
Luminex Corporation 2009 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K dated March 17, 2009). |
|
|
|
|
|
|
10.2 |
|
|
Form of Restricted Share Unit Award Agreement for the 2009 Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated March 17,
2009). |
|
|
|
|
|
|
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. |
23
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: May 8, 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 |
|
|
|
|
|
|
10.1 |
|
|
Luminex Corporation 2009 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K dated March 17, 2009). |
|
|
|
|
|
|
10.2 |
|
|
Form of Restricted Share Unit Award Agreement for the 2009 Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated March 17,
2009). |
|
|
|
|
|
|
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