SOURCE: Tekelec

November 04, 2009 06:00 ET

Tekelec Announces Strong Q3 2009 Revenues and Operating Income

-- Q3 Orders of $94.7 million; up 8% year over year

-- Q3 Revenues of $114.9 million; up 8% year over year

-- Q3 GAAP Gross Margin of 66%, and non-GAAP Gross Margin of 68% (as reconciled below);

-- Q3 GAAP Operating Margin of 19%, and non-GAAP Operating Margin of 23% (as reconciled below);

-- Q3 GAAP Diluted EPS from Continuing Operations of $0.14 per share; up 8% year over year

MORRISVILLE, NC--(Marketwire - November 4, 2009) - Tekelec ("the Company"), (NASDAQ: TKLC), the network signaling, mobile messaging and performance management company, today announced its earnings for the third quarter of 2009.

2009 Third Quarter Results from Continuing Operations

Revenue from continuing operations for the third quarter of 2009 was $114.9 million, up 8% compared to $106.0 million for the third quarter of 2008. The Company had orders of $94.7 million for the quarter, up 8% from $87.4 million for the third quarter of 2008. As of September 30, 2009, backlog was $336.7 million compared to $353.3 million as of June 30, 2009 and $369.0 million as of September 30, 2008.

On a GAAP basis, the Company reported income from continuing operations for the third quarter of 2009 of $9.4 million, or $0.14 per diluted share, with the earnings per share up 8% compared to $8.6 million, or $0.13 per diluted share, for the third quarter of 2008. Our third quarter 2009 GAAP results include a non-cash impairment charge of $10.8 million ($5.7 million net of tax related adjustments), or $0.08 per diluted share, related to a decline in the fair value of our equity interest in Genband, a privately held company. GAAP operating margins from continuing operations were 19% for the third quarter of 2009 and 14% for the third quarter of 2008.

On a non-GAAP basis, net income from continuing operations for the third quarter of 2009 was $18.2 million, or $0.27 per diluted share, with earnings per share up 42% compared to $12.5 million, or $0.19 per diluted share, for the third quarter of 2008. Non-GAAP operating margins from continuing operations for the third quarter of 2009 were 23% compared with 18% for the third quarter of 2008. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP financial measures and operating results to its non-GAAP financial measures and operating results.

Frank Plastina, Tekelec's president and chief executive officer, stated, "Tekelec continues to focus on business fundamentals and strong execution which generated non-GAAP operating margin of 23% and $11.9 million of cash flow from operations for the quarter. Also, our next generation products continue to gain traction and we now have a total of eight Tier-1 customers who have purchased our Eagle XG platform."

Year-to-Date Results from Continuing Operations

For the first nine months of 2009, revenue from continuing operations was $345.8 million, up 1% compared to $340.7 million for the first nine months of 2008. For the first nine months of 2009, the Company had orders of $267.4 million, down 9% compared to $292.7 million for the first nine months of 2008.

On a GAAP basis, the Company reported income from continuing operations for the first nine months of 2009 of $31.5 million, or $0.47 per diluted share, with earnings per share down 10% compared to $35.8 million, or $0.52 per diluted share, for the first nine months of 2008. Our GAAP results for the first nine months of 2009 include a non-cash impairment charge of $13.6 million ($8.5 million net of tax related adjustments), or $0.13 per diluted share, related to a decline in the fair value of our equity interest in Genband, a privately held company. Our GAAP results for the first nine months of 2008 included a one-time tax benefit of $3.7 million, or $0.05 per diluted share, resulting from the utilization of certain capital losses generated by the 2007 sale of our switching business. GAAP operating margins from continuing operations were 17% and 14% for the nine months ended September 30, 2009 and 2008, respectively.

On a non-GAAP basis, net income from continuing operations for the first nine months of 2009 was $51.0 million, or $0.76 per diluted share, with the earnings per share up 13%, compared to $46.4 million, or $0.67 per diluted share, for the first nine months of 2008. Non-GAAP operating margins from continuing operations for the first nine months of 2009 were 22% as compared with 19% for the first nine months of 2008. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP financial measures and operating results to its non-GAAP financial measures and operating results.

Balance Sheet and Liquidity

As of September 30, 2009, the Company's consolidated cash and cash equivalents totaled $266.6 million, compared to $242.9 million at June 30, 2009. In addition, the Company held $98.4 million of auction rate securities and associate put rights which it has the right to convert to cash on June 30, 2010. Cash flows from continuing operations were $11.9 million for the third quarter of 2009, compared to $30.9 million for the third quarter of 2008. The third quarter of 2008 included an $18.9 million income tax refund. Working capital at September 30, 2009 was $393.9 million, compared to $358.5 million at June 30, 2009, with the increase due primarily to the positive cash flow generated during the third quarter.

2009 Full Year Guidance

For the full year 2009, we now believe that our order entry will range between $390 million and $420 million. We believe our revenues will continue to range between $450 million and $460 million and that our gross margins will range between 66% and 67%. We also now expect full year non-GAAP diluted EPS to range between $0.95 and $1.00 per share and GAAP diluted EPS to range between $0.61 to $0.66 per share. See table below for a reconciliation of our GAAP to non-GAAP guidance.

                                           2009 Guidance
            Orders                         $390M - $420M
           Revenues                        $450M - $460M
         Non-GAAP GM %                       66% - 67% *
       GAAP Diluted EPS                    $0.61 - $0.66
     Non-GAAP Diluted EPS                  $0.95 - $1.00 *

*  Excludes $13.9M of estimated stock-based compensation expense, $8.3M of
estimated amortization of purchased technology and acquisition-related
expenses, a $13.6M non-cash charge related to a decline in fair value of
the equity interest in Genband, a privately held investment, and a ($0.7M)
property tax refund associated with assets of our former SSG business unit
(net of associated tax impact related to all of the adjustments above of
approximately $11.9M) which are included in GAAP EPS. These Non-GAAP
adjustments after tax represent approximately $0.34 per share. Of these
amounts, approximately $7.0M would increase Non-GAAP cost of sales and
reduce the Non-GAAP gross margin.

"Live" Webcast and Replay

Tekelec will host a live webcast of its conference call on Wednesday, November 4, 2009, at 8:00 a.m. EST for its management to discuss third quarter 2009 results and certain forward-looking information concerning management's outlook for the business. To access the webcast, visit Tekelec's web site located at www.tekelec.com, enter the Investor Relations section and click on the webcast icon. A webcast replay will be available at approximately 11:00 a.m. EST on Wednesday, November 4, 2009, and for 90 days thereafter. The Company also plans to provide on its web site prior to the commencement of the call certain GAAP and non-GAAP information (including GAAP to non-GAAP reconciliations) for the quarterly and year-to-date periods.

Telephone Replay

A telephone replay of the call will also be available for one week after the live webcast by calling either (800) 642-1687 or (706) 645-9291, and entering the conference ID #34780782.

Non-GAAP Information

Certain non-GAAP financial measures are included in this press release, including a full non-GAAP statement of operations. In the calculation of these measures, Tekelec generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges. Tekelec believes that excluding such items provides investors and management with a representation of the Company's core operating performance and with information useful in assessing its prospects for the future and underlying trends in Tekelec's operating expenditures and continuing operations. Management uses such non-GAAP measures and the non-GAAP statements of operations to (i) evaluate financial results, (ii) manage the Company's operations, and (iii) establish operational goals. Further, each of the individual non-GAAP measures within the non-GAAP statement of operations and the non-GAAP statement of operations itself are utilized by the Company's management and board of directors to assist in determining incentive compensation and evaluating key trends within the business. In addition, since the Company has historically reported non-GAAP measures to the investment community, the Company believes the inclusion of this information provides consistency in our financial reporting. The release and the attachments to this release provide a reconciliation of each of the non-GAAP measures, including those included in the full non-GAAP statement of operations, referred to in this release to the most directly comparable GAAP measure. The non-GAAP financial measures are not meant to be considered a substitute for the corresponding GAAP financial measures.

FORWARD-LOOKING STATEMENTS

Certain statements made in this press release are forward looking, reflect the Company's current intent, belief or expectations and involve certain risks and uncertainties. The Company's actual future performance may differ materially from such expectations as a result of important risk factors, which include, in addition to those identified in the Company's 2008 Form 10-K, 2009 First, Second and Third Quarter Form 10-Qs and its other filings with the Securities and Exchange Commission, the effect of the current or escalating economic crisis including the impact of credit availability and currency fluctuations on overall capital spending by our customers, the current or further detrimental changes in general economic, social, or political conditions in the countries in which we operate, the timeliness and functional competitiveness of our product releases, the timing of our recognition of revenues and changes to the accounting rules related thereto, our ability to maintain OEM, partner, and vendor support and supply relationships, the extent to which any customer outsourcing to our competitors and supplier consolidation increase the influence of competitors on our customers' purchases, business interruptions at the Company, its suppliers or customers resulting from the recent or subsequent flu pandemics, our ability to compete with other manufacturers that have lower cost bases than ours and/or are partially supported by foreign governments or employ other unfair trade practices, our ability to integrate acquisitions, our ability to protect intellectual property rights or the risk of infringing and litigating with others regarding their intellectual property rights, and changes in the market price of the Company's common stock. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

About Tekelec

Tekelec, a global leader in core multimedia session control and network intelligence, ensures scalable, secure and highly available communications. The company's market-leading signaling solutions enable the interworking of different network applications, technologies and protocols, providing a smooth transition to next-generation networks. Tekelec has more than 20 offices around the world serving customers in more than 100 countries, with corporate headquarters located near Research Triangle Park in Morrisville, N.C., U.S.A. For more information, please visit www.tekelec.com.

                                  TEKELEC
         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)

                              Three Months Ended       Nine Months Ended
                                 September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------
                                  (Thousands, except per share data)

Revenues                    $  114,914  $  105,996  $  345,755  $  340,661
Cost of sales:
   Cost of goods sold           37,064      33,775     113,777     116,113
   Amortization of
    purchased technology         1,567         587       4,599       1,761
                            ----------  ----------  ----------  ----------
      Total cost of sales       38,631      34,362     118,376     117,874
                            ----------  ----------  ----------  ----------
      Gross profit              76,283      71,634     227,379     222,787
                            ----------  ----------  ----------  ----------
Operating expenses:
   Research and development     24,200      25,082      75,603      75,706
   Sales and marketing          17,168      18,159      51,574      55,269
   General and
    administrative              13,148      13,272      40,288      40,477
   Restructuring and other           -           -           -         243
   Acquired in-process
    research and development         -           -           -       2,690
   Amortization of
    intangible assets              327         109         960         327
                            ----------  ----------  ----------  ----------
      Total operating
       expenses                 54,843      56,622     168,425     174,712
                            ----------  ----------  ----------  ----------
Income from operations          21,440      15,012      58,954      48,075
                            ----------  ----------  ----------  ----------
Other income (expense), net:
   Interest income                 282       1,749         916       7,325
   Interest expense                (67)         (9)       (179)     (1,920)
   Impairment of investment
    in privately-held
    company                    (10,829)          -     (13,587)          -
   Loss on sale of
    investments                      -           -           -          (2)
   Unrealized gain on ARS
    portfolio and Put
    right, net                     288           -       1,723           -
   Other, net                     (340)     (2,193)     (2,160)     (3,699)
                            ----------  ----------  ----------  ----------
      Total other income
       (expense), net          (10,666)       (453)    (13,287)      1,704
                            ----------  ----------  ----------  ----------
Income from continuing
 operations before
 provision for income taxes     10,774      14,559      45,667      49,779
Provision for income taxes       1,373       5,941      14,148      13,980
                            ----------  ----------  ----------  ----------
Income from continuing
 operations                      9,401       8,618      31,519      35,799
Income from discontinued
 operations, net of taxes            -       3,755           -       5,373
                            ----------  ----------  ----------  ----------
Net income                  $    9,401  $   12,373  $   31,519  $   41,172
                            ==========  ==========  ==========  ==========

Earnings per share from
 continuing operations:
   Basic                    $     0.14  $     0.13  $     0.47  $     0.54
   Diluted                        0.14        0.13        0.47        0.52

Earnings per share from
 discontinued operations:
   Basic                    $        -  $     0.06  $        -  $     0.08
   Diluted                           -        0.06           -        0.08

Earnings per share:
   Basic                    $     0.14  $     0.19  $     0.47  $     0.62
   Diluted                        0.14        0.19        0.47        0.60

Weighted average number of
 shares outstanding-
 continuing operations:
   Basic                        67,215      65,961      66,748      66,372
   Diluted                      68,022      66,763      67,465      70,972

Weighted average number of
 shares outstanding:
   Basic                        67,215      65,961      66,748      66,372
   Diluted                      68,022      66,763      67,465      70,972

(1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Statements of Operations are for the thirteen and thirty-nine weeks ended October 2, 2009 and September 26, 2008.


                                  TEKELEC
UNAUDITED NON-GAAP STATEMENTS OF OPERATIONS FOR CONTINUING OPERATIONS(1)(3)


                              Three Months Ended       Nine Months Ended
                                 September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------
                                  (Thousands, except per share data)

Revenues                    $  114,914  $  105,996  $  345,755  $  340,661
Cost of sales:
   Cost of goods sold           36,777      33,486     112,992     115,123
                            ----------  ----------  ----------  ----------
Gross profit                    78,137      72,510     232,763     225,538
                            ----------  ----------  ----------  ----------
Research and development        23,629      24,451      73,545      73,486
Sales and marketing             16,315      17,414      49,185      53,098
General and administrative      11,337      11,465      34,585      34,386
                            ----------  ----------  ----------  ----------
   Total operating
    Expenses                    51,281      53,330     157,315     160,970
                            ----------  ----------  ----------  ----------
Income from operations          26,856      19,180      75,448      64,568
Other income (expense), net       (507)       (453)       (370)      1,704
                            ----------  ----------  ----------  ----------
Income from continuing
 operations before
 provision for income taxes     26,349      18,727      75,078      66,272
Provision for income taxes (2)   8,169       6,263      24,055      19,852
                            ----------  ----------  ----------  ----------
Net income from continuing
 operations                 $   18,180  $   12,464  $   51,023  $   46,420
                            ==========  ==========  ==========  ==========

Earnings per share:
Basic                       $     0.27  $     0.19  $     0.76  $     0.70
Diluted                           0.27        0.19        0.76        0.67

Weighted average number of
 shares outstanding:
Basic                           67,215      65,961      66,748      66,372
Diluted                         68,022      66,763      67,465      70,972

(1) Please refer to the attached reconciliations of the GAAP Statements of Operations to the above Non-GAAP Statements of Operations.

(2) The above Non-GAAP Statements of Operations assume non-GAAP effective income tax rates of 31% and 33% for the three months ended September 30, 2009 and 2008, respectively. The above Non-GAAP Statements of Operations assume non-GAAP effective income tax rates of 32% and 30% for the nine months ended September 30, 2009 and 2008, respectively.

(3) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Non-GAAP Statements of Operations for Continuing Operations are for the thirteen and thirty-nine weeks ended October 2, 2009 and September 26, 2008.

                                  TEKELEC
                UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                            September 30, (1)  December 31,
                                             ----------------------------
                                                 2009            2008
                                             ------------    ------------
                                            (Thousands, except share data)
                           ASSETS
Current assets:
  Cash and cash equivalents                  $    266,550    $    209,441
  Trading securities, at fair value                86,671               -
  Put right, at fair value                         11,688               -
  Accounts receivable, net                        110,693         171,630
  Income taxes receivable                           1,725               -
  Inventories                                      30,822          23,704
  Deferred income taxes                            41,952          44,253
  Deferred costs and prepaid commissions           49,673          56,588
  Prepaid expenses and other current assets         9,563          11,061
                                             ------------    ------------
     Total current assets                         609,337         516,677

Long-term trading securities, at fair value             -          87,198
Put right, at fair value                                -          18,738
Property and equipment, net                        35,408          34,904
Investments in privately held companies             1,388          22,297
Deferred income taxes, net                         67,372          71,287
Other assets                                        1,699           1,415
Goodwill                                           42,509          41,741
Intangible assets, net                             33,257          37,703
                                             ------------    ------------
     Total assets                            $    790,970    $    831,960
                                             ============    ============



        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                           $     22,554    $     25,308
  Accrued expenses                                 25,097          30,723
  Accrued compensation and related expenses        33,588          40,953
  Current portion of deferred revenues            134,241         201,838
  Income taxes payable                                  -           7,300
  Liabilities of discontinued operations                -             184
                                             ------------    ------------
     Total current liabilities                    215,480         306,306

Deferred income taxes                               5,545           7,071
Long-term portion of deferred revenues              6,444           7,591
Other long-term liabilities                         6,747           6,146
                                             ------------    ------------
     Total liabilities                            234,216         327,114
                                             ------------    ------------

Commitments and Contingencies

Shareholders' equity:
  Common stock, without par value,
   200,000,000 shares authorized;
   67,325,811 and 66,139,690 shares issued
   and outstanding, respectively                  327,558         309,550
  Retained earnings                               225,937         194,418
  Accumulated other comprehensive income            3,259             878
                                             ------------    ------------
     Total shareholders' equity                   556,754         504,846
                                             ------------    ------------
     Total liabilities and shareholders'
      equity                                 $    790,970    $    831,960
                                             ============    ============

(1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Balance Sheet is as of October 2, 2009.

                                  TEKELEC
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                   Nine Months Ended
                                                   September 30, (1)
                                             ----------------------------
                                                 2009            2008
                                             ------------    ------------
                                                      (Thousands)
Cash flows from operating activities:
Net income                                   $     31,519    $     41,172
Adjustments to reconcile net income to net
 cash provided by operating activities:
   Income from discontinued operations                  -          (5,373)
   Impairment of investment in
    privately-held company                         13,587               -
   Loss on sale of investments                          -               2
   Unrealized gain on ARS portfolio and Put
    right, net                                     (1,723)              -
   Provision for (recovery of) doubtful
    accounts and sales returns                      1,494             (84)
   Provision for warranty                           5,000           2,800
   Inventory write downs                            4,738           4,640
   Loss on disposals of fixed assets                   64             503
   Depreciation                                    13,966          13,148
   Amortization of intangibles                      5,559           2,088
   Amortization, other                                562             754
   Acquired in-process research and
    development                                         -           2,690
   Deferred income taxes                            4,559          (8,974)
   Stock-based compensation                        10,275           9,769
   Excess tax benefits from stock-based
    compensation                                     (778)         (1,528)
   Changes in operating assets and
    liabilities:
      Accounts receivable                          60,322          (9,706)
      Inventories                                 (10,593)         (9,170)
      Deferred costs                                7,272           1,119
      Prepaid expenses and other assets               733           5,208
      Accounts payable                             (2,859)        (19,995)
      Accrued expenses                            (11,963)         (1,083)
      Accrued compensation and related
       expenses                                    (9,624)        (10,029)
      Deferred revenues                           (69,498)         37,283
      Income taxes receivable/payable              (7,805)         32,628
                                             ------------    ------------
         Total adjustments                         13,288          46,690
                                             ------------    ------------
         Net cash provided by operating
          activities - continuing operations       44,807          87,862
         Net cash used in operating
          activities - discontinued operations       (184)         (2,472)
                                             ------------    ------------
         Net cash provided by operating
          activities                               44,623          85,390
                                             ------------    ------------

Cash flows from investing activities:
   Proceeds from sales and maturities of
    investments                                    16,622         787,784
   Purchases of investments                             -        (584,524)
   Purchases of property and equipment            (14,563)        (15,666)
   Payments related to acquired in-process
    research and development                            -          (2,690)
                                             ------------    ------------
         Net cash provided by investing
          activities                                2,059         184,904
                                             ------------    ------------

Cash flows from financing activities:
   Repayment of convertible debt                        -        (125,000)
   Payments for repurchases of common stock             -         (33,779)
   Proceeds from issuance of common stock           9,707          11,559
   Excess tax benefits from stock-based
    compensation                                      778           1,528
                                             ------------    ------------
         Net cash provided by (used in)
          financing activities                     10,485        (145,692)
                                             ------------    ------------

Effect of exchange rate changes on cash               (58)         (1,521)
                                             ------------    ------------
         Net change in cash and cash
          equivalents                              57,109         123,081
Cash and cash equivalents, beginning of
 period                                           209,441         105,550
                                             ------------    ------------
Cash and cash equivalents, end of period     $    266,550    $    228,631
                                             ============    ============

(1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Statements of Cash Flows are for the thirty-nine weeks ended October 2, 2009 and September 26, 2008.

                                  TEKELEC
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

                                             Three Months Ended
                                             September 30, 2009 (6)
                                     -------------------------------------
                                       (Thousands, except per share data)
                                     -------------------------------------
                                        GAAP                     Non-GAAP
                                     Continuing                 Continuing
                                     Operations  Adjustments    Operations
                                     ----------  -----------    ----------

Revenues                             $  114,914  $        -     $  114,914
Cost of sales:
  Cost of goods sold                     37,064        (287)(1)     36,777
  Amortization of purchased technology    1,567      (1,567)(2)          -
                                     ----------  ----------     ----------
Total cost of sales                      38,631      (1,854)        36,777
                                     ----------  ----------     ----------
Gross profit                             76,283       1,854         78,137
                                     ----------  ----------     ----------
Operating Expenses:
Research and development                 24,200        (351)(1)     23,629
                                                       (220)(3)
Sales and marketing                      17,168        (853)(1)     16,315
General and administrative               13,148      (1,811)(1)     11,337
Amortization of intangible assets           327        (327)(2)          -
                                     ----------  ----------     ----------
Total operating expenses                 54,843      (3,562)        51,281
                                     ----------  ----------     ----------
Income from operations                   21,440       5,416         26,856
                                     ----------  ----------     ----------
Other income (expense), net             (10,666)     10,159 (4)       (507)
                                     ----------  ----------     ----------
Income from continuing operations
 before provision for income taxes       10,774      15,575         26,349
                                     ----------  ----------     ----------
Provision for income taxes                1,373       6,796 (5)      8,169
                                     ----------  ----------     ----------
Net income from continuing
 operations                          $    9,401  $    8,779     $   18,180
                                     ==========  ==========     ==========


Earnings per share:
Basic                                $     0.14                 $     0.27
Diluted                              $     0.14                 $     0.27

Weighted average number of shares
 outstanding:
Basic                                    67,215                     67,215
Diluted                                  68,022                     68,022

(1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan.

(2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus, iptelorg and mBalance.

(3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec.

(4) The adjustment represents a net charge associated with our investment in Genband received in exchange for our SSG business unit in 2007. Specifically, we incurred an impairment charge of $10.8 million as a result of a decline in the estimated fair value of our investment as compared to historical cost. Partially offsetting this impairment is a one time property tax refund of $0.7 million received associated with the former assets of our SSG business unit.

(5) The adjustment represents the income tax effect of footnotes (1), (2), (3) and (4) in order to reflect our non-GAAP effective tax rate.

(6) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirteen weeks ended October 2, 2009.

                                  TEKELEC
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

                                               Nine Months Ended
                                              September 30, 2009 (6)
                                     -------------------------------------
                                       (Thousands, except per share data)
                                     -------------------------------------
                                        GAAP                     Non-GAAP
                                     Continuing                 Continuing
                                     Operations  Adjustments    Operations
                                     ----------  -----------    ----------

Revenues                             $  345,755  $        -     $  345,755
Cost of sales:
  Cost of goods sold                    113,777        (785)(1)    112,992
  Amortization of purchased technology    4,599      (4,599)(2)          -
                                     ----------  ----------     ----------
Total cost of sales                     118,376      (5,384)       112,992
                                     ----------  ----------     ----------
Gross profit                            227,379       5,384        232,763
                                     ----------  ----------     ----------
Operating Expenses:
Research and development                 75,603      (1,398)(1)     73,545
                                                       (660)(3)
Sales and marketing                      51,574      (2,389)(1)     49,185
General and administrative               40,288      (5,703)(1)     34,585
Amortization of intangible assets           960        (960)(2)          -
                                     ----------  ----------     ----------
Total operating expenses                168,425     (11,110)       157,315
                                     ----------  ----------     ----------
Income from operations                   58,954      16,494         75,448
                                     ----------  ----------     ----------
Other income (expense), net             (13,287)     12,917 (4)       (370)
                                     ----------  ----------     ----------
Income from continuing operations
 before provision for income taxes       45,667      29,411         75,078
                                     ----------  ----------     ----------
Provision for income taxes               14,148       9,907 (5)     24,055
                                     ----------  ----------     ----------
Net income from continuing
 operations                          $   31,519  $   19,504     $   51,023
                                     ==========  ==========     ==========


Earnings per share:
Basic                                $     0.47                 $     0.76
Diluted                              $     0.47                 $     0.76

Weighted average number of shares
 outstanding:
Basic                                    66,748                     66,748
Diluted                                  67,465                     67,465

(1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan.

(2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus, iptelorg and mBalance.

(3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec.

(4) The adjustment represents a net charge associated with our investment in Genband received in exchange for our SSG business unit in 2007. Specifically, we incurred an impairment charge of $13.6 million as a result of a decline in the estimated fair value of our investment as compared to historical cost. Partially offsetting this impairment is a one time property tax refund of $0.7 million received associated with the former assets of our SSG business unit.

(5) The adjustment represents the income tax effect of footnotes (1), (2), (3) and (4) in order to reflect our non-GAAP effective tax rate.

(6) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirty-nine weeks ended October 2, 2009.

                                  TEKELEC
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

                                              Three Months Ended
                                              September 30, 2008 (6)
                                     -------------------------------------
                                       (Thousands, except per share data)
                                     -------------------------------------
                                        GAAP                     Non-GAAP
                                     Continuing                 Continuing
                                     Operations  Adjustments    Operations
                                     ----------  -----------    ----------

Revenues                             $  105,996  $        -     $  105,996
Cost of sales:
  Cost of goods sold                     33,775        (289)(1)     33,486
  Amortization of purchased technology      587        (587)(2)          -
                                     ----------  ----------     ----------
Total cost of sales                      34,362        (876)        33,486
                                     ----------  ----------     ----------
Gross profit                             71,634         876         72,510
                                     ----------  ----------     ----------
Operating Expenses:
Research and development                 25,082        (411)(1)     24,451
                                                       (220)(3)
Sales and marketing                      18,159        (745)(1)     17,414
General and administrative               13,272      (1,807)(1)     11,465
Amortization of intangible assets           109        (109)(2)          -
                                     ----------  ----------     ----------
Total operating expenses                 56,622      (3,292)        53,330
                                     ----------  ----------     ----------
Income from operations                   15,012       4,168         19,180
                                     ----------  ----------     ----------
Other income (expense), net                (453)          -           (453)
                                     ----------  ----------     ----------
Income from continuing operations
 before provision for income taxes       14,559       4,168         18,727
                                     ----------  ----------     ----------
Provision for income taxes                5,941         322 (4)      6,263
                                     ----------  ----------     ----------
Income from continuing operations         8,618       3,846         12,464
                                     ----------  ----------     ----------
Income from discontinued operations,
 net of taxes                             3,755      (3,755)(5)          -
                                     ----------  ----------     ----------
Net income                           $   12,373  $       91     $   12,464
                                     ==========  ==========     ==========


Earnings per share from continuing
 operations:
Basic                                $     0.13                 $     0.19
Diluted                                    0.13                       0.19

Earnings per share:
Basic                                $     0.19                 $     0.19
Diluted                                    0.19                       0.19

Weighted average number of shares
 outstanding:
Basic                                    65,961                     65,961
Diluted                                  66,763                     66,763

(1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan.

(2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus and iptelorg.

(3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec.

(4) The adjustment represents the income tax effect of footnotes (1), (2) and (3) in order to reflect our non-GAAP effective tax rate.

(5) The adjustment represents the elimination of our discontinued operations.

(6) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The above schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirteen weeks ended September 26, 2008.

                                  TEKELEC
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

                                             Nine Months Ended
                                             September 30, 2008 (10)
                                     -------------------------------------
                                       (Thousands, except per share data)
                                     -------------------------------------
                                        GAAP                     Non-GAAP
                                     Continuing                 Continuing
                                     Operations  Adjustments    Operations
                                     ----------  -----------    ----------

Revenues                             $  340,661  $        -     $  340,661
Cost of sales:
  Cost of goods sold                    116,113        (990)(1)    115,123
  Amortization of purchased technology    1,761      (1,761)(2)          -
                                     ----------  ----------     ----------
Total cost of sales                     117,874      (2,751)       115,123
                                     ----------  ----------     ----------
Gross profit                            222,787       2,751        225,538
                                     ----------  ----------     ----------
Operating Expenses:
Research and development                 75,706      (1,633)(1)     73,486
                                                       (587)(3)
Sales and marketing                      55,269      (2,171)(1)     53,098
General and administrative               40,477      (5,191)(1)     34,386
                                                       (900)(4)
Acquired in-process research and
 development                              2,690      (2,690)(5)          -
Restructuring and other                     243        (459)(6)          -
                                                        216 (1), (6)
Amortization of intangible assets           327        (327)(2)          -
                                     ----------  ----------     ----------
Total operating expenses                174,712     (13,742)       160,970
                                     ----------  ----------     ----------
Income from operations                   48,075      16,493         64,568
                                     ----------  ----------     ----------
Other income (expense), net               1,704           -          1,704
                                     ----------  ----------     ----------
Income from continuing operations
 before provision for income taxes       49,779      16,493         66,272
                                     ----------  ----------     ----------
Provision for income taxes               13,980       5,872 (7)     19,852
                                     ----------  ----------     ----------
Income from continuing operations        35,799      10,621         46,420
                                     ----------  ----------     ----------
Income from discontinued operations,
 net of taxes                             5,373      (5,373)(8)          -
                                     ----------  ----------     ----------
Net income                           $   41,172  $    5,248     $   46,420
                                     ==========  ==========     ==========

Earnings per share from continuing
 operations:
Basic                                $     0.54                 $     0.70
Diluted (9)                                0.52                       0.67

Earnings per share:
Basic                                $     0.62                 $     0.70
Diluted (9)                                0.60                       0.67

Weighted average number of shares
 outstanding:
Basic                                    66,372                     66,372
Diluted (9)                              70,972                     70,972

(1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan.

(2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus and iptelorg.

(3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec.

(4) The adjustment represents an arbitration award and associated legal fees in favor of our former President and CEO, Fred Lax.

(5) The adjustment represents acquired in-process research and development related to the Estacado purchase.

(6) The adjustment represents the elimination of costs incurred during 2008 related to restructuring certain functions in our EAAA region and changes in estimates related to our 2007 realignment activities.

(7) The adjustment represents the income tax effect of excluding second quarter discrete tax benefits totaling $3.7 million related to reversing a valuation allowance on deferred tax assets generated by the loss on sale of SSG. Also included in the adjustment is the income tax effect of footnotes (1), (2), (3), (4), (5) and (6) in order to reflect our Non-GAAP effective tax rate.

(8) The adjustment represents the elimination of our discontinued operations.

(9) For the nine months ended September 30, 2008, the calculations of diluted earnings per share include a potential add-back to net income of $1,085,000 for assumed after-tax interest cost and 3,961,000 weighted average shares related our previously outstanding convertible debt using the "if-converted" method.

(10) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The above schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirty-nine weeks ended September 26, 2008.

Contact Information

  • Investor Contacts:
    Mike Gallentine
    Director of Investor Relations
    919-461-6825 office
    Email Contact

    Press Contacts:
    Joanne Latham
    Director, Marketing Communications
    919-653-9655 office
    Email Contact