SOURCE: Tekelec

August 05, 2009 06:00 ET

Tekelec Announces Q2 2009 Results

Delivers strong quarterly revenues and earnings, orders in line with guidance

-- Q2 Orders of $104.7 million;

-- Q2 Revenues of $114.2 million;

-- Q2 GAAP Gross Margin of 67%, and non-GAAP Gross Margin of 68% (as reconciled below);

-- Q2 GAAP Operating Margin of 17%, and non-GAAP Operating Margin of 22% (as reconciled below);

-- Q2 GAAP Diluted EPS from Continuing Operations of $0.14 per share;

-- Q2 Non-GAAP Diluted EPS from Continuing Operations of $0.25 per share (as reconciled below);

MORRISVILLE, NC--(Marketwire - August 5, 2009) - Tekelec ("the Company") (NASDAQ: TKLC), the network signaling, mobile messaging and performance management company, today announced its earnings for the second quarter of 2009.

2009 Second Quarter Results from Continuing Operations

Revenue from continuing operations for the second quarter of 2009 was $114.2 million, down 2% compared to $116.4 million for the second quarter of 2008. The Company had orders of $104.7 million for the quarter, down 15% from $122.9 million for the second quarter of 2008. As of June 30, 2009, backlog was $353.3 million compared to $359.3 million as of March 31, 2009 and $387.6 million as of June 30, 2008.

On a GAAP basis, the Company reported income from continuing operations and consolidated net income for the second quarter of 2009 of $9.8 million, or $0.14 per diluted share, with the earnings per share down 36% compared to $15.3 million, or $0.22 per diluted share, for the second quarter of 2008. The second quarter 2009 GAAP results include a non-cash impairment charge of $2.8 million, or $0.04 per diluted share related to a decline in the fair value of the equity interest in Genband, a privately held investment. The second quarter of 2008 results 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 sale of our Switching business. GAAP operating margins from continuing operations were 17% for the second quarter of 2009 and 13% for the second quarter of 2008.

On a non-GAAP basis, net income from continuing operations and consolidated net income for the second quarter of 2009 was $16.8 million, or $0.25 per diluted share, with the earnings per share up 9% compared to $15.7 million, or $0.23 per diluted share, for the second quarter of 2008. Non-GAAP operating margins from continuing operations for the second quarter of 2009 were 22% compared with 17% for the second quarter of 2008. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP operating results to its non-GAAP operating results.

Frank Plastina, Tekelec's president and chief executive officer, stated, "In the second quarter Tekelec continued to achieve solid operating results with strong revenues and operating margins despite a challenging economic backdrop around the world. Our orders in the first half of the year were consistent with our expectations and we continue to expect our orders to strengthen in the second half of the year. We generated operating margins of 22% on a non-GAAP basis in the second quarter while continuing to aggressively invest in new products."

Year-to-Date Results from Continuing Operations

For the first six months of 2009, revenue from continuing operations was $230.8 million, down 2% compared to $234.7 million for the first six months of 2008. For the first six months of 2009, the Company had orders from continuing operations of $172.7 million, down 16% compared to $205.3 million for the first six months of 2008.

On a GAAP basis, the Company reported income from continuing operations for the first six months of 2009 of $22.1 million, or $0.33 per diluted share, with the earnings per share down 15% compared to $27.2 million, or $0.39 per diluted share, for the first six months of 2008. The GAAP results for the first six months of 2009 include a non-cash impairment charge of $2.8 million, or $0.04 per diluted share related to a decline in the fair value of the equity interest in Genband, a privately held investment. The GAAP results for the first six 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 sale of our Switching business. GAAP operating margins from continuing operations were 16% and 14% for the six months ended June 30, 2009 and 2008, respectively.

On a non-GAAP basis, net income from continuing operations for the first six months of 2009 was $32.8 million, or $0.49 per diluted share, with the earnings per share up 2%, compared to $34.0 million, or $0.48 per diluted share, for the first six months of 2008. Non-GAAP operating margins from continuing operations for the first six months of 2009 were 21% as compared with 19% for the first six 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 June 30, 2009, the Company's consolidated cash and cash equivalents totaled $242.9 million, compared to $231.6 million at March 31, 2009. Cash flows from continuing operations were $12.2 million for the second quarter of 2009, compared to $18.5 million for the second quarter of 2008. Working capital at June 30, 2009 was $358.5 million, compared to $233.8 million at March 31, 2009, with the increase due primarily to the reclassification of $87.3 million of auction rate securities and the related Put right of $14.6 million from long-term in the prior quarter to short-term in the current quarter.

2009 Full Year Guidance

For the full year 2009, we continue to believe that our full year 2009 order entry will range between $420 million and $460 million and gross margins will range between 65% and 67%. Based on year-to-date results and current expectations for the remainder of the year, we are raising the lower end of the guidance for revenues and non-GAAP Diluted EPS. We now expect full year revenues to range between $450 million and $460 million and non-GAAP Diluted EPS to range between $0.90 and $0.95 cents per share. We expect GAAP Diluted EPS to range between $0.63 to $0.68 cents per share. See table below for reconciliation of GAAP to non-GAAP measures.

                                             2009 Guidance
                 Orders                      $420M - $460M
                Revenues                     $450M - $460M
              Non-GAAP GM %                    65% - 67% *
            GAAP Diluted EPS                 $0.63 - $0.68
          Non-GAAP Diluted EPS               $0.90 - $0.95 *

* Excludes $14.2M of estimated stock-based compensation expense, $8.2M of
  estimated amortization of purchased technology and acquisition-related
  expenses, and a $2.8M impairment charge related to the decline in fair
  value of the equity interest in Genband, a privately held investment,
  (net of associated tax impact of approximately $6.7M) which are included
  in GAAP EPS. These Non-GAAP adjustments after tax represent approximately
  $0.27 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, August 5, 2009 at 8:00 a.m. EDT for its management to discuss second 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. EDT on Wednesday, August 5, 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 second quarters of 2009 and 2008 and to discuss during this call certain forward-looking information concerning management's outlook for the business.

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 # 19458335.

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 and Second Quarter Form 10-Q 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, 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     Six Months Ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
                                    (Thousands, except per share data)
                                ------------------------------------------

Revenues                        $ 114,183  $ 116,422  $ 230,841  $ 234,665
Cost of sales:
   Cost of goods sold              36,364     42,392     76,713     82,338
   Amortization of purchased
    technology                      1,515        587      3,032      1,174
                                ---------  ---------  ---------  ---------
      Total cost of sales          37,879     42,979     79,745     83,512
                                ---------  ---------  ---------  ---------
      Gross profit                 76,304     73,443    151,096    151,153
                                ---------  ---------  ---------  ---------
Operating expenses:
   Research and development        25,551     26,216     51,403     50,624
   Sales and marketing             17,110     18,906     34,406     37,110
   General and administrative      13,717     12,948     27,140     27,205
   Restructuring and other              -        293          -        243
   Acquired in-process research
    and development                     -          -          -      2,690
   Amortization of intangible
    assets                            315        109        633        218
                                ---------  ---------  ---------  ---------
      Total operating expenses     56,693     58,472    113,582    118,090
                                ---------  ---------  ---------  ---------
Income from operations             19,611     14,971     37,514     33,063
                                ---------  ---------  ---------  ---------
Other income (expense), net:
   Interest income                    264      2,295        634      5,576
   Interest expense                   (57)      (779)      (112)    (1,911)
   Impairment of investment in
    privately-held company         (2,758)         -     (2,758)         -
   Loss on sale of investments          -          -          -         (2)
   Unrealized gain on ARS
    portfolio and Put right,
    net                               321          -      1,435          -
   Other, net                        (402)      (990)    (1,820)    (1,506)
                                ---------  ---------  ---------  ---------
      Total other income
       (expense), net              (2,632)       526     (2,621)     2,157
                                ---------  ---------  ---------  ---------
Income from continuing
 operations before
 provision for income taxes        16,979     15,497     34,893     35,220
Provision for income taxes          7,226        179     12,775      8,039
                                ---------  ---------  ---------  ---------
Income from continuing
 operations                         9,753     15,318     22,118     27,181
Income from discontinued
 operations, net of taxes               -          -          -      1,618
                                ---------  ---------  ---------  ---------
Net income                      $   9,753  $  15,318  $  22,118  $  28,799
                                =========  =========  =========  =========

Earnings per share from
 continuing operations:
   Basic                        $    0.15  $    0.23  $    0.33  $    0.41
   Diluted                           0.14       0.22       0.33       0.39

Earnings per share from
 discontinued operations:
   Basic                        $       -  $       -  $       -  $    0.02
   Diluted                              -          -          -       0.02

Earnings per share:
   Basic                        $    0.15  $    0.23  $    0.33  $    0.43
   Diluted                           0.14       0.22       0.33       0.41

Weighted average number of
 shares outstanding-continuing
 operations:
   Basic                           66,744     65,638     66,514     66,578
   Diluted                         67,502     71,953     67,185     73,076

Weighted average number of
 shares outstanding:
   Basic                           66,744     65,638     66,514     66,578
   Diluted                         67,502     71,953     67,185     73,076


(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 twenty-six weeks ended July 3,
     2009 and June 27, 2008.



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



                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------- -------------------
                                      2009      2008      2009      2008
                                    --------- --------- --------- ---------
                                      (Thousands, except per share data)
                                    ---------------------------------------

Revenues                            $ 114,183 $ 116,422 $ 230,841 $ 234,665
Cost of sales:
  Cost of goods sold                   36,092    42,062    76,215    81,637
                                    --------- --------- --------- ---------
Gross profit                           78,091    74,360   154,626   153,028
                                    --------- --------- --------- ---------
Research and development               24,821    25,436    49,916    49,035
Sales and marketing                    16,314    18,227    32,870    35,684
General and administrative             11,634    11,132    23,248    22,921
                                    --------- --------- --------- ---------
    Total operating expenses           52,769    54,795   106,034   107,640
                                    --------- --------- --------- ---------
Income from operations                 25,322    19,565    48,592    45,388
Interest and other income, net            126       526       137     2,157
                                    --------- --------- --------- ---------
Income from continuing operations
 before provision for income taxes     25,448    20,091    48,729    47,545
Provision for income taxes (2)          8,643     4,392    15,886    13,589
                                    --------- --------- --------- ---------
Net income from continuing
 operations                         $  16,805 $  15,699 $  32,843 $  33,956
                                    ========= ========= ========= =========

Earnings per share:
Basic                               $    0.25 $    0.24 $    0.49 $    0.51
Diluted                                  0.25      0.23      0.49      0.48

Weighted average number of shares
 outstanding:
Basic                                  66,744    65,638    66,514    66,578
Diluted                                67,502    71,953    67,185    73,076



(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 34.0% and 21.9% for the three months
     ended June 30, 2009 and 2008, respectively.  The above Non-GAAP
     Statements of Operations assume non-GAAP effective income tax rates
     of 32.6% and 28.6% for the six months ended June 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 twenty-six weeks ended July 3, 2009 and
     June 27, 2008.


                                  TEKELEC
              UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


                                                June 30, (1)  December 31,
                                                ------------- -------------
                                                    2009          2008
                                                ------------- -------------
                                                 (Thousands, except share
                                                          data)
                                   ASSETS
Current assets:
    Cash and cash equivalents                   $     242,905 $     209,441
    Trading securities, at fair value                  87,296             -
    Put right, at fair value                           14,575             -
    Accounts receivable, net                          126,996       171,630
    Income taxes receivable                               777             -
    Inventories                                        30,705        23,704
    Deferred income taxes                              41,952        44,253
    Deferred costs and prepaid commissions             45,810        56,588
    Prepaid expenses and other current assets           9,666        11,061
                                                ------------- -------------
        Total current assets                          600,682       516,677

Long-term trading securities, at fair value                 -        87,198
Put right, at fair value                                    -        18,738
Property and equipment, net                            37,473        34,904
Investments in privately held companies                19,539        22,297
Deferred income taxes, net                             66,341        71,287
Other assets                                            1,371         1,415
Goodwill                                               41,614        41,741
Intangible assets, net                                 34,207        37,703
                                                ------------- -------------
        Total assets                            $     801,227 $     831,960
                                                ============= =============

                       LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
    Accounts payable                            $      29,370 $      25,308
    Accrued expenses                                   25,362        30,723
    Accrued compensation and related expenses          27,028        40,953
    Current portion of deferred revenues              160,416       201,838
    Income taxes payable                                    -         7,300
    Liabilities of discontinued operations                  -           184
                                                ------------- -------------
        Total current liabilities                     242,176       306,306

Deferred income taxes                                   6,026         7,071
Long-term portion of deferred revenues                  7,104         7,591
Other long-term liabilities                             7,079         6,146
                                                ------------- -------------
        Total liabilities                             262,385       327,114
                                                ------------- -------------

Commitments and Contingencies

Shareholders’ equity:
    Common stock, without par value,
     200,000,000 shares authorized; 66,972,524
     and 66,139,690 shares issued and
     outstanding, respectively                        320,997       309,550
    Retained earnings                                 216,536       194,418
    Accumulated other comprehensive income              1,309           878
                                                ------------- -------------
        Total shareholders’ equity                    538,842       504,846
                                                ------------- -------------
        Total liabilities and shareholders’
         equity                                 $     801,227 $     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 July 3, 2009.



                                  TEKELEC
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        Six Months Ended
                                                          June 30, (1)
                                                      --------------------
                                                        2009       2008
                                                      ---------  ---------
                                                          (Thousands)
Cash flows from operating activities:
Net income                                            $  22,118  $  28,799
Adjustments to reconcile net income to net cash
 provided by operating activities:
    Income from discontinued operations                       -     (1,618)
    Loss on sale of investments                               -          2
    Impairment of investment in privately-held
     company                                              2,758          -
    Unrealized gain on ARS portfolio and Put right,
     net                                                 (1,435)         -
    Provision for (recovery of) doubtful accounts and
     sales returns                                          185        (84)
    Provision for warranty                                5,000      2,800
    Inventory write downs                                 1,207      3,223
    Loss on disposals of fixed assets                        54        279
    Depreciation                                          9,358      8,465
    Amortization of intangibles                           3,665      1,392
    Amortization, other                                     375        487
    Acquired in-process research and development              -      2,690
    Deferred income taxes                                 5,877    (12,920)
    Stock-based compensation                              6,973      6,517
    Excess tax benefits from stock-based compensation      (544)    (1,234)
    Changes in operating assets and liabilities:
        Accounts receivable                              46,101      5,105
        Inventories                                      (8,168)    (4,562)
        Deferred costs                                   11,133     (1,512)
        Prepaid expenses and other assets                 1,219      4,416
        Accounts payable                                  3,947    (16,627)
        Accrued expenses                                (10,663)     4,813
        Accrued compensation and related expenses       (15,879)    (7,281)
        Deferred revenues                               (43,858)    17,441
        Income taxes receivable/payable                  (6,502)    16,340
                                                      ---------  ---------
            Total adjustments                            10,803     28,132
                                                      ---------  ---------
            Net cash provided by operating activities
             - continuing operations                     32,921     56,931
            Net cash used in operating activities -
             discontinued operations                       (184)    (1,767)
                                                      ---------  ---------
            Net cash provided by operating activities    32,737     55,164
                                                      ---------  ---------

Cash flows from investing activities:
    Proceeds from sales and maturities of investments     5,500    772,583
    Purchases of investments                                  -   (584,524)
    Payments related to acquired in-process research
     and development                                          -     (2,690)
    Purchases of property and equipment                 (12,138)   (10,441)
    Other non-operating assets                                -        (71)
                                                      ---------  ---------
            Net cash provided by (used in) investing
             activities                                  (6,638)   174,857
                                                      ---------  ---------

Cash flows from financing activities:
    Repayment of convertible debt                             -   (125,000)
    Repurchase of common stock                                -    (33,700)
    Proceeds from issuance of common stock                5,987      9,547
    Excess tax benefits from stock-based compensation       544      1,234
                                                      ---------  ---------
            Net cash provided by (used in) financing
             activities                                   6,531   (147,919)
                                                      ---------  ---------

Effect of exchange rate changes on cash                     834        491
                                                      ---------  ---------
            Net change in cash and cash equivalents      33,464     82,593
Cash and cash equivalents, beginning of period          209,441    105,550
                                                      ---------  ---------
Cash and cash equivalents, end of period              $ 242,905  $ 188,143
                                                      =========  =========

(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 twenty-six weeks ended July 3, 2009 and June 27, 2008.


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


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

Revenues                               $ 114,183  $       -      $  114,183
Cost of sales:

 Cost of goods sold                       36,364       (272) (1)     36,092
 Amortization of purchased technology      1,515     (1,515) (2)          -
                                       =========  =========  ==  ==========
Total cost of sales                       37,879     (1,787)         36,092
                                       =========  =========  ==  ==========
Gross profit                              76,304      1,787          78,091
                                       =========  =========  ==  ==========
Operating Expenses:
Research and development                  25,551       (510) (1)     24,821
                                                       (220) (3)
Sales and marketing                       17,110       (796) (1)     16,314
General and administrative                13,717     (2,083) (1)     11,634
Amortization of intangible assets            315       (315) (2)          -
                                       =========  =========  ==  ==========
Total operating expenses                  56,693     (3,924)         52,769
                                       =========  =========  ==  ==========
Income from operations                    19,611      5,711          25,322
                                       =========  =========  ==  ==========
Interest and other income, net            (2,632)     2,758  (4)        126
                                       =========  =========  ==  ==========
Income from continuing operations
 before provision for income taxes        16,979      8,469          25,448
                                       =========  =========  ==  ==========
Provision for income taxes                 7,226      1,417  (5)      8,643
                                       =========  =========  ==  ==========
Net income from continuing operations  $   9,753  $   7,052      $   16,805
                                       =========  =========  ==  ==========


Earnings per share:
Basic                                  $    0.15                 $     0.25
Diluted                                $    0.14                 $     0.25

Weighted average number of shares
 outstanding:
Basic                                     66,744                     66,744
Diluted                                   67,502                     67,502

(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 an impairment charge as a result of a decline
in the estimated fair value as compared to historical cost for one of our
investments in privately held companies.

(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 July 3, 2009.


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


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

Revenues                        $ 230,841  $       -      $  230,841
Cost of sales:

 Cost of goods sold                76,713       (498) (1)     76,215
 Amortization of purchased
  technology                        3,032     (3,032) (2)          -
                                =========  =========  ==  ==========
Total cost of sales                79,745     (3,530)         76,215
                                =========  =========  ==  ==========
Gross profit                      151,096      3,530         154,626
                                =========  =========  ==  ==========
Operating Expenses:
Research and development           51,403     (1,047) (1)     49,916
                                                (440) (3)
Sales and marketing                34,406     (1,536) (1)     32,870
General and administrative         27,140     (3,892) (1)     23,248
Amortization of intangible
 assets                               633       (633) (2)          -
                                =========  =========  ==  ==========
Total operating expenses          113,582     (7,548)        106,034
                                =========  =========  ==  ==========
Income from operations             37,514     11,078          48,592
                                =========  =========  ==  ==========
Interest and other income, net     (2,621)     2,758  (4)        137
                                =========  =========  ==  ==========
Income from continuing
 operations before provision
 for income taxes                  34,893     13,836          48,729
                                =========  =========  ==  ==========
Provision for income taxes         12,775      3,111  (5)     15,886
                                =========  =========  ==  ==========
Net income from continuing
 operations                     $  22,118  $  10,725      $   32,843
                                =========  =========  ==  ==========


Earnings per share:
Basic                           $    0.33                 $     0.49
Diluted                         $    0.33                 $     0.49

Weighted average number of
 shares outstanding:
Basic                              66,514                     66,514
Diluted                            67,185                     67,185

(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 an impairment charge as a result of a decline
in the estimated fair value as compared to historical cost for one of our
investments in privately held companies.

(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
twenty-six weeks ended July 3, 2009.



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


                                     Three Months Ended June 30, 2008(7)
                                    ---------------------------------------
                                      (Thousands, except per share data)
                                    ---------------------------------------
                                       GAAP                        Non-GAAP
                                    Continuing                   Continuing
                                    Operations    Adjustments    Operations
                                    --------- ------------------  ---------

Revenues                            $ 116,422 $      -            $ 116,422

Cost of sales:

 Cost of goods sold                    42,392     (330)       (1)    42,062
 Amortization of purchased
  technology                              587     (587)       (2)         -
                                    ========= ========  ========  =========
Total cost of sales                    42,979     (917)              42,062
                                    ========= ========  ========  =========
Gross profit                           73,443      917               74,360
                                    ========= ========  ========  =========
Operating Expenses:
Research and development               26,216     (560)       (1)    25,436
                                                  (220)       (3)
Sales and marketing                    18,906     (679)       (1)    18,227
General and administrative             12,948   (1,816)       (1)    11,132
Restructuring and other                   293     (289)       (4)         -
                                                    (4)   (1),(4)
Amortization of intangible assets         109     (109)       (2)         -
                                    ========= ========  ========  =========
Total operating expenses               58,472   (3,677)              54,795
                                    ========= ========  ========  =========
Income from operations                 14,971    4,594               19,565
                                    ========= ========  ========  =========
Interest and other income, net            526        -                  526
                                    ========= ========  ========  =========
Income from continuing operations
 before provision for income taxes     15,497    4,594               20,091
                                    ========= ========  ========  =========
Provision for income taxes                179    4,213        (5)     4,392
                                    ========= ========  ========  =========
Net income from continuing
 operations                         $  15,318 $    381            $  15,699
                                    ========= ========  ========  =========

Earnings per share:
Basic                               $    0.23                     $    0.24
Diluted (6)                              0.22                          0.23

Weighted average number of shares
 outstanding:
Basic                                  65,638                        65,638
Diluted (6)                            71,953                        71,953


(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 elimination of costs incurred during 2008
related to restructuring certain functions in our EAAA region.

(5) 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) and (4) in order to reflect our Non-GAAP effective tax rate.

(6) For the three months ended June 30, 2008, the calculations of diluted
earnings per share include a potential add-back to net income of $504,000
for assumed after-tax interest cost and 5,522,000 weighted average shares
related to our formerly outstanding convertible debt using the
"if-converted" method.

(7) 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 June 27, 2008.



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


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

Revenues                            $ 234,665 $      -            $ 234,665

Cost of sales:

 Cost of goods sold                    82,338     (701)       (1)    81,637
 Amortization of purchased
  technology                            1,174   (1,174)       (2)         -
                                    ========= ========  ========  =========
Total cost of sales                    83,512   (1,875)              81,637
                                    ========= ========  ========  =========
Gross profit                          151,153    1,875              153,028
                                    ========= ========  ========  =========
Operating Expenses:
Research and development               50,624   (1,222)       (1)    49,035
                                                  (367)       (3)
Sales and marketing                    37,110   (1,426)       (1)    35,684
General and administrative             27,205   (3,384)       (1)    22,921
                                                  (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         218     (218)       (2)         -
                                    ========= ========  ========  =========
Total operating expenses              118,090  (10,450)             107,640
                                    ========= ========  ========  =========
Income from operations                 33,063   12,325               45,388
                                    ========= ========  ========  =========
Interest and other income, net          2,157        -                2,157
                                    ========= ========  ========  =========
Income from continuing operations
 before provision for income taxes     35,220   12,325               47,545
                                    ========= ========  ========  =========
Provision for income taxes              8,039    5,550        (7)    13,589
                                    ========= ========  ========  =========
Income from continuing operations      27,181    6,775               33,956
                                    ========= ========  ========  =========
Income from discontinued
 operations, net of taxes               1,618   (1,618)       (8)         -
                                    ========= ========  ========  =========
Net income from continuing
 operations                         $  28,799 $  5,157            $  33,956
                                    ========= ========  ========  =========

Earnings per share from continuing
 operations:
Basic                               $    0.41                     $    0.51
Diluted (9)                              0.39                          0.48

Earnings per share:
Basic                               $    0.43                     $    0.51
Diluted (9)                              0.41                          0.48

Weighted average number of shares
 outstanding:
Basic                                  66,578                        66,578
Diluted (9)                            73,076                        73,076


(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 six months ended June 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 5,942,000 weighted average shares
related to our formerly 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 accompanying schedule
of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the
twenty-six weeks ended June 27, 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