Tekelec (TKLC) 8-K Results of Operations and Financial Condition

Exhibit 99.1

FOR IMMEDIATE RELEASE

	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
•	Q3 Non-GAAP Diluted EPS from Continuing Operations of $0.27 per share (as reconciled below); up 42% year over year

Morrisville, N.C.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

Corporate Office: 5200 Paramount Parkway, Morrisville, N.C. 27560• Tel 919.460.5500• Fax 919.460.0877

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 visitwww.tekelec.com.

Investor Contacts:
Mike Gallentine
Director of Investor Relations
919-461-6825 office
Michael.Gallentine@tekelec.com

Press Contacts:
Joanne Latham
Director, Marketing Communications
919-653-9655 office
Joanne.Latham@tekelec.com

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS⁽¹⁾

	Three Months Ended September 30,						Nine Months Ended 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 September 30,						Nine Months Ended 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.