Tekelec (TKLC) 8-K Tekelec Announces Q3 2007 Results

Exhibit 99.1

NEWS

R          E            L            E            A            S            E

Tekelec Announces Q3 2007 Results

Revenues Were $97.8 million; GAAP EPS from Continuing Operations Totaled $0.14;
Q3 Orders Grew 22% Year Over Year; Book to Bill for Q3 2007 was 1.12

MORRISVILLE, N.C. (Tuesday, October 30, 2007): Tekelec (NASDAQ: TKLC ), a leading developer of high-performance network applications for next-generation fixed, mobile and packet networks, today announced its results for the three and nine months ended September 30, 2007. Results of the Company’s Switching Solutions Group (“SSG”) for the three and nine months ended September 30, 2007 and 2006 and the results of the IEX contact center (“IEX”) business unit for the three and nine months ended September 30, 2006 are included in the results from discontinued operations.

Results from Continuing Operations
Revenue from continuing operations for the third quarter of 2007 was $97.8 million, down 27% compared to $134.3 million for the third quarter of 2006. For the third quarter of 2007, the Company had orders of $109.2 million, up 22% compared to $89.4 million for the third quarter of 2006, resulting in a book to bill ratio of 1.12 for the quarter. Backlog as of September 30, 2007 was $346.1 million up from $334.7 million as of June 30, 2007.

On a GAAP basis, the Company reported income from continuing operations for the third quarter of 2007 of $10.1 million, or $0.14 per diluted share, compared to income from continuing operations of $20.1 million, or $0.28 per diluted share, for the third quarter of 2006. On a Non-GAAP basis, net income from continuing operations for the third quarter of 2007 was $13.8 million, or $0.18 per diluted share, compared to net income from continuing operations of $23.0 million, or $0.32 per diluted share, for the third quarter of 2006. Please refer to the attached financial statement schedules for a reconciliation of the Company’s GAAP operating results to its Non-GAAP operating results.

Revenue from continuing operations for the first nine months of 2007 was $316.6 million, compared to $318.2 million for the first nine months of 2006. For the first nine months of 2007, the Company had orders from continuing operations of $273.0 million, up 6% compared to $257.6 million for the first nine months of 2006.

On a GAAP basis, the Company reported income from continuing operations for the first nine months of 2007 of $16.8 million, or $0.24 per diluted share, compared to income from continuing operations of $25.5 million, or $0.37 per diluted share, for the first nine months of 2006. On a Non-GAAP basis, net income from continuing operations for the first nine months of 2007 was $33.4 million, or $0.45 per diluted share, compared to net income from continuing operations of $36.8 million, or $0.52 per diluted share, for the first nine months of 2006. Please refer to the attached financial statement schedules for a reconciliation of the Company’s GAAP operating results to its Non-GAAP operating results.

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

Q3 2007 Results

Frank Plastina, president and chief executive officer of Tekelec, stated, “We are pleased with our operating results for the quarter, with strong gross margins, operating margins and earnings, coupled with solid orders growth in the September quarter resulting in a book to bill ratio greater than one. We again leave the quarter with a strong balance sheet and continue to expand our global footprint, evidenced by six new international customers this quarter.”

Results from Discontinued Operations
The Company completed the sale of its SSG business to GENBAND Inc. on April 21, 2007 and the results of the operations of SSG have been presented as a discontinued operation in the three and nine months ended September 30, 2007 and 2006. In addition, the Company completed the sale of the IEX contact center business to NICE Systems, Inc. on July 6, 2006 and the operations of IEX have been presented as a discontinued operation in the three and nine months ended September 30, 2006. On a GAAP basis, net income from discontinued operations in the third quarter of 2007 was $2.4 million, or $0.03 per diluted share, compared to net income from discontinued operations of $69.2 million, or $0.93 per diluted share, in the third quarter of 2006, which included the gain on the sale of the IEX contact center business. On a GAAP basis, the loss from discontinued operations, including a loss on the sale of SSG, for the first nine months of 2007 was $62.6 million, or $0.88 loss per diluted share, compared to net income from discontinued operations of $61.8 million, or $0.83 per diluted share, for the first nine months of 2006.

Consolidated Results
On a GAAP basis, consolidated net income for the three months ended September 30, 2007 was $12.5 million, or $0.17 per diluted share, compared to consolidated net income for the three months ended September 30, 2006 of $89.3 million, or $1.21 per diluted share. On a GAAP basis, the consolidated net loss for the nine months ended September 30, 2007 was $45.7 million, or $0.64 loss per diluted share, compared to consolidated net income for the nine months ended September 30, 2006 of $87.3 million, or $1.19 per diluted share.

Balance Sheet Results
As of September 30, 2007, the Company’s consolidated cash, cash equivalents and short-term investments totaled $431.0 million, down from $464.8 million at June 30, 2007. Deferred revenues from continuing operations were $153.1 million at September 30, 2007, compared to $158.8 million at June 30, 2007.

Stock Repurchase Plan
As previously announced, Tekelec’s board of directors approved a stock repurchase program utilizing a Rule 10b5-1 plan that authorizes the company to repurchase up to $50 million worth of the company’s common stock. The timing, duration, and actual number of shares repurchased will depend on a variety of factors, including price, regulatory requirements, and other market conditions. The Company may terminate the repurchase program at any time. As of October 25, 2007 the Company had repurchased approximately 2.5 million shares at a total cost of approximately $30.8 million.

Q3 2007 Results

Conference Call
Tekelec has scheduled a conference call for Tuesday, October 30, 2007 for management to discuss third quarter 2007 results. The Company also plans to provide on its web site immediately prior to the call both GAAP and Non-GAAP financial measures (including GAAP reconciliations) for the third quarter and to discuss during this call certain forward looking information concerning the Company’s prospects for 2007.

"Live” Webcast and Replay
Tekelec will host a live webcast of its conference call on Tuesday, October 30, 2007, at 8:00 a.m. EDT. 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 10:45 a.m. on October 30^th and for 90 days thereafter.

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 #20617822

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 determine incentive compensation and evaluate 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 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 not meet the Company’s expectations. As discussed in the Company’s Quarterly Reports on Form 10-Q for the 2007 first quarter (the “Q1 2007 Form 10-Q”), Quarterly Reports on Form 10-Q for the 2007 second quarter (the “Q2 2007 Form 10-Q”), its Annual Report on Form 10-K for 2006 (the “2006 Form 10-K”) and its other filings with the Securities and Exchange Commission (the “Commission”), the Company’s future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from the Company’s current expectations, in addition to those identified in the Company’s 2006 Form 10-K, the Q1 2007 Form 10-Q, the Q2 2007 Form 10-Q and its other filings with the Commission, include, among others, the risk that the Company will

Q3 2007 Results

not realize all the benefits of its restructuring activities; the risk that the sales cycle will lengthen as customers evaluate current technology and anticipate technology shifts; delays in new product introduction and execution related to new technology and slower than anticipated customer orders related to such products; the risk that continued service provider consolidation will require additional review of capital expenditures and lengthen their procurement cycle; and the uncertainties related to the timing of revenue recognition due to the increasing percentage of international and new customer orders in the Company’s backlog. 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 is a high-performance network applications company that is enabling the transition to IP Multimedia Subsystem (IMS) networks for service providers around the globe. With its experience at the intersection of network applications and session control, Tekelec creates highly efficient platforms for managing media and delivering network solutions. Corporate headquarters are in Morrisville, N.C., U.S.A. in the Research Triangle Park area, with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com.

Tekelec Investor Contacts:
Jim Chiafery
Director, Investor Relations
Tel: 919.461.6825
jim.chiafery@tekelec.com

Q3 2007 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(Thousands, except per share data)
Revenues	$	97,797		$	134,297		$	316,574		$	318,247
Cost of sales:
Cost of goods sold		33,367			49,274			132,043			119,296
Amortization of purchased technology		587			586			1,766			1,760
Total cost of sales		33,954			49,860			133,809			121,056
Gross profit		63,843			84,437			182,765			197,191
Operating expenses:
Research and development		22,762			20,838			69,033			57,940
Sales and marketing		16,662			18,706			53,636			55,643
General and administrative		12,354			16,180			40,148			46,299
Restructuring and other		2,291			(12	)		4,802			2,070
Amortization of intangible assets		46			460			140			1,404
Total operating expenses		54,115			56,172			167,759			163,356
Income (loss) from operations		9,728			28,265			15,006			33,835
Other income (expense), net:
Interest income		4,411			3,554			12,706			7,081
Interest expense		(903	)		(1,000	)		(2,754	)		(2,781	)
Gain on sale of investments		—			—			223			1,793
Other income, net		(1,144	)		(496	)		(2,988	)		(847	)
Total other income, net		2,364			2,058			7,187			5,246
Income from continuing operations before provision for income taxes		12,092			30,323			22,193			39,081
Provision for income taxes		2,033			10,258			5,361			13,591
Income from continuing operations		10,059			20,065			16,832			25,490
Income (loss) on sale of discontinued operations, net of taxes		2,444			69,197			(62,575	)		61,813
Net Income (loss)	$	12,503		$	89,262		$	(45,743	)	$	87,303
Earnings per share from continuing operations:
Basic	$	0.14		$	0.30		$	0.24		$	0.38
Diluted		0.14			0.28			0.24			0.37
Earnings (loss) per share from discontinued operations:
Basic	$	0.03		$	1.03		$	(0.90	)	$	0.92
Diluted		0.03			0.93			(0.88	)		0.83
Earnings (loss) per share:
Basic	$	0.18		$	1.33		$	(0.65	)	$	1.30
Diluted		0.17			1.21			(0.64	)		1.19
Weighted average number of shares outstanding-continuing operations:
Basic		70,830			67,283			69,894			67,016
Diluted		77,829			74,414			70,956			74,524
Weighted average number of shares outstanding:
Basic		70,830			67,283			69,894			67,016
Diluted		77,829			74,414			70,956			74,524

Q3 2007 Results

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(Thousands, except per share data)
Revenues	$	97,797	$	134,297	$	316,574	$	318,247
Cost of sales:
Cost of goods sold		33,002		48,684		125,755		117,413
Gross profit		64,795		85,613		190,819		200,834
Research and development		22,272		19,628		66,826		54,119
Sales and marketing		15,803		17,433		50,967		51,611
General and administrative		10,708		14,104		33,514		40,140
Total operating expenses		48,783		51,165		151,307		145,870
Income from operations		16,012		34,448		39,512		54,964
Interest and other income, net		2,364		2,058		7,187		3,453
Income from continuing operations before provision for income taxes		18,376		36,506		46,699		58,417
Provision for income taxes(2)		4,615		13,507		13,320		21,613
Net income from continuing operations	$	13,761	$	22,999	$	33,379	$	36,804
Earnings per share:
Basic	$	0.19	$	0.34	$	0.48	$	0.55
Diluted		0.18		0.32		0.45		0.52
Earnings per share weighted average number of shares outstanding:
Basic		70,830		67,283		69,894		67,016
Diluted		77,829		74,414		77,317		74,524

Notes to Unaudited Non-GAAP Statements of Operations for Continuing Operations:

(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 effective income tax rates of 25% and 37% for the three months ended September 30, 2007 and 2006, respectively. The above Non-GAAP Statements of Operations assume effective income tax rates of 29% and 37% for the nine months ended September 30, 2007 and 2006, respectively.

Q3 2007 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2007		2006
	(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	52,428	$	45,329
Short-term investments, at fair value		378,585		379,045
Total cash, cash equivalents and short-term investments		431,013		424,374
Accounts receivable, net		109,826		133,050
Inventories		22,000		25,739
Income taxes receivable		25,402		14,665
Deferred income taxes		20,632		27,671
Deferred costs and prepaid commissions		49,691		55,110
Prepaid expenses and other current assets		11,801		26,133
Receivable from GenBand		408		—
Assets of discontinued operations		—		118,341
Total current assets		670,773		825,083
Property and equipment, net		32,674		36,398
Investments in privately-held companies		18,553		7,322
Deferred income taxes, net		81,819		51,496
Other assets		1,275		2,539
Goodwill		26,876		26,876
Intangible assets, net		17,644		19,543
Total assets	$	849,614	$	969,257
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	19,814	$	27,316
Accrued expenses		44,109		55,665
Accrued payroll and related expenses		20,317		28,733
Current portion of deferred revenues		142,262		189,994
Convertible debt		125,000		—
Liabilities associated with SSG		6,852		—
Liabilities of discontinued operations		—		40,991
Total current liabilities		358,354		342,699
Deferred income taxes		1,331		1,481
Long-term portion of deferred revenues		10,850		5,836
Long-term convertible debt		—		125,000
Other long-term liabilities		6,046		—
Total liabilities		376,581		475,016
Commitments and Contingencies
Shareholders’ equity:
Common stock, without par value, 200,000,000 shares authorized; 69,822,574 and 68,728,986 shares issued and outstanding, respectively		345,570		322,620
Retained earnings		125,979		171,722
Accumulated other comprehensive income (loss)		1,484		(101	)
Total shareholders’ equity		473,033		494,241
Total liabilities and shareholders’ equity	$	849,614	$	969,257

Q3 2007 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months ended September 30,
	2007			2006
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	(45,743	)	$	87,303
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Income (loss) from discontinued operations		62,575			(61,813	)
Gain on sale of investments		(223	)		(1,793	)
Provision for (recoveries of) doubtful accounts and returns		(65	)		457
Inventory write downs		8,626			4,092
Depreciation		11,524			8,981
Amortization of intangibles		1,899			3,166
Amortization, other		1,325			3,016
Deferred income taxes		2,647			(9,069	)
Stock-based compensation		12,086			15,343
Excess tax benefits from stock-based compensation		(4,172	)		(448	)
Changes in operating assets and liabilities, net of business disposal:
Accounts receivable		22,755			(22,181	)
Inventories		(3,224	)		(10,187	)
Deferred costs		5,419			3,224
Prepaid expenses and other current assets		14,309			(6,154	)
Trade accounts payable		(7,243	)		5,211
Income taxes receivable		9,127			(21,953	)
Accrued expenses		(13,193	)		161
Accrued payroll and related expenses		(9,241	)		(3,004	)
Deferred revenues		(42,450	)		17,204
Total adjustments		72,481			(75,747	)
Net cash provided by operating activities — continuing operations		26,738			11,556
Net cash used in operating activities — discontinued operations		(18,565	)		(2,040	)
Net cash provided by operating activities		8,173			9,516
Cash flows from investing activities:
Proceeds from sales and maturities of investments		487,399			656,743
Purchases of investments		(486,912	)		(862,441	)
Purchases of property and equipment		(13,916	)		(14,137	)
Change in other assets		175			1,455
Net cash used in investing activities — continuing operations		(13,254	)		(218,380	)
Net cash used in (provided by) investing activities — discontinued operations		(3,241	)		191,240
Net cash used in investing activities		(16,495	)		(27,140	)
Cash flows from financing activities:
Payments on notes payable		—			(96	)
Payments for repurchase of common stock		(19,699	)		—
Proceeds from issuance of common stock		29,421			10,781
Excess tax benefits from stock-based compensation		4,172			448
Net cash provided by financing activities		13,894			11,133
Effect of exchange rate changes on cash		1,527			249
Net change in cash and cash equivalents		7,099			(6,242	)
Cash and cash equivalents, beginning of period		45,329			52,069
Cash and cash equivalents, end of period		52,428			45,827
Less cash and cash equivalents of discontinued operations		—			645
Cash and cash equivalents of continuing operations at end of period	$	52,428		$	45,182

Q3 2007 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Three Months Ended September 30, 2007
	(Thousands, except per share data)
	GAAP					Non-GAAP
	Continuing					Continuing
	Operations		Adjustments			Operations
Revenues	$	97,797	$	—		$	97,797
Cost of sales:
Cost of goods sold		33,367		(365	)(1)		33,002
Amortization of purchased technology		587		(587	)(2)		—
Total cost of sales		33,954		(952	)		33,002
Gross profit		63,843		952			64,795
Operating Expenses:
Research and development		22,762		(490	)(1)		22,272
Sales and marketing		16,662		(859	)(1)		15,803
General and administrative		12,354		(1,646	)(1)		10,708
Restructuring and other		2,291		(2,291	)(3)		—
Amortization of intangible assets		46		(46	)(2)		—
Total operating expenses		54,115		(5,332	)		48,783
Income from operations		9,728		6,284			16,012
Interest and other income, net		2,364		—			2,364
Income from continuing operations before provision for income taxes		12,092		6,284			18,376
Provision for income taxes		2,033		2,582	(4)		4,615
Income from continuing operations		10,059		3,702			13,761
Loss from discontinued operations, net of taxes		2,444		(2,444	)(5)		—
Net income	$	12,503	$	1,258		$	13,761
Earnings per share from continuing operations:
Basic	$	0.14				$	0.19
Diluted(6)		0.14					0.18
Earnings per share:
Basic	$	0.18				$	0.19
Diluted(6)		0.17					0.18
Weighted average number of shares outstanding:
Basic		70,830					70,830
Diluted(6)		77,829					77,829

(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, other intangibles and acquired backlog related to the acquisitions of Steleus and iptelorg.

(3) The adjustment represents the eliminations of the costs associated with our restructuring activities.

(4) The adjustment represents the income tax effect of footnotes (1), (2) and (3) in order to reflect our Non-GAAP effective tax rate of 25%.

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

(6) For the three months ended September 30, 2007, the calculations of diluted earnings per share include a potential add-back to net income of $581,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q3 2007 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Nine Months Ended September 30, 2007
	(Thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues	$	316,574		$	—		$	316,574
Cost of sales:
Cost of goods sold		132,043			(1,288	)(1)		125,755
					(5,000	)(2)
Amortization of purchased technology		1,766			(1,766	)(3)		—
Total cost of sales		133,809			(8,054	)		125,755
Gross profit		182,765			8,054			190,819
Operating Expenses:
Research and development		69,033			(2,207	)(1)		66,826
Sales and marketing		53,636			(2,669	)(1)		50,967
General and administrative		40,148			(5,922	)(1)		33,514
					(712	)(4)
Restructuring and other		4,802			(4,802	)(5)		—
Amortization of intangible assets		140			(140	)(3)		—
Total operating expenses		167,759			(16,452	)		151,307
Income from operations		15,006			24,506			39,512
Interest and other income, net		7,187			—			7,187
Income from continuing operations before provision for income taxes		22,193			24,506			46,699
Provision for income taxes		5,361			7,959	(6)		13,320
Income from continuing operations		16,832			16,547			33,379
Loss from discontinued operations, net of taxes		(62,575	)		62,575	(7)		—
Net income (loss)	$	(45,743	)	$	79,122		$	33,379
Earnings per share from continuing operations:
Basic	$	0.24					$	0.48
Diluted(8)		0.24						0.45
Earnings (loss) per share:
Basic	$	(0.65	)				$	0.48
Diluted(8)		(0.64	)					0.45
Weighted average number of shares outstanding:
Basic		69,894						69,894
Diluted(8)		70,956						77,317

(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 charge associated with product credits issued to Bouygues Telecom, S.A. as part of our settlement of the Bouygues litigation.

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

(4) The adjustment represents legal expenses incurred to settle the Bouygues litigation.

(5) This adjustment represents the elimination of the costs associated with our restructuring activities.

(6) The adjustment represents the income tax effect of footnotes (1), (2), (3), (4) and (5) in order to reflect our Non-GAAP effective tax rate of 29%.

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

(8) For the nine months ended September 30, 2007, the calculations of diluted earnings per share related to GAAP Continuing Operations exclude a potential add-back to net income of $1,743,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method as the effect of including such amounts is anti-dilutive. The calculation of diluted earnings per share related to Non-GAAP Continuing Operations includes the add-back to net income of $1,743,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q3 2007 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Three Months Ended September 30, 2006
	(Thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues	$	134,297		$	—		$	134,297
Cost of sales:
Cost of goods sold		49,274			(590	)(1)		48,684
Amortization of purchased technology		586			(586	)(2)		—
Total cost of sales		49,860			(1,176	)		48,684
Gross profit		84,437			1,176			85,613
Operating Expenses:
Research and development		20,838			(1,210	)(1)		19,628
Sales and marketing		18,706			(1,273	)(1)		17,433
General and administrative		16,180			(2,076	)(1)		14,104
Restructuring and other		(12	)		12	(3)		—
Amortization of intangible assets		460			(460	)(2)		—
Total operating expenses		56,172			(5,007	)		51,165
Income from operations		28,265			6,183			34,448
Interest and other income, net		2,058			—			2,058
Income from continuing operations before provision for income taxes		30,323			6,183			36,506
Provision for income taxes		10,258			3,249	(4)		13,507
Income from continuing operations		20,065			2,934			22,999
Income from discontinued operations, net of taxes		69,197			(69,197	)(5)		—
Net income	$	89,262		$	(66,263	)	$	22,999
Earnings per share from continuing operations:
Basic	$	0.30					$	0.34
Diluted(6)		0.28						0.32
Earnings per share:
Basic	$	1.33					$	0.34
Diluted(6)		1.21						0.32
Weighted average number of shares outstanding:
Basic		67,283						67,283
Diluted(6)		74,414						74,414

(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, other intangibles and acquired backlog related to the acquisitions of Steleus and iptelorg.

(3) The adjustment represents changes in estimates relating to our 2006 Restructuring.

(4) The adjustment represents the income tax effect of footnotes (1), (2) and (3) in order to reflect our non-GAAP effective tax rate of 37%.

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

(6) For the three months ended September 30, 2006, the calculations of diluted earnings per share include the potential add-back to net income of $581,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q3 2007 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Nine Months Ended September 30, 2006
	(Thousands, except per share data)
	GAAP					Non-GAAP
	Continuing					Continuing
	Operations		Adjustments			Operations
Revenues	$	318,247	$	—		$	318,247
Cost of sales:
Cost of goods sold		119,296		(1,883	)(1)		117,413
Amortization of purchased technology		1,760		(1,760	)(2)		—
Total cost of sales		121,056		(3,643	)		117,413
Gross profit		197,191		3,643			200,834
Operating Expenses:
Research and development		57,940		(3,821	)(1)		54,119
Sales and marketing		55,643		(4,032	)(1)		51,611
General and administrative		46,299		(5,607	)(1)		40,140
				(342	)(3)
				(210	)(4)
Restructuring and other		2,070		(2,070	)(5)		—
Amortization of intangible assets		1,404		(1,404	)(2)		—
Total operating expenses		163,356		(17,486	)		145,870
Income from operations		33,835		21,129			54,964
Interest and other income, net		5,246		(1,793	)(6)		3,453
Income from continuing operations before provision for income taxes		39,081		19,336			58,417
Provision for income taxes		13,591		8,022	(7)		21,613
Income from continuing operations		25,490		11,314			36,804
Income from discontinued operations, net of taxes		61,813		(61,813	)(8)		—
Net Income	$	87,303	$	(50,499	)	$	36,804
Earnings per share from continuing operations:
Basic	$	0.38				$	0.55
Diluted(9)		0.37					0.52
Earnings per share:
Basic	$	1.30				$	0.55
Diluted(9)		1.19					0.52
Weighted average number of shares outstanding:
Basic		67,016					67,016
Diluted(9)		74,524					74,524

(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, other intangibles and acquired backlog related to the acquisitions of Steleus and iptelorg.

(3) The adjustment represents legal expenses incurred to settle the IEX vs. Blue Pumpkin litigation.

(4) The adjustment represents costs associated with the restatement of our consolidated financial statements.

(5) The adjustment represents restructuring and other costs related to our 2006 restructuring and changes in estimates relating to the restructuring of our manufacturing and corporate headquarters relocations in 2005 and 2004.

(6) The adjustment represents the gain recognized related to our receipt of shares of Alcatel-Lucent upon release from escrow.

(7) The adjustment represents the income tax effect of footnotes (1), (2), (3), (4), (5) and (6) in order to reflect our Non-GAAP effective tax rate of 37%.

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

(9) For the nine months ended September 30, 2006, the calculations of diluted earnings per share include the potential add-back to net income of $1,743,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.