Tekelec (TKLC) 8-K Tekelec Announces Q2 2008 Results

Exhibit 99.1

RELEASE

For Immediate Release

Tekelec Announces Q2 2008 Results

• Orders of $122.9 million, up 45% Year-Over-Year,

• Revenues of $116.4 million, up 6% Year-Over-Year,

• GAAP EPS of $0.22 per diluted share, up 340% Year-Over-Year, and

• Non-GAAP EPS of $0.23 per diluted share, up 92% Year-Over-Year, as reconciled below

Morrisville, NC— August 6, 2008 — 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 quarter and six months ended June 30, 2008.

Results from Continuing Operations

For the second quarter of 2008, the Company had orders of $122.9 million, up 45% compared to $84.7 million for the second quarter of 2007. Revenue from continuing operations for the second quarter of 2008 was $116.4 million, up 6% compared to $110.0 million for the second quarter of 2007. Backlog from continuing operations as of June 30, 2008 was $387.6 million, up from $381.2 million at March 31, 2008.

On a GAAP basis, the Company reported income from continuing operations for the second quarter of 2008 of $15.3 million, or $0.22 per diluted share, which includes a one-time tax benefit of $3.7 million, or $0.05 per diluted share, from the utilization of certain capital losses generated by the sale of our switching business in 2007. This compares to income from continuing operations of $3.8 million, or $0.05 per diluted share, for the second quarter of 2007. On a Non-GAAP basis, income from continuing operations for the second quarter of 2008 was $15.7 million, or $0.23 per diluted share, compared to income from continuing operations of $9.0 million, or $0.12 per diluted share, for the second quarter of 2007. Please refer to the attached financial statement schedules for a reconciliation of the Company’s GAAP operating results to its Non-GAAP operating results.

For the first six months of 2008, the Company had orders from continuing operations of $205.3 million, up 25% compared to $163.9 million for the first six months of 2007. Revenue from continuing operations for the first six months of 2008 was $234.7 million, up 7% compared to $218.8 million for the first six months of 2007. GAAP operating margins were 14% and 2% for the six months ended June 30, 2008 and 2007, respectively. Non-GAAP operating margins for the first six months of 2008 were 19% as compared with 11% in the first six months of 2007.

On a GAAP basis, the Company reported income from continuing operations for the first six months of 2008 of $27.2 million, or $0.39 per diluted share, which includes a one-time tax benefit of $3.7 million, or $0.05 per diluted share, compared to income from continuing operations of $6.8 million, or $0.10 per diluted share, for the first six months of 2007. On a Non-GAAP basis, income from continuing operations for the first six months of 2008 was $34.0 million, or $0.48 per diluted share, compared to income from continuing operations of $19.6 million, or $0.27 per diluted share, for the first six months of 2007. Cash

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

flows from continuing operations for the six months ended June 30, 2008 were $56.9 million, up 24% compared to $45.9 million in the first six months of 2007. 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, president and chief executive officer of Tekelec, stated “We were very pleased by our strong operating performance for the second quarter and first half of the year. Our level of new orders was particularly strong compared to a year ago and reflects our continued success in generating new customer wins and in responding to demand from existing customers for signaling capacity and other Tekelec products. We were also pleased by the continued strength of our operating margins and strong cash flows during the first six months of 2008.”

Consolidated Results, Including the Impact of Discontinued Operations

On a GAAP basis, the Company generated net income of $15.3 million, or $0.22 per diluted share, which includes a one-time tax benefit of $3.7 million, or $0.05 per diluted share, for the three months ended June 30, 2008, compared to a net loss on a consolidated basis for the three months ended June 30, 2007 of $7.8 million, or $0.11 loss per diluted share. For the six months ended June 30, 2008, the Company generated consolidated net income on a GAAP basis of $28.8 million, or $0.41 per diluted share, which includes a one-time tax benefit of $3.7 million, or $0.05 per diluted share, compared with a consolidated net loss of $58.2 million, or $0.82 loss per diluted share in 2007.

Balance Sheet Results

Tekelec’s consolidated cash, cash equivalents and short-term investments at June 30, 2008 totaled $190.1 million, down from $316.5 million at March 31, 2008, due primarily to the repayment of $125 million of Convertible Notes in June 2008. Deferred revenues were $192.1 million at June 30, 2008, up from $185.7 million at March 31, 2008.

At June 30, 2008, the Company continued to hold $119.7 million of Student Loan Auction Rate Securities (“SLARS”) valued at fair value in accordance with FAS 115 and 157. This valuation reflects a decline in value of $4.3 million ($2.6 million net of tax) recorded in 2008. The decline in fair value is considered to be temporary and accordingly, the write-down is recorded in accumulated other comprehensive income within shareholders’ equity. We have classified these SLARS as long-term investments at June 30, 2008 because it is uncertain when liquidity will return to the market. Since the end of the second quarter, five auction rate securities with a total par value of approximately $12.3 million were called by the issuers and redeemed at par value.

Stock Repurchase Program

As previously announced in March 2008, 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 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 June 30, 2008, the Company had repurchased approximately 2.6 million shares at a total cost of approximately $33.7 million.

Conference Call

Tekelec has scheduled a conference call for Wednesday, August 6, 2008 for management to discuss second quarter and first half of 2008 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 second quarter and to discuss during this call certain forward looking information concerning the Company’s prospects for 2008.

“Live” Webcast and Replay

Tekelec will host a live webcast of its conference call on Wednesday, August 6, 2008, 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 11:00 a.m. on August 6^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 #55753150.

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, acquisition-related 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 resulting 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 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 2007 Form 10-K, First Quarter 2008 Form 10-Q and its other filings with the Securities and Exchange Commission, the impact of the liquidity crisis in the United States credit markets, valuation of Student Loan Auction Rate Securities, the timeliness and functional competitiveness of our product releases, our ability to maintain OEM, partner, and vendor support and supply relationships, changes in the market price of the Company’s common stock and reductions in telecommunications carrier capital spending. 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 leverages its global leadership in core multimedia session control and network intelligence to ensure scalable, secure and highly available communications. The company’s leading signaling solutions enable the interworking of different network applications, technologies and protocols, providing a smooth transition to next-generation networks. Corporate headquarters are located near Research Triangle Park in Morrisville, N.C., U.S.A., with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com.

Tekelec Investor Contact:

Joanne Latham, Director of Corporate Communications
Joanne.Latham@tekelec.com
+1 919.653.9655

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS⁽¹⁾

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
		(Thousands, except per share data)
Revenues	$	116,422		$	109,984		$	234,665		$	218,777
Cost of sales:
Cost of goods sold		42,392			46,774			82,338			98,676
Amortization of purchased technology		587			592			1,174			1,179
Total cost of sales		42,979			47,366			83,512			99,855
Gross profit		73,443			62,618			151,153			118,922
Operating expenses:
Research and development		26,216			24,064			50,624			46,271
Sales and marketing		18,906			18,309			37,110			36,974
General and administrative		12,948			14,762			27,205			27,794
Acquired in-process research and development		—			—			2,690			—
Restructuring and other		293			2,511			243			2,511
Amortization of intangible assets		109			48			218			94
Total operating expenses		58,472			59,694			118,090			113,644
Income from operations		14,971			2,924			33,063			5,278
Other income (expense), net:
Interest income		2,295			4,355			5,576			8,295
Interest expense		(779	)		(956	)		(1,911	)		(1,851	)
Gain (loss) on sale of investments		—			85			(2	)		223
Other, net		(990	)		(1,118	)		(1,506	)		(1,844	)
Total other income, net		526			2,366			2,157			4,823
Income from continuing operations before provision for income taxes		15,497			5,290			35,220			10,101
Provision for income taxes		179			1,517			8,039			3,328
Income from continuing operations		15,318			3,773			27,181			6,773
Income (loss) from discontinued operations, net of taxes		—			(11,547	)		1,618			(65,019	)
Net income (loss)	$	15,318		$	(7,774	)	$	28,799		$	(58,246	)
Earnings per share from continuing operations:
Basic	$	0.23		$	0.05		$	0.41		$	0.10
Diluted		0.22			0.05			0.39			0.10
Earnings (loss) per share from discontinued operations:
Basic	$	—		$	(0.17	)	$	0.02		$	(0.94	)
Diluted		—			(0.16	)		0.02			(0.92	)
Earnings (loss) per share:
Basic	$	0.23		$	(0.11	)	$	0.43		$	(0.84	)
Diluted		0.22			(0.11	)		0.41			(0.82	)
Weighted average number of shares outstanding-continuing operations:
Basic		65,638			69,938			66,578			69,426
Diluted		71,953			71,151			73,076			70,699
Weighted average number of shares outstanding:
Basic		65,638			69,938			66,578			69,426
Diluted		71,953			71,151			73,076			70,699

(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 June 27, 2008 and June 29, 2007.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
			(Thousands, except per share data)
Revenues	$	116,422	$	109,984	$	234,665	$	218,777
Cost of sales:
Cost of goods sold		42,062		46,370		81,637		92,753
Gross profit		74,360		63,614		153,028		126,024
Research and development		25,436		23,361		49,035		44,554
Sales and marketing		18,227		17,516		35,684		35,164
General and administrative		11,132		12,629		22,921		22,806
Total operating expenses		54,795		53,506		107,640		102,524
Income from operations		19,565		10,108		45,388		23,500
Interest and other income, net		526		2,366		2,157		4,823
Income from continuing operations before provision for income taxes		20,091		12,474		47,545		28,323
Provision for income taxes(2)		4,392		3,459		13,589		8,705
Net income from continuing operations	$	15,699	$	9,015	$	33,956	$	19,618
Earnings per share:
Basic	$	0.24	$	0.13	$	0.51	$	0.28
Diluted		0.23		0.12		0.48		0.27
Weighted average number of shares outstanding:
Basic		65,638		69,938		66,578		69,426
Diluted		71,953		77,512		73,076		77,060

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 Non-GAAP effective income tax rates of 22% and 28% for the three months ended June 30, 2008 and 2007, respectively. The above Non-GAAP Statements of Operations assume Non-GAAP effective income tax rates of 29% and 31% for the six months ended June 30, 2008 and 2007, 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 are for the thirteen and twenty-six weeks ended June 27, 2008 and June 29, 2007.

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2008		2007
	(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	188,143	$	105,550
Short-term investments, at fair value		2,000		313,922
Total cash, cash equivalents and short-term investments		190,143		419,472
Accounts receivable, net		141,870		147,092
Inventories		21,973		20,543
Income taxes receivable		11,647		28,361
Deferred income taxes		43,059		18,793
Deferred costs and prepaid commissions		58,715		57,203
Prepaid expenses and other current assets		9,545		14,726
Total current assets		476,952		706,190
Long-term investments, at fair value		119,664		—
Property and equipment, net		34,602		32,510
Investments in privately-held companies		18,553		18,553
Deferred income taxes, net		72,802		83,418
Other assets		1,386		1,320
Goodwill		22,951		22,951
Intangible assets, net		15,556		16,948
Total assets	$	762,466	$	881,890
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	28,638	$	45,388
Accrued expenses		28,945		21,259
Accrued compensation and related expenses		33,936		40,234
Current portion of deferred revenues		182,144		166,274
Convertible debt		—		125,000
Liabilities associated with SSG		1,510		5,767
Total current liabilities		275,173		403,922
Deferred income taxes		1,182		1,295
Long-term portion of deferred revenues		9,947		8,917
Other long-term liabilities		6,195		6,569
Total liabilities		292,497		420,703
Commitments and Contingencies
Shareholders’ equity:
Common stock, without par value, 200,000,000 shares authorized; 65,822,913 and 67,479,916 shares issued and outstanding, respectively		301,027		319,761
Retained earnings		168,178		139,379
Accumulated other comprehensive income		764		2,047
Total shareholders’ equity		469,969		461,187
Total liabilities and shareholders’ equity	$	762,466	$	881,890

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months ended June 30,
	2008			2007
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	28,799		$	(58,246	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (income) from discontinued operations		(1,618	)		65,019
Loss (gain) on sale of investments		2			(223	)
Loss on disposal of fixed assets		279			—
Provision for (recovery of) doubtful accounts and returns		(84	)		192
Inventory write downs		3,223			5,254
Depreciation		8,465			7,707
Amortization of intangibles		1,392			1,273
Amortization, other		487			929
Acquired in-process research and development		2,690			—
Deferred income taxes		(12,920	)		(2,113	)
Stock-based compensation		6,517			8,726
Excess tax benefits from stock-based compensation		(1,234	)		(2,912	)
Changes in operating assets and liabilities, net of business disposal:
Accounts receivable		5,105			43,228
Inventories		(4,562	)		(2,616	)
Deferred costs		(1,512	)		13,683
Prepaid expenses and other current assets		4,416			14,589
Accounts payable		(16,627	)		(535	)
Accrued expenses		7,613			(14,851	)
Accrued compensation and related expenses		(7,281	)		(7,713	)
Deferred revenues		17,441			(37,003	)
Income taxes payable/receivable		16,340			11,525
Total adjustments		28,132			104,159
Net cash provided by operating activities — continuing operations		56,931			45,913
Net cash used in operating activities — discontinued operations		(1,767	)		(16,571	)
Net cash provided by operating activities		55,164			29,342
Cash flows from investing activities:
Proceeds from sales and maturities of investments		772,583			332,918
Purchases of investments		(584,524	)		(372,016	)
Purchases of property and equipment		(10,441	)		(10,087	)
Payments related to acquired in-process research and development		(2,690	)		—
Other non-operating assets		(71	)		(224	)
Net cash provided by (used in) investing activities — continuing operations		174,857			(49,409	)
Net cash provided by (used in) investing activities — discontinued operations		—			(2,320	)
Net cash provided by (used in) investing activities		174,857			(51,729	)
Cash flows from financing activities:
Repayment of convertible debt		(125,000	)		—
Payments for repurchase of common stock		(33,700	)		—
Proceeds from issuance of common stock		9,547			20,234
Excess tax benefits from stock-based compensation		1,234			2,912
Net cash provided by (used in) financing activities		(147,919	)		23,146
Effect of exchange rate changes on cash		491			469
Net change in cash and cash equivalents		82,593			1,228
Cash and cash equivalents, beginning of period		105,550			45,329
Cash and cash equivalents, end of period	$	188,143		$	46,557

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME⁽⁷⁾

	Three Months Ended June 30, 2008
	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 the former Estacado employees that is contingent upon their continued employment by Tekelec.
(4)	The adjustment represents the elimination of costs incurred during 2008 related to our initiating a plan to centralize 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 of 22%.
(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 the 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 IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME⁽¹⁰⁾

	Six Months Ended June 30, 2008
	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	$	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 the former Estacado employees that is contingent upon their continued employment by Tekelec.
(4)	The adjustment represents an arbitration judgment 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 our initiating a plan to centralize 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 of 29%.
(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 the 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.

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME⁽⁸⁾

	Three Months Ended June 30, 2007
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues	$	109,984		$	—		$	109,984
Cost of sales:
Cost of goods sold		46,774			(404	)(1)		46,370
Amortization of purchased technology		592			(592	)(2)		—
Total cost of sales		47,366			(996	)		46,370
Gross profit		62,618			996			63,614
Operating Expenses:
Research and development		24,064			(703	)(1)		23,361
Sales and marketing		18,309			(793	)(1)		17,516
General and administrative		14,762			(2,090	)(1)		12,629
					(43	)(3)
Restructuring and other		2,511			(2,511	)(4)		—
Amortization of intangible assets		48			(48	)(2)		—
Total operating expenses		59,694			(6,188	)		53,506
Income from operations		2,924			7,184			10,108
Interest and other income, net		2,366			-			2,366
Income from continuing operations before provision for income taxes		5,290			7,184			12,474
Provision for income taxes		1,517			1,942	(5)		3,459
Income from continuing operations		3,773			5,242			9,015
Loss from discontinued operations for SSG, net of taxes		(11,547	)		11,547	(6)		—
Net income (loss)	$	(7,774	)	$	16,789		$	9,015
Earnings per share from continuing operations:
Basic	$	0.05					$	0.13
Diluted(7)		0.05						0.12
Earnings (loss) per share:
Basic	$	(0.11	)				$	0.13
Diluted(7)		(0.11	)					0.12
Weighted average number of shares outstanding:
Basic		69,938						69,938
Diluted(7)		71,151						77,512

(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 the legal expenses incurred to settle the Bouygues litigation.
(4)	The adjustment represents the impact of the June 2007 restructuring.
(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 of 28%.
(6)	The adjustment represents the elimination of our discontinued operations.
(7)	For the three months ended June 30, 2007, the calculations of diluted earnings per share related to GAAP Continuing Operations exclude 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 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 $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.
(8)	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 29, 2007.

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME⁽⁹⁾

	Six Months Ended June 30, 2007
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues		218,777		$	—		$	218,777
Cost of sales:
Cost of goods sold		98,676			(923	)(1)		92,753
					(5,000	)(2)
Amortization of purchased technology		1,179			(1,179	)(3)		—
Total cost of sales		99,855			(7,102	)		92,753
Gross profit		118,922			7,102			126,024
Operating Expenses:
Research and development		46,271			(1,717	)(1)		44,554
Sales and marketing		36,974			(1,810	)(1)		35,164
General and administrative		27,794			(4,276	)(1)		22,806
					(712	)(4)
Restructuring and other		2,511			(2,511	)(5)		—
Amortization of intangible assets		94			(94	)(3)		—
Total operating expenses		113,644			(11,120	)		102,524
Income from operations		5,278			18,222			23,500
Interest and other income, net		4,823			-			4,823
Income from continuing operations before provision for income taxes		10,101			18,222			28,323
Provision for income taxes		3,328			5,377	(6)		8,705
Income from continuing operations		6,773			12,845			19,618
Loss from discontinued operations for SSG, net of taxes		(65,019	)		65,019	(7)		—
Net income (loss)	$	(58,246	)	$	77,864		$	19,618
Earnings per share from continuing operations:
Basic	$	0.10					$	0.28
Diluted(8)		0.10						0.27
Earnings (loss) per share:
Basic	$	(0.84	)				$	0.28
Diluted(8)		(0.82	)					0.27
Weighted average number of shares outstanding:
Basic		69,426						69,426
Diluted(8)		70,699						77,060

(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 and other intangibles related to the acquisitions of Steleus and iptelorg.
(4)	The adjustment represents legal expenses incurred to settle the Bouygues litigation.
(5)	In the second quarter of 2007 we initiated a restructuring of our operations to better align with our current organizational requirements. This adjustment represents the elimination of the costs associated with the June restructuring.
(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 31%.
(7)	The adjustment represents the elimination of the results of operations of our discontinued operations.
(8)	For the six months ended June 30, 2007, the calculations of diluted earnings per share related to GAAP Continuing Operations exclude a potential add-back to net income of $1,162,000 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 $1,162,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.
(9)	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 29, 2007.