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

Exhibit 99.1

Tekelec Announces 2007 Q4 and Full Year Results
Record Q4 2007 Orders up 34%; Book-to-Bill was 1.62 for Q4 2007
Record Full year 2007 Orders up 16%; Book-to-Bill was 1.06 for 2007

Morrisville, N.C.February 7, 2008 — Tekelec (“the Company”), (NASDAQ: TKLC), a leading developer of high-performance network applications for next-generation fixed, mobile and packet networks, today announced its earnings for the fourth quarter and full year of 2007.

2007 Q4 Results from Continuing Operations
For the fourth quarter of 2007, the Company had orders of $186.2 million, up 34% compared to $138.4 million for the fourth quarter of 2006 and up 71% compared to $109.2 million for the third quarter of 2007. The book-to-bill ratio was 1.62 for the fourth quarter of 2007. Revenue from continuing operations for the fourth quarter of 2007 was $115.2 million, down 8% compared to $125.1 million for the fourth quarter of 2006. Backlog as of December 31, 2007 was $417.0 million compared to $346.1 million as of September 30, 2007 and $389.6 million as of December 31, 2006.

On a GAAP basis, the Company reported income from continuing operations for the fourth quarter of 2007 of $10.1 million, or $0.14 per diluted share, compared to income from continuing operations of $9.4 million, or $0.13 per diluted share, for the fourth quarter of 2006. On a non-GAAP basis, net income from continuing operations for the fourth quarter of 2007 was $14.9 million, or $0.21 per diluted share, compared to net income from continuing operations of $17.4 million, or $0.24 per diluted share, for the fourth 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.

Full Year 2007 Results from Continuing Operations
For the full year 2007, the Company had orders from continuing operations of $459.2 million, up 16% compared to $396.1 million for the full year 2006. Revenue from continuing operations for the full year 2007 was $431.8 million, down 3% compared to $443.3 million for the full year 2006. The book-to-bill ratio was 1.06 for the full year 2007.

On a GAAP basis, the Company reported income from continuing operations for the full year 2007 of $26.9 million, or $0.38 per diluted share, compared to income from continuing operations of $34.9 million, or $0.50 per diluted share, for the full year 2006. On a non-GAAP basis, net income from continuing operations for the full year 2007 was $48.3 million, or $0.66 per diluted share, compared to net income from continuing operations of $54.2 million, or $0.75 per diluted share, for the full year 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

Q4 2007 Results
 

2007 Business Highlights

• Tekelec simplified and strengthened the organization by evolving from a business unit structure to a single organization focused on portfolio integration and the acceleration of new product delivery.

• The Company expanded its geographic footprint by adding 7 new customers in the fourth quarter and 23 new customers for the year, all outside of North America.

• The Company gained market traction across our portfolio of major products. The Company received orders from 30 customers for our newest Performance Management and Monitoring release, IAS 2.0, many of which are Tier One service providers.

• The Company initiated 10 new customer trials with Tier One service providers for TekCore, TekMedia and TekPath during the year.

• The Company’s focus on driving operational improvements and cost structure efficiencies resulted in improved gross margin and operating margin performance during the fourth quarter of 2007 relative to the same period in 2006.

• The Company generated strong cash flow from continuing operations and completed a $50.1 million stock repurchase program resulting in a cash balance of $419.5 million at year-end.

Commenting on the results, Frank Plastina, president and CEO said, “2007 was a year of tremendous progress for Tekelec and the results are reflected in the financial results announced today. We were very pleased with our operating results, our record order entry and strong book-to-bill ratio in the fourth quarter. We believe our accomplishments in 2007 have positioned us for solid operating results in 2008.”

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 twelve months ended December 31, 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 twelve months ended December 31, 2006. On a GAAP basis, income from discontinued operations in the fourth quarter of 2007 was $0.3 million, or $0.00 per diluted share, compared to a loss from discontinued operations of $10.6 million, or $0.14 loss per diluted share, in the fourth quarter of 2006. On a GAAP basis, the loss from discontinued operations, including a loss on the sale of SSG, for the full year 2007 was $62.2 million, or $0.81 loss per diluted share, compared to income from discontinued operations of $51.2 million, or $0.68 per diluted share, for the full year 2006. Included in income from discontinued operations for the year ended December 31, 2006 was a gain on the sale of IEX of $177.5 million, net of taxes.

Consolidated Results
On a GAAP basis, consolidated net income for the three months ended December 31, 2007 was $10.4 million, or $0.15 per diluted share, compared to a consolidated net loss for the three months ended December 31, 2006 of $1.2 million, or $.01 loss per diluted share. On a GAAP basis, the consolidated net loss for the twelve months ended December 31, 2007 was $35.3 million, or $0.43 loss per diluted share, compared to consolidated net income for the twelve months ended December 31, 2006 of $86.1 million, or $1.18 per diluted share.

Q4 2007 Results
 

Balance Sheet
As of December 31, 2007, the Company’s consolidated cash, cash equivalents and short-term investments totaled $419.5 million, compared to $431.0 million at September 30, 2007 and to $424.4 million at December 31, 2006. Deferred revenues from continuing operations were $175.2 million at December 31, 2007, compared to $153.1 million at September 30, 2007 and to $195.8 million at December 31, 2006.

Stock Repurchase Plan
As previously announced in August 2007, Tekelec’s Board of Directors approved a stock repurchase program that authorized the company to repurchase up to $50 million worth of the company’s common stock. As of December 31, 2007 the Company had completed the program and had repurchased approximately 4.1 million shares at a total cost of $50.1 million.

Conference Call
Tekelec has scheduled a conference call for Thursday, February 7, 2008, for its management to discuss fourth quarter and full year 2007 results. 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 reconciliations) for the fourth quarter and the years ended December 31, 2007 and 2006 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 Thursday, February 7, 2008 at 4:45 p.m. 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 7:45 p.m. on Thursday, February 7, 2008, 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 # 32641622.

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 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.

Q4 2007 Results
 

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 Report on Form 10-Q for the 2007 first quarter (the “Q1 2007 Form 10-Q”), Quarterly Report on Form 10-Q for the 2007 second quarter (the “Q2 2007 Form 10-Q”), Quarterly Report on Form 10-Q for the 2007 third quarter (the “Q3 2007 Form 10-Q”), Annual Report on Form 10-K for 2006 (the “2006 Form 10-K”) and 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 , the Q3 2007 Form 10-Q, and its other filings with the Commission, include, among others, the risk that the Company will 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; the risk that economic conditions will deteriorate, for example in connection with the turmoil in the sub-prime mortgage market, which may adversely effect demand for our customers’ services; the risk that customers will face difficulty in obtaining financing for capital expenditures in volatile capital markets, 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 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.

###

Investor Contacts:
Jim Chiafery
Director of Investor Relations
919-461-6825 office
James.chiafery@tekelec.com

Q4 2007 Results
 

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended December 31,						Year Ended December 31,
	2007			2006			2007			2006
	(Thousands, except per share data)
Revenues	$	115,226		$	125,099		$	431,800		$	443,346
Cost of sales:
Cost of goods sold		44,280			55,136			176,323			174,432
Amortization of purchased technology		588			589			2,354			2,349
Total cost of sales		44,868			55,725			178,677			176,781
Gross profit		70,358			69,374			253,123			266,565
Operating expenses:
Research and development		23,190			20,510			92,223			78,450
Sales and marketing		18,923			20,321			72,559			75,964
General and administrative		14,973			21,174			55,121			67,473
Acquired in process research and development		419			2,100			419			2,100
Restructuring and other		1,823			783			6,625			2,853
Amortization of intangible assets		109			112			249			1,516
Total operating expenses		59,437			65,000			227,196			228,356
Income from operations		10,921			4,374			25,927			38,209
Other income (expense), net:
Interest income		4,740			3,855			17,446			10,936
Interest expense		(837	)		(1,032	)		(3,591	)		(3,813	)
Gain on sale of investments		1			—			224			1,794
Gain on warrants in privately held company		—			1,275			—			1,275
Other, net		(1,046	)		872			(4,034	)		24
Total other income, net		2,858			4,970			10,045			10,216
Income from continuing operations before provision for income taxes		13,779			9,344			35,972			48,425
Provision for (benefit from) income taxes		3,720			(32	)		9,081			13,559
Income from continuing operations		10,059			9,376			26,891			34,866
Income (loss) from discontinued operations, net of taxes		348			(10,623	)		(62,227	)		51,190
Net income (loss)	$	10,407		$	(1,247	)	$	(35,336	)	$	86,056
Earnings per share from continuing operations:
Basic	$	0.15		$	0.14		$	0.39		$	0.52
Diluted		0.14			0.13			0.38			0.50
Earnings (loss) per share from discontinued operations:
Basic	$	0.01		$	(0.16	)	$	(0.89	)	$	0.76
Diluted		0.00			(0.14	)		(0.81	)		0.68
Earnings (loss) per share:
Basic	$	0.15		$	(0.02	)	$	(0.51	)	$	1.28
Diluted		0.15			(0.01	)		(0.43	)		1.18
Weighted average number of shares outstanding-continuing operations:
Basic		68,443			68,309			69,531			67,340
Diluted		75,235			76,112			76,796			74,922
Weighted average number of shares outstanding:
Basic		68,443			68,309			69,531			67,340
Diluted		75,235			76,112			76,796			74,922

Q4 2007 Results
 

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

	Three Months Ended December 31,					Year Ended December 31,
	2007		2006			2007		2006
	(Thousands, except per share data)
Revenues	$	115,226	$	125,099		$	431,800	$	443,346
Cost of sales:
Cost of goods sold		43,913		54,519			169,668		171,932
Gross profit		71,313		70,580			262,132		271,414
Research and development		22,554		19,369			89,380		73,488
Sales and marketing		18,222		19,206			69,189		70,817
General and administrative		13,307		18,823			46,821		58,963
Total operating expenses		54,083		57,398			205,390		203,268
Income from operations		17,230		13,182			56,742		68,146
Interest and other income, net		2,858		3,695			10,045		7,148
Income from continuing operations before provision for income taxes		20,088		16,877			66,787		75,294
Provision for (benefit from) income taxes(2)		5,205		(531	)		18,525		21,082
Net income from continuing operations	$	14,883	$	17,408		$	48,262	$	54,212
Earnings per share:
Basic	$	0.22	$	0.25		$	0.69	$	0.81
Diluted		0.21		0.24			0.66		0.75
Earnings per share weighted average number of shares outstanding:
Basic		68,443		68,309			69,531		67,340
Diluted		75,235		76,112			76,796		74,922

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 26% and (3)% for the three months ended December 31, 2007 and 2006, respectively. The above Non-GAAP Statements of Operations assume effective income tax rates of 28% for the years ended December 31, 2007 and 2006

Q4 2007 Results
 

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2007		2006
	(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	105,550	$	45,329
Short-term investments, at fair value		313,922		379,045
Total cash, cash equivalents and short-term investments		419,472		424,374
Accounts receivable, net		147,092		133,050
Inventories		20,543		25,739
Income taxes receivable		28,361		14,665
Deferred income taxes		18,793		27,671
Deferred costs and prepaid commissions		57,203		55,110
Prepaid expenses and other current assets		14,726		26,133
Assets of discontinued operations		—		118,341
Total current assets		706,190		825,083
Property and equipment, net		32,510		36,398
Investments in privately-held companies		18,553		7,322
Deferred income taxes, net		83,418		51,496
Other assets		1,320		2,539
Goodwill		22,951		26,876
Intangible assets, net		16,948		19,543
Total assets	$	881,890	$	969,257
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	45,388	$	42,076
Accrued expenses		21,259		35,596
Accrued compensation and related expenses		40,234		34,042
Current portion of deferred revenues		166,274		189,994
Convertible debt		125,000		—
Liabilities associated with SSG		5,767		—
Liabilities of discontinued operations		—		40,991
Total current liabilities		403,922		342,699
Deferred income taxes		1,295		1,481
Long-term portion of deferred revenues		8,917		5,836
Long-term convertible debt		—		125,000
Other long-term liabilities		6,569		—
Total liabilities		420,703		475,016
Commitments and Contingencies
Shareholders’ equity:
Common stock, without par value, 200,000,000 shares authorized; 67,479,916 and 68,728,986 shares issued and outstanding, respectively		319,761		322,620
Retained earnings		139,379		171,722
Accumulated other comprehensive income (loss)		2,047		(101	)
Total shareholders’ equity		461,187		494,241
Total liabilities and shareholders’ equity	$	881,890	$	969,257

Q4 2007 Results
 

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2007			2006
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	(35,336	)	$	86,056
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (income) from discontinued operations		62,227			(51,190	)
Gain on sale of investments		(224	)		(3,069	)
Provision for doubtful accounts and returns		1,335			3,524
Inventory write downs		10,841			4,799
Depreciation		15,485			12,312
Loss on disposal of fixed assets		984			—
Amortization of intangibles		2,603			3,868
Amortization, other		893			3,026
Amortization of deferred financing costs		763			763
Acquired in-process research and development		419			2,100
Deferred income taxes		(176	)		(3,179	)
Stock-based compensation		15,682			20,567
Excess tax benefits from stock-based compensation		(3,914	)		(1,991	)
Changes in operating assets and liabilities, net of business disposal:
Accounts receivable		(16,946	)		(36,745	)
Inventories		(4,465	)		(5,993	)
Deferred costs		(2,093	)		8,334
Prepaid expenses and other current assets		4,377			(7,962	)
Accounts payable		3,725			9,040
Accrued expenses		(6,713	)		4,554
Accrued compensation and related expenses		5,318			2,247
Deferred revenues		(19,439	)		7,404
Income taxes payable/receivable		17,149			(13,061	)
Total adjustments		87,831			(40,652	)
Net cash provided by operating activities — continuing operations		52,495			45,404
Net cash used in operating activities — discontinued operations		(18,443	)		(34,072	)
Net cash provided by operating activities		34,052			11,332
Cash flows from investing activities:
Proceeds from sales and maturities of investments		703,949			861,490
Purchases of investments		(638,822	)		(1,063,652	)
Purchases of property and equipment		(20,234	)		(24,601	)
Payments related to IPR&D		(2,519	)		—
Other non-operating assets		128			1,319
Net cash provided by (used in) investing activities — continuing operations		42,502			(225,444	)
Net cash provided by (used in ) investing activities — discontinued operations		(3,241	)		188,483
Net cash provided by (used in) investing activities		39,261			(36,961	)
Cash flows from financing activities:
Payments on notes payable		—			(96	)
Payments for repurchase of common stock		(50,122	)		—
Proceeds from issuance of common stock		30,686			17,481
Excess tax benefits from stock-based compensation		3,914			1,991
Cash paid to settle stock options		—			(255	)
Net cash provided by (used in) financing activities		(15,522	)		19,121
Effect of exchange rate changes on cash		2,308			(110	)
Net change in cash and cash equivalents		60,099			(6,618	)
Cash and cash equivalents, beginning of period		45,451			52,069
Cash and cash equivalents, end of period		105,550			45,451
Less cash and cash equivalents of discontinued operations		—			122
Cash and cash equivalents of continuing operations at end of period	$	105,550		$	45,329

Q4 2007 Results
 

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Year Ended December 31, 2007
	(Thousands, except per share data)
	GAAP							Non-GAAP
	Continuing							Continuing
	Operations			Adjustments				Operations
Revenues	$	431,800		$	—			$	431,800
Cost of sales:
Cost of goods sold		176,323			(1,655	)	(1)		169,668
					(5,000	)	(2)
Amortization of purchased technology		2,354			(2,354	)	(3)		—
Total cost of sales		178,677			(9,009	)			169,668
Gross profit		253,123			9,009				262,132
Operating Expenses:
Research and development		92,223			(2,843	)	(1)		89,380
Sales and marketing		72,559			(3,370	)	(1)		69,189
General and administrative		55,121			(7,588	)	(1)		46,821
		—			(712	)	(4)
Acquired in-process research and development		419			(419	)	(5)		—
Restructuring and other		6,625			(6,399	)	(6)		—
					(226	)	(1)
Amortization of intangible assets		249			(249	)	(3)		—
Total operating expenses		227,196			(21,806	)			205,390
Income from operations		25,927			30,815				56,742
Interest and other income, net		10,045			—				10,045
Income from continuing operations before provision for income taxes		35,972			30,815				66,787
Provision for income taxes		9,081			9,444		(7)		18,525
Income from continuing operations		26,891			21,371				48,262
Loss from discontinued operations, net of taxes		(62,227	)		62,227		(8)		—
Net income (loss)	$	(35,336	)	$	83,598			$	48,262
Earnings per share from continuing operations:
Basic	$	0.39						$	0.69
Diluted(9)		0.38							0.66
Earnings (loss) per share:
Basic	$	(0.51	)					$	0.69
Diluted(9)		(0.43	)						0.66
Weighted average number of shares outstanding:
Basic		69,531							69,531
Diluted(9)		76,796							76,796

(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)	The adjustment represents acquired in-process research and development related to certain signaling technology.
(6)	This adjustment represents the elimination of the costs associated with our restructuring activities.
(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 28%.
(8)	The adjustment represents the elimination of the results of our discontinued operations.
(9)	For the year ended December 31, 2007, the calculations of diluted earnings per share include a potential add-back to net income of $2,324,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q4 2007 Results
 

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Three Months Ended December 31, 2007
	(Thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations		Adjustments				Operations
Revenues	$	115,226	$	—			$	115,226
Cost of sales:
Cost of goods sold		44,280		(367	)	(1)		43,913
Amortization of purchased technology		588		(588	)	(2)		—
Total cost of sales		44,868		(955	)			43,913
Gross profit		70,358		955				71,313
Operating Expenses:
Research and development		23,190		(636	)	(1)		22,554
Sales and marketing		18,923		(701	)	(1)		18,222
General and administrative		14,973		(1,666	)	(1)		13,307
Acquired in-process research and development		419		(419	)	(3)		—
Restructuring and other		1,823		(1,597	)	(4)		—
				(226	)	(1)
Amortization of intangible assets		109		(109	)	(2)		—
Total operating expenses		59,437		(5,354	)			54,083
Income from operations		10,921		6,309				17,230
Interest and other income, net		2,858		—				2,858
Income before provision for income taxes		13,779		6,309				20,088
Provision for income taxes		3,720		1,485		(5)		5,205
Income from continuing operations		10,059		4,824				14,883
Gain from discontinued operations, net of taxes		348		(348	)	(6)		—
Net income	$	10,407	$	4,476			$	14,883
Earnings per share from continuing operations:
Basic	$	0.15					$	0.22
Diluted(7)		0.14						0.21
Earnings per share:
Basic	$	0.15					$	0.22
Diluted(7)		0.15						0.21
Weighted average number of shares outstanding:
Basic		68,443						68,443
Diluted(7)		75,235						75,235

(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 acquired in-process research and development related to certain signaling technology.
(4)	The adjustment represents the elimination of the costs associated with our restructuring activities.
(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 26%.
(6)	The adjustment represents the elimination of the results of our discontinued operations.
(7)	For the three months ended December 31, 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.

Q4 2007 Results
 

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Year Ended December 31, 2006
	(Thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations		Adjustments				Operations
Revenues	$	443,346	$	—			$	443,346
Cost of sales:
Cost of goods sold		174,432		(2,500	)	(1)		171,932
Amortization of purchased technology		2,349		(2,349	)	(2)		—
Total cost of sales		176,781		(4,849	)			171,932
Gross profit		266,565		4,849				271,414
Operating Expenses:
Research and development		78,450		(4,962	)	(1)		73,488
Sales and marketing		75,964		(5,147	)	(1)		70,817
General and administrative		67,473		(7,958	)	(1)		58,963
				(342	)	(3)
				(210	)	(4)
Acquired in-process research and development		2,100		(2,100	)	(5)		—
Restructuring and other		2,853		(2,853	)	(6)		—
Amortization of intangible assets		1,516		(1,516	)	(2)		—
Total operating expenses		228,356		(25,088	)			203,268
Income from operations		38,209		29,937				68,146
Interest and other income, net		10,216		(3,068	)	(7)		7,148
Income from continuing operations before provision for income taxes		48,425		26,869				75,294
Provision for income taxes		13,559		7,523		(8)		21,082
Income from continuing operations		34,866		19,346				54,212
Income from discontinued operations, net of taxes		51,190		(51,190	)	(9)		—
Net income	$	86,056	$	(31,844	)		$	54,212
Earnings per share from continuing operations:
Basic	$	0.52					$	0.81
Diluted(10)		0.50						0.75
Earnings per share:
Basic	$	1.28					$	0.81
Diluted(10)		1.18						0.75
Weighted average number of shares outstanding:
Basic		67,340						67,340
Diluted(10)		74,922						74,922

(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 acquired in-process research and development related to certain signaling technology.
(6)	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.
(7)	The adjustment represents the gain recognized related to our receipt of shares of Alcatel-Lucent upon release from escrow.
(8)	The adjustment represents the income tax effect of footnotes (1), (2), (3), (4),(5), (6) and (7) in order to reflect our Non-GAAP effective tax rate of 28%.
(9)	The adjustment represents the elimination of the results of our discontinued operations.
(10)	For the year ended December 31, 2006, the calculations of diluted earnings per share include the potential add-back to net income of $2,324,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q4 2007 Results
 

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME

	Three Months Ended December 31, 2006
	(Thousands, except per share data)
	GAAP							Non-GAAP
	Continuing							Continuing
	Operations			Adjustments				Operations
Revenues	$	125,099		$	—			$	125,099
Cost of sales:
Cost of goods sold		55,136			(617	)	(1)		54,519
Amortization of purchased technology		589			(589	)	(2)		—
Total cost of sales		55,725			(1,206	)			54,519
Gross profit		69,374			1,206				70,580
Operating Expenses:
Research and development		20,510			(1,141	)	(1)		19,369
Sales and marketing		20,321			(1,115	)	(1)		19,206
General and administrative		21,174			(2,351	)	(1)		18,823
Acquired in-process research and development		2,100			(2,100	)	(3)		—
Restructuring and other		783			(783	)	(4)		—
Amortization of intangible assets		112			(112	)	(2)		—
Total operating expenses		65,000			(7,602	)			57,398
Income from operations		4,374			8,808				13,182
Interest and other income, net		4,970			(1,275	)	(5)		3,695
Income from continuing operations before benefit from income taxes		9,344			7,533				16,877
Benefit from income taxes		(32	)		(499	)	(6)		(531	)
Income from continuing operations		9,376			8,032				17,408
Loss from discontinued operations, net of taxes		(10,623	)		10,623		(7)		—
Net income (loss)	$	(1,247	)	$	18,655			$	17,408
Earnings per share from continuing operations:
Basic	$	0.14						$	0.25
Diluted(8)		0.13							0.24
Earnings (loss) per share:
Basic	$	(0.02	)					$	0.25
Diluted(8)		(0.01	)						0.24
Weighted average number of shares outstanding:
Basic		68,309							68,309
Diluted(8)		76,112							76,112

(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 acquired in-process research and development related to certain signaling technology.
(4)	The adjustment represents changes in estimates relating to our 2006 Restructuring.
(5)	The adjustment represents the gain recognized related to our receipt of shares of Alcatel-Lucent upon release from escrow.
(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 (3)%.
(7)	The adjustment represents the elimination of the results of our discontinued operations.
(8)	For the three months ended December 31, 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.