FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-15135

TEKELEC
(Exact name of registrant as specified in its charter)

CALIFORNIA 95-2746131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

26580 W. AGOURA ROAD, CALABASAS, CALIFORNIA 91302
(Address and zip code of principal executive offices)

(818) 880-5656
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

As of May 1, 1998, there were 26,604,858 shares of the registrant's
common stock, without par value, outstanding.

TEKELEC
FORM 10-Q
INDEX

PART I -- FINANCIAL INFORMATION PAGE
- ------------------------------- ----

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets at March 31, 1998 3
and December 31, 1997

Consolidated Income Statements for the three 4
months ended March 31, 1998 and 1997

Consolidated Statements of Comprehensive Income for the three 5
months ended March 31, 1998 and 1997

Consolidated Statements of Cash Flow for the three 6
months ended March 31, 1998 and 1997

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11

PART II -- OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 17

SIGNATURES

PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

TEKELEC
CONSOLIDATED BALANCE SHEETS

MARCH 31, December 31,
1998 1997
--------- ---------
(thousands, except share data)
ASSETS (unaudited) (audited)

CURRENT ASSETS:
Cash and cash equivalents .................... $ 51,099 $ 38,748
Short-term investments, at fair value ........ 26,870 19,773
Accounts and notes receivable, less
allowances of $786 and $469, respectively .. 27,942 29,141
Inventories .................................. 11,953 11,281
Amounts due from related parties ............. 1,875 2,286
Income taxes receivable ...................... 351 805
Deferred income taxes, net ................... 12,717 8,309
Prepaid expenses and other current assets .... 1,730 1,760
--------- ---------
Total current assets ..................... 134,537 112,103
Long-term investments, at fair value ............. 7,005 11,997
Property and equipment, net ...................... 9,914 9,841
Deferred income taxes, net ....................... 2,148 1,999
Other assets ..................................... 515 525
--------- ---------
Total assets ............................. $ 154,119 $ 136,465
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade accounts payable ....................... $ 6,291 $ 4,919
Accrued expenses ............................. 6,954 5,862
Accrued payroll and related expenses ......... 3,256 6,846
Current portion of deferred revenues ......... 9,684 7,693
Income taxes payable ......................... 4,212 429
--------- ---------
Total current liabilities ................ 30,397 25,749
Long-term portion of deferred revenues ....... 2,724 2,839
--------- ---------
Total liabilities ........................ 33,121 28,588
--------- ---------

SHAREHOLDERS' EQUITY:
Common stock, without par value,
100,000,000 shares authorized; 26,571,253 and
26,126,043 shares issued and outstanding,
respectively ................................ 82,395 75,627
Retained earnings ............................ 39,531 32,875
Cumulative translation adjustment ............ (928) (625)
--------- ---------
Total shareholders' equity ............... 120,998 107,877
--------- ---------
Total liabilities and shareholders' equity $ 154,119 $ 136,465
========= =========

See notes to consolidated financial statements.

3
4

TEKELEC
CONSOLIDATED INCOME STATEMENTS
(unaudited)

Three Months Ended
March 31,
-------------------------
1998 1997
-------- --------
(thousands, except per share data)

REVENUES (including sales to related parties of
1998 - $1,210 and 1997 - $1,237) .......... $ 34,908 $ 20,577

COSTS AND EXPENSES:
Cost of goods sold ........................ 11,405 6,678
Research and development .................. 5,568 4,468
Selling, general and administrative ....... 9,633 7,567
Insurance recovery ........................ (1,663) --
-------- --------
Total costs and expenses .............. 24,943 18,713
-------- --------

Income from operations ........................ 9,965 1,864
Other income (expense):
Interest, net ............................. 979 516
Other, net ................................ (209) 17
-------- --------
Total other income .................... 770 533
-------- --------

Income before provision for income taxes ...... 10,735 2,397
Provision for income taxes ................ 4,079 769
-------- --------
NET INCOME ............................ $ 6,656 $ 1,628
======== ========

EARNINGS PER SHARE:
Basic ..................................... $ 0.25 $ 0.07
Diluted ................................... 0.23 0.06

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic ..................................... 26,330 24,414
Diluted ................................... 29,240 26,658

See notes to consolidated financial statements.

4
5

TEKELEC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three Months Ended
March 31,
1998 1997
------- -------
(thousands)

NET INCOME ................................. $ 6,656 $ 1,628

Other comprehensive income:
Foreign currency translation adjustments (303) (797)
------- -------
COMPREHENSIVE INCOME ....................... $ 6,353 $ 831
======= =======

See notes to consolidated financial statements.

5
6

TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)

Three Months Ended
March 31,
-------------------------
1998 1997
-------- --------
(thousands)

CASH FLOW FROM OPERATING ACTIVITIES:
Net income ............................................. $ 6,656 $ 1,628
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 1,359 1,067
Deferred income taxes .................................. (174) --
Changes in current assets and liabilities:
Accounts and notes receivable ........................ 1,078 1,089
Inventories .......................................... (717) (3,113)
Amounts due from related parties ..................... 411 (134)
Income taxes receivable .............................. 453 --
Prepaid expenses and other assets .................... 29 (293)
Trade accounts payable ............................... 1,436 (153)
Accrued expenses ..................................... 1,105 (263)
Accrued payroll and related expenses ................. (3,582) (1,249)
Deferred revenues .................................... 1,879 1,613
Income taxes payable ................................. 3,799 (663)
-------- --------
Total adjustments .................................. 7,076 (2,099)
-------- --------
Net cash provided by (used in) operating activities 13,732 (471)
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-for-sale securities 3,000 9,000
Purchase of available-for-sale securities .............. (5,105) (5,047)
Purchase of property and equipment ..................... (1,449) (1,637)
-------- --------
Net cash provided by (used in) investing activities (3,554) 2,316
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................. 2,374 1,508
-------- --------
Net cash provided by financing activities .......... 2,374 1,508
-------- --------
Effect of exchange rate changes on cash .................... (201) (568)
-------- --------
Net change in cash and cash equivalents ................ 12,351 2,785
Cash and cash equivalents at beginning of period ........... 38,748 17,211
-------- --------
Cash and cash equivalents at end of period ................. $ 51,099 $ 19,996
======== ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW ACTIVITY:
Tax benefit related to stock options ................... $ 4,394 $ --

See notes to consolidated financial statements.

6
7

TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

A. BASIS OF PRESENTATION

The consolidated financial statements are unaudited, other than the
consolidated balance sheet at December 31, 1997, and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
condition, operating results and cash flows for the interim periods.

The results of operations for the current interim period are not
necessarily indicative of results to be expected for the current year. Certain
items shown in the prior financial statements have been reclassified to conform
with the presentation of the current period.

The Company operates under a thirteen-week calendar quarter. For
financial statement presentation purposes, however, the reporting periods are
referred to as ended on the last calendar day of the quarter. The accompanying
financial statements for the three months ended March 31, 1998 and 1997 are for
the thirteen weeks ended April 3, 1998 and March 28, 1997, respectively.

In 1998, the Company adopted Statement of Position (SOP) 97-2, "Software
Revenue Recognition," which addresses software revenue recognition under
generally accepted accounting principles. The adoption of SOP 97-2 did not
result in a significant change in the Company's revenue recognition practices.

Earnings per share are computed using the weighted average number of
shares outstanding and dilutive Common Stock equivalents (options and warrants).

In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," and accordingly has included a
separate Statement of Comprehensive Income following the Company's Consolidated
Income Statements. Comprehensive income generally represents all changes in
shareholders' equity during the period except those resulting from investments
by, or distributions to, shareholders.

These consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1997
and the notes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.

B. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes standards for public enterprises'
reporting of information about operating segments in annual financial statements
and requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective

for fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented; however, the interim reporting provisions of SFAS No.
131 are not required to be applied in the initial year of adoption. Management
is currently evaluating the requirements of SFAS No. 131.

C. CERTAIN BALANCE SHEET ITEMS

The components of inventories are:

MARCH 31, December 31,
1998 1997
-------- --------
(thousands)

Raw materials ..................................... $ 3,055 $ 2,779
Work in process ................................... 2,511 2,448
Finished goods .................................... 6,387 6,054
-------- --------
$ 11,953 $ 11,281
======== ========

Property and equipment consist of the following:

Manufacturing and development equipment ........... $ 18,395 $ 17,645
Furniture and office equipment .................... 8,060 7,773
Demonstration equipment ........................... 3,864 3,964
Leasehold improvements ............................ 1,447 1,397
-------- --------
31,766 30,779

Less, accumulated depreciation and amortization ... (21,852) (20,938)
-------- --------
Property and equipment, net ....................... $ 9,914 $ 9,841
======== ========

D. RELATED PARTY TRANSACTIONS

Sales to related parties consist of, and amounts due from related
parties are, the result of transactions between the Company and foreign
affiliates controlled by the Company's Chairman of the Board.

E. INCOME TAXES

For the three months ended March 31, 1998, an estimated effective tax
rate of 38% was applied as compared with an effective tax rate of 32% for the
three months ended March 31, 1997, and represented federal, state and foreign
taxes on the Company's income reduced by research and development and foreign
tax credits. The provision for the three months ended March 31, 1997 was
principally foreign taxes on the income of the Company's Japanese subsidiary and
the provision for taxes on the Company's U.S. taxable income at the federal
alternative minimum tax rate and applicable state taxes, and reflected the
Company's ability to utilize a portion of its prior years' U.S. loss
carryforwards.

F. BORROWINGS

The Company has a $10.0 million line of credit with a U.S. bank and
lines of credit aggregating $2.6 million available to the Company's Japanese
subsidiary from various Japan-based banks.

The Company's $10.0 million line of credit is collateralized by
substantially all of the Company's assets, bears interest at, or in some cases
below, the U.S. prime rate (8.5% at March 31, 1998), and expires June 30, 1998
if not renewed. Under the terms of this facility, the Company is required to
maintain certain financial ratios and meet certain net worth and indebtedness
tests for which the Company is in compliance. There have been no borrowings
under this credit facility.

The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $2.6 million with interest at the Japanese prime
rate (1.625% at March 31, 1998) plus 0.125% per annum which expire between
August 5, 1998, and March 31, 1999, if not renewed. There have been no
borrowings under these lines of credit.

G. MAJOR CUSTOMERS

Sales to Telkom SA Limited and Bell Atlantic Corporation represented 19%
and 15%, respectively, of revenues for the first quarter of 1998. Sales to
Nippon Telegraph and Telephone and Bell Atlantic Corporation represented 14% and
11%, respectively, of revenues for the first quarter of 1997.

9
10

H. EARNINGS PER SHARE

The following table provides a reconciliation of the numerators and
denominators of the basic and diluted per-share computations for the three
months ended March 31, 1998 and 1997:

NET INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
FOR THE THREE MONTHS ENDED MARCH 31, 1998: (thousands except per-share amount)

Basic EPS............................... $ 6,656 26,330 $0.25
Effect of Dilutive Securities - Stock
Options and Warrants................ -- 2,910
--------- ------
Diluted EPS............................. $ 6,656 29,240 $0.23
========= ====== =====

FOR THE THREE MONTHS ENDED MARCH 31, 1997:

Basic EPS............................... $ 1,628 24,414 $0.07
Effect of Dilutive Securities - Stock
Options and Warrants................ -- 2,244
--------- ------
Diluted EPS............................. $ 1,628 26,658 $0.06
========= ====== =====

10
11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and the
Notes thereto included in Item 1 of this Quarterly Report and the Consolidated
Financial Statements and Notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. Historical
results and percentage relationships among any amounts in the financial
statements are not necessarily indicative of trends in operating results for any
future periods.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the
percentages that certain statement of operations items bear to total revenues:

Percentage of Revenues
Three Months Ended
March 31,
----------------------
1998 1997
------- -------

Revenues ........................ 100.0% 100.0%
Cost of goods sold .............. 32.7 32.5
------- -------
Gross profit .................... 67.3 67.5

Research and development ........ 16.0 21.6
Selling, general & administrative 27.6 36.8
Insurance recovery .............. (4.8) --
------- -------
Total operating expenses ........ 38.8 58.4
------- -------

Income from operations .......... 28.5 9.1

Interest and other income, net .. 2.3 2.5
------- -------
Income before provision for
income taxes .................. 30.8 11.6
Provision for income taxes ...... 11.7 3.7
------- -------
Net income ...................... 19.1% 7.9%
======= =======

11
12

The following table sets forth, for the periods indicated, the revenues
by principal product line as a percentage of total revenues:

Percentage of Revenues
Three Months Ended
March 31,
----------------------
1998 1997
---- ----

Network switching ............. 61% 42%
Intelligent network diagnostics 28 39
Data network diagnostics ...... 11 19
---- ----
Total ..................... 100% 100%
==== ====

The following table sets forth, for the periods indicated, the revenues
by geographic territory as a percentage of total revenues:

Percentage of Revenues
Three Months Ended
March 31,
----------------------
1998 1997
---- ----

North America ... 56% 65%
Japan ........... 16 23
Europe .......... 4 6
Rest of the World 24 6
--- ---
Total ....... 100% 100%
=== ===

THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1997

Revenues. The Company's revenues increased by $14.3 million, or 70%,
during the first quarter of 1998 due primarily to higher sales of network
switching products and intelligent network diagnostics products.

Revenues from switching products increased by $12.6 million, or 146%, to
$21.3 million primarily due to increased EAGLE STP market acceptance worldwide
as reflected by higher international sales, the addition of EAGLE sales in the
RBOC market, the addition of sales of the Company's Local Number Portability
(LNP) feature and higher sales of software enhancements and upgrades as a result
of the larger installed base of the Company's EAGLE STP.

Revenues from intelligent network diagnostics products increased by $1.8
million, or 22%, primarily due to continued strong demand for the Company's MGTS
products in the U.S. and sales of MGTS-related development services in Japan.

12
13

Revenues from data network diagnostics products declined as a percentage
of revenues in the first quarter of 1998 and were flat in dollars compared with
the first quarter of 1997. Lower sales of the Company's Chameleon products,
particularly in Japan, were offset by increased sales of third party data
diagnostics products in Japan by the Company's Japanese subsidiary.

Revenues in North America increased by $6.2 million, or 47%, primarily
as a result of higher EAGLE STP and MGTS product sales, partially offset by
lower Chameleon product sales. Sales in Japan increased by $910,000, or 19%, due
to higher sales of MGTS-related development services and third party diagnostics
products. Other international revenues increased by $7.2 million, or 290%, due
primarily to a large EAGLE STP sale in South Africa.

The impact of exchange rate fluctuations on currency translations
decreased revenues by $350,000, or 1%, and decreased net income by $25,000, or
less than 1%, in the first quarter of 1997.

The Company believes that its future revenue growth depends in large
part upon a number of factors, including the continued market acceptance of the
Company's products, particularly the EAGLE STP product, and new applications for
the EAGLE STP such as the Company's LNP and related LSMS features. The Company
expects that switching product sales will continue to grow in 1998 both in
dollars and as a percentage of total revenues, although at a lower rate of
growth than in 1997.

Gross Profit. Gross profit as a percentage of revenues declined slightly
to 67.3% in the first quarter of 1998 compared with 67.5% in the first quarter
of 1997. Overall gross profit percentage benefited from higher switching product
margins due to sales of larger EAGLE STP systems combined with increased
revenues from STP software and upgrades, offset by a lower proportion of
traditionally higher margin MGTS product sales.

Research and Development. Research and development expenses increased
overall by $1.1 million, or 25%, and decreased as a percentage of revenue to 16%
in the first quarter of 1998 from 22% in the first quarter of 1997. The dollar
increase was attributable principally to increased expenses incurred in
connection with the hiring of additional personnel for product development and
enhancements primarily for switching and intelligent network diagnostics
products. Based on expected revenues and expense levels, the Company believes
that research and development expenses will continue to be higher in dollars and
lower as a percentage of total revenues for the remainder of 1998 when compared
with 1997.

Selling, General and Administrative Expenses. Although selling, general
and administrative expenses increased by $2.1 million, or 27%, such expenses
decreased as a percentage of revenues to 28% in the first quarter of 1998 from
37% in the first quarter of 1997. The dollar increase was primarily due to
increased personnel and commission expenses incurred as a result of the higher
sales levels. Based on expected revenues and expense levels, the Company
believes that selling, general and administrative expenses will continue to be
higher in dollars and lower as a percentage of total revenues for the remainder
of 1998 when compared with 1997.

Insurance Recovery. During the first quarter of 1998, the Company
recorded the proceeds from the settlement of an insurance claim in the amount of
approximately $1.7 million, net of applicable costs. The net proceeds were
recorded as a decrease in operating expenses for the quarter.

Income Taxes. For the first quarter of 1998, an estimated effective tax
rate of 38% was applied as compared with an effective tax rate of 32% for the
first quarter of 1997, and represented federal, state and foreign taxes on the
Company's income reduced by research and development and foreign tax credits.
The provision for the first quarter of 1997 was principally foreign taxes on the
income of the Company's Japanese subsidiary and the provision for taxes on the
Company's U.S. taxable income at the federal alternative minimum tax rate and
applicable state taxes, and reflected the Company's ability to utilize a portion
of its prior years' U.S. loss carryforwards.

The Company expects that its effective tax rate for the remainder of
1998 should approximate 38%; however, changes in assumptions regarding the
Company's ability to utilize its deferred income tax assets and the level of
various tax credits generated during 1998 may cause the effective tax rate to
vary.

LIQUIDITY AND CAPITAL RESOURCES

During the three-month period ended March 31, 1998, cash and cash
equivalents increased by $12.4 million to $51.1 million, after a net transfer of
approximately $2.1 million to short-term and long-term investments. Operating
activities, net of the effects of exchange rate changes on cash, provided $13.5
million. Financing activities, which represented proceeds from the issuance of
Common Stock upon the exercise of options and warrants, provided $2.4 million,
and $1.4 million was used for capital expenditures.

Accounts receivable, including amounts due from related parties,
decreased by 5% during the first three months of 1998 due primarily to lower
sales in the first quarter of 1998 compared to the fourth quarter of 1997.
Inventories increased by 6% during the first quarter of 1998 primarily to meet
customer shipments scheduled for the second quarter of 1998. Trade accounts
payable and accrued expenses increased by 28% and 19%, respectively, during the
first quarter of 1998, primarily due to the timing of purchases, and accrued
payroll decreased by 52% primarily due to the payment of 1997 employee bonuses.
Deferred revenues increased by 18% during the first quarter of 1998 primarily as
a result of the timing of EAGLE STP installations and increased deferred
warranty service billings which are recognized ratably over the warranty period.

Capital expenditures of $1.4 million during the first quarter of 1998
represented the planned addition of equipment principally for research and
development, manufacturing operations and facility expansion.

14
15

The Company has a $10.0 million line of credit with a U.S. bank and
lines of credit aggregating $2.6 million available to the Company's Japanese
subsidiary from various Japan-based banks.

The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $2.6 million with interest at the Japanese prime
rate (1.625% at March 31, 1998) plus 0.125% per annum which expire between
August 5, 1998 and March 31, 1999, if not renewed. There have been no borrowings
under these lines of credit.

Upon the expiration of the above-described credit facilities, the
Company believes that, if necessary, it would be able to arrange for credit
facilities on terms generally no less favorable than those described above.

The Company believes that existing working capital, funds generated from
operations and current bank lines of credit should be sufficient to satisfy
anticipated operating requirements at least through 1998. Nonetheless, the
Company may seek additional sources of capital as necessary or appropriate to
fund acquisitions or to otherwise finance the Company's growth or operations;
however, there can be no assurance that such funds, if needed, will be available
on favorable terms, if at all.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for public enterprises' reporting of information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented;
however, the interim reporting provisions of SFAS No. 131 are not required to be
applied in the initial year of adoption. Management is currently evaluating the
requirements of SFAS No. 131.

READINESS FOR YEAR 2000

As the year 2000 approaches, a critical industrywide issue has emerged
regarding how existing application software programs and operating systems can
accommodate the year 2000 date value. The Company is currently in the
preliminary stages of conducting a comprehensive review of its computer systems,
products and significant vendors to identify the systems and

15
16

products which could be affected by this issue. Based on the results of the
review conducted to date, management does not anticipate that the Company will
incur significant operating expenses or be required to invest heavily in
computer system or product improvements in order to be year 2000 compliant. To
the extent the Company's products, systems or significant vendors are not fully
year 2000 compliant, there can be no assurance that such noncompliance will not
result in product failures, systems interruptions or significant costs necessary
to update software that, alone or in the aggregate, would not have a material
adverse effect on the Company's business, financial condition, results of
operations, cash flows or business prospects.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995

The statements which are not historical facts contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements that involve certain risks and
uncertainties including, but not limited to, timing of significant orders and
shipments, product mix, customer acceptance of the Company's products, capital
spending patterns of customers, competition and pricing, new product
introductions by the Company or its competitors, carrier deployment of
intelligent network services, the timing of research and development
expenditures, regulatory changes, general economic conditions and other risks
described in the Company's Annual Report on Form 10-K and in certain of the
Company's other Securities and Exchange Commission filings.

16
17

PART II --OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Officer Bonus Plan for the year ended December 31, 1998

10.2 Agreement dated September 9, 1997 between the Company and Shigeru
Suzuki(1) as amended by agreement dated January 6, 1998

10.3 Form of Stock Award Agreement dated January 24, 1998 between the
Registrant and its non-employee directors and schedule of
directors

10.4 Employment Offer Letter dated February 11, 1998 between the
Registrant and Michael Margolis

10.5 Stock Award Agreement dated February 17, 1998 between the
Registrant and Michael Margolis

27.1 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)

- -------------

(1) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q (File No. 0-15135) for the quarter ended September 30,
1997

(b) Reports

No reports on Form 8-K were filed by the Company during the three
months ended March 31, 1998.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

TEKELEC

May 13, 1998

/s/ Michael L. Margolis
--------------------------------------
Michael L. Margolis
President and Chief Executive Officer
(Duly authorized officer)

/s/ Gilles C. Godin
--------------------------------------
Gilles C. Godin
Chief Financial Officer and
Vice President, Finance
(Principal financial and chief
accounting officer)

INDEX TO EXHIBITS

Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----

10.1 Officer Bonus Plan for the year ended December 31, 1998

10.2 Amended agreement dated January 6, 1998 between the
Registrant and Shigeru Suzuki

10.3 Form of Stock Award Agreement dated January 24, 1998
between the Registrant and its non-employee directors and
schedule of directors

10.4 Employment Offer Letter dated February 11, 1998 between
the Registrant and Michael Margolis

10.5 Stock Award Agreement dated February 17, 1998 between
the Registrant and Michael Margolis

27.1 Financial Data Schedule (provided for the information of
the Securities and Exchange Commission only)