Tekelec Announces Q2 2008 Results

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 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 6th, 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 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) Three Months Six Months Ended Ended June 30, 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 Six Months Ended Ended June 30, 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.

SOURCE: Tekelec

Tekelec Investor Contact: Joanne Latham, 1-919-653-9655 Director of Corporate Communications Joanne.Latham@tekelec.com