e10vq

0000950123-11-045152.txt : 20110505 0000950123-11-045152.hdr.sgml : 20110505 20110505070224 ACCESSION NUMBER: 0000950123-11-045152 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110505 DATE AS OF CHANGE: 20110505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKELEC CENTRAL INDEX KEY: 0000790705 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 952746131 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15135 FILM NUMBER: 11812395 BUSINESS ADDRESS: STREET 1: 5200 PARAMOUNT PARKWAY CITY: MORRISVILLE STATE: NC ZIP: 27560 BUSINESS PHONE: 919-460-5500 MAIL ADDRESS: STREET 1: 5200 PARAMOUNT PARKWAY CITY: MORRISVILLE STATE: NC ZIP: 27560 10-Q 1 g26881e10vq.htm FORM 10-Q e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2011


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

Commission file number 0-15135

(Exact name of registrant as specified in its charter)


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

5200 Paramount Parkway
Morrisville, North Carolina 27560
(Address and zip code of principal executive offices)

(919) 460-5500
(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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of April 28, 2011, there were 68,983,245 shares of the registrant’s common stock, without par value, outstanding.

TEKELEC
TABLE OF CONTENTS
FORM 10-Q


	Page
Part I — Financial Information
Item 1. Financial Statements		2

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		2
Unaudited Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010		3
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2011 and 2010		4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures about Market Risk		32
Item 4. Controls and Procedures		32

Part II — Other Information

Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 6. Exhibits		33
Signatures		34
Exhibits
EX-10.3
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TEKELEC

Unaudited Condensed Consolidated Balance Sheets


	March 31,		December 31,
	2011		2010
	(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	240,925	$	220,938
Accounts receivable, net		131,042		165,019
Inventories		19,117		28,221
Income taxes receivable		5,448		3,098
Deferred income tax asset, current		20,450		19,906
Deferred costs and prepaid commissions		38,427		43,652
Prepaid expenses		11,438		8,527
Other current assets		4,686		3,687

Total current assets		471,533		493,048
Property and equipment, net		38,811		37,169
Deferred income tax asset, net, noncurrent		83,761		72,854
Other assets		1,486		1,507
Goodwill		136,671		135,564
Intangibles assets, net		84,399		92,245

Total assets	$	816,661	$	832,387


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,346	$	17,823
Accrued expenses		38,024		20,344
Accrued compensation and related expenses		20,334		22,680
Current portion of deferred revenues		132,561		145,291

Total current liabilities		202,265		206,138

Deferred income tax liabilities, noncurrent		4,749		7,430
Long-term portion of deferred revenues		6,302		6,812
Other long-term liabilities		5,877		5,422

Total liabilities		219,193		225,802


Commitments and Contingencies (Note 10)

Shareholders’ equity:
Common stock, without par value, 200,000,000 shares authorized; 68,976,995 and 68,617,232 shares issued and outstanding, respectively		353,879		351,309
Retained earnings		240,833		256,829
Accumulated other comprehensive income (loss)		2,756		(1,553	)

Total shareholders’ equity		597,468		606,585

Total liabilities and shareholders’ equity	$	816,661	$	832,387

See notes to unaudited condensed consolidated financial statements.

TEKELEC

Unaudited Condensed Consolidated Statements of Operations


	Three Months Ended
	March 31,
	2011			2010
	(Thousands, except per share data)
Revenues	$	107,759		$	115,991
Cost of sales:
Cost of goods sold		44,924			38,604
Amortization of intangible assets		6,752			1,533

Total cost of sales		51,676			40,137

Gross profit		56,083			75,854

Operating expenses:
Research and development		25,773			22,809
Sales and marketing		20,725			17,437
General and administrative		12,779			13,150
Amortization of intangible assets		1,764			230
Restructuring and other		21,364			—

Total operating expenses		82,405			53,626

Income (loss) from operations		(26,322	)		22,228
Other income (expense), net		(774	)		(945	)

Income (loss) before provision for income taxes		(27,096	)		21,283
Provision for (benefit from) income taxes		(11,100	)		7,565

Net income (loss)	$	(15,996	)	$	13,718


Earnings (loss) per share:
Basic	$	(0.23	)	$	0.20
Diluted		(0.23	)		0.20

Weighted average number of shares outstanding:
Basic		68,770			67,636
Diluted		68,770			68,766

See notes to unaudited condensed consolidated financial statements.

TEKELEC

Unaudited Condensed Consolidated Statements of Comprehensive Income


	Three Months Ended
	March 31,
	2011			2010
	(Thousands)
Net income (loss)	$	(15,996	)	$	13,718
Other comprehensive income (loss):
Foreign currency translation adjustments		4,309			(4,540	)

Comprehensive income (loss)	$	(11,687	)	$	9,178

See notes to unaudited condensed consolidated financial statements.

TEKELEC

Unaudited Condensed Consolidated Statements of Cash Flows


	Three Months Ended
	March 31,
	2011			2010
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	(15,996	)	$	13,718
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized gain on investments carried at fair value, net		—			(80	)
Provision for (recovery of) doubtful accounts and returns		(222	)		(489	)
Provision for (reduction of) warranty		(251	)		(347	)
Inventory write downs		1,610			1,180
Loss on disposal of fixed assets		118			53
Depreciation		4,369			4,108
Amortization of intangibles		8,516			1,763
Amortization, other		225			238
Deferred income taxes		(14,195	)		4,943
Stock-based compensation		2,908			3,296
Excess tax benefits from stock-based compensation		—			(819	)
Changes in operating assets and liabilities:
Accounts receivable		36,567			21,083
Inventories		7,619			(3,866	)
Deferred costs		6,186			8,452
Prepaid expenses		(2,871	)		841
Other current assets		(991	)		(2,455	)
Accounts payable		(6,750	)		(4,511	)
Accrued expenses		17,691			(4,919	)
Accrued compensation and related expenses		(2,630	)		(16,631	)
Deferred revenues		(15,663	)		(14,591	)
Income taxes receivable		(2,297	)		1,617
Income taxes payable		456			2,292

Total adjustments		40,395			1,158

Net cash provided by operating activities		24,399			14,876


Cash flows from investing activities:
Proceeds from sales and maturities of investments		—			13,400
Purchases of property and equipment		(5,908	)		(2,403	)

Net cash provided by (used in) investing activities		(5,908	)		10,997


Cash flows from financing activities:
Proceeds from issuance of common stock		640			7,050
Payments of net share-settled payroll taxes related to equity awards		(978	)		(2,282	)
Excess tax benefits from stock-based compensation		—			819

Net cash provided by (used in) financing activities		(338	)		5,587

Effect of exchange rate changes on cash		1,834			(1,442	)

Net change in cash and cash equivalents		19,987			30,018
Cash and cash equivalents, beginning of period		220,938			277,259

Cash and cash equivalents, end of period	$	240,925		$	307,277

See notes to unaudited condensed consolidated financial statements.

TEKELEC

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation and Changes in Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Tekelec and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our consolidated financial condition and consolidated results of operations. The results of operations for the current interim period are not necessarily indicative of results for the current year.

We operate under a thirteen-week quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last calendar day of the quarter. The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2011 and 2010 are for the thirteen weeks ended April 1, 2011 and April 2, 2010, respectively.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2010 and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010.

Note 2 — Recent Acquisitions

In the second quarter of 2010 we completed the acquisitions of Camiant, Inc. (“Camiant”) and Blueslice Networks, Inc. (“Blueslice”) for cash consideration of $127.0 million and $35.0 million, respectively, for an aggregate of $162.0 million. We have included the results of operation of these acquisitions in our consolidated results from the date of acquisition.

Select Pro-Forma Financial Information

The following represents our unaudited condensed pro-forma financial results as if the acquisitions of Camiant and Blueslice had occurred as of the beginning of the earliest period presented. Unaudited condensed pro-forma results are based upon accounting estimates and judgments that we believe are reasonable. The condensed pro-forma results are not necessarily indicative of the actual results of our operations had the acquisitions occurred at the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. For example, included in these pro-forma results is the estimated impact of intangible asset amortization and other acquisition-related expenses for the three months ended March 31, 2010. Based on the estimated useful lives of certain intangible assets and how the acquisition-related expenses are estimated to be incurred, pro-forma amounts presented in the table below for the three months ended March 31, 2010 include less expense related to these items than our actual results for the same periods.


	Three Months Ended
	March 31, 2010
	(in thousands, except per share amounts)
Revenues	$	122,730
Net Income	$	8,562
Basic earnings per share	$	0.13
Diluted earnings per share	$	0.13

Our actual operating results for the three months ended March 31, 2011 included revenues and net loss from the products associated with acquired businesses as follows (in thousands):


	Three Months Ended March 31, 2011
	Camiant			Blueslice			Total
Revenues	$	6,864		$	462		$	7,326
Net loss	$	(2,439	)	$	(2,428	)	$	(4,867	)

Included in our actual operating results for the three months ended March 31, 2011 is $3.3 million of after tax amortization related to acquired intangible assets.

Note 3 — Restructuring and Other Costs

In January 2011, we entered into an employment severance agreement with our former President and Chief Executive Officer in connection with his resignation as an executive officer and employee effective January 4, 2011. In connection with this agreement, we incurred approximately $2.5 million in severance costs that will be paid during 2011 and 2012 in 24 equal monthly installments.

During 2010 and continuing through 2011, demand for our Eagle 5 and other established solutions has continued to decline as service providers shift their investments to data and other broadband services. Further, while demand for our next-generation solutions has continued to grow, the growth has not been able to offset the decline in demand for our Eagle 5 and other established products. As a result, certain of our key operating metrics, such as total orders, total revenue, gross margin, operating margin and revenue per employee, declined from our historical levels.

	•		a reduction of our overall headcount in the U.S and the consolidation of positions from various global locations; in addition, subject to employee information and consultation processes, reductions in positions in foreign countries. The overall workforce reduction is expected to be approximately 10% to 15% of our workforce;

	•		a reduction of the discretionary portion of our operating costs through various cost control initiatives, including: (i) reducing advertising expenditures; (ii) delaying merit increases and modifying incentive compensation plans; (iii) reducing capital expenditures; and (iv) reducing other discretionary expenditures, such as costs related to outside consultants, travel and recruiting; and

	•		consolidation of certain facilities and the abandonment of certain assets in connection with the consolidation of facilities.

Included in our results from operations for the three months ended March 31, 2011 are pre-tax restructuring charges of $21.4 million related primarily to severance costs under our severance policies, including the $2.5 million related to our former President and Chief Executive Officer discussed above. These charges are included in “Restructuring and other” in the accompanying unaudited condensed consolidated income statement for three months ended March 31, 2011. Under the Plan, we anticipate that during 2011 we will incur total restructuring costs of between $23.0 million and $28.0 million. The Plan and the associated costs are based on our current best estimates which could change materially, including without limitation as a result of employee information and consultation processes conducted in local jurisdictions.

The following table provides a summary of our restructuring activities and the remaining obligations as of March 31, 2011 (in thousands):


	Severance
	Costs and
	Related
	Benefits
Restructuring obligations, December 31, 2010	$	441
2011 Restructuring and related expenses		21,364
Cash payments		(1,895	)
Effect of exchange rate changes		20

Restructuring obligations, March 31, 2011	$	19,930

Restructuring obligations are included in “Accrued expenses” in the accompanying unaudited condensed consolidated balance sheets. We anticipate settling all of our restructuring obligations during 2011 and 2012. This is based on our current best estimate, which could change materially if actual activity differs from what is currently expected.

Note 4 — Other Income and Expense

The components of “Other income (expense), net” were as follows (in thousands):


	Three Months Ended
	March 31,
	2011			2010
Other income (expense), net:
Interest income	$	31		$	142
Interest expense		(227	)		(67	)
Unrealized gain on investments carried at fair value, net		—			80
Foreign currency gain (loss), net		(262	)		(680	)
Other, net		(316	)		(420	)

Total other income (expense), net	$	(774	)	$	(945	)

Note 5 — Fair Value of Financial Instruments

Recurring Measurements

We measure certain financial assets and liabilities at fair value on a recurring basis. The fair value of our cash, cash equivalents, accounts receivable and accounts payable approximate their respective carrying amounts based on the liquidity and short-term nature of these instruments. The following table sets forth our financial instruments carried at fair value as of March 31, 2011 and December 31, 2010 (in thousands):


	Financial Instruments
	Carried at Fair Value
	March 31,		December 31,
	2011		2010
Assets:
Cash and cash equivalents	$	240,925	$	220,938

The fair value of our financial instruments as of March 31, 2011 is based on quoted prices in active markets for identical items and falls under Level 1 of the fair value hierarchy as defined in the authoritative guidance.

Derivative Instruments

Our derivative instruments, which consist primarily of foreign currency forward contracts, are recognized as assets or liabilities at fair value. These forward contracts are not formally designated as hedges. The fair value of these contracts is based on market prices for comparable contracts. Our foreign currency forward contracts are structured to expire on the last day of each quarter, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends. Because of the short duration of these contracts, their fair value was not significant as of March 31, 2011 and December 31, 2010.

Nonrecurring Measurements

We measure certain assets, accounted for under the cost method, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other than temporarily impaired.

We measure the fair value of our nonfinancial assets and liabilities, including but not limited to, intangible assets, goodwill and restructuring obligations that are accounted for under the authoritative guidance for exit or disposal cost obligations. We perform our annual impairment test for intangible assets and goodwill on October 1^stof each fiscal year and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that no impairment existed as of March 31, 2011. Accordingly, as of March 31, 2011, we do not have any nonrecurring measurement disclosure for these nonfinancial assets.

Note 6 — Derivative Instruments and Hedging Activities

We operate internationally and thus are exposed to potential adverse changes in currency exchange rates. We use derivative instruments (principally forward contracts to exchange foreign currency) as a means of reducing our exposure to foreign currency rate changes on receivables and other net monetary assets denominated in foreign currencies. The foreign currency forward contracts require us to exchange currencies at rates agreed upon at the contract’s inception. In addition to these foreign exchange contracts, certain of our customer contracts contain provisions that require our customers to assume the foreign currency exchange risk related to the applicable transactions. The objective of these contracts is to reduce or eliminate, and efficiently manage, the economic impact of currency exchange rate movements on our operating results as effectively as possible. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses on the related contracts.

Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. We do not designate our foreign currency exchange contracts as accounting hedges as defined by authoritative guidance for derivatives and hedging, and, accordingly, we adjust these contracts to fair value through operations (i.e., included in “Other income (expense), net”). We do not hold or issue financial instruments for speculative or trading purposes.

We continually monitor our exposure to fluctuations in foreign currency exchange rates. As we have expanded internationally, an increasing proportion of our revenues, costs and operating expenses are denominated in foreign currencies, resulting in an increase in our foreign currency exchange rate exposure. We enter into multiple forward contracts throughout a given month to mitigate our changing exposure to foreign currency exchange rate fluctuations principally related to receivables generated from sales denominated in non-functional currencies and our remeasurements of international subsidiaries. Our exposure fluctuates as we generate new sales in non-functional currencies and as existing receivables related to sales in non-functional currencies are collected. Additionally, our exposure related to remeasurements of our subsidiaries’ financial statements fluctuates with the underlying activity in those entities. Our foreign currency forward contracts generally will have terms of one month or less and typically mature on the last day of any given period. We then immediately enter into new foreign currency forward contracts, if necessary.

The following table shows the notional contract values in local currency and U.S. Dollars of the foreign exchange forward contracts outstanding as of March 31, 2011, grouped by underlying foreign currency:


	Contracts Outstanding as of March 31, 2011
	In Local Currency			In US Dollars
Euros (“EUR”) (contracts to buy EUR/sell US$)	(EUR)	(23,286,833	)	$	(32,890,322	)
Indian rupees (“INR”) (contracts to sell INR/buy US$)	(INR)	238,598,000			5,310,438
Canadian dollars (“CAD”) (contracts to sell CAD/buy US$)	(CAD)	2,072,000			2,150,047
Singapore dollars (“SGD”) (contracts to buy SGD/sell US$)	(SGD)	(328,000	)		(259,761	)
Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$)	(MYR)	5,792,000			1,909,597
Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$)	(TWD)	50,837,000			1,735,703
Brazilian reais (“BRL”) (contracts to sell BRL/buy US$)	(BRL)	10,587,000			6,466,133

Total				$	(15,578,165	)

The following table shows the average notional contract values in the underlying currency and U.S. Dollars of foreign currency exchange forward contracts outstanding during the three months ended March 31, 2011, grouped by underlying foreign currency:


	Average Contracts Outstanding
	during the three months ended March 31, 2011
	In Local Currency			In US Dollars
Euros (“EUR”) (contracts to buy EUR/sell US$)	(EUR)	(34,123,582	)	$	(46,293,393	)
Indian rupees (“INR”) (contracts to sell INR/buy US$)	(INR)	246,491,714			5,381,695
British pound (“GBP”) (contracts to sell GBP/buy US$)	(GBP)	554,341			880,845
Singapore dollars (“SGD”) (contracts to buy SGD/sell US$)	(SGD)	(142,154	)		(112,426	)
Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$)	(MYR)	5,927,231			1,926,369
Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$)	(TWD)	36,547,418			1,239,356
Canadian dollars (“CAD”) (contracts to sell CAD/buy US$)	(CAD)	2,419,670			2,440,443
Brazilian reais (“BRL”) (contracts to sell BRL/buy US$)	(BRL)	4,624,286			2,751,184

Total				$	(31,785,927	)

As of March 31, 2011, all of our derivative instruments are maintained with Wells Fargo Bank, and potentially subject us to a concentration of credit risk, which may result in credit related losses in the event of the bank’s nonperformance. We mitigate this risk by monitoring Wells Fargo’s credit ratings published by major rating firms (Fitch, Standard & Poor’s, and Moody’s). In addition, we monitor Wells Fargo’s Credit Default Swap spread on a quarterly basis to assess the bank’s default risk relative to its peers.

As discussed above, our foreign currency forward contracts are structured to expire on the last day of the accounting period, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends and, accordingly, their fair value was not significant as of March 31, 2011 and December 31, 2010.

The table below provides a summary of the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 (in thousands):

Amount of Gain or (Loss)

Recognized in Results

Derivatives Not Designated

Location of Gain or (Loss)

of Operations

as Hedging Instruments

Recognized in Results

Three months ended

under SFAS No. 133

of Operations

March 31, 2011

March 31, 2010

Foreign currency forward contracts

Other income (expense), net

1,460

(2,416

)

The above gains or losses on the derivative instruments include the cost of entering into the contracts (i.e. forward points), and are generally offset by a corresponding foreign currency gain or loss on the underlying hedged transaction (e.g., customer accounts receivable). The gain or loss on both the derivative instrument and the

corresponding hedged transaction are reflected in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations.

Note 7 — Financial Statement Details

Accounts Receivable, net

Accounts receivable, net consists of the following (in thousands):


	March 31,		December 31,
	2011		2010
Accounts receivable	$	141,404	$	175,486
Less: Allowance for doubtful accounts and sales returns		10,362		10,467

	$	131,042	$	165,019

The following details the changes in the allowance for doubtful accounts and sales returns during the three months ended March 31, 2011:


Balance at December 31, 2010	$	10,467
Provision for (recovery of) doubtful accounts and returns		(222	)
Write-offs net of recoveries		(155	)
Effect of exchange rate changes		272

Balance at March 31, 2011	$	10,362

Inventories, net

Inventories, net consist of the following (in thousands):


	March 31,		December 31,
	2011		2010
Raw materials	$	14,552	$	21,851
Finished goods		4,565		6,370

Total inventories, net	$	19,117	$	28,221

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2011		2010
Accrued installation and professional services costs	$	3,278	$	4,452
Deferred rent		2,342		2,532
Accrued restructuring		19,930		441
Accrued warranty costs		829		1,185
Accrued professional fees and legal accrual		1,694		1,839
Accrued other		9,951		9,895

Total	$	38,024	$	20,344

Note 8 — Intangible Assets and Goodwill

Intangible Assets

Intangible assets consist of the following (in thousands):


			Accumulated
March 31, 2011	Gross		Amortization			Net
Intangible assets with finite lives:
Purchased technology	$	98,870	$	(35,944	)	$	62,926
Customer relationships		18,800		(5,042	)		13,758
Contract backlog		7,500		(5,731	)		1,769
Non-compete agreements		4,380		(1,963	)		2,417
IPR&D, with finite lives		2,450		(271	)		2,179
Trademarks and trade names		1,240		(370	)		870

Gross intangible assets with finite lives		133,240		(49,321	)		83,919
Effect of exchange rate changes		657		(638	)		19

Total intangible assets with finite lives		133,897		(49,959	)		83,938
IPR&D, with indefinite lives		461		—			461

Total intangible assets	$	134,358	$	(49,959	)	$	84,399


				Accumulated
December 31, 2010	Gross			Amortization			Net
Intangible assets with finite lives:
Purchased technology	$	98,870		$	(30,126	)	$	68,744
Customer relationships		18,800			(3,929	)		14,871
Contract backlog		7,500			(4,879	)		2,621
Non-compete agreements		4,380			(1,415	)		2,965
IPR&D, with finite lives		2,450			(148	)		2,302
Trademarks and trade names		1,240			(267	)		973

Gross intangible assets with finite lives		133,240			(40,764	)		92,476
Effect of exchange rate changes		(766	)		74			(692	)

Total intangible assets with finite lives		132,474			(40,690	)		91,784
IPR&D, with indefinite lives		461			—			461

Total intangible assets	$	132,935		$	(40,690	)	$	92,245

During the first quarter of 2011 we evaluated the remaining useful lives of purchased technology intangible assets associated with the Steleus and iptelorg acquisitions. Based on current technological trends and our related expected business opportunities, we shortened the useful lives of these assets from a remaining weighted average life of 3.75 years at the time the evaluation was performed to an estimated life of approximately one year.

The estimated future amortization expense of purchased intangible assets with finite lives as of March 31, 2011 is as follows (in thousands):


For the Years Ending December 31,	(Thousands)
2011 (remaining nine months)	$	29,020
2012		19,948
2013		14,564
2014		14,411
2015		5,995

Total	$	83,938

Goodwill

As required by the authoritative guidance for intangibles and goodwill, we do not amortize our goodwill balances, but instead test our goodwill for impairment annually on October 1^st and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangibles and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that the fair value of the reporting unit exceeded its net book value by over 20%, and thus no impairment existed as of March 31, 2011. As of March 31, 2011, no impairment losses were recognized with respect to goodwill.

The changes in the carrying amount of goodwill for the three months ended March 31, 2011 are as follows (in thousands):


Balance at December 31, 2010	$	135,564
Effect of exchange rate changes		1,107

Balance at March 31, 2011	$	136,671

Note 9 — Income Taxes

As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the “Effective Rate”). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets.

Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of “more likely than not” based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income tax expense an adjustment resulting from the establishment of a valuation allowance in the period in which such a determination was made.

We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service (“IRS”) completed an examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. In the first quarter of 2011, the IRS commenced its examination of tax years 2007 through 2009 as a result of Tekelec having filed a refund claim related to a capital loss generated in 2009. As a result, we have extended the statute of limitations on our 2007 tax year. With respect to our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions. We are also currently under examination by the state of North Carolina resulting from a refund claim filed with respect to our 2007 and 2008 tax years. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior. Although it is possible that certain tax examinations, including the IRS examination, could be resolved during the next 12 months, the timing and outcomes are uncertain.

With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur.

For the three months ended March 31, 2011 our effective tax rate was a benefit of 41% based on the pre-tax loss for the quarter. The effective tax rate for this period differs from the statutory rate of 35% primarily due to (i) research and development tax credits in various jurisdictions, (ii) U.S. state income tax benefit, (iii) recognition of

certain previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies, and (iv) the jurisdictional split of our global income in countries with lower tax rates, as offset by tax expense related to accounting for stock-based compensation and the required tax treatment under the authoritative guidance discussed further below. For the three months ended March 31, 2010, our effective tax rate was 36%. The effective tax rate for this period differed from the statutory tax rate of 35% primarily due to (i) state income tax expense, (ii) tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed below, and (iii) an offsetting tax benefit of lower tax rates in the foreign jurisdictions in which we operate.

We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three months ended March 31, 2011, we recorded a discrete tax expense of $1.6 million as compared to $0.5 million recorded for the three months ended March 31, 2010 associated with our stock compensation plans.

Note 10 — Commitments and Contingencies

Indemnities, Commitments, Contingencies and Guarantees

In the normal course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property indemnities to our customers in connection with the sale of our products and licensing of our technology, indemnities for liabilities associated with the infringement of other parties’ technology based upon our products and technology, guarantees of timely performance of our obligations, guarantees and indemnities related to the reliability and performance of our equipment, and indemnities to our directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that we could be obligated to make. We have not recorded a liability for these indemnities, commitments or guarantees in the accompanying balance sheets because future payment is not probable.

From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual matters, intellectual property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no assurance that we will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

On January 6, 2011, a purported class action complaint was filed against us and certain of our current and former officers in the U.S. District Court for the Eastern District of North Carolina alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The case purports to be brought on behalf of a class of purchasers of our stock during the period February 11, 2010 to August 5, 2010. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding our business and prospects in emerging markets. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses. As we are in the very early stages of this potential litigation, we are unable to predict the outcome of this case or estimate a range of potential loss related to this matter. Although the Company denies the allegations in the complaint and intends to vigorously pursue its defense, we are unable to predict the outcome of this case. An adverse court determination in the purported class action lawsuit against us could result in significant liability and could have a material adverse effect on our business, results of operations and financial condition.

On February 7, 2011, a shareholder derivative complaint was filed in the California Superior Court of Santa Clara County against certain current and former officers and directors. The suit alleges that named parties breached their fiduciary duties to the Company by, among other things, making statements between February, 2010 and August, 2010 which plaintiffs claim were false and misleading and by allegedly failing to implement adequate internal controls and means of supervision at the Company. On March 3, 2011, a nearly identical shareholder derivative complaint was filed in the U.S. District Court for the Central District of California. These suits seek an unspecified amount of damages from the named parties and modifications to the Company’s corporate governance policies. The allegations in the complaints are similar to the purported class action complaint discussed above. The

individual defendants intend to vigorously defend the suits and the Company, on whose behalf these claims purport to be brought, intends to move to dismiss the shareholder derivative complaints on the grounds that the derivative plaintiffs did not file the claims in accordance with applicable laws governing the filing of derivative suits. As we are in the very early stages of these litigations, we are unable to predict the outcome of these cases or estimate a range of potential costs related to these matters.

Note 11 — Stock-Based Compensation

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 is as follows (in thousands):


	Option and
	SAR Grants
	and Stock
	Purchase
Income Statement Classifications	Rights		RSUs		Total
Three months ended March 31, 2011
Cost of goods sold	$	64	$	313	$	377
Research and development		61		446		507
Sales and marketing		130		809		939
General and administrative		245		840		1,085

Total	$	500	$	2,408	$	2,908


Three months ended March 31, 2010
Cost of goods sold	$	77	$	275	$	352
Research and development		75		266		341
Sales and marketing		98		711		809
General and administrative		521		1,273		1,794

Total	$	771	$	2,525	$	3,296

Stock-based compensation expense was recorded net of estimated forfeitures for the three months ended March 31, 2011 and 2010 such that expense was recorded only for those stock-based awards that are expected to vest.

Note 12 — Operating Segment Information

We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically the development and sale of signaling telecommunications solutions and related value added applications and services.

Enterprise-Wide Disclosures

The following tables sets forth, for the periods indicated, revenues from external customers by our principal product lines, as well as revenues by domestic versus international regions (in thousands):


	For the Three Months Ended
	March 31,
	2011		2010
Product revenues:
Eagle, number portability, and other session management products	$	65,816	$	66,114
Performance management products		5,100		10,425

Total product revenues		70,916		76,539
Warranty revenues		20,251		19,002
Professional and other services revenues		16,592		20,450

Total revenues	$	107,759	$	115,991


	Three Months Ended
	March 31,
	2011		2010
United States	$	36,513	$	35,568
International		71,246		80,423

Total revenues	$	107,759	$	115,991

For the three months ended March 31, 2011 revenues from Verizon and ITI Limited represented 18% and 12%, respectively, of our total revenues. For the three months ended March 31, 2010, revenues from AT&T represented 14% of our total revenues. For the three months ended March 31, 2011, revenues from India accounted for 23% of our total revenues.

The following table sets forth, for the periods indicated, our long-lived assets including net property and equipment and other assets by geographic region (in thousands):


	Long-Lived Assets
	By Geographic Region
	March 31,		December 31,
	2011		2010
United States	$	31,942	$	30,836
Other		8,355		7,840

Total long-lived assets	$	40,297	$	38,676

Note 13 — Earnings (Loss) Per Share

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations for the three months ended March 31, 2011 and 2010 (in thousands, except per share amounts):


	Income from
	Operations			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
For the Three Months Ended March 31, 2011:
Basic earnings per share	$	(15,996	)		68,770	$	(0.23	)
Effect of dilutive securities		—			—

Diluted income from operations per share	$	(15,996	)		68,770	$	(0.23	)


For the Three Months Ended March 31, 2010:
Basic earnings per share	$	13,718			67,636	$	0.20
Effect of dilutive securities		—			1,130

Diluted earnings per share	$	13,718			68,766	$	0.20

The computation of diluted earnings (loss) per share excludes unexercised stock options and share appreciation rights (“SARs”), and unvested restricted stock units (“RSUs”) that are anti-dilutive. The following common stock equivalents were excluded from the earnings (loss) per share computation, as their inclusion would have been anti-dilutive (in thousands):


	Three Months Ended
	March 31,
	2011		2010
Weighted average number of stock options, SARs and RSUs, calculated using the treasury stock method, that were excluded due to the exercise/threshold price exceeding the average market price of our common stock during the period		4,327		3,933
Weighted average number of stock options, SARs and RSUs excluded due to the reporting of a net loss for the period		373		—

Total common stock equivalents excluded from diluted net income (loss) per share computation		4,700		3,933

There were no transactions subsequent to March 31, 2011, which had they occurred prior to the end of our first quarter, would have changed materially the number of shares in the basic or diluted earnings per share computations.

Note 14 — Subsequent Events

Executive Officer Resignation and Severance Agreement

On April 29, 2011, Wolrad Claudy, Executive Vice President, Global Sales of Tekelec, and Tekelec Germany GmbH (“Tekelec Germany”) entered into a Termination Agreement pursuant to which the parties mutually agreed that Mr. Claudy would resign, effectively immediately, from his position as Managing Director of Tekelec Germany. On the same date, Mr. Claudy resigned from his office as Executive Vice President, Global Sales of the Company.

Pursuant to the Termination Agreement and in accordance with the six-month notice requirement under the 2008 Managing Director Agreement between Tekelec Germany and Mr. Claudy, Mr. Claudy will remain employed by Tekelec Germany through October 31, 2011. During that period, Mr. Claudy will continue to receive his monthly base salary of 16,250 Euros (i.e., approximately $23,129 based on a Euro to U.S. dollar exchange rate of 1.4233) and to be entitled to receive commissions under the 2011 Sales Compensation Plan for Wolrad Claudy. Mr.

Claudy will provide services related to customer relationships and customer accounts through July, 2011 and will thereafter be released from the obligation to provide such services. In connection with the termination of Mr. Claudy’s employment with Tekelec Germany and in accordance with the terms of the Company’s 2007 Officer Severance Plan, as amended, Mr. Claudy will receive cash severance compensation in the total amount of 497,250 Euros (i.e., approximately $707,736 based on a euro to dollar exchange rate of 1.4233) and will receive certain health care benefits.

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

The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010. Historical results and percentage relationships among any amounts in the unaudited condensed consolidated financial statements are not necessarily indicative of trends in operating results for any future periods.

Overview of Our Business and Products

We are a leading global provider of communication core network solutions. Our solutions help enable billions of people and devices to talk, text, and access the Web. These solutions are designed to provide our customers’ telecommunications networks with an effective and robust intelligence layer with which to offer their subscribers improved customer experience through optimization, personalization, mobility and security. Our customers predominantly include mobile (or “wireless”), fixed (or “wireline”), and cable service providers (collectively, “service providers”). We have more than 300 customers in over 100 countries, including nine out of ten of the world’s largest mobile carriers.

Our products assist our customers in meeting the demands of their subscribers and the challenges of deploying a multimedia network in competitive communications environments. Our portfolio provides a layer of network intelligence designed to enable service providers to rely on real-time network metrics for improved levels of network decision making. In turn, service providers can dynamically manage their networks, prioritize traffic, and prevent network disruptions. This portfolio of products includes one of the most widely deployed standalone signaling application platforms in the telecommunications industry that provides full signal transfer point (“STP”) capabilities and number portability solutions. In addition to these established solutions, our next-generation portfolio, which is enabled by our EAGLE XG middleware platform, includes applications that provide session and policy management, performance management, and subscriber data management for today’s evolving networks.

Our solutions are designed to address the fundamental challenge facing service providers: network capacity requirements growing more rapidly than service provider revenues. Our solutions are engineered to cost-effectively scale relative to service provider capacity requirements and the corresponding increase in application transactions. Our solutions are comprised of elements from our portfolio of proprietary software which are increasingly being integrated with commercial hardware, operating systems and database technologies. Complementing our intelligence layer solutions with advances in technology, such as multi-core processors, virtualization software and browser-based cloud computing, enables our software and systems to deliver intelligence at layers four to seven of our customers’ IP networks. We believe that our core network solutions are cost-effective for our customers and enable them to provide value to their subscribers.

We derive our revenues from the sale or licensing of these core network solutions and the related professional services (for example, installation and training services) and customer support, including customer post-warranty services. Payment terms in contracts with our customers are negotiated with each customer and are based on a variety of factors, including the customer’s credit standing and our history with the customer.

Our corporate headquarters are located in Morrisville, North Carolina, and we have research and development facilities, sales offices and customer support facilities located throughout the world.

Internal Control and Corporate Governance

We consider our internal control over financial reporting a high priority and continually review all aspects of and make improvements in our internal control. Our executive management is committed to ensuring that our internal control over financial reporting is complete, effective and appropriately documented. In the course of our evaluation of our internal control, we seek to identify material errors or control problems and to confirm that the appropriate corrective actions, including process improvements, are being undertaken. We also seek to deal with any control matters in this evaluation, and in each case if a problem is identified, we consider what revision,

improvement or correction to make in accordance with our ongoing procedures. Our continued objective is to maintain our internal control as a set of dynamic systems that change (including improvements and corrections) as conditions warrant.

In addition to striving to maintain an effective system of internal control over financial reporting, we also strive to follow the highest ethical and professional standards in measuring and reporting our financial performance. Specifically, we have adopted a code of conduct for all of our employees and directors that requires a high level of professionalism and ethical behavior. We believe that our accounting policies are prudent and provide a clear view of our financial performance. We utilize our internal audit function to help ensure that we follow these accounting policies and to independently test our internal control. Further, our Disclosure Committee, composed primarily of senior financial and legal personnel, helps ensure the completeness and accuracy of the reporting of our financial results and our other disclosures. In performing its duties, the Disclosure Committee consults with and obtains relevant information from key functional areas such as operations, finance, customer service and sales, and utilizes an internal certification process that solicits responses from these functional areas. Prior to the release of our financial results, key members of our management review our operating results and significant accounting policies and estimates with our Audit Committee, which consists solely of independent members of our Board of Directors.

Operating Environment and Key Factors Impacting our Results

In order to better understand the trends within our business, we believe it is important to understand the varying dynamics across geographical regions, particularly between developed and emerging markets. Within developed markets, we believe our customers are shifting their investments from 2G and 3G networks to investments in their next-generation networks, such as Long Term Evolution (“LTE”) as a result of the slowing growth of voice and text messaging traffic. While the shift in our customers’ focus has accelerated the decline in orders for our Eagle 5 and other established products, it has resulted in an increase in demand for our next-generation products.

Our orders for the first quarter of 2011 were up 22% as compared to orders for the first quarter of 2010, primarily due to growth in our next-generation product portfolio, including orders from policy and subscriber data management solutions associated with the Camiant and Blueslice acquisitions. Orders for our next-generation portfolio were $26.1 million for the quarter, an increase of over 80% as compared to the same period in 2010. Both our total orders and next-generation orders for the first quarter of 2010 exclude orders from the solutions obtained in our acquisitions of Camiant and Blueslice. Prior to the acquisitions, Camiant and Blueslice orders were approximately $4.5 million in the first quarter of 2010.

One of the primary drivers for this growth was a multi-million dollar order in the first quarter of 2011 for our Diameter Signaling Router (“DSR”) solution in connection with a nationwide LTE rollout by a Tier One service provider. This integrated solution, which also includes our subscriber data management and performance management products, will centralize network routing data and help manage the provider’s subscriber profile information. Diameter is the signaling protocol used predominantly in operators’ all-data networks for policy, charging, mobility management and certain IMS functions. We believe a centralized intelligent session management layer is critical for an efficient, scalable network.

While we were pleased with the overall order performance of our next-generation portfolio in the first quarter, orders for our performance management solution declined by $4.5 million during the first quarter of 2011 as compared to the first quarter of last year. We believe the market for our performance management solution is transitioning from monitoring traditional voice traffic to a focus on analyzing mobile data traffic. Given this technology transition, coupled with a more competitive market environment, the conversion time of our pipeline to orders has lengthened and our win rate of new orders has decreased, negatively impacting our orders for this solution.

Orders for Eagle 5 and other established products showed a modest growth of 2% in the first quarter of 2011 as compared to the first quarter of 2010, primarily due to higher year-over-year orders received from international regions. Despite this year-over-year order growth in the first quarter, we continue to expect a 2011 year-over-year order decline of 15% or more for our Eagle 5 products.

While demand for our next-generation solutions has continued to grow, the growth has not been able to offset the decline in demand for our Eagle 5 and other established products. Accordingly, we have seen a decrease in our total orders in 2010. As a result, in 2010 and 2011, certain of our key operating metrics, such as total revenue, gross margin, operating margin and revenue per employee, declined from our historical levels.

In response to this decline, in the first quarter of 2011, we initiated a restructuring plan (the “Plan”) as part of our efforts to better align our operating cost structure with our current and expected business opportunities. Upon completion of the restructuring, we expect to reduce our annual operating expenses by $20.0 million to $25.0 million. The post restructuring run rate is inclusive of an anticipated shift in investments from our established product to our next-generation solutions.

Despite the decline in our operations, we continue to operate a cash flow positive business, as we generated $24.4 million of cash flow from operations in the first quarter of 2011. We had $240.9 million in cash and no debt at the end of the first quarter of 2011.

Summary of Operating Results and Key Financial Metrics

The following is a summary of our performance relative to certain key financial metrics for our operations as of and for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 (in thousands, except earnings per share and percentages):


	Three Months Ended March 31,
	2011			2010		Change 2010 to 2011
Orders	$	69,469		$	56,724	$	12,745		22	%
Backlog	$	305,413		$	308,427	$	(3,014	)	(1	)%
Revenues	$	107,759		$	115,991	$	(8,232	)	(7	)%
Operating income (loss)	$	(26,322	)	$	22,228	$	(48,550	)	(218	)%
Diluted earnings (loss) per share	$	(0.23	)	$	0.20	$	(0.43	)	(215	)%

Orders increased 22% on a year-over-year basis from $56.7 million in the first quarter of 2010 to $69.5 million in the first quarter of 2011 for the reasons discussed previously.

Backlog decreased by $33.4 million, or 10%, from December 31, 2010 to March 31, 2011, primarily due to the seasonal nature of our orders as revenues typically exceed orders during the first half of the year. Backlog decreased by $3.0 million, or 1%, from March 31, 2010 to March 31, 2011, primarily due to the decline in our Eagle 5 business which is not yet offset by the increase in demand for our next-generation portfolio. Additionally, the favorable impact of foreign exchange fluctuations (primarily related to the Euro) resulted in a $4.9 million increase in backlog.

Revenues decreased by 7% to $107.8 million in the first quarter of 2011 from $116.0 million in the first quarter of 2010. Revenues from the solutions obtained from our acquisitions of Camiant and Blueslice represented $7.3 million of our total revenues in the first quarter of 2011. Our 2011 revenues were negatively impacted by a lower backlog available at the beginning of the year, which was caused by a decline in annual orders in 2010.

Operating Income (Loss) decreased from $22.2 million of operating income in the first quarter of 2010 to $26.3 million of operating loss in the first quarter of 2011, driven primarily by (i) a reduction in gross margins of $19.8 million due to lower revenues as previously discussed and lower gross margins associated with a higher proportion of revenues from emerging markets and certain one-time costs related to product warranties and inventory reserves, (ii) a restructuring charge of $21.4 million, and (iii) an increase in intangible assets amortization expense of $5.1 million as a result of acquiring Camiant and Blueslice in the second quarter of 2010.

Diluted Earnings (Loss) per Share decreased to $0.23 loss per share in the first quarter of 2011 from $0.20 earnings per share in the first quarter of 2010, primarily due to the decrease in operating income discussed above.

Results of Operations

Revenues

Revenues decreased by 7% to $107.8 million in the first quarter of 2011 from $116.0 million in the first quarter of 2010 due primarily to the fact that we entered 2011 with backlog that was approximately $35.0 million lower than the backlog at the beginning of 2010. The following discussion provides a more detailed analysis of changes in revenues by product line.

Revenues by Product Line

In order to provide a better understanding of the year-over-year changes and the underlying trends in our revenues, we have provided a discussion of revenues from each of our product lines. Revenues from each of our product lines for the three months ended March 31, 2011 and 2010 are as follows (in thousands, except percentages):


	For the Three Months Ended
	March 31,				Change
	2011		2010		2010 to 2011
Product revenues:
Eagle, number portability, and other session management products	$	65,816	$	66,114	$	(298	)	(0	)%
Performance management products		5,100		10,425		(5,325	)	(51	)%

Total product revenues		70,916		76,539		(5,623	)	(7	)%
Warranty revenues		20,251		19,002		1,249		7	%
Professional and other services revenues		16,592		20,450		(3,858	)	(19	)%

Total revenues	$	107,759	$	115,991	$	(8,232	)	(7	)%

Product Revenues

Our product revenues decreased by $5.6 million, or 7%, in the first quarter of 2011 compared with the first quarter of 2010 due primarily to the decrease in revenue from our performance management products. As we mentioned above, we believe the market for this product is transitioning from monitoring voice traffic to monitoring data traffic and as a result we saw a decline in orders in 2010 and in the first quarter of 2011 for our voice-centric offerings. We believe this market transition and the resulting decline in orders are causing the decline in our performance management revenues.

Worldwide, our product revenues have been impacted by a variety of factors in addition to those discussed above, including: (i) industry consolidation resulting in a delay and/or decline in our customer orders; (ii) competitive pricing pressure, particularly with respect to our Eagle 5 product line; (iii) the pricing of our SIGTRAN-based products, which are typically priced at a significantly lower price per equivalent link or unit of throughput than our traditional SS7-based products, resulting in reductions in our orders and revenues; (iv) our current ability to sell our next-generation products, such as session management, policy management, subscriber data management and mobile messaging products to new and existing customer base; and (v) the amount of signaling traffic generated on our customers’ networks, impacting our volume of orders. We derive the majority of our product revenues from wireless operators, which generate significantly more signaling traffic than wireline networks. As a result, these networks require significantly more signaling infrastructure than wireline networks. Signaling traffic on our wireless customers’ networks may be impacted by several factors, including growth in the number of subscribers, the number of calls made per subscriber, roaming and the use of additional features, such as text messaging.

Warranty Revenues

Warranty revenues include revenues from (i) our standard warranty coverage, which is typically provided at no charge for the first year but is allocated a portion of the arrangement fee in accordance with the authoritative guidance for software revenue recognition and (ii) our extended warranty offerings. After the first year warranty, our customers typically purchase warranty services for periods of up to a year in advance, which we reflect in deferred revenues. We recognize the revenue associated with our warranty services ratably over the term of the warranty arrangement based on the number of days the contract is outstanding during the period.

Warranty revenues increased by 7% in the first quarter of 2011 compared to the first quarter of 2010. This increase was principally due to the increase in our installed base of customers globally.

The timing of recognition of our warranty revenues may be impacted by, among other factors: (i) delays in receiving purchase orders from our customers; (ii) the inability to recognize any revenue, including revenue associated with the first year warranty, until the delivery of all product deliverables associated with an order is complete; and (iii) receipt of cash payments from the customer in cases where the customer is deemed a credit risk.

Professional and Other Services Revenues

Professional and other services revenues primarily consist of installation services, database migration and training services. Substantially all of our professional service arrangements are billed on a fixed-fee basis. We typically recognize the revenue related to our fixed-fee service arrangements upon completion of the services, as these services are relatively short-term in nature (typically several weeks, or in limited cases, several months). Our professional and other services are typically initiated and provided to the customer within a three to nine month period after the shipment of the product, with the timing depending on, among other factors, the customer’s schedule and site availability.

Professional and other services revenues for the first quarter of 2011 decreased by $3.9 million, or 19%, as compared to the first quarter of 2010. This decrease is primarily due to a decline in services related revenues for our performance management products, which are typically more service intensive than our other solutions. This decline was partially offset by year-over-year professional and other services revenues growth in our next-generation session and policy management and subscriber data management products.

Regardless of the mix of products purchased, new customers require a greater amount of installation, training and other professional services at the initial stages of deployment of our products. As our customers gain more knowledge of our products, the follow-on orders generally do not require the same levels of services and training, as our customers tend to either: (i) perform the services themselves; (ii) require limited services, such as installation only; or (iii) require no services, and, in particular, no database migration or training services.

Cost of Sales

In order to better understand our cost structure, we analyze and present our costs and expenses in the categories discussed below:

Cost of goods sold

Cost of goods sold includes: (i) materials, labor, and overhead costs incurred internally and paid to contract manufacturers to produce our products; (ii) personnel and other costs incurred to install our products; and (iii) customer service costs to provide continuing support to our customers under our warranty offerings. Cost of goods sold in dollars and as a percentage of revenues for the three months ended March 31, 2011 and 2010 were as follows (in thousands, except percentages):


	For the Three Months Ended
	March 31,						Change
	2011			2010			2010 to 2011
Cost of goods sold	$	44,924		$	38,604		$	6,320		16	%
Revenues		107,759			115,991			(8,232	)	(7	)%
Cost of good sold as a percentage of revenues		42	%		33	%

Cost of goods sold increased in both absolute dollars and as a percentage of revenues in the first quarter of 2011 as compared to the same period in 2010. The increase in cost of goods sold in 2011 is primarily attributable to (i) approximately $2.0 million of warranty-related costs and inventory write-offs that were incurred during the first quarter of 2011 related to hardware transitions and delivery requirements associated with our policy and subscriber data management products, (ii) a $2.0 million write-off of deferred costs related to a customer in the Middle East due to collectability concerns and therefore our ability to recover these costs, and (iii) a higher percentage of our 2011 revenues being derived from India where our margins are below our corporate average.

As we continue to expand our international presence, our cost of goods sold as a percentage of revenues may be negatively impacted as the result of our decision to develop new sales channels and customer relationships in new markets, and also due to price competition. Further, many of our next-generation products are initial system sales, which are typically at lower gross margins than our corporate average. However, as we seed these products in our installed base, the follow-on orders in many cases are expected to be software only and therefore at margins above our corporate average. In addition, changes in the following factors may also affect margins: the ability to increase revenues to cover fixed costs; product mix; competition; customer discounts; supply and demand conditions in the electronic components industry; internal and outsourced manufacturing capabilities and efficiencies; foreign

currency fluctuations; pricing pressure as we expand internationally; government regulations and policy such as security considerations and net neutrality, tariffs, and local content; and general economic conditions.

Amortization of Product Related Intangible Assets

Amortization of purchased technology for the three months ended March 31, 2011 and 2010 was as follows (in thousands):


	For the Three Months Ended
	March 31,
	2011		2010
Amortization of intangible assets related to:
Camiant	$	2,988	$	—
mBalance		1,650		932
Steleus		1,034		483
Blueslice		782		—
iptelorg		287		118
Other		11		—

Total	$	6,752	$	1,533

The increase in amortization in 2011 is primarily due to the amortization associated with Camiant and Blueslice intangibles acquired in May 2010. Additionally, during the first quarter of 2011 we evaluated the remaining useful lives of purchased technology intangible assets associated with the 2004 Steleus and 2005 iptelorg acquisitions. Based on current technological trends and our related expected business opportunities, we shortened the useful lives of these assets with the resulting increase in amortization reflected in our first quarter cost of sales.

Research and Development Expenses

Research and development expenses include costs associated with the development of new products, enhancements of existing products and quality assurance activities. These costs consist primarily of employee salaries and benefits, occupancy costs, outsourced development and consulting costs, and the cost of development equipment and supplies. The following sets forth our research and development expenses in dollars and as a percentage of revenues for the three months ended March 31, 2011 and 2010 (in thousands, except percentages):


	For the Three Months Ended
	March 31,						Change
	2011			2010			2010 to 2011
Research and development	$	25,773		$	22,809		$	2,964	13	%
Percentage of revenues		24	%		20	%

The following is a summary of the year-over-year fluctuations in our research and development expenses during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 (in thousands):


	2010 to 2011
Increase (decrease) in:
Salaries, benefits and incentive compensation	$	1,813
Stock-based compensation		166
Integration-related compensation		125
Consulting and professional services		197
Facilities and depreciation		221
Other		442

Total	$	2,964

Although we reduced expenses associated with our Eagle 5 product line, our investment in the next-generation portfolio exceeded these reductions. As a result, research and development expenses in the first quarter of 2011 as

compared to the first quarter of 2010 were higher across all expense categories, principally due to an increase of $3.9 million associated with expenses related to our policy and subscriber data management acquisitions. These acquisitions were completed in May of 2010 and were not included in our expense profile for the first quarter of 2010.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of costs associated with our sales force and marketing personnel, including: (i) salaries, commissions and related costs; (ii) costs of outside contract personnel; (iii) facilities costs; (iv) advertising and other marketing costs, such as tradeshows; and (v) travel and other costs. The following table sets forth our sales and marketing expenses in dollars and as a percentage of revenues for the three months ended March 31, 2011 and 2010 (in thousands, except percentages):


	For the Three Months Ended
	March 31,						Change
	2011			2010			2010 to 2011
Sales and marketing expenses	$	20,725		$	17,437		$	3,288	19	%
Percentage of revenues		19	%		15	%

The following is a summary of the year-over-year fluctuation in our sales and marketing expenses during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 (in thousands):


	2010 to 2011
Increase (decrease) in:
Salaries, benefits and incentive compensation	$	1,747
Stock-based compensation		129
Integration-related compensation		153
Sales commissions		473
Marketing and advertising		520
Travel		299
Other		(33	)

Total	$	3,288

The increase in sales and marketing expenses in the first quarter of 2011 as compared to the same period of 2010 was observed across all expense categories and is primarily attributable to (i) additional sales and marketing personnel costs associated with May 2010 acquisitions of Camiant and Blueslice, (ii) increased travel, marketing, and employee related expenses as a result of increased activities associated with our next-generation products, and (iii) an increase in third party commissions which are typically paid at much higher rates than those to our direct sales force.

General and Administrative Expenses

General and administrative expenses are composed primarily of costs associated with our executive and administrative personnel (e.g., finance, legal, business development, information technology and human resources personnel) and consist of: (i) salaries and related compensation costs; (ii) consulting and other professional services (e.g., litigation and other outside legal counsel fees and audit fees); (iii) facilities and insurance costs; and (iv) travel and other costs. The following table sets forth our general and administrative expenses in dollars and as a percentage of revenues for the three months ended March 31, 2011 and 2010 (in thousands, except percentages):


	For the Three Months Ended
	March 31,						Change
	2011			2010			2010 to 2011
General and administrative expenses	$	12,779		$	13,150		$	(371	)	(3)	%
Percentage of revenues		12	%		11	%

The following is a summary of the year-over-year fluctuation in our general and administrative expenses during the three months ended March 31, 2011 as compared to the three months ended March 31, 2010 (in thousands):


	2010 to 2011
Increase (decrease) in:
Salaries, benefits and incentive compensation	$	(588	)
Stock-based compensation		(709	)
Integration-related compensation		7
Consulting and professional services		1,007
Facilities and depreciation		114
Bad debt expense		(273	)
Other		71

Total	$	(371	)

General and administrative expenses in the first quarter of 2011 remained comparable to the first quarter of 2010. Employee compensation related expenses decreased due to lower incentive compensation and fewer equity grants in the first quarter of 2011 as compared to the first quarter of 2010. The above decreases were partially offset by an increase in consulting and professional services as a result of additional legal fees associated with patent and litigation related items.

Restructuring and Other Costs

	•		a reduction of our overall headcount in the U.S and the consolidation of positions from various global locations; in addition, subject to employee information and consultation processes, reductions in positions in foreign countries. The overall workforce reduction is expected to be approximately 10% to 15% of our workforce;

	•		a reduction of the discretionary portion of our operating costs through various cost control initiatives, including: (i) reducing advertising expenditures; (ii) delaying merit increases and modifying incentive compensation plans; (iii) reducing capital expenditures; and (iv) reducing other discretionary expenditures, such as costs related to outside consultants, travel and recruiting; and

	•		consolidation of certain facilities and the abandonment of certain assets in connection with the consolidation of facilities.

estimates which could change materially, including without limitation as a result of employee information and consultation processes conducted in local jurisdictions.

Subject to complying with and undertaking any necessary individual and collective employee information and consultation obligations required by local law, we expect all of these activities and associated expenses to occur by the end of 2011. The Plan and the associated costs are based on our current best estimates which could change materially if activity, such as but not limited to the results of employee information and consultation processes conducted in local jurisdictions differ from our expectations.

Upon completion of the restructuring, we expect to reduce our annual operating expenses by $20.0 million to $25.0 million. The post restructuring run rate is inclusive of an anticipated shift in investments from our established product to our next-generation solutions.

Given that many of the positions potentially affected by this restructuring activity are in international locations, and are subject to notification and consultation processes, the majority of these annualized savings are not expected to be realized until 2012.

The following table provides a summary of our restructuring activities and the remaining obligations as of March 31, 2011 (in thousands):


	Severance
	Costs and
	Related
	Benefits
Restructuring obligations, December 31, 2010	$	441
2011 Restructuring and related expenses		21,364
Cash payments		(1,895	)
Effect of exchange rate changes		20

Restructuring obligations, March 31, 2011	$	19,930

Amortization of Customer Related Intangible Assets

As a result of our acquisitions, we have recorded various intangible assets including trademarks, customer relationships and non-compete agreements. Amortization of intangible assets related to our acquisitions is as follows (in thousands):


	For the Three Months Ended
	March 31,
	2011		2010
Amortization of intangible assets related to:
Camiant	$	1,261	$	—
mBalance		408		230
Blueslice		95		—

Total	$	1,764	$	230

Other Income and Expense

For the three months ended March 31, 2011 and 2010, other income and expenses were as follows (in thousands):


	Three Months Ended
	March 31,						Change
	2011			2010			2010 to 2011
Other income (expense), net:
Interest income	$	31		$	142		$	(111	)
Interest expense		(227	)		(67	)		(160	)
Unrealized gain on investments carried at fair value, net		—			80			(80	)
Foreign currency gain (loss), net		(262	)		(680	)		418
Other, net		(316	)		(420	)		104
Total other income (expense), net	$	(774	)	$	(945	)	$	171

Interest income and expense. Interest income decreased during the three months ended March 31, 2011 due to lower interest bearing cash balances in 2011 as a result of our purchase of Camiant and Blueslice in May 2010, as well as the first quarter of 2010 including investments in auction rate securities that earned a higher rate of interest income. These auction rate securities were fully redeemed in the second quarter of 2010.

Foreign currency gain (loss), net. Foreign currency loss, net and other for the three months ended March 31, 2011 and 2010 consists primarily of (i) the net cost of our hedging program related to foreign currency risk, including the gains and losses on forward contracts on foreign currency exchange rates used to hedge our exposure to foreign currency risks, (ii) foreign currency gains and losses associated with the underlying hedged item (principally accounts receivable), and (iii) remeasurement adjustments from consolidating our international subsidiaries. The loss on foreign currency decreased in the first quarter of 2011 from that of the first quarter of 2010 primarily due to lower hedging costs and improved hedging efficiency. As we expand our international business further, we will continue to enter into a greater number of transactions denominated in currencies other than the U.S. Dollar and will be exposed to greater risk related to exchange rate foreign currency fluctuations and translation adjustments.

Provision for Income Taxes

The income tax provisions for the three months ended March 31, 2011 and 2010 were approximately ($11.1) million and $7.6 million, respectively, resulting in income tax expense (benefit) as a percentage of pre-tax income, or an effective tax rate, of 41% benefit and 36% expense, respectively.

The difference in the effective tax rate for the three months ended March 31, 2011, as compared to the same period in 2010, is primarily due to an overall pre-tax loss for the three months ended March 31, 2011 compared to profit for the three months ended March 31, 2010, and the relative impact of R&D tax credits in 2011, whereas a similar benefit was not recognized in the first quarter of 2010 due to the expiration of the U.S. R&D tax credit for that period. This credit was later retroactively extended through December 31, 2011. The first quarter of 2011 included a greater tax charge than the first quarter of 2010 resulting from the accounting for stock-based compensation and the required tax treatment under the relevant authoritative guidance; however, the increase in the charge from 2010 to 2011 was offset by the recognition of previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies.

Please refer to Note 9 of the accompanying unaudited condensed consolidated financial statements for a discussion of the reconciliations of our effective tax rates for the three months ended March 31, 2011 and 2010 to the statutory rate of 35%.

We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock-based compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three months ended March 31, 2011, we recorded a discrete tax expense of $1.6 million as compared to $0.5 million recorded for the three months ended March 31, 2010.

Liquidity and Capital Resources

Key measures of our liquidity are as follows (in thousands):


	March 31,		December 31,
	2011		2010		Change 2010 to 2011
Cash and cash equivalents	$	240,925	$	220,938	$	19,987		9	%
Working capital	$	269,268	$	286,910	$	(17,642	)	(6	)%


	Three Months Ended March 31,
	2011			2010		Change 2010 to 2011
Cash provided by (used in) operating activities	$	24,399		$	14,876	$	9,523		64	%
Cash provided by (used in) investing activities	$	(5,908	)	$	10,997	$	(16,905	)	(154	)%
Cash provided by (used in) financing activities	$	(338	)	$	5,587	$	(5,925	)	(106	)%

Liquidity

We derive our liquidity and capital resources primarily from our cash flows from operations and from our working capital. The significant components of our working capital are liquid assets such as cash and cash equivalents, accounts receivable, and deferred costs and commissions, reduced by trade accounts payable, accrued expenses, accrued compensation and related expenses, and the current portion of deferred revenues.

Our working capital decreased to $269.3 million as of March 31, 2011 from $286.9 million as of December 31, 2010, primarily due to the increase in accrued expenses as a result of our 2011 restructuring. In addition, our inventory levels decreased due to our focus on inventory management, and accounts receivable declined as expected due to cash collections exceeding first quarter billings. These results are in line with the normal trend for our orders and billings, which result in higher levels of receivables at year-end and significant cash collections in the first quarter. Partially offsetting the above were increases in our cash balances due to the cash inflow from operating activities of $24.4 million. Our cash and cash equivalents were $240.9 million and $220.9 million as of March 31, 2011 and December 31, 2010, respectively.

In addition, as of March 31, 2011, we had a line of credit facility of $75.0 million, which includes a sub-limit for letters of credit, with Wells Fargo Bank, National Association. The line of credit is unsecured except for our pledge of 65% of the outstanding stock of certain subsidiaries. As of March 31, 2011, there were no outstanding borrowings under the line of credit facility, other than approximately $2.8 million of outstanding letters of credit.

Our $5.0 million letter of credit facility with Wells Fargo Bank of California expired on December 31, 2009 and can no longer be used to issue new letters of credit. As of March 31, 2011, there was approximately $0.2 million in outstanding letters of credit originated prior to the expiration date and outstanding under this facility, all of which were fully collateralized by Tekelec.

We believe that our current working capital position, available line of credit and anticipated cash flow from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months. Additionally, we believe these resources will allow us to continue to invest in further development of our technology and, when necessary or appropriate, make selective acquisitions to continue to strengthen our product portfolio. Our liquidity could be negatively impacted by a decrease in orders resulting from a decline in demand for our products or a reduction of capital expenditures by our customers.

Operating Activities

Net cash provided by operating activities was $24.4 million and $14.9 million for the three months ended March 31, 2011 and 2010, respectively. The increase in our cash flows from operations was primarily due to higher cash collections of accounts receivable and improved inventory management. The improved management of working capital items offset the decline in earnings on a year over year basis.

Our cash flows from operations were primarily derived from: (i) our earnings from ongoing operations prior to non-cash expenses such as stock-based compensation, depreciation, amortization, bad debt, write-downs of inventory, warranty reserve charges, and deferred income taxes; and (ii) changes in our working capital, which are primarily composed of changes in accounts receivable, inventories, deferred revenue and associated deferred costs, accounts payable, accrued expenses and accrued payroll and related expenses.

Our ability to generate future positive cash flows from operations could be negatively impacted by, among other factors, a decrease in demand for our products, which are subject to technological changes and increasing competition, or a reduction of capital expenditures by our customers should they continue to remain cautious with their spending.

Investing Activities

Net cash provided by (used in) investing activities was ($5.9) million and $11.0 million for the three months ended March 31, 2011 and 2010, respectively. Our cash flows from investing activities primarily relate to (i) strategic acquisitions; (ii) purchases and sales of investments; and (iii) purchases of property and equipment. During the first quarter of 2010, a portion of our ARS portfolio was called by the respective issuers resulting in proceeds of $13.4 million. Our investment in property and equipment amounted to $5.9 million and $2.4 million during the three months ended March 31, 2011 and 2010, respectively.

We continue to closely monitor our capital expenditures while making strategic investments in the development of our existing products and the replacement of certain older computer and information technology infrastructure to meet the needs of our workforce. For 2011, we expect our total capital expenditures to be at or below 2010 levels.

Financing Activities

Net cash provided by (used in) financing activities was ($0.3) million and $5.6 million for the three months ended March 31, 2011 and 2010, respectively. For the three months ended March 31, 2011, our financing activities primarily consisted of proceeds of $0.6 million from net issuances of common stock pursuant to the exercise of employee stock options and our employee stock purchase plan, offset by $1.0 million of employee withholding tax payments made as a result of net share settlements of equity awards.

For the three months ended March 31, 2010, our financing activities primarily consisted of proceeds of $7.9 million from net issuances of common stock pursuant to the exercise of employee stock options and our employee stock purchase plan, including the excess tax benefit on those exercises, partially offset by $2.3 million of employee withholding tax payments made as a result of net share settlements of equity awards.

Critical Accounting Policies and Estimates

For information about our critical accounting policies and estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2010.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

The statements that are not historical facts contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “intend,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and variations of these words and similar expressions are sometimes used to identify forward-looking statements. These statements reflect the current belief, expectations, estimates, forecasts or intent of our management and are subject to and involve certain risks and uncertainties. There can be no assurance that our actual future performance will meet management’s expectations. As discussed in our Annual Report on Form 10-K for the year ended December 31, 2010 and our other filings with the Securities and Exchange Commission, our future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from management’s current expectations include, among others:

•

the effects on our revenue performance of our year-over-year decline in orders in 2010 and the increasing portion of our orders that are for newer products with longer order-to-revenue conversion cycles and lower margins on initial sales;

	•		our increasing dependence on next-generation products with which we have less experience forecasting, building, and selling and for which the markets are less mature and more subject to demand and technology changes and increased competition;

	•		the risk that we may experience detrimental effects, such as employee distraction and litigation, from our 2011 restructuring activities, or may not realize the benefits of such activities, including as a result of delays resulting from our complying with and undertaking, or our noncompliance with, any necessary individual and collective employee information and consultation obligations;

	•		the effect of the recent economic crisis on overall spending by our customers, including increasing pressure from our customers for us to lower prices for our products and warranty services, access to credit markets by our customers and the impact of tightening credit on capital spending, and further changes in general economic, social, or political conditions in the countries in which we operate;

	•		the uncertainty associated with the resignation of our former CEO and our former EVP of Global Sales, and the interim status of our current CEO, and the impact these transitions may have on our customer, vendor, and employee relationships;

	•		the continued decline in sales of our Eagle 5 related products, including the ability of carriers to utilize excess capacity of signaling infrastructure and related products in their networks;

	•		our ability to compete, particularly on price, with other manufacturers that have lower cost bases than ours and/or are partially supported by foreign government subsidies or employ unfair trade practices;

	•		risks related to our international sales, markets and operations, including but not limited to: import regulations, limited intellectual property protection ( including limited protection of our software source code), withholding taxes and their effect on cash flow timing, and increased costs and potential liabilities related to compliance with current and future security provisions in customer contracts and government regulations, including in particular those imposed by the government of India;

	•		exposure to increased bad debt expense and product and service disputes as a result of general economic conditions and the uncertain credit markets worldwide;

	•		the timely development and acceptance of our new products and services, including the timing of demand for integrated next-generation signaling solutions, the training of our employees on new products, our product mix and the geographic mix of our revenues and the associated impact on gross margins and operating expenses, and the effect of any product that fails to meet one customer’s expectations on the sale of that or any other products to that or other customers;

	•		uncertainties related to the timing of revenue recognition due to the increasing percentage of next-generation solutions in our backlog, as we have a limited history of the order to revenue conversion cycle;

	•		the onerous terms and conditions, including liability provisions, imposed by our customers in connection with new product deployments;

	•		our ability to gain the benefits we anticipate from our acquisitions, including our acquisitions of Camiant and Blueslice and including expected sales of new products and synergies between the companies’ products and operations;

	•		continuing financial weakness in the telecommunications equipment sector, resulting in pricing pressure on our products and services, as certain of our competitors consolidate, reduce their prices, lengthen their payment terms and enter into terms and/or conditions that are generally less favorable to them;

	•		the risk that continued service provider consolidation or outsourcing of network maintenance and operations functions will insert a potential competitor between us and our customers and/or erode our level of service to such service providers and/or negatively affect our margins;

	•		the risk that our financial results for the full year 2011 will not meet our expectations;

	•		the lengthy sales cycles for our products, particularly for our new or acquired products;

	•		the availability and success or failure of advantageous strategic and vendor relationships;

	•		litigation, including patent-related litigation, any adverse outcome from or effects of the securities litigations we currently have filed against us, and regulatory matters and the costs and expenses associated therewith; and

	•		other risks described in our Annual Report on Form 10-K for the year ended December 31, 2010 and in our other Securities and Exchange Commission filings.

Many of these risks and uncertainties are outside of our control and are difficult for us to forecast or mitigate. Actual results may differ materially from those expressed or implied in such forward-looking statements. We do not assume any responsibility for updating or revising these forward-looking statements. Undue emphasis or reliance should not be placed on any forward-looking statements contained herein or made elsewhere by or on behalf of us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our Annual Report on Form10-K for the year ended December 31, 2010. Our exposures to market risk have not changed materially since December 31, 2010 other than as discussed in Note 5 “Fair Value of Financial Instruments” to the accompanying unaudited condensed consolidated financial statements and under the caption “Critical Accounting Policies and Estimates” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our Interim Chief Executive Officer and our Chief Financial Officer), as of the end of the quarter covered by this report, our Interim Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Interim Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Interim Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in the description of material legal proceedings as reported in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2010, apart from as described in Note 10 “Commitments and Contingencies” to the accompanying unaudited consolidated financial statements.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 6. Exhibits


Exhibit		Description

3.1		Tekelec Amended and Restated Bylaws, as amended (1)

10.1		Employment Offer Letter Agreement dated as of January 4, 2011 between the Registrant and Krish Prabhu (2)

10.3		Employment Separation Agreement executed on January 25, 2011 between the Registrant and Frank Plastina (3)

10.4		Consulting Agreement dated as of January 4, 2011 between the Registrant and Frank Plastina (4)

10.5		Amended and Restated Credit Agreement dated as of January 13, 2011, by and among the Registrant, Tekelec International, SPRL, the lenders who are or may become a party thereto, and Wells Fargo Bank, N.A., as administrative agent, swingline lender and issuing lender (5)

10.6		2011 Sales Compensation Plan for Wolrad Claudy (6)

10.7		Tekelec 2011 Executive Officer Bonus Plan (3)

31.1		Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3)

31.2		Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3)

32.1		Certifications of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)

101.1		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (filed with the Securities and Exchange Commission on May 5, 2011), is formatted in Extensible Business Reporting Language (XBRL) and electronically submitted herewith: (i) unaudited condensed consolidated balance sheets as of March 31, 2011 and December 31, 2010, (ii) unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010, (iii) unaudited condensed consolidated statements of comprehensive income for the three months ended March 31, 2011 and 2010, (iv) unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2011 and 2010, and (v) notes to unaudited condensed consolidated financial statements (7)


(1)		Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 0-15135) dated April 6, 2011, as filed with the Securities and Exchange Commission on April 12, 2011.

(2)		Incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K (File No. 0-15135) for the year ended December 31, 2010.

(3)		Filed herewith.

(4)		Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K (File No. 0-15135) for the year ended December 31, 2010.

(5)		Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 0-15135) dated January 13, 2011, as filed with the Securities and Exchange Commission on January 18, 2011.

(6)		Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 0-15135) dated April 6, 2011, as filed with the Securities and Exchange Commission on April 12, 2011.

(7)		The XBRL information in Exhibit 101.1 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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
Date: May 5, 2011	/s/ KRISH PRABHU
	Krish Prabhu
	Interim President and Chief Executive Officer


Date: May 5, 2011	/s/ GREGORY S. RUSH
	Gregory S. Rush
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


Date: May 5, 2011	/s/ PAUL J. ARMSTRONG
	Paul J. Armstrong
	Vice President and Corporate Controller

EXHIBIT INDEX


Exhibit
Number		Description
10.3		Employment Separation Agreement executed on January 25, 2011 between the Registrant and Frank Plastina

10.7		Tekelec 2011 Executive Officer Bonus Plan

31.1		Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (filed with the Securities and Exchange Commission on May 5, 2011), is formatted in Extensible Business Reporting Language (XBRL) and electronically submitted herewith: (i) unaudited condensed consolidated balance sheets as of March 31, 2011 and December 31, 2010, (ii) unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010, (iii) unaudited condensed consolidated statements of comprehensive income for the three months ended March 31, 2011 and 2010, (iv) unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2011 and 2010, and (v) notes to unaudited condensed consolidated financial statements (1)


(1)		The XBRL information in Exhibit 101.1 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

EX-10.3 2 g26881exv10w3.htm EX-10.3 exv10w3

Exhibit 10.3

EMPLOYMENT SEPARATION AGREEMENT

THIS EMPLOYMENT SEPARATION AGREEMENT (the “Agreement”), which includes Exhibits A, B and C hereto which are incorporated herein by this reference, is entered into by and between TEKELEC, a California corporation (“Tekelec”), and Frank Plastina (“Former Employee”), and shall become effective on the date on which it is executed by both parties hereto and after expiration of the revocation period in Section 18 (the “Effective Date”).

RECITALS

A. Former Employee ceased to be an employee and officer of Tekelec on January 4, 2011 (the “Termination Date”).

B. Former Employee desires to receive severance benefits under the Tekelec 2007 Officer Severance Plan (the “Severance Plan”), which benefits are stated in the Severance Plan to be contingent upon, among other things, Former Employee’s entering into this Agreement and undertaking the obligations set forth herein.

C. Tekelec and Former Employee desire to set forth their respective rights and obligations with respect to Former Employee’s separation from Tekelec and to finally and forever settle and resolve all matters concerning Former Employee’s past services to Tekelec.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions set forth herein, the receipt and sufficiency of which are hereby acknowledged, Tekelec and Former Employee hereby agree as follows:

1. DEFINITIONS

As used herein, the following terms shall have the meanings set forth below:

1.1. “Includes;” “Including.”Except where followed directly by the word “only,” the terms “includes” or “including” shall mean “includes, but is not limited to,” and “including, but not limited to,” respectively.

1.2. “Severance Covered Period.” The term “Severance Covered Period” shall mean a period of time commencing upon the Effective Date and ending on the last day of the Change in Control Severance Period or General Severance Period, as applicable.

1.3. Other Capitalized Terms. Capitalized terms (other than those specifically defined herein) shall have the same meanings ascribed to them in the Severance Plan.

2. MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS

Each party hereto represents, warrants and covenants (with respect to itself/himself only) to the other party hereto that, to its/his respective best knowledge and belief as of the date of each party’s respective signature below:

2.1. Full Power and Authority. It/he has full power and authority to execute, enter into and perform its/his obligations under this Agreement; this Agreement, after execution by both parties hereto, will be a legal, valid and binding obligation of such party enforceable against it/him in accordance with its terms; it/he will not act or omit to act in any way which would materially interfere with or prohibit the performance of any of its/his obligations hereunder, and no approval or consent other than as has been obtained of any other party is necessary in connection with the execution and performance of this Agreement.

2.2. Effect of Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions hereby contemplated:

(a) will not interfere or conflict with, result in a breach of, constitute a default under or violation of any of the terms, provisions, covenants or conditions of any contract, agreement or understanding, whether written or oral, to which it/he is a party (including, in the case of Tekelec, its bylaws and articles of incorporation each as amended to date) or to which it/he is bound;

(b) will not conflict with or violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental agency or court having jurisdiction over such party; and

(c) has not heretofore been assigned, transferred or granted to another party, or purported to assign, transfer or grant to another party, any rights, obligations, claims, entitlements, matters, demands or causes of actions relating to the matters covered herein.

3. CONFIDENTIALITY OBLIGATIONS DO NOT TERMINATE

Former Employee acknowledges that any confidentiality, proprietary rights or nondisclosure agreement(s) in favor of Tekelec which he may have entered into in connection with his employment (collectively, the “Nondisclosure Agreement”) with Tekelec is understood to be intended to survive, and does survive, any termination of such employment, and accordingly nothing in this Agreement shall be construed as terminating, limiting or otherwise affecting any such Nondisclosure Agreement or Former Employee’s obligations thereunder. Without limiting the generality of the foregoing, no time period set forth in this Agreement shall be construed as shortening or limiting the term of any such Nondisclosure Agreement, which term shall continue as set forth therein.

4. BENEFITS

4.1. Health Care Coverage Continuation. Tekelec (at its expense) will continue, for the duration of the Former Employee’s General Severance Period, health care coverage for the Former Employee and his/her family members who are “qualified beneficiaries” (as such term is defined in the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) under Tekelec’s group health plan(s) generally available during such period to employees participating in such plans(s) and at levels and contribution rates and with coverage no greater than those provided to such Former Employee as of the Termination Date. In the event the Former Employee and his family members become eligible for group health care coverage elsewhere on terms generally no less favorable to the Former Employee during the General Severance Period, the Former Employee shall provide notice to Tekelec, and Tekelec reserves the right to discontinue paying for such coverage under Tekelec’s group health plans. Upon exhaustion of the later of the Former Employee’s General Severance Period or the COBRA continuation period, or after Tekelec ceases paying for coverage (if applicable), such Former Employee may elect coverage under a conversion health plan available under Tekelec’s group health plan(s) from the Company’s health insurance carrier if and to the extent he is entitled to do so as a matter of right under federal or state law. Any expense associated with the continuation of any health care coverage beyond the Former Employee’s General Severance Period will be the sole responsibility of the Former Employee. In the event of Former Employee’s death during the General Severance Period, the above-referenced continuation of health care coverage will continue for Former Employee’s qualified beneficiaries in accordance with the terms of the applicable plans for the duration of the General Severance Period.

4.2. Other Benefit Plans. Except as otherwise expressly provided in this Section 4 or as required by applicable law, Former Employee shall have no right to continue his participation in any Tekelec benefit plan following such employee’s termination.

5. STOCK OPTIONS

Exhibit A hereto sets forth any and all outstanding stock appreciation rights, restricted stock unit grants, warrants and equity incentives and other rights to purchase capital stock or other securities of Tekelec which have been previously issued to Former Employee and which are outstanding as of the date hereof. Nothing in this Agreement shall alter or affect any of such outstanding stock appreciation rights, restricted stock unit grants, warrants, equity incentives or rights or Former Employee’s rights or responsibilities with respect thereto, including but not limited to Former Employee’s rights to exercise any of his options, warrants, equity incentives or rights following the Termination Date.

6. PAYMENTS TO FORMER EMPLOYEE

6.1. Employee Compensation. Tekelec has paid, and Former Employee acknowledges and agrees that Tekelec has paid, to him any and all salary and accrued but unpaid vacation and sick pay owed by Tekelec to Former Employee up to and including the Termination Date other than any compensation owed to him under the Severance Plan.

6.2. General Severance Allowance. In consideration for the release by Former Employee set forth herein (including the release of any and all claims Former Employee has or may have under the Age Discrimination in Employment Act (“ADEA”) and Older Workers Benefit Protection Act (“OWBPA”)) and Former Employee’s performance of his obligations under this Agreement (including but not limited to Former Employee’s obligations under Section 7 hereof), Former Employee is entitled to receive, and Tekelec shall pay to Former Employee, a General Severance Allowance, in the aggregate gross amount of $2,508,000 payable in 24 equal monthly installments of $104,500 each, less all applicable withholding taxes, with such installments to commence on the first regular payroll date after the Effective Date; provided, however, that in all cases, such monthly payments shall commence within sixty (60) days following Former Employee’s separation from service with Tekelec, and further provided that if the sixty (60) day period begins in one taxable year for the Former Employee and ends in the subsequent taxable year for the Former Employee, then the monthly payments shall not commence until the subsequent taxable year pursuant to the guidance provided in IRS Notice 2010-80. For purposes of Code Section 409A, as applicable, each installment payment shall be considered a separate payment.

7. NON-COMPETITION AND NON-SOLICITATION

7.1. Subject and in addition to Former Employee’s existing fiduciary duties as a former officer and employee of Tekelec to the extent such continues under applicable law after Former Employee’s Termination Date, provided that Tekelec has not breached any of the terms of this Agreement or any other currently existing written agreements between Tekelec and Former Employee, Former Employee agrees until the earlier of (i) the completion of the Severance Covered Period or (ii) such date as Tekelec may terminate this Agreement for default hereunder:

(a) Not to engage, either directly or indirectly, in any Competing Business Activity (as defined below) or be associated with a Competing Business Entity (as defined below) as an officer, director, employee, principal, consultant, lender, creditor, investor, agent or otherwise for any corporation, partnership, company, agency, person, association or any other entity; provided, however, that nothing contained herein shall prevent Former Employee from owning not more than 5% of the common equity and not more than 5% of the voting power of, or lending not more than $25,000 to, any Competing Business Entity or any business engaged in a Competing Business Activity; provided, further, that for purposes of this agreement, any equity ownership, voting control or lending activity of Former Employee shall be deemed to include that of (i) any family member or (ii) person or entity controlled by Former Employee;

(b) Not to call upon or cause to be called upon, or solicit or assist in the solicitation of, in connection with any Competing Business Entity or Competing Business Activity, any entity, agency, person, firm, association, partnership or corporation that is a customer or account of Tekelec, currently and/or during the Severance Covered Period, for the purpose of selling, renting, leasing, licensing or supplying any product or service that is the same as, similar to or competitive with the products or services then being sold or developed by Tekelec;

(c) Not to enter into an employment or agency relationship with a Competing Business Entity or involving a Competing Business Activity with any person who, at the time of such entry, is an officer, director, employee, principal or agent of or with respect to Tekelec; and

(d) Not to induce or attempt to induce any person described in Section 7.1(c) to leave his employment, agency, directorship or office with Tekelec.

7.2. For purposes of this Section 7, a “Competing Business Activity” shall mean any business activity of a person or entity (other than Tekelec) involving the development, design, manufacture, distribution, marketing, licensing, renting, leasing or selling within the Territory (as defined below) of products and services which are the same as, similar to or competitive with products or services of Tekelec then in existence or under development. For purposes hereof, the Territory shall include the United States of America, Canada, Central America, South America, Europe, Japan, Australia, Singapore and such other countries in which Tekelec then distributes, markets, licenses, rents, leases or sells its products or services. An entity as a whole shall be deemed to be a Competing Business Entity if it has one or more business activities involving the development, design, manufacture, distribution, marketing, licensing, renting, leasing or selling directly or indirectly within the Territory of products or services which are the same as, similar to or competitive with products or services of Tekelec then being sold or under development and if and only if the revenues derived directly or indirectly from engaging in such business activities by such entity represent either more than 3% of the entity’s revenues or at least $5 million in aggregate sales, or both, for the then-preceding 12-month period.

7.3. The parties acknowledge that the provisions and obligations set forth in this Section 7 are an integral part of this Agreement and that in the event Former Employee breaches any of the provisions or obligations of this Section 7 or any other term, provision or obligation of this Agreement, then Tekelec, in addition to any other rights or remedy it may have at law, in equity, by statute or otherwise, shall be excused from its payment obligations to Former Employee under the Severance Plan and this Agreement.

8. CONFIDENTIAL INFORMATION AND TRADE SECRETS

8.1. Former Employee hereby recognizes, acknowledges and agrees that Tekelec is the owner of proprietary rights in certain confidential sales and marketing information, programs, tactics, systems, methods, processes, compilations of technical and non-technical information, records and other business, financial, sales, marketing and other information and things of value. To the extent that any or all of the foregoing constitute valuable trade secrets and/or confidential and/or privileged information of Tekelec, Former Employee hereby further agrees as follows:

(a) That, except with prior written authorization from Tekelec’s CEO or Board, for purposes related to Tekelec’s best interests, he will not directly or indirectly duplicate, remove, transfer, disclose or utilize, nor knowingly allow any other person to duplicate, remove, transfer, disclose or utilize, any property, assets, trade secrets or other things of value, including, but not limited to, records, techniques, procedures, systems, methods, market research, new product plans and ideas, distribution arrangements, advertising and promotional materials, forms,

patterns, lists of past, present or prospective customers, and data prepared for, stored in, processed by or obtained from, an automated information system belonging to or in the possession of Tekelec which are not intended for and have not been the subject of public disclosure. Former Employee agrees to safeguard all Tekelec trade secrets in his possession or known to him at all times so that they are not exposed to, or taken by, unauthorized persons and to exercise his reasonable efforts to assure their safekeeping. This subsection shall not apply to information that as of the date hereof is, or as of the date of such duplication, removal, transfer, disclosure or utilization (or the knowing allowing thereof) by Former Employee has (i) become generally known to the public or competitors of Tekelec (other than as a result of a breach of this Agreement); (ii) been lawfully obtained by Former Employee from any third party who has lawfully obtained such information without breaching any obligation of confidentiality; or (iii) been published or generally disclosed to the public by Tekelec. Former Employee shall bear the burden of showing that any of the foregoing exclusions applies to any information or materials.

(b) That all improvements, discoveries, systems, techniques, ideas, processes, programs and other things of value made or conceived in whole or in part by Former Employee with respect to any aspects of Tekelec’s current or anticipated business while an employee of Tekelec are and remain the sole and exclusive property of Tekelec, and Former Employee has disclosed all such things of value to Tekelec and will cooperate with Tekelec to insure that the ownership by Tekelec of such property is protected. All of such property of Tekelec in Former Employee’s possession or control, including, but not limited to, all personal notes, documents and reproductions thereof, relating to the business and the trade secrets or confidential or privileged information of Tekelec has already been, or shall be immediately, delivered to Tekelec.

8.2. Former Employee further acknowledges that as the result of his prior service as an officer and employee of Tekelec, he has had access to, and is in possession of, information and documents protected by the attorney-client privilege and by the attorney work product doctrine. Former Employee understands that the privilege to hold such information and documents confidential is Tekelec’s, not his personally, and that he will not disclose the information or documents to any person or entity without the express prior written consent of the CEO or Board of Tekelec unless he is required to do so by law.

8.3. Former Employee’s obligations set forth in this Section 8 shall be in addition to, and not instead of, Former Employee’s obligations under any written Nondisclosure Agreement.

9. ENFORCEMENT OF SECTIONS 7 AND 8

Former Employee hereby acknowledges and agrees that the services rendered by him to Tekelec in the course of his prior employment were of a special and unique character, and that breach by him of any provision of the covenants set forth in Sections 7 and 8 of this Agreement will cause Tekelec irreparable injury and damages. Former Employee expressly agrees that Tekelec shall be entitled, in addition to all other remedies available to it whether at law or in equity, to injunctive or other equitable relief to secure their enforcement.

The parties hereto expressly agree that the covenants contained in Sections 7 and 8 hereof are reasonable in scope, duration and otherwise; however, if any of the restraints provided in said covenants are adjudicated to be excessively broad as to geographic area or time or otherwise, said restraint shall be reduced to whatever extent is reasonable and the restraint shall be fully enforced in such modified form. Any provisions of said covenants not so reduced shall remain in full force and effect.

10. PROHIBITION AGAINST DISPARAGEMENT

10.1. Former Employee agrees that for a period of two years following the Effective Date any communication, whether oral or written, occurring on or off the premises of Tekelec, made by him or on his behalf to any person or entity (including, without limitation, any Tekelec employee, customer, vendor, supplier, any competitor, any media entity and any person associated with any media) which in any way relates to Tekelec (or any of its subsidiaries) or to Tekelec’s or any of its subsidiaries’ directors, officers, management or employees: (a) will be truthful; and (b) will not, directly or indirectly, criticize, disparage, or in any manner undermine the reputation or business practices of Tekelec or its directors, officers, management or employees.

10.2. The only exceptions to Section 10.1 shall be: (a) truthful statements privately made to (i) the CEO of Tekelec, (ii) any member of Tekelec’s Board, (iii) Tekelec’s auditors, (iv) inside or outside counsel of Tekelec, (v) Former Employee’s counsel or (vi) Former Employee’s spouse; (b) truthful statements lawfully compelled and made under oath in connection with a court or government administrative proceeding; and (c) truthful statements made to specified persons upon and in compliance with prior written authorization from Tekelec’s CEO or Board to Former Employee directing him to respond to inquiries from such specified persons.

11. COOPERATION

Former Employee agrees that for a period of five years commencing with the Effective Date he will cooperate fully and reasonably with Tekelec in connection with any future or currently pending matter, proceeding, litigation or threatened litigation: (1) directly or indirectly involving Tekelec (which, for purposes of this section, shall include Tekelec and each of its current and future subsidiaries, successors or permitted assigns); or (2) directly or indirectly involving any director, officer or employee of Tekelec (with regard to matters relating to such person(s) acting in such capacities with regard to Tekelec business). Such cooperation shall include making himself available upon reasonable notice at reasonable times and places for consultation and to testify truthfully (at Tekelec’s expense for reasonable, pre-approved out-of-pocket travel costs plus a daily fee equal to one-twentieth of his monthly severance compensation under Section 6.2 hereof for each full or partial day during which Former Employee makes himself so available) in any action as reasonably requested by the CEO or the Board of Directors. Former Employee further agrees to immediately notify Tekelec’s CEO in writing in the event that he receives any legal process or other communication purporting to require or request him to produce testimony, documents, information or things in any manner related to Tekelec, its directors, officers or employees, and that he will not produce testimony,

documents, information or other things with regard to any pending or threatened lawsuit or proceeding regarding Tekelec without giving Tekelec prior written notice of the same and reasonable time to protect its interests with respect thereto. Former Employee further promises that when so directed by the CEO or the Board of Directors, he will make himself available to attend any such legal proceeding and will truthfully respond to any questions in any manner concerning or relating to Tekelec and will produce all documents and things in his possession or under his control which in any manner concern or relate to Tekelec. Former Employee covenants and agrees that he will immediately notify Tekelec’s CEO in writing in the event that he breaches any of the provisions of Sections 7, 8, 10 or 11 hereof.

12. SOLE ENTITLEMENT

Former Employee acknowledges and agrees that his sole entitlement to compensation, payments of any kind, monetary and nonmonetary benefits and perquisites with respect to his prior Tekelec relationship (as an officer and employee) is as set forth in the Severance Plan, this Agreement, the Company’s bonus plan for officers as in effect from time to time, stock option and warrant agreements, COBRA, and such other written agreements and securities between Tekelec and Former Employee as may exist or as may be set forth on Exhibit B hereto.

13. RELEASE OF CLAIMS

13.1. General. Former Employee does hereby and forever release and discharge Tekelec and the predecessor corporation of Tekelec as well as the successors, current, prior or future shareholders of record, officers, directors, heirs, predecessors, assigns, agents, employees, attorneys, insurers and representatives of each of them, past, present or future, from any and all cause or causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities and demands of any kind or character whatsoever, whether known or unknown, suspected to exist or not suspected to exist, anticipated or not anticipated, whether or not heretofore brought before any state or federal agency, court or other governmental entity which are existing on or arising prior to the date of this Agreement and which, directly or indirectly, in whole or in part, relate or are attributable to, connected with, or incidental to the previous employment of Former Employee by Tekelec, the separation of that employment, and any dealings between the parties concerning Former Employee’s employment existing prior to the date of execution of this Agreement, excepting only those obligations expressly recited herein or to be performed hereunder. Nothing contained in this Section 13 shall affect any rights, claims or causes of action which Former Employee may have (1) with respect to his outstanding stock appreciation rights, restricted stock unit grants, warrants or other stock subscription rights to purchase Tekelec Common Stock or other securities under the terms and conditions thereof; (2) as a shareholder of Tekelec; (3) to indemnification by Tekelec, to the extent required under the provisions of Tekelec’s Articles of Incorporation, Tekelec’s Bylaws, the California General Corporation Law, insurance or contracts, with respect to matters relating to Former Employee’s prior service as a director, an officer, employee and agent of Tekelec; (4) with respect to his eligibility for severance payments under the Severance Plan or any other written agreement listed on Exhibit B hereto; (5) to make claims against or seek indemnification or contribution from anyone not released by the first sentence of this Section 13 with respect to any matter or anyone released by the first sentence of this Section 13 with respect to any matter not released thereby;

(6) with respect to Tekelec’s performance of this Agreement; or (7) with respect to claims for (a) workers’ compensation benefits or unemployment benefits filed with the applicable state agencies, (b) vested retirement benefits or (c) claims described in Sections 13.3 and 13.4 below. Further, Former Employee waives specifically any and all rights or claims Former Employee has or may have under the ADEA, and acknowledges that such waiver is given voluntarily in exchange for certain consideration included in the severance benefits being paid pursuant to this Agreement.

13.2. Waiver of Unknown Claims. Former Employee acknowledges that he is aware that he may hereafter discover claims or facts different from or in addition to those he now knows or believes to be true with respect to the matters herein released, and he agrees that this release shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. Former Employee acknowledges that he has been informed of Section 1542 of the Civil Code of the State of California, and does hereby expressly waive and relinquish all rights and benefits which he has or may have under said Section (or any similar state statute), which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

13.3. Covenant Not to Sue on Matters Released. Former Employee covenants that he will not make, assert or maintain against any person or entity that Former Employee has released in this Agreement, any claim, demand, action, cause of action, suit or proceeding arising out of or in connection with the matters herein released, including but not limited to any claim or right under the ADEA; provided, however, this Section 13.3 shall not bar a challenge under the OWBPA to the enforceability of the waiver and release of ADEA claims set forth in this Agreement or claims for workers’ compensation, unemployment benefits or vested retirement benefits referenced above. Former Employee represents and warrants that he has not assigned or transferred, purported to assign or transfer, and will not assign or transfer, any matter or claim herein released. Former Employee represents and warrants that he knows of no other person or entity which claims an interest in the matters or claims herein released. Former Employee agrees to, and shall at all times, indemnify and hold harmless each person and entity that Former Employee has released in this Agreement against any claim, demand, damage, debt, liability, account, action or cause of action, or cost or expense, including attorneys’ fees, resulting or arising from any breach of the representations, warranties and covenants made herein.

13.4 Agency Changes/Investigations. Nothing in this Agreement shall prohibit Former Employee from filing a charge or participating in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission or other governmental agency with jurisdiction concerning the terms, conditions and privileges of his employment; provided, however, that by signing this Agreement, Former Employee waives his right to, and shall not seek or accept, any monetary or other relief of any nature whatsoever in connection with any such changes, investigations or proceedings.

14. ASSIGNMENT

Former Employee represents and warrants that he has not heretofore assigned, transferred or granted or purported to assign, transfer or grant any claims, entitlement, matters, demands or causes of action herein released, disclaimed, discharged or terminated, and agrees to indemnify and hold harmless Tekelec from and against any and all costs, expense, loss or liability incurred by Tekelec as a consequence of any such assignment, transfer or grant.

15. FORMER EMPLOYEE REPRESENTATIONS

Notwithstanding that this Agreement is being entered into subsequent to the Termination Date, except as listed by Former Employee on Exhibit C, from the period beginning on the Termination Date to the Effective Date, Former Employee represents and warrants that he has not acted or omitted to act in any respect which directly or indirectly would have constituted a violation of Sections 7, 8, 10 or 11 herein had this Agreement then been in effect.

16. PROPERTY

Tekelec agrees that Former Employee may keep his Tekelec-issued iPad, BlackBerry, and Nokia mobile phone, after securing and removal of Company information by the IT department.

17. MISCELLANEOUS

17.1. Notices. All notices and demands referred to or required herein or pursuant hereto shall be in writing, shall specifically reference this Agreement and shall be deemed to be duly sent and given upon actual delivery to and receipt by the relevant party (which notice, in the case of Tekelec, must be from an officer of Tekelec) or five days after deposit in the U.S. mail by certified or registered mail, return receipt requested, with postage prepaid, addressed as follows (if, however, a party has given the other party due notice of another address for the sending of notices, then future notices shall be sent to such new address):


(a)	If to Tekelec:	Tekelec
		5200 Paramount Parkway
		Morrisville, North Carolina 27560
		Attn: General Counsel

(b)	If to Former Employee:	Frank Plastina
		306 Pond Bluff Way
		Cary, NC 27513

17.2. Legal Advice and Construction of Agreement. Both Tekelec and Former Employee have received (or have voluntarily and knowingly elected not to receive) independent legal advice with respect to the advisability of entering into this Agreement and with respect to all matters covered by this Agreement and neither has been entitled to rely upon or has in fact

relied upon the legal or other advice of the other party or such other party’s counsel (or employees) in entering into this Agreement.

17.3. Parties’ Understanding. Tekelec and Former Employee state that each has carefully read this Agreement, that it has been fully explained to it/him by its/his attorney (or that it/he has voluntarily and knowingly elected not to receive such explanation), that it/he fully understands its final and binding effect, that the only promises made to it/him to sign the Agreement are those stated herein, and that it/he is signing this Agreement voluntarily.

17.4. Recitals and Section Headings. Each term of this Agreement is contractual and not merely a recital. All recitals are incorporated by reference into this Agreement. Captions and section headings are used herein for convenience only, are not part of this Agreement and shall not be used in interpreting or construing it.

17.5. Entire Agreement. This Agreement constitutes a single integrated contract expressing the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. Notwithstanding the foregoing, the parties understand and agree that any Nondisclosure Agreement and all other written agreements between Former Employee and Tekelec are separate from this Agreement and, subject to the terms and conditions of each such agreement, shall survive the execution of this Agreement, and nothing contained in this Agreement shall be construed as affecting the rights or obligations of either party set forth in such agreements.

17.6. Severability. In the event any provision of this Agreement or the application thereof to any circumstance shall be determined by arbitration pursuant to Section 16.10 of this Agreement or held by a court of competent jurisdiction to be invalid, illegal or unenforceable, or to be excessively broad as to time, duration, geographical scope, activity, subject or otherwise, it shall be construed to be limited or reduced so as to be enforceable to the maximum extent allowed by applicable law as it shall then be in force, and if such construction shall not be feasible, then such provision shall be deemed to be deleted herefrom in any action before that court, and all other provisions of this Agreement shall remain in full force and effect.

17.7. Amendment and Waiver. This Agreement and each provision hereof may be amended, modified, supplemented or waived only by a written document specifically identifying this Agreement and signed by each party hereto. Except as expressly provided in this Agreement, no course of dealing between the parties hereto and no delay in exercising any right, power or remedy conferred hereby or now or hereafter existing at law, in equity, by statute or otherwise, shall operate as a waiver of, or otherwise prejudice, any such rights, power or remedy.

17.8. Cumulative Remedies. None of the rights, powers or remedies conferred herein shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy, whether conferred herein or now or hereafter available at law, in equity, by statute or otherwise.

17.9. Specific Performance. Each party hereto may obtain specific performance to enforce its/his rights hereunder and each party acknowledges that failure to fulfill its/his obligations to the other party hereto would result in irreparable harm.

17.10. Arbitration. Except for the right of either party to apply to a court of competent jurisdiction for a Temporary Restraining Order to preserve the status quo or prevent irreparable harm, any dispute or controversy between Tekelec and Former Employee under this Agreement involving its interpretation or the obligations of a party hereto shall be determined by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, in the County of Wake, State of North Carolina.

Arbitration may be conducted by one impartial arbitrator by mutual agreement. In the event that the parties are unable to agree on a single arbitrator within 30 days of first demand for arbitration, the arbitration shall proceed before a panel of three arbitrators, one of whom shall be selected by Tekelec and one of whom shall be selected by Former Employee, and the third of whom shall be selected by the two arbitrators selected. All arbitrators are to be selected from a panel provided by the American Arbitration Association. The arbitrators shall have the authority to permit discovery, to the extent deemed appropriate by the arbitrators, upon request of a party. The arbitrators shall have no power or authority to add to or, except as otherwise provided by Section 17.6 hereof, to detract from the agreements of the parties, and the prevailing party shall recover costs and attorneys’ fees incurred in arbitration. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted by a court of law. The arbitrators shall have no authority to award punitive or consequential damages. The resulting arbitration award may be enforced, or injunctive relief may be sought, in any court of competent jurisdiction. Any action arising out of or relating to this Agreement may be filed only in the Superior Court of the County of Wake, North Carolina or the United States District Court for the Eastern District of North Carolina.

17.11. North Carolina Law and Location. This Agreement was negotiated, executed and delivered within the State of North Carolina, and the rights and obligations of the parties hereto shall be construed and enforced in accordance with and governed by the internal (and not the conflict of laws) laws of the State of North Carolina applicable to the construction and enforcement of contracts between parties resident in North Carolina which are entered into and fully performed in North Carolina. Any action or proceeding arising out of, relating to or concerning this Agreement that is not subject to the arbitration provisions set forth in Section 16.10 above shall be filed in the state courts of the County of Wake, State of North Carolina or in a United States District Court for the Eastern District of North Carolina and in no other location. The parties hereby waive the right to object to such location on the basis of venue.

17.12. Attorneys’ Fees. In the event a lawsuit is instituted by either party concerning a dispute under this Agreement, the prevailing party in such lawsuit shall be entitled to recover from the losing party all reasonable attorneys’ fees, costs of suit and expenses (including the reasonable fees, costs and expenses of appeals), in addition to whatever damages or other relief the injured party is otherwise entitled to under law or equity in connection with such dispute.

17.13. Force Majeure. Neither Tekelec nor Former Employee shall be deemed in default if its/his performance of obligations hereunder is delayed or become impossible or impracticable by reason of any act of God, war, fire, earthquake, strike, civil commotion, epidemic, or any other cause beyond such party’s reasonable control.

17.14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

17.15. Successors and Assigns. Neither party may assign this Agreement or any of its rights or obligations hereunder (including, without limitation, rights and duties of performance) to any third party or entity, and this Agreement may not be involuntarily assigned or assigned by operation of law, without the prior written consent of the non-assigning party, which consent may be given or withheld by such non-assigning party in the sole exercise of its discretion, except that Tekelec may assign this Agreement to a corporation acquiring: (1) 50% or more of Tekelec’s capital stock in a merger or acquisition; or (2) all or substantially all of the assets of Tekelec in a single transaction, provided that, in either case, the acquiring corporation must be reasonably capable of fulfilling the remaining Tekelec obligations hereunder; and except that Former Employee may transfer or assign his rights under this Agreement voluntarily, involuntarily or by operation of law upon or as a result of his death to his heirs, estate and/or personal representative(s). Any prohibited assignment shall be null and void, and any attempted assignment of this Agreement in violation of this section shall constitute a material breach of this Agreement and cause for its termination by and at the election of the other party hereto by notice.

This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and each person or entity released pursuant to Section 12 hereof and, except as otherwise provided herein, their respective legal successors and permitted assigns.

17.16. Payment Procedure. Except as otherwise explicitly provided herein or in the Severance Plan, all payments by Tekelec to Former Employee or by Former Employee to Tekelec due hereunder may be by, at the paying party’s election, cash, wire transfer or check. Except as explicitly provided herein or in the Severance Plan, neither party may reduce any payment or obligation due hereunder by any amount owed or believed owed to the other party under any other agreement, whether oral or written, now in effect or hereafter entered into.

17.17. Survival. The definitions, representations and warranties herein as well as obligations set forth in Sections 7, 8 and 10-17 shall survive any termination of this Agreement for any reason whatsoever.

17.18. No Admission. Neither the entry into this Agreement nor the giving of consideration hereunder shall constitute an admission of any wrongdoing by Tekelec or Former Employee.

17.19. Limitation of Damages. Except as expressly set forth herein, in any action or proceeding arising out of, relating to or concerning this Agreement, including any claim of breach of contract, liability shall be limited to compensatory damages proximately caused by the

breach and neither party shall, under any circumstances, be liable to the other party for consequential, incidental, indirect or special damages, including but not limited to lost profits or income, even if such party has been apprised of the likelihood of such damages occurring.

17.20. Pronouns. As used herein, the words “he”, “him”, “his” and “himself” shall be deemed to refer to the feminine as the identity of the person referred to and the context may require.

17.21. Effectiveness. This Agreement shall become effective upon execution by both parties hereto and after expiration of the revocation period in Section 18.

18. 21 DAY REVIEW PERIOD; RIGHT TO REVOKE

Former Employee acknowledges that he was advised in writing to consult with an attorney prior to executing this Agreement and represents and warrants to Tekelec that he has done so, and further acknowledges that he has been given a period of 21 days within which to consider the terms and provisions of this Agreement with his attorney. If Former Employee has executed and delivered to Tekelec this Agreement prior to the expiration of such 21-day period, then in doing so, Former Employee acknowledges that he has unconditionally and irrevocably waived his right to that unexpired portion of such 21-day period. In addition, Former Employee shall have the right to revoke this Agreement for a period of seven days following the date on which this Agreement is signed by sending written notification of such revocation directly to the General Counsel of Tekelec at the addresses specified in Section 17.1, supra, via hand delivery. This Agreement shall not become effective or enforceable until the revocation period has expired.

19. CODE SECTION 409A COMPLIANCE

If the Company determines, in accordance with Code Sections 409A and 416(i) and the regulations promulgated thereunder, in the Company’s sole discretion, that Employee is a Specified Employee on the Termination Date and that a delay in severance pay and benefits provided under this Agreement is necessary for compliance with Code Section 409A(a)(2)(B)(i), then:

(a) The General Severance Allowance and any continuation of benefits or reimbursement of benefit costs provided under this Agreement and not otherwise exempt from Code Section 409A shall be delayed for a period of six (6) months (the “409A Delay Period”). In such event, the General Severance Allowance and the cost of any such continuation of benefits provided under this Agreement that would otherwise be due and payable to Employee during the 409A Delay Period shall be paid to Employee in a lump sum cash amount, with interest accruing at a reasonable rate from the Termination Date, on the first day of the seventh month immediately following the Termination Date.

(b) To the extent that it will not cause adverse tax consequences under Code Section 409A, the amount of the General Severance Allowance up to two times the lesser of (i) the sum of Employee’s annualized compensation based upon his annual rate of pay for services provided

to the Company for the prior taxable year or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in which Employee’s termination of employment occurs, may be paid without regard to the six-month delay.



TEKELEC		Frank Plastina

By:	/s/ Stuart Kupinsky	Signature:	/s/ Frank Plastina

	Print Name: Stuart Kupinsky
	Print Title: General Counsel
	Date: January 25, 2011	Date: January 25, 2011

EXHIBIT A

OUTSTANDING STOCK PURCHASE RIGHTS

Type of Security

Maximum Number of

[e.g., stock

Shares Currently

option, SAR, RSU

Purchasable or

Purchase Price Per

warrant, etc.]

Date Issued

Issuable

Termination Date

Grant A010122 - 2003/SARs

5/16/08

85,000

16.42

5/28/11

Grant A010267 — 2003/SARs

2/27/09

14,250

12.26

5/28/11

Grant U013988 — 2004/SARs

8/9/06

437,500

11.96

5/28/11

Future shares vesting in the month of February, 2011

Type of Security

Maximum Number of

[e.g., stock

Shares Currently

option, SAR, RSU

Purchasable or

Purchase Price Per

Vest Date &

warrant, etc.]

Date Issued

Issuable

Termination Date

Grant A010220 — 2003/RSUs

2/27/09

7,500

—

2/27/11

Grant A010289 — 2003/PSUs

5/16/08

16,299

—

2/25/11

Grant A010663 — 2003/RSU

2/26/10

6,500

—

2/26/11

Grant A010267 — 2003/SARs Term date 5/2811

2/27/09

14,250

12.26

2/27/11 &

Grant A010360 — 2003/SARs Term date 5/28/11

2/26/10

19,250

16.52

2/26/11 &

EXHIBIT B

LIST OF OTHER AGREEMENTS (Pursuant to §12)

EXHIBIT C

EXCEPTIONS (Pursuant to §15)

None

EX-10.7 3 g26881exv10w7.htm EX-10.7 exv10w7

Exhibit 10.7

2011 Executive Officer Bonus Plan

The Tekelec 2011 Executive Officer Bonus Plan (the “Bonus Plan”) as approved by the Board of Directors of Tekelec (the “Company”) on February 25, 2011, is described below:

Under the terms of the Bonus Plan, each executive officer of the Company named as an eligible officer in the table set forth below (or hereafter designated by the Board as an eligible officer) is eligible to receive cash bonuses for 2011 based upon a specified percentage of his or her annual base salary. Specifically, each eligible officer is entitled to receive a bonus based on the degree to which the Company achieves for the full year 2011 certain pre-set financial targets consisting of: (i) a consolidated operating income from continuing operations before bonus (as adjusted to exclude the effects of equity incentive compensation expense, restructuring charges, impairment charges, acquisition-related amortization and other mergers and acquisitions-related charges or income, and similar charges or income) target (the “Operating Income Target”) and (ii) an orders target (the “Orders Target”).

All payouts under the Bonus Plan are contingent upon the Company performing at or above the Operating Income Target and, independently, meeting or exceeding 100% of the Orders Target. Once the Company has met the Operating Income Target, a bonus pool (the “Bonus Pool”) will be created for the Company’s executive officers and employees based on the sum of the following (all operating income amounts are adjusted as described above):

	•		100% of the first $5 million of operating income earned by the Company above the Operating Income Target;

	•		0% of the next $5 million of operating income earned by the Company, such that a total of $5 million of the first $10 million of operating income above the Operating Income Target has funded the Bonus Pool; and

	•		One sixth (1/6) of each incremental dollar of operating income earned thereafter until such time as the Bonus Pool for all eligible officers is funded at 100%. The Bonus Pool at 100% is calculated as the sum of all eligible officers’ bonuses assuming payout at 100% of the target bonus level for each eligible officer.

Provided that the Orders Target is at least 100% achieved, the calculated bonus will be based on a pro rata share of the Bonus Pool that is created as described above. Each eligible officer will only achieve 100% of his or her individual payout if the Bonus Pool is fully funded at 100% and the Company achieves 100% of the Orders Target. The specific amounts of the bonuses will be computed in accordance with the formulas described herein.

Any bonuses earned under the Bonus Plan will be payable in one lump sum within 30 days after the Company’s consolidated financial results for the year ending December 31, 2011 have been filed with the Securities and Exchange Commission (the “Commission”). An eligible officer is entitled to receive bonuses under the Bonus Plan only if he or she is actively employed by Tekelec or one of its subsidiaries as an eligible officer on the date on which the bonuses are paid, unless the Board waives this requirement. If an executive officer commences his or her employment as an eligible officer during the Bonus Plan year, any bonus payable for achievement will be subject to a pro rata adjustment. An Eligible Officer who is on an approved leave of absence from the Company at any time during 2011 will, for purposes of determining eligibility under the 2011 Bonus Plan, be treated as being employed by the Company during such leave of absence provided, however, that an Eligible Officer who is on an approved leave of absence from the Company on the date on which the 2011 Bonus is paid by the Company and thereafter returns to active status as an Eligible Officer upon the end of such leave of absence, will be paid his/her Company Bonus to which he/she is otherwise entitled within 30 days following his/her return to active status as an Eligible Officer. An Eligible Officer who is on an approved leave of absence from the Company on the date on which the 2011 Bonus is paid by the Company and thereafter fails to return to active status as an Eligible Officer upon the end of such leave of absence, will not be eligible to receive a 2011 Bonus.

The following table sets out the target full year bonus opportunities under the Bonus Plan for Tekelec’s executive officers who are eligible to participate in the Bonus Plan.


	2011 Bonus			2011 Target
Name and Title of Named Executive Officer	Opportunity			Bonus
Krish A Prabhu		100	%	$	310,000
Interim President and Chief Executive Officer

Ronald J. de Lange		60	%	$	186,000
Executive Vice President, Global Product Solutions

Stuart H. Kupinsky		60	%	$	186,000
Senior Vice President, Corporate Affairs and General Counsel

Gregory S. Rush		60	%	$	174,000
Senior Vice President and Chief Financial Officer

David K. Rice		50	%	$	135,000
Senior Vice President, Operations

Yusun Kim Riley		50	%	$	125,000
Chief Marketing Officer

Marykay Wells		40	%	$	94,800
Vice President, Information Technology and Chief Information Officer

The target annual bonuses payable under the Bonus Plan to the eligible officers are equal to their 2011 bonus opportunities as set forth above multiplied by their 2011 annual base salaries and are based on the Company’s achievement of 100% funding of the Bonus Pool and provided that the Orders Target is at least 100% achieved. The Company may also award discretionary bonuses to eligible officers for 2011.

The Board may amend, modify, or terminate the Bonus Plan, or any payment owed under the Bonus Plan, at any time without prior notice to participants; provided, however, that neither the Bonus Plan nor any payments owed under the Bonus Plan may be amended, modified, or terminated after the Company files with the Commission its financial statements covering the year ending December 31, 2011.

If the Company is required to prepare an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, the Bonus Plan requires an officer to repay the excess amount of any bonus that the officer received above what should have been paid.

EX-31.1 4 g26881exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Certification of Interim Chief Executive Officer of Tekelec pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Krish Prabhu, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tekelec;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ KRISH PRABHU
	Krish Prabhu
	Interim President and Chief Executive Officer

Date: May 5, 2011

EX-31.2 5 g26881exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Certification of Chief Financial Officer of Tekelec pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gregory S. Rush, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tekelec;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ GREGORY S. RUSH
	Gregory S. Rush
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Date: May 5 , 2011

EX-32.1 6 g26881exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

Certifications of Interim Chief Executive Officer and Chief Financial Officer of Tekelec pursuant to
Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Tekelec (the “Company”) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Krish Prabhu, Interim President and Chief Executive Officer of the Company, and Gregory S. Rush, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: May 5, 2011	/s/ KRISH PRABHU
	Krish Prabhu
	Interim President and Chief Executive Officer


Date: May 5, 2011	/s/ GREGORY S. RUSH
	Gregory S. Rush
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-101.INS 7 tklc-20110331.xml EX-101 INSTANCE DOCUMENT 0000790705 2010-01-01 2010-12-31 0000790705 2010-03-31 0000790705 2009-12-31 0000790705 2010-01-01 2010-03-31 0000790705 2011-03-31 0000790705 2010-12-31 0000790705 2010-06-30 0000790705 2011-04-28 0000790705 2011-01-01 2011-03-31 iso4217:USD xbrli:shares xbrli:shares iso4217:USD

<div align="left" style="font-family: 'Times New Roman',Times,serif">   <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left"> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 1 — Basis of Presentation and Changes in Significant Accounting Policies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Basis of Presentation</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The accompanying unaudited condensed consolidated financial statements include the accounts of Tekelec and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our consolidated financial condition and consolidated results of operations. The results of operations for the current interim period are not necessarily indicative of results for the current year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We operate under a thirteen-week quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last calendar day of the quarter. The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2011 and 2010 are for the thirteen weeks ended April 1, 2011 and April 2, 2010, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2010 and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010. </div> </div>

<div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 2 — Recent Acquisitions</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the second quarter of 2010 we completed the acquisitions of Camiant, Inc. (“Camiant”) and Blueslice Networks, Inc. (“Blueslice”) for cash consideration of $127.0 million and $35.0 million, respectively, for an aggregate of $162.0 million. We have included the results of operation of these acquisitions in our consolidated results from the date of acquisition. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Select Pro-Forma Financial Information</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following represents our unaudited condensed pro-forma financial results as if the acquisitions of Camiant and Blueslice had occurred as of the beginning of the earliest period presented. Unaudited condensed pro-forma results are based upon accounting estimates and judgments that we believe are reasonable. The condensed pro-forma results are not necessarily indicative of the actual results of our operations had the acquisitions occurred at the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. For example, included in these pro-forma results is the estimated impact of intangible asset amortization and other acquisition-related expenses for the three months ended March 31, 2010. Based on the estimated useful lives of certain intangible assets and how the acquisition-related expenses are estimated to be incurred, pro-forma amounts presented in the table below for the three months ended March 31, 2010 include less expense related to these items than our actual results for the same periods. </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Three Months Ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>(in thousands, except per share amounts)</b></td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues </div></td> <td> </td> <td align="right">$     </td> <td align="right">122,730</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net Income </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">8,562</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">0.13</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted earnings per share </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">0.13</td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our actual operating results for the three months ended March 31, 2011 included revenues and net loss from the products associated with acquired businesses as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Three Months Ended March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Camiant</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Blueslice</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td> <td> </td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">6,864</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">462</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,326</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net loss </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,439</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,428</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(4,867</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in our actual operating results for the three months ended March 31, 2011 is $3.3 million of after tax amortization related to acquired intangible assets. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 3 — Restructuring and Other Costs</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In January 2011, we entered into an employment severance agreement with our former President and Chief Executive Officer in connection with his resignation as an executive officer and employee effective January 4, 2011. In connection with this agreement, we incurred approximately $2.5 million in severance costs that will be paid during 2011 and 2012 in 24 equal monthly installments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During 2010 and continuing through 2011, demand for our Eagle 5 and other established solutions has continued to decline as service providers shift their investments to data and other broadband services. Further, while demand for our next-generation solutions has continued to grow, the growth has not been able to offset the decline in demand for our Eagle 5 and other established products. As a result, certain of our key operating metrics, such as total orders, total revenue, gross margin, operating margin and revenue per employee, declined from our historical levels. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In response to this decline, in the first quarter of 2011, we initiated a restructuring plan (the “Plan”) as part of our efforts to better align our operating cost structure with our current and expected business opportunities. Under the Plan we have initiated the following actions: </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>a reduction of our overall headcount in the U.S and the consolidation of positions from various global locations; in addition, subject to employee information and consultation processes, reductions in positions in foreign countries. The overall workforce reduction is expected to be approximately 10% to 15% of our workforce;</td> </tr> <tr> <td style="font-size: 6pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>a reduction of the discretionary portion of our operating costs through various cost control initiatives, including: (i) reducing advertising expenditures; (ii) delaying merit increases and modifying incentive compensation plans; (iii) reducing capital expenditures; and (iv) reducing other discretionary expenditures, such as costs related to outside consultants, travel and recruiting; and</td> </tr> <tr> <td style="font-size: 6pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>consolidation of certain facilities and the abandonment of certain assets in connection with the consolidation of facilities.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in our results from operations for the three months ended March 31, 2011 are pre-tax restructuring charges of $21.4 million related primarily to severance costs under our severance policies, including the $2.5 million related to our former President and Chief Executive Officer discussed above. These charges are included in “Restructuring and other” in the accompanying unaudited condensed consolidated income statement for three months ended March 31, 2011. Under the Plan, we anticipate that during 2011 we will incur total restructuring costs of between $23.0 million and $28.0 million. The Plan and the associated costs are based on our current best estimates which could change materially, including without limitation as a result of employee information and consultation processes conducted in local jurisdictions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Subject to complying with and undertaking any necessary individual and collective employee information and consultation obligations required by local law, we expect all of these activities and associated expenses to occur by the end of 2011. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides a summary of our restructuring activities and the remaining obligations as of March 31, 2011 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Severance</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Costs and</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Related</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Benefits</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Restructuring obligations, December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">441</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">2011 Restructuring and related expenses </div></td> <td> </td> <td> </td> <td align="right">21,364</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Cash payments </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,895</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">20</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Restructuring obligations, March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">19,930</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Restructuring obligations are included in “Accrued expenses” in the accompanying unaudited condensed consolidated balance sheets. We anticipate settling all of our restructuring obligations during 2011 and 2012. This is based on our current best estimate, which could change materially if actual activity differs from what is currently expected. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 4 — Other Income and Expense</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The components of “Other income (expense), net” were as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Other income (expense), net:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Interest income </div></td> <td> </td> <td align="left">$</td> <td align="right">31</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">142</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Interest expense </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(227</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(67</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Unrealized gain on investments carried at fair value, net </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">80</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Foreign currency gain (loss), net </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(262</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(680</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Other, net </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(316</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(420</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Total other income (expense), net </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(774</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(945</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 5 — Fair Value of Financial Instruments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Recurring Measurements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure certain financial assets and liabilities at fair value on a recurring basis. The fair value of our cash, cash equivalents, accounts receivable and accounts payable approximate their respective carrying amounts based on the liquidity and short-term nature of these instruments. The following table sets forth our financial instruments carried at fair value as of March 31, 2011 and December 31, 2010 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Financial Instruments</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Carried at Fair Value</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Assets: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents </div></td> <td> </td> <td align="left">$</td> <td align="right">240,925</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">220,938</td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The fair value of our financial instruments as of March 31, 2011 is based on quoted prices in active markets for identical items and falls under Level 1 of the fair value hierarchy as defined in the authoritative guidance. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><i>Derivative Instruments</i></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our derivative instruments, which consist primarily of foreign currency forward contracts, are recognized as assets or liabilities at fair value. These forward contracts are not formally designated as hedges. The fair value of these contracts is based on market prices for comparable contracts. Our foreign currency forward contracts are structured to expire on the last day of each quarter, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends. Because of the short duration of these contracts, their fair value was not significant as of March 31, 2011 and December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Nonrecurring Measurements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure certain assets, accounted for under the cost method, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other than temporarily impaired. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure the fair value of our nonfinancial assets and liabilities, including but not limited to, intangible assets, goodwill and restructuring obligations that are accounted for under the authoritative guidance for exit or disposal cost obligations. We perform our annual impairment test for intangible assets and goodwill on October 1<sup style="font-size: 85%; vertical-align: text-top">st </sup>of each fiscal year and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that no impairment existed as of March 31, 2011. Accordingly, as of March 31, 2011, we do not have any nonrecurring measurement disclosure for these nonfinancial assets. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 6 — Derivative Instruments and Hedging Activities</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We operate internationally and thus are exposed to potential adverse changes in currency exchange rates. We use derivative instruments (principally forward contracts to exchange foreign currency) as a means of reducing our exposure to foreign currency rate changes on receivables and other net monetary assets denominated in foreign currencies. The foreign currency forward contracts require us to exchange currencies at rates agreed upon at the contract’s inception. In addition to these foreign exchange contracts, certain of our customer contracts contain provisions that require our customers to assume the foreign currency exchange risk related to the applicable transactions. The objective of these contracts is to reduce or eliminate, and efficiently manage, the economic impact of currency exchange rate movements on our operating results as effectively as possible. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses on the related contracts. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. We do not designate our foreign currency exchange contracts as accounting hedges as defined by authoritative guidance for derivatives and hedging, and, accordingly, we adjust these contracts to fair value through operations (i.e., included in “Other income (expense), net”). We do not hold or issue financial instruments for speculative or trading purposes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We continually monitor our exposure to fluctuations in foreign currency exchange rates. As we have expanded internationally, an increasing proportion of our revenues, costs and operating expenses are denominated in foreign currencies, resulting in an increase in our foreign currency exchange rate exposure. We enter into multiple forward contracts throughout a given month to mitigate our changing exposure to foreign currency exchange rate fluctuations principally related to receivables generated from sales denominated in non-functional currencies and our remeasurements of international subsidiaries. Our exposure fluctuates as we generate new sales in non-functional currencies and as existing receivables related to sales in non-functional currencies are collected. Additionally, our exposure related to remeasurements of our subsidiaries’ financial statements fluctuates with the underlying activity in those entities. Our foreign currency forward contracts generally will have terms of one month or less and typically mature on the last day of any given period. We then immediately enter into new foreign currency forward contracts, if necessary. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table shows the notional contract values in local currency and U.S. Dollars of the foreign exchange forward contracts outstanding as of March 31, 2011, grouped by underlying foreign currency: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Contracts Outstanding as of March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>In Local Currency</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>In US Dollars</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Euros (“EUR”) (contracts to buy EUR/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(EUR)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(23,286,833</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(32,890,322</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Indian rupees (“INR”) (contracts to sell INR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(INR)</td> <td> </td> <td> </td> <td align="right">238,598,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5,310,438</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Canadian dollars (“CAD”) (contracts to sell CAD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(CAD)</td> <td> </td> <td> </td> <td align="right">2,072,000</td> <td> </td> <td> </td> <td> </td> <td align="right">2,150,047</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Singapore dollars (“SGD”) (contracts to buy SGD/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(SGD)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(328,000</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(259,761</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(MYR)</td> <td> </td> <td> </td> <td align="right">5,792,000</td> <td> </td> <td> </td> <td> </td> <td align="right">1,909,597</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(TWD)</td> <td> </td> <td> </td> <td align="right">50,837,000</td> <td> </td> <td> </td> <td> </td> <td align="right">1,735,703</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Brazilian reais (“BRL”) (contracts to sell BRL/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(BRL)</td> <td> </td> <td> </td> <td align="right">10,587,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6,466,133</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,578,165</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table shows the average notional contract values in the underlying currency and U.S. Dollars of foreign currency exchange forward contracts outstanding during the three months ended March 31, 2011, grouped by underlying foreign currency: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10"><b>Average Contracts Outstanding</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>during the three months ended March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>In Local Currency</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>In US Dollars</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Euros (“EUR”) (contracts to buy EUR/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(EUR)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(34,123,582</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(46,293,393</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Indian rupees (“INR”) (contracts to sell INR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(INR)</td> <td> </td> <td> </td> <td align="right">246,491,714</td> <td> </td> <td> </td> <td> </td> <td align="right">5,381,695</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">British pound (“GBP”) (contracts to sell GBP/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(GBP)</td> <td> </td> <td> </td> <td align="right">554,341</td> <td> </td> <td> </td> <td> </td> <td align="right">880,845</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Singapore dollars (“SGD”) (contracts to buy SGD/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(SGD)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(142,154</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(112,426</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(MYR)</td> <td> </td> <td> </td> <td align="right">5,927,231</td> <td> </td> <td> </td> <td> </td> <td align="right">1,926,369</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(TWD)</td> <td> </td> <td> </td> <td align="right">36,547,418</td> <td> </td> <td> </td> <td> </td> <td align="right">1,239,356</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Canadian dollars (“CAD”) (contracts to sell CAD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(CAD)</td> <td> </td> <td> </td> <td align="right">2,419,670</td> <td> </td> <td> </td> <td> </td> <td align="right">2,440,443</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Brazilian reais (“BRL”) (contracts to sell BRL/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(BRL)</td> <td> </td> <td> </td> <td align="right">4,624,286</td> <td> </td> <td> </td> <td> </td> <td align="right">2,751,184</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(31,785,927</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of March 31, 2011, all of our derivative instruments are maintained with Wells Fargo Bank, and potentially subject us to a concentration of credit risk, which may result in credit related losses in the event of the bank’s nonperformance. We mitigate this risk by monitoring Wells Fargo’s credit ratings published by major rating firms (Fitch, Standard & Poor’s, and Moody’s). In addition, we monitor Wells Fargo’s Credit Default Swap spread on a quarterly basis to assess the bank’s default risk relative to its peers. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As discussed above, our foreign currency forward contracts are structured to expire on the last day of the accounting period, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends and, accordingly, their fair value was not significant as of March 31, 2011 and December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The table below provides a summary of the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="25%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="15%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Amount of Gain or (Loss)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Recognized in Results</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 0px solid #000000"><b>Derivatives Not Designated</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Location of Gain or (Loss)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>of Operations</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 0px solid #000000"><b>as Hedging Instruments</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Recognized in Results</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three months ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>under SFAS No. 133</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>of Operations</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td> <td> </td> </tr>   <tr valign="bottom"> <td nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Foreign currency forward contracts </div></td> <td> </td> <td colspan="3" align="center" nowrap="nowrap">Other income (expense), net</td> <td> </td> <td align="left">$</td> <td align="right">1,460</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,416</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The above gains or losses on the derivative instruments include the cost of entering into the contracts (i.e. forward points), and are generally offset by a corresponding foreign currency gain or loss on the underlying hedged transaction (e.g., customer accounts receivable). The gain or loss on both the derivative instrument and the corresponding hedged transaction are reflected in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 7 — Financial Statement Details</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Accounts Receivable, net</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Accounts receivable, net consists of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts receivable </div></td> <td> </td> <td align="left">$</td> <td align="right">141,404</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">175,486</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Less: Allowance for doubtful accounts and sales returns </div></td> <td> </td> <td> </td> <td align="right">10,362</td> <td> </td> <td> </td> <td> </td> <td align="right">10,467</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">131,042</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">165,019</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following details the changes in the allowance for doubtful accounts and sales returns during the three months ended March 31, 2011: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">10,467</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Provision for (recovery of) doubtful accounts and returns </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(222</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Write-offs net of recoveries </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(155</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">272</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">10,362</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Inventories, net</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Inventories, net consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Raw materials </div></td> <td> </td> <td align="left">$</td> <td align="right">14,552</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">21,851</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Finished goods </div></td> <td> </td> <td> </td> <td align="right">4,565</td> <td> </td> <td> </td> <td> </td> <td align="right">6,370</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total inventories, net </div></td> <td> </td> <td align="left">$</td> <td align="right">19,117</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">28,221</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Accrued Expenses</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Accrued expenses consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued installation and professional services costs </div></td> <td> </td> <td align="left">$</td> <td align="right">3,278</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,452</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Deferred rent </div></td> <td> </td> <td> </td> <td align="right">2,342</td> <td> </td> <td> </td> <td> </td> <td align="right">2,532</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued restructuring </div></td> <td> </td> <td> </td> <td align="right">19,930</td> <td> </td> <td> </td> <td> </td> <td align="right">441</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued warranty costs </div></td> <td> </td> <td> </td> <td align="right">829</td> <td> </td> <td> </td> <td> </td> <td align="right">1,185</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued professional fees and legal accrual </div></td> <td> </td> <td> </td> <td align="right">1,694</td> <td> </td> <td> </td> <td> </td> <td align="right">1,839</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued other </div></td> <td> </td> <td> </td> <td align="right">9,951</td> <td> </td> <td> </td> <td> </td> <td align="right">9,895</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">38,024</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">20,344</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 8 — Intangible Assets and Goodwill</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Intangible Assets</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Intangible assets consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Accumulated</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>March 31, 2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gross</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets with finite lives: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Purchased technology </div></td> <td> </td> <td align="left">$</td> <td align="right">98,870</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(35,944</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">62,926</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Customer relationships </div></td> <td> </td> <td> </td> <td align="right">18,800</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(5,042</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">13,758</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Contract backlog </div></td> <td> </td> <td> </td> <td align="right">7,500</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(5,731</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,769</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Non-compete agreements </div></td> <td> </td> <td> </td> <td align="right">4,380</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,963</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,417</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">IPR&D, with finite lives </div></td> <td> </td> <td> </td> <td align="right">2,450</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(271</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,179</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Trademarks and trade names </div></td> <td> </td> <td> </td> <td align="right">1,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(370</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">870</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gross intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(49,321</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">83,919</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">657</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(638</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">19</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,897</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(49,959</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">83,938</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">IPR&D, with indefinite lives </div></td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets </div></td> <td> </td> <td align="left">$</td> <td align="right">134,358</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(49,959</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">84,399</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gross</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets with finite lives: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Purchased technology </div></td> <td> </td> <td align="left">$</td> <td align="right">98,870</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(30,126</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">68,744</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Customer relationships </div></td> <td> </td> <td> </td> <td align="right">18,800</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,929</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">14,871</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Contract backlog </div></td> <td> </td> <td> </td> <td align="right">7,500</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(4,879</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,621</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Non-compete agreements </div></td> <td> </td> <td> </td> <td align="right">4,380</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,415</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,965</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">IPR&D, with finite lives </div></td> <td> </td> <td> </td> <td align="right">2,450</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(148</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,302</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Trademarks and trade names </div></td> <td> </td> <td> </td> <td align="right">1,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(267</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">973</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gross intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(40,764</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">92,476</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(766</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">74</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(692</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">132,474</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(40,690</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">91,784</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">IPR&D, with indefinite lives </div></td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets </div></td> <td> </td> <td align="left">$</td> <td align="right">132,935</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(40,690</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">92,245</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During the first quarter of 2011 we evaluated the remaining useful lives of purchased technology intangible assets associated with the Steleus and iptelorg acquisitions. Based on current technological trends and our related expected business opportunities, we shortened the useful lives of these assets from a remaining weighted average life of 3.75 years at the time the evaluation was performed to an estimated life of approximately one year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The estimated future amortization expense of purchased intangible assets with finite lives as of March 31, 2011 is as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>For the Years Ending December 31,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2011 (remaining nine months) </div></td> <td> </td> <td align="left">$</td> <td align="right">29,020</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">2012 </div></td> <td> </td> <td> </td> <td align="right">19,948</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2013 </div></td> <td> </td> <td> </td> <td align="right">14,564</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">2014 </div></td> <td> </td> <td> </td> <td align="right">14,411</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2015 </div></td> <td> </td> <td> </td> <td align="right">5,995</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">83,938</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Goodwill</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As required by the authoritative guidance for intangibles and goodwill, we do not amortize our goodwill balances, but instead test our goodwill for impairment annually on October 1<sup style="font-size: 85%; vertical-align: text-top">st</sup> and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangibles and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that the fair value of the reporting unit exceeded its net book value by over 20%, and thus no impairment existed as of March 31, 2011. As of March 31, 2011, no impairment losses were recognized with respect to goodwill. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The changes in the carrying amount of goodwill for the three months ended March 31, 2011 are as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">135,564</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">1,107</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">136,671</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 9 — Income Taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the “Effective Rate”). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of “more likely than not” based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income tax expense an adjustment resulting from the establishment of a valuation allowance in the period in which such a determination was made. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service (“IRS”) completed an examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. In the first quarter of 2011, the IRS commenced its examination of tax years 2007 through 2009 as a result of Tekelec having filed a refund claim related to a capital loss generated in 2009. As a result, we have extended the statute of limitations on our 2007 tax year. With respect to our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions. We are also currently under examination by the state of North Carolina resulting from a refund claim filed with respect to our 2007 and 2008 tax years. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior. Although it is possible that certain tax examinations, including the IRS examination, could be resolved during the next 12 months, the timing and outcomes are uncertain. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     For the three months ended March 31, 2011 our effective tax rate was a benefit of 41% based on the pre-tax loss for the quarter. The effective tax rate for this period differs from the statutory rate of 35% primarily due to (i) research and development tax credits in various jurisdictions, (ii) U.S. state income tax benefit, (iii) recognition of certain previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies, and (iv) the jurisdictional split of our global income in countries with lower tax rates, as offset by tax expense related to accounting for stock-based compensation and the required tax treatment under the authoritative guidance discussed further below. For the three months ended March 31, 2010, our effective tax rate was 36%. The effective tax rate for this period differed from the statutory tax rate of 35% primarily due to (i) state income tax expense, (ii) tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed below, and (iii) an offsetting tax benefit of lower tax rates in the foreign jurisdictions in which we operate. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three months ended March 31, 2011, we recorded a discrete tax expense of $1.6 million as compared to $0.5 million recorded for the three months ended March 31, 2010 associated with our stock compensation plans. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 10 — Commitments and Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Indemnities, Commitments, Contingencies and Guarantees</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the normal course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property indemnities to our customers in connection with the sale of our products and licensing of our technology, indemnities for liabilities associated with the infringement of other parties’ technology based upon our products and technology, guarantees of timely performance of our obligations, guarantees and indemnities related to the reliability and performance of our equipment, and indemnities to our directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that we could be obligated to make. We have not recorded a liability for these indemnities, commitments or guarantees in the accompanying balance sheets because future payment is not probable. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual matters, intellectual property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no assurance that we will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On January 6, 2011, a purported class action complaint was filed against us and certain of our current and former officers in the U.S. District Court for the Eastern District of North Carolina alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The case purports to be brought on behalf of a class of purchasers of our stock during the period February 11, 2010 to August 5, 2010. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding our business and prospects in emerging markets. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses. As we are in the very early stages of this potential litigation, we are unable to predict the outcome of this case or estimate a range of potential loss related to this matter. Although the Company denies the allegations in the complaint and intends to vigorously pursue its defense, we are unable to predict the outcome of this case. An adverse court determination in the purported class action lawsuit against us could result in significant liability and could have a material adverse effect on our business, results of operations and financial condition. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On February 7, 2011, a shareholder derivative complaint was filed in the California Superior Court of Santa Clara County against certain current and former officers and directors. The suit alleges that named parties breached their fiduciary duties to the Company by, among other things, making statements between February, 2010 and August, 2010 which plaintiffs claim were false and misleading and by allegedly failing to implement adequate internal controls and means of supervision at the Company. On March 3, 2011, a nearly identical shareholder derivative complaint was filed in the U.S. District Court for the Central District of California. These suits seek an unspecified amount of damages from the named parties and modifications to the Company’s corporate governance policies. The allegations in the complaints are similar to the purported class action complaint discussed above. The individual defendants intend to vigorously defend the suits and the Company, on whose behalf these claims purport to be brought, intends to move to dismiss the shareholder derivative complaints on the grounds that the derivative plaintiffs did not file the claims in accordance with applicable laws governing the filing of derivative suits. As we are in the very early stages of these litigations, we are unable to predict the outcome of these cases or estimate a range of potential costs related to these matters. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 11 </b>— <b>Stock-Based Compensation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Stock-Based Compensation Expense</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 is as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Option and</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>SAR Grants</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>and Stock</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Purchase</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Income Statement Classifications</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rights</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>RSUs</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Three months ended March 31, 2011</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cost of goods sold </div></td> <td> </td> <td align="left">$</td> <td align="right">64</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">313</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">377</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Research and development </div></td> <td> </td> <td> </td> <td align="right">61</td> <td> </td> <td> </td> <td> </td> <td align="right">446</td> <td> </td> <td> </td> <td> </td> <td align="right">507</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Sales and marketing </div></td> <td> </td> <td> </td> <td align="right">130</td> <td> </td> <td> </td> <td> </td> <td align="right">809</td> <td> </td> <td> </td> <td> </td> <td align="right">939</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">General and administrative </div></td> <td> </td> <td> </td> <td align="right">245</td> <td> </td> <td> </td> <td> </td> <td align="right">840</td> <td> </td> <td> </td> <td> </td> <td align="right">1,085</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">500</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,408</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,908</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Three months ended March 31, 2010</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cost of goods sold </div></td> <td> </td> <td align="left">$</td> <td align="right">77</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">275</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">352</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Research and development </div></td> <td> </td> <td> </td> <td align="right">75</td> <td> </td> <td> </td> <td> </td> <td align="right">266</td> <td> </td> <td> </td> <td> </td> <td align="right">341</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Sales and marketing </div></td> <td> </td> <td> </td> <td align="right">98</td> <td> </td> <td> </td> <td> </td> <td align="right">711</td> <td> </td> <td> </td> <td> </td> <td align="right">809</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">General and administrative </div></td> <td> </td> <td> </td> <td align="right">521</td> <td> </td> <td> </td> <td> </td> <td align="right">1,273</td> <td> </td> <td> </td> <td> </td> <td align="right">1,794</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">771</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,525</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">3,296</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Stock-based compensation expense was recorded net of estimated forfeitures for the three months ended March 31, 2011 and 2010 such that expense was recorded only for those stock-based awards that are expected to vest. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 12 — Operating Segment Information</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically the development and sale of signaling telecommunications solutions and related value added applications and services. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Enterprise-Wide Disclosures</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following tables sets forth, for the periods indicated, revenues from external customers by our principal product lines, as well as revenues by domestic versus international regions (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>For the Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Product revenues:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Eagle, number portability, and other session management products </div></td> <td> </td> <td align="left">$</td> <td align="right">65,816</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">66,114</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Performance management products </div></td> <td> </td> <td> </td> <td align="right">5,100</td> <td> </td> <td> </td> <td> </td> <td align="right">10,425</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total product revenues </div></td> <td> </td> <td> </td> <td align="right">70,916</td> <td> </td> <td> </td> <td> </td> <td align="right">76,539</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Warranty revenues </div></td> <td> </td> <td> </td> <td align="right">20,251</td> <td> </td> <td> </td> <td> </td> <td align="right">19,002</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Professional and other services revenues </div></td> <td> </td> <td> </td> <td align="right">16,592</td> <td> </td> <td> </td> <td> </td> <td align="right">20,450</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Total revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">107,759</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">115,991</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">United States </div></td> <td> </td> <td align="left">$</td> <td align="right">36,513</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">35,568</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">International </div></td> <td> </td> <td> </td> <td align="right">71,246</td> <td> </td> <td> </td> <td> </td> <td align="right">80,423</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">107,759</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">115,991</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     For the three months ended March 31, 2011 revenues from Verizon and ITI Limited represented 18% and 12%, respectively, of our total revenues. For the three months ended March 31, 2010, revenues from AT&T represented 14% of our total revenues. For the three months ended March 31, 2011, revenues from India accounted for 23% of our total revenues. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table sets forth, for the periods indicated, our long-lived assets including net property and equipment and other assets by geographic region (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Long-Lived Assets</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>By Geographic Region</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">United States </div></td> <td> </td> <td align="left">$</td> <td align="right">31,942</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">30,836</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other </div></td> <td> </td> <td> </td> <td align="right">8,355</td> <td> </td> <td> </td> <td> </td> <td align="right">7,840</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total long-lived assets </div></td> <td> </td> <td align="left">$</td> <td align="right">40,297</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">38,676</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 13 — Earnings (Loss) Per Share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations for the three months ended March 31, 2011 and 2010 (in thousands, except per share amounts): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Income from</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Operations</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Shares</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Per-Share</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Numerator)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Denominator)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amount</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>For the Three Months Ended March 31, 2011:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,996</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">68,770</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.23</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted income from operations per share </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,996</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">68,770</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.23</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>For the Three Months Ended March 31, 2010:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td align="left">$</td> <td align="right">13,718</td> <td> </td> <td> </td> <td> </td> <td align="right">67,636</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.20</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,130</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted earnings per share </div></td> <td> </td> <td align="left">$</td> <td align="right">13,718</td> <td> </td> <td> </td> <td> </td> <td align="right">68,766</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.20</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The computation of diluted earnings (loss) per share excludes unexercised stock options and share appreciation rights (“SARs”), and unvested restricted stock units (“RSUs”) that are anti-dilutive. The following common stock equivalents were excluded from the earnings (loss) per share computation, as their inclusion would have been anti-dilutive (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average number of stock options, SARs and RSUs, calculated using the treasury stock method, that were excluded due to the exercise/threshold price exceeding the average market price of our common stock during the period </div></td> <td> </td> <td> </td> <td align="right">4,327</td> <td> </td> <td> </td> <td> </td> <td align="right">3,933</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average number of stock options, SARs and RSUs excluded due to the reporting of a net loss for the period </div></td> <td> </td> <td> </td> <td align="right">373</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total common stock equivalents excluded from diluted net income (loss) per share computation </div></td> <td> </td> <td> </td> <td align="right">4,700</td> <td> </td> <td> </td> <td> </td> <td align="right">3,933</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     There were no transactions subsequent to March 31, 2011, which had they occurred prior to the end of our first quarter, would have changed materially the number of shares in the basic or diluted earnings per share computations. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 14 — Subsequent Events</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Executive Officer Resignation and Severance Agreement</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On April 29, 2011, Wolrad Claudy, Executive Vice President, Global Sales of Tekelec, and Tekelec Germany GmbH (“Tekelec Germany”) entered into a Termination Agreement pursuant to which the parties mutually agreed that Mr. Claudy would resign, effectively immediately, from his position as Managing Director of Tekelec Germany. On the same date, Mr. Claudy resigned from his office as Executive Vice President, Global Sales of the Company. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Pursuant to the Termination Agreement and in accordance with the six-month notice requirement under the 2008 Managing Director Agreement between Tekelec Germany and Mr. Claudy, Mr. Claudy will remain employed by Tekelec Germany through October 31, 2011. During that period, Mr. Claudy will continue to receive his monthly base salary of 16,250 Euros (i.e., approximately $23,129 based on a Euro to U.S. dollar exchange rate of 1.4233) and to be entitled to receive commissions under the 2011 Sales Compensation Plan for Wolrad Claudy. Mr. Claudy will provide services related to customer relationships and customer accounts through July, 2011 and will thereafter be released from the obligation to provide such services. In connection with the termination of Mr. Claudy’s employment with Tekelec Germany and in accordance with the terms of the Company’s 2007 Officer Severance Plan, as amended, Mr. Claudy will receive cash severance compensation in the total amount of 497,250 Euros (i.e., approximately $707,736 based on a euro to dollar exchange rate of 1.4233) and will receive certain health care benefits. </div> </div>

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margin-top: 12pt"><b>Note 13 — Earnings (Loss) Per Share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations for the three months ended March 31, 2011 and 2010 (in thousands, except per share amounts): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Income from</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Operations</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Shares</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Per-Share</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Numerator)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Denominator)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amount</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>For the Three Months Ended March 31, 2011:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,996</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">68,770</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.23</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted income from operations per share </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,996</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">68,770</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.23</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>For the Three Months Ended March 31, 2010:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td align="left">$</td> <td align="right">13,718</td> <td> </td> <td> </td> <td> </td> <td align="right">67,636</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.20</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">1,130</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted earnings per share </div></td> <td> </td> <td align="left">$</td> <td align="right">13,718</td> <td> </td> <td> </td> <td> </td> <td align="right">68,766</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.20</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The computation of diluted earnings (loss) per share excludes unexercised stock options and share appreciation rights (“SARs”), and unvested restricted stock units (“RSUs”) that are anti-dilutive. The following common stock equivalents were excluded from the earnings (loss) per share computation, as their inclusion would have been anti-dilutive (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average number of stock options, SARs and RSUs, calculated using the treasury stock method, that were excluded due to the exercise/threshold price exceeding the average market price of our common stock during the period </div></td> <td> </td> <td> </td> <td align="right">4,327</td> <td> </td> <td> </td> <td> </td> <td align="right">3,933</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average number of stock options, SARs and RSUs excluded due to the reporting of a net loss for the period </div></td> <td> </td> <td> </td> <td align="right">373</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total common stock equivalents excluded from diluted net income (loss) per share computation </div></td> <td> </td> <td> </td> <td align="right">4,700</td> <td> </td> <td> </td> <td> </td> <td align="right">3,933</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     There were no transactions subsequent to March 31, 2011, which had they occurred prior to the end of our first quarter, would have changed materially the number of shares in the basic or diluted earnings per share computations. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 5 — Fair Value of Financial Instruments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Recurring Measurements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure certain financial assets and liabilities at fair value on a recurring basis. The fair value of our cash, cash equivalents, accounts receivable and accounts payable approximate their respective carrying amounts based on the liquidity and short-term nature of these instruments. The following table sets forth our financial instruments carried at fair value as of March 31, 2011 and December 31, 2010 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Financial Instruments</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Carried at Fair Value</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Assets: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents </div></td> <td> </td> <td align="left">$</td> <td align="right">240,925</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">220,938</td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The fair value of our financial instruments as of March 31, 2011 is based on quoted prices in active markets for identical items and falls under Level 1 of the fair value hierarchy as defined in the authoritative guidance. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><i>Derivative Instruments</i></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our derivative instruments, which consist primarily of foreign currency forward contracts, are recognized as assets or liabilities at fair value. These forward contracts are not formally designated as hedges. The fair value of these contracts is based on market prices for comparable contracts. Our foreign currency forward contracts are structured to expire on the last day of each quarter, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends. Because of the short duration of these contracts, their fair value was not significant as of March 31, 2011 and December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Nonrecurring Measurements</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure certain assets, accounted for under the cost method, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other than temporarily impaired. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We measure the fair value of our nonfinancial assets and liabilities, including but not limited to, intangible assets, goodwill and restructuring obligations that are accounted for under the authoritative guidance for exit or disposal cost obligations. We perform our annual impairment test for intangible assets and goodwill on October 1<sup style="font-size: 85%; vertical-align: text-top">st </sup>of each fiscal year and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that no impairment existed as of March 31, 2011. Accordingly, as of March 31, 2011, we do not have any nonrecurring measurement disclosure for these nonfinancial assets. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 4 — Other Income and Expense</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The components of “Other income (expense), net” were as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Other income (expense), net:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Interest income </div></td> <td> </td> <td align="left">$</td> <td align="right">31</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">142</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Interest expense </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(227</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(67</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Unrealized gain on investments carried at fair value, net </div></td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">80</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Foreign currency gain (loss), net </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(262</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(680</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Other, net </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(316</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(420</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Total other income (expense), net </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(774</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(945</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>    <div align="left" style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 2 — Recent Acquisitions</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the second quarter of 2010 we completed the acquisitions of Camiant, Inc. (“Camiant”) and Blueslice Networks, Inc. (“Blueslice”) for cash consideration of $127.0 million and $35.0 million, respectively, for an aggregate of $162.0 million. We have included the results of operation of these acquisitions in our consolidated results from the date of acquisition. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Select Pro-Forma Financial Information</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following represents our unaudited condensed pro-forma financial results as if the acquisitions of Camiant and Blueslice had occurred as of the beginning of the earliest period presented. Unaudited condensed pro-forma results are based upon accounting estimates and judgments that we believe are reasonable. The condensed pro-forma results are not necessarily indicative of the actual results of our operations had the acquisitions occurred at the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. For example, included in these pro-forma results is the estimated impact of intangible asset amortization and other acquisition-related expenses for the three months ended March 31, 2010. Based on the estimated useful lives of certain intangible assets and how the acquisition-related expenses are estimated to be incurred, pro-forma amounts presented in the table below for the three months ended March 31, 2010 include less expense related to these items than our actual results for the same periods. </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Three Months Ended</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>(in thousands, except per share amounts)</b></td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues </div></td> <td> </td> <td align="right">$     </td> <td align="right">122,730</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net Income </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">8,562</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Basic earnings per share </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">0.13</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted earnings per share </div></td> <td> </td> <td align="right" nowrap="nowrap">$     </td> <td align="right">0.13</td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Our actual operating results for the three months ended March 31, 2011 included revenues and net loss from the products associated with acquired businesses as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Three Months Ended March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Camiant</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Blueslice</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td> <td> </td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">6,864</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">462</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">7,326</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net loss </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,439</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,428</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(4,867</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in our actual operating results for the three months ended March 31, 2011 is $3.3 million of after tax amortization related to acquired intangible assets. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 12 — Operating Segment Information</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically the development and sale of signaling telecommunications solutions and related value added applications and services. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Enterprise-Wide Disclosures</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following tables sets forth, for the periods indicated, revenues from external customers by our principal product lines, as well as revenues by domestic versus international regions (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>For the Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Product revenues:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Eagle, number portability, and other session management products </div></td> <td> </td> <td align="left">$</td> <td align="right">65,816</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">66,114</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Performance management products </div></td> <td> </td> <td> </td> <td align="right">5,100</td> <td> </td> <td> </td> <td> </td> <td align="right">10,425</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total product revenues </div></td> <td> </td> <td> </td> <td align="right">70,916</td> <td> </td> <td> </td> <td> </td> <td align="right">76,539</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Warranty revenues </div></td> <td> </td> <td> </td> <td align="right">20,251</td> <td> </td> <td> </td> <td> </td> <td align="right">19,002</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Professional and other services revenues </div></td> <td> </td> <td> </td> <td align="right">16,592</td> <td> </td> <td> </td> <td> </td> <td align="right">20,450</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Total revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">107,759</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">115,991</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">United States </div></td> <td> </td> <td align="left">$</td> <td align="right">36,513</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">35,568</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">International </div></td> <td> </td> <td> </td> <td align="right">71,246</td> <td> </td> <td> </td> <td> </td> <td align="right">80,423</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">107,759</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">115,991</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     For the three months ended March 31, 2011 revenues from Verizon and ITI Limited represented 18% and 12%, respectively, of our total revenues. For the three months ended March 31, 2010, revenues from AT&T represented 14% of our total revenues. For the three months ended March 31, 2011, revenues from India accounted for 23% of our total revenues. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table sets forth, for the periods indicated, our long-lived assets including net property and equipment and other assets by geographic region (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Long-Lived Assets</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>By Geographic Region</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">United States </div></td> <td> </td> <td align="left">$</td> <td align="right">31,942</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">30,836</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other </div></td> <td> </td> <td> </td> <td align="right">8,355</td> <td> </td> <td> </td> <td> </td> <td align="right">7,840</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total long-lived assets </div></td> <td> </td> <td align="left">$</td> <td align="right">40,297</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">38,676</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 6 — Derivative Instruments and Hedging Activities</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We operate internationally and thus are exposed to potential adverse changes in currency exchange rates. We use derivative instruments (principally forward contracts to exchange foreign currency) as a means of reducing our exposure to foreign currency rate changes on receivables and other net monetary assets denominated in foreign currencies. The foreign currency forward contracts require us to exchange currencies at rates agreed upon at the contract’s inception. In addition to these foreign exchange contracts, certain of our customer contracts contain provisions that require our customers to assume the foreign currency exchange risk related to the applicable transactions. The objective of these contracts is to reduce or eliminate, and efficiently manage, the economic impact of currency exchange rate movements on our operating results as effectively as possible. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses on the related contracts. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. We do not designate our foreign currency exchange contracts as accounting hedges as defined by authoritative guidance for derivatives and hedging, and, accordingly, we adjust these contracts to fair value through operations (i.e., included in “Other income (expense), net”). We do not hold or issue financial instruments for speculative or trading purposes. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We continually monitor our exposure to fluctuations in foreign currency exchange rates. As we have expanded internationally, an increasing proportion of our revenues, costs and operating expenses are denominated in foreign currencies, resulting in an increase in our foreign currency exchange rate exposure. We enter into multiple forward contracts throughout a given month to mitigate our changing exposure to foreign currency exchange rate fluctuations principally related to receivables generated from sales denominated in non-functional currencies and our remeasurements of international subsidiaries. Our exposure fluctuates as we generate new sales in non-functional currencies and as existing receivables related to sales in non-functional currencies are collected. Additionally, our exposure related to remeasurements of our subsidiaries’ financial statements fluctuates with the underlying activity in those entities. Our foreign currency forward contracts generally will have terms of one month or less and typically mature on the last day of any given period. We then immediately enter into new foreign currency forward contracts, if necessary. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table shows the notional contract values in local currency and U.S. Dollars of the foreign exchange forward contracts outstanding as of March 31, 2011, grouped by underlying foreign currency: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Contracts Outstanding as of March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>In Local Currency</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>In US Dollars</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Euros (“EUR”) (contracts to buy EUR/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(EUR)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(23,286,833</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(32,890,322</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Indian rupees (“INR”) (contracts to sell INR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(INR)</td> <td> </td> <td> </td> <td align="right">238,598,000</td> <td> </td> <td> </td> <td> </td> <td align="right">5,310,438</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Canadian dollars (“CAD”) (contracts to sell CAD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(CAD)</td> <td> </td> <td> </td> <td align="right">2,072,000</td> <td> </td> <td> </td> <td> </td> <td align="right">2,150,047</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Singapore dollars (“SGD”) (contracts to buy SGD/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(SGD)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(328,000</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(259,761</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(MYR)</td> <td> </td> <td> </td> <td align="right">5,792,000</td> <td> </td> <td> </td> <td> </td> <td align="right">1,909,597</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(TWD)</td> <td> </td> <td> </td> <td align="right">50,837,000</td> <td> </td> <td> </td> <td> </td> <td align="right">1,735,703</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Brazilian reais (“BRL”) (contracts to sell BRL/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(BRL)</td> <td> </td> <td> </td> <td align="right">10,587,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6,466,133</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(15,578,165</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table shows the average notional contract values in the underlying currency and U.S. Dollars of foreign currency exchange forward contracts outstanding during the three months ended March 31, 2011, grouped by underlying foreign currency: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10"><b>Average Contracts Outstanding</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>during the three months ended March 31, 2011</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>In Local Currency</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>In US Dollars</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Euros (“EUR”) (contracts to buy EUR/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(EUR)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(34,123,582</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(46,293,393</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Indian rupees (“INR”) (contracts to sell INR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(INR)</td> <td> </td> <td> </td> <td align="right">246,491,714</td> <td> </td> <td> </td> <td> </td> <td align="right">5,381,695</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">British pound (“GBP”) (contracts to sell GBP/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(GBP)</td> <td> </td> <td> </td> <td align="right">554,341</td> <td> </td> <td> </td> <td> </td> <td align="right">880,845</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Singapore dollars (“SGD”) (contracts to buy SGD/sell US$) </div></td> <td> </td> <td colspan="3" align="center">(SGD)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(142,154</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(112,426</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$) </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">(MYR)</td> <td> </td> <td> </td> <td align="right">5,927,231</td> <td> </td> <td> </td> <td> </td> <td align="right">1,926,369</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(TWD)</td> <td> </td> <td> </td> <td align="right">36,547,418</td> <td> </td> <td> </td> <td> </td> <td align="right">1,239,356</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Canadian dollars (“CAD”) (contracts to sell CAD/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(CAD)</td> <td> </td> <td> </td> <td align="right">2,419,670</td> <td> </td> <td> </td> <td> </td> <td align="right">2,440,443</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Brazilian reais (“BRL”) (contracts to sell BRL/buy US$) </div></td> <td> </td> <td colspan="3" align="center">(BRL)</td> <td> </td> <td> </td> <td align="right">4,624,286</td> <td> </td> <td> </td> <td> </td> <td align="right">2,751,184</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(31,785,927</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As of March 31, 2011, all of our derivative instruments are maintained with Wells Fargo Bank, and potentially subject us to a concentration of credit risk, which may result in credit related losses in the event of the bank’s nonperformance. We mitigate this risk by monitoring Wells Fargo’s credit ratings published by major rating firms (Fitch, Standard & Poor’s, and Moody’s). In addition, we monitor Wells Fargo’s Credit Default Swap spread on a quarterly basis to assess the bank’s default risk relative to its peers. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As discussed above, our foreign currency forward contracts are structured to expire on the last day of the accounting period, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends and, accordingly, their fair value was not significant as of March 31, 2011 and December 31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The table below provides a summary of the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="25%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="15%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Amount of Gain or (Loss)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>Recognized in Results</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 0px solid #000000"><b>Derivatives Not Designated</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Location of Gain or (Loss)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>of Operations</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 0px solid #000000"><b>as Hedging Instruments</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Recognized in Results</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three months ended</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>under SFAS No. 133</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>of Operations</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td> <td> </td> </tr>   <tr valign="bottom"> <td nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Foreign currency forward contracts </div></td> <td> </td> <td colspan="3" align="center" nowrap="nowrap">Other income (expense), net</td> <td> </td> <td align="left">$</td> <td align="right">1,460</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(2,416</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The above gains or losses on the derivative instruments include the cost of entering into the contracts (i.e. forward points), and are generally offset by a corresponding foreign currency gain or loss on the underlying hedged transaction (e.g., customer accounts receivable). The gain or loss on both the derivative instrument and the corresponding hedged transaction are reflected in “Other income (expense), net” in the accompanying unaudited condensed consolidated statements of operations. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 8 — Intangible Assets and Goodwill</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Intangible Assets</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Intangible assets consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Accumulated</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>March 31, 2011</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gross</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets with finite lives: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Purchased technology </div></td> <td> </td> <td align="left">$</td> <td align="right">98,870</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(35,944</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">62,926</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Customer relationships </div></td> <td> </td> <td> </td> <td align="right">18,800</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(5,042</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">13,758</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Contract backlog </div></td> <td> </td> <td> </td> <td align="right">7,500</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(5,731</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">1,769</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Non-compete agreements </div></td> <td> </td> <td> </td> <td align="right">4,380</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,963</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,417</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">IPR&D, with finite lives </div></td> <td> </td> <td> </td> <td align="right">2,450</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(271</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,179</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Trademarks and trade names </div></td> <td> </td> <td> </td> <td align="right">1,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(370</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">870</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gross intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(49,321</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">83,919</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">657</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(638</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">19</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,897</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(49,959</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">83,938</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">IPR&D, with indefinite lives </div></td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets </div></td> <td> </td> <td align="left">$</td> <td align="right">134,358</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(49,959</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">84,399</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gross</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets with finite lives: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Purchased technology </div></td> <td> </td> <td align="left">$</td> <td align="right">98,870</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(30,126</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">68,744</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Customer relationships </div></td> <td> </td> <td> </td> <td align="right">18,800</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(3,929</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">14,871</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Contract backlog </div></td> <td> </td> <td> </td> <td align="right">7,500</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(4,879</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,621</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Non-compete agreements </div></td> <td> </td> <td> </td> <td align="right">4,380</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,415</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,965</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">IPR&D, with finite lives </div></td> <td> </td> <td> </td> <td align="right">2,450</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(148</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,302</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Trademarks and trade names </div></td> <td> </td> <td> </td> <td align="right">1,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(267</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">973</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gross intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">133,240</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(40,764</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">92,476</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(766</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">74</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(692</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets with finite lives </div></td> <td> </td> <td> </td> <td align="right">132,474</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(40,690</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">91,784</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">IPR&D, with indefinite lives </div></td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">461</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total intangible assets </div></td> <td> </td> <td align="left">$</td> <td align="right">132,935</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(40,690</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">92,245</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:45px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During the first quarter of 2011 we evaluated the remaining useful lives of purchased technology intangible assets associated with the Steleus and iptelorg acquisitions. Based on current technological trends and our related expected business opportunities, we shortened the useful lives of these assets from a remaining weighted average life of 3.75 years at the time the evaluation was performed to an estimated life of approximately one year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The estimated future amortization expense of purchased intangible assets with finite lives as of March 31, 2011 is as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>For the Years Ending December 31,</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2011 (remaining nine months) </div></td> <td> </td> <td align="left">$</td> <td align="right">29,020</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">2012 </div></td> <td> </td> <td> </td> <td align="right">19,948</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2013 </div></td> <td> </td> <td> </td> <td align="right">14,564</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">2014 </div></td> <td> </td> <td> </td> <td align="right">14,411</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">2015 </div></td> <td> </td> <td> </td> <td align="right">5,995</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">83,938</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Goodwill</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As required by the authoritative guidance for intangibles and goodwill, we do not amortize our goodwill balances, but instead test our goodwill for impairment annually on October 1<sup style="font-size: 85%; vertical-align: text-top">st</sup> and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangibles and goodwill. In the first quarter of 2011, due to the fact that our net book value exceeded our market capitalization, we performed an interim goodwill impairment analysis in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. Our analysis indicated that the fair value of the reporting unit exceeded its net book value by over 20%, and thus no impairment existed as of March 31, 2011. As of March 31, 2011, no impairment losses were recognized with respect to goodwill. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The changes in the carrying amount of goodwill for the three months ended March 31, 2011 are as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">135,564</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">1,107</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">136,671</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 9 — Income Taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the “Effective Rate”). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of “more likely than not” based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income tax expense an adjustment resulting from the establishment of a valuation allowance in the period in which such a determination was made. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service (“IRS”) completed an examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. In the first quarter of 2011, the IRS commenced its examination of tax years 2007 through 2009 as a result of Tekelec having filed a refund claim related to a capital loss generated in 2009. As a result, we have extended the statute of limitations on our 2007 tax year. With respect to our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions. We are also currently under examination by the state of North Carolina resulting from a refund claim filed with respect to our 2007 and 2008 tax years. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior. Although it is possible that certain tax examinations, including the IRS examination, could be resolved during the next 12 months, the timing and outcomes are uncertain. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     For the three months ended March 31, 2011 our effective tax rate was a benefit of 41% based on the pre-tax loss for the quarter. The effective tax rate for this period differs from the statutory rate of 35% primarily due to (i) research and development tax credits in various jurisdictions, (ii) U.S. state income tax benefit, (iii) recognition of certain previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies, and (iv) the jurisdictional split of our global income in countries with lower tax rates, as offset by tax expense related to accounting for stock-based compensation and the required tax treatment under the authoritative guidance discussed further below. For the three months ended March 31, 2010, our effective tax rate was 36%. The effective tax rate for this period differed from the statutory tax rate of 35% primarily due to (i) state income tax expense, (ii) tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed below, and (iii) an offsetting tax benefit of lower tax rates in the foreign jurisdictions in which we operate. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three months ended March 31, 2011, we recorded a discrete tax expense of $1.6 million as compared to $0.5 million recorded for the three months ended March 31, 2010 associated with our stock compensation plans. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 14 — Subsequent Events</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Executive Officer Resignation and Severance Agreement</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On April 29, 2011, Wolrad Claudy, Executive Vice President, Global Sales of Tekelec, and Tekelec Germany GmbH (“Tekelec Germany”) entered into a Termination Agreement pursuant to which the parties mutually agreed that Mr. Claudy would resign, effectively immediately, from his position as Managing Director of Tekelec Germany. On the same date, Mr. Claudy resigned from his office as Executive Vice President, Global Sales of the Company. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Pursuant to the Termination Agreement and in accordance with the six-month notice requirement under the 2008 Managing Director Agreement between Tekelec Germany and Mr. Claudy, Mr. Claudy will remain employed by Tekelec Germany through October 31, 2011. During that period, Mr. Claudy will continue to receive his monthly base salary of 16,250 Euros (i.e., approximately $23,129 based on a Euro to U.S. dollar exchange rate of 1.4233) and to be entitled to receive commissions under the 2011 Sales Compensation Plan for Wolrad Claudy. Mr. Claudy will provide services related to customer relationships and customer accounts through July, 2011 and will thereafter be released from the obligation to provide such services. In connection with the termination of Mr. Claudy’s employment with Tekelec Germany and in accordance with the terms of the Company’s 2007 Officer Severance Plan, as amended, Mr. Claudy will receive cash severance compensation in the total amount of 497,250 Euros (i.e., approximately $707,736 based on a euro to dollar exchange rate of 1.4233) and will receive certain health care benefits. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 10 — Commitments and Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Indemnities, Commitments, Contingencies and Guarantees</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the normal course of our business, we make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property indemnities to our customers in connection with the sale of our products and licensing of our technology, indemnities for liabilities associated with the infringement of other parties’ technology based upon our products and technology, guarantees of timely performance of our obligations, guarantees and indemnities related to the reliability and performance of our equipment, and indemnities to our directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that we could be obligated to make. We have not recorded a liability for these indemnities, commitments or guarantees in the accompanying balance sheets because future payment is not probable. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual matters, intellectual property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no assurance that we will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On January 6, 2011, a purported class action complaint was filed against us and certain of our current and former officers in the U.S. District Court for the Eastern District of North Carolina alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The case purports to be brought on behalf of a class of purchasers of our stock during the period February 11, 2010 to August 5, 2010. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding our business and prospects in emerging markets. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses. As we are in the very early stages of this potential litigation, we are unable to predict the outcome of this case or estimate a range of potential loss related to this matter. Although the Company denies the allegations in the complaint and intends to vigorously pursue its defense, we are unable to predict the outcome of this case. An adverse court determination in the purported class action lawsuit against us could result in significant liability and could have a material adverse effect on our business, results of operations and financial condition. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On February 7, 2011, a shareholder derivative complaint was filed in the California Superior Court of Santa Clara County against certain current and former officers and directors. The suit alleges that named parties breached their fiduciary duties to the Company by, among other things, making statements between February, 2010 and August, 2010 which plaintiffs claim were false and misleading and by allegedly failing to implement adequate internal controls and means of supervision at the Company. On March 3, 2011, a nearly identical shareholder derivative complaint was filed in the U.S. District Court for the Central District of California. These suits seek an unspecified amount of damages from the named parties and modifications to the Company’s corporate governance policies. The allegations in the complaints are similar to the purported class action complaint discussed above. The individual defendants intend to vigorously defend the suits and the Company, on whose behalf these claims purport to be brought, intends to move to dismiss the shareholder derivative complaints on the grounds that the derivative plaintiffs did not file the claims in accordance with applicable laws governing the filing of derivative suits. As we are in the very early stages of these litigations, we are unable to predict the outcome of these cases or estimate a range of potential costs related to these matters. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 3 — Restructuring and Other Costs</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In January 2011, we entered into an employment severance agreement with our former President and Chief Executive Officer in connection with his resignation as an executive officer and employee effective January 4, 2011. In connection with this agreement, we incurred approximately $2.5 million in severance costs that will be paid during 2011 and 2012 in 24 equal monthly installments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During 2010 and continuing through 2011, demand for our Eagle 5 and other established solutions has continued to decline as service providers shift their investments to data and other broadband services. Further, while demand for our next-generation solutions has continued to grow, the growth has not been able to offset the decline in demand for our Eagle 5 and other established products. As a result, certain of our key operating metrics, such as total orders, total revenue, gross margin, operating margin and revenue per employee, declined from our historical levels. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In response to this decline, in the first quarter of 2011, we initiated a restructuring plan (the “Plan”) as part of our efforts to better align our operating cost structure with our current and expected business opportunities. Under the Plan we have initiated the following actions: </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>a reduction of our overall headcount in the U.S and the consolidation of positions from various global locations; in addition, subject to employee information and consultation processes, reductions in positions in foreign countries. The overall workforce reduction is expected to be approximately 10% to 15% of our workforce;</td> </tr> <tr> <td style="font-size: 6pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>a reduction of the discretionary portion of our operating costs through various cost control initiatives, including: (i) reducing advertising expenditures; (ii) delaying merit increases and modifying incentive compensation plans; (iii) reducing capital expenditures; and (iv) reducing other discretionary expenditures, such as costs related to outside consultants, travel and recruiting; and</td> </tr> <tr> <td style="font-size: 6pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="6%" style="background: transparent"> </td> <td width="2%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>consolidation of certain facilities and the abandonment of certain assets in connection with the consolidation of facilities.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Included in our results from operations for the three months ended March 31, 2011 are pre-tax restructuring charges of $21.4 million related primarily to severance costs under our severance policies, including the $2.5 million related to our former President and Chief Executive Officer discussed above. These charges are included in “Restructuring and other” in the accompanying unaudited condensed consolidated income statement for three months ended March 31, 2011. Under the Plan, we anticipate that during 2011 we will incur total restructuring costs of between $23.0 million and $28.0 million. The Plan and the associated costs are based on our current best estimates which could change materially, including without limitation as a result of employee information and consultation processes conducted in local jurisdictions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Subject to complying with and undertaking any necessary individual and collective employee information and consultation obligations required by local law, we expect all of these activities and associated expenses to occur by the end of 2011. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table provides a summary of our restructuring activities and the remaining obligations as of March 31, 2011 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Severance</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Costs and</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Related</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Benefits</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Restructuring obligations, December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">441</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">2011 Restructuring and related expenses </div></td> <td> </td> <td> </td> <td align="right">21,364</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Cash payments </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(1,895</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">20</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Restructuring obligations, March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">19,930</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Restructuring obligations are included in “Accrued expenses” in the accompanying unaudited condensed consolidated balance sheets. We anticipate settling all of our restructuring obligations during 2011 and 2012. This is based on our current best estimate, which could change materially if actual activity differs from what is currently expected. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 7 — Financial Statement Details</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Accounts Receivable, net</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Accounts receivable, net consists of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts receivable </div></td> <td> </td> <td align="left">$</td> <td align="right">141,404</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">175,486</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Less: Allowance for doubtful accounts and sales returns </div></td> <td> </td> <td> </td> <td align="right">10,362</td> <td> </td> <td> </td> <td> </td> <td align="right">10,467</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">131,042</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">165,019</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The following details the changes in the allowance for doubtful accounts and sales returns during the three months ended March 31, 2011: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="88%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010 </div></td> <td> </td> <td align="left">$</td> <td align="right">10,467</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Provision for (recovery of) doubtful accounts and returns </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(222</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Write-offs net of recoveries </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(155</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes </div></td> <td> </td> <td> </td> <td align="right">272</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Balance at March 31, 2011 </div></td> <td> </td> <td align="left">$</td> <td align="right">10,362</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Inventories, net</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Inventories, net consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Raw materials </div></td> <td> </td> <td align="left">$</td> <td align="right">14,552</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">21,851</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Finished goods </div></td> <td> </td> <td> </td> <td align="right">4,565</td> <td> </td> <td> </td> <td> </td> <td align="right">6,370</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total inventories, net </div></td> <td> </td> <td align="left">$</td> <td align="right">19,117</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">28,221</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Accrued Expenses</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Accrued expenses consist of the following (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>March 31,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued installation and professional services costs </div></td> <td> </td> <td align="left">$</td> <td align="right">3,278</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4,452</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Deferred rent </div></td> <td> </td> <td> </td> <td align="right">2,342</td> <td> </td> <td> </td> <td> </td> <td align="right">2,532</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued restructuring </div></td> <td> </td> <td> </td> <td align="right">19,930</td> <td> </td> <td> </td> <td> </td> <td align="right">441</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued warranty costs </div></td> <td> </td> <td> </td> <td align="right">829</td> <td> </td> <td> </td> <td> </td> <td align="right">1,185</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued professional fees and legal accrual </div></td> <td> </td> <td> </td> <td align="right">1,694</td> <td> </td> <td> </td> <td> </td> <td align="right">1,839</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued other </div></td> <td> </td> <td> </td> <td align="right">9,951</td> <td> </td> <td> </td> <td> </td> <td align="right">9,895</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">38,024</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">20,344</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> </div>    <div align="left" style="font-family: 'Times New Roman',Times,serif">   <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left"> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 1 — Basis of Presentation and Changes in Significant Accounting Policies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Basis of Presentation</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The accompanying unaudited condensed consolidated financial statements include the accounts of Tekelec and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our consolidated financial condition and consolidated results of operations. The results of operations for the current interim period are not necessarily indicative of results for the current year. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We operate under a thirteen-week quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last calendar day of the quarter. The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2011 and 2010 are for the thirteen weeks ended April 1, 2011 and April 2, 2010, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2010 and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010. </div> </div>    <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 11 </b>— <b>Stock-Based Compensation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Stock-Based Compensation Expense</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations for the three months ended March 31, 2011 and 2010 is as follows (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="64%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Option and</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>SAR Grants</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>and Stock</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Purchase</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Income Statement Classifications</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Rights</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>RSUs</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Three months ended March 31, 2011</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cost of goods sold </div></td> <td> </td> <td align="left">$</td> <td align="right">64</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">313</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">377</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Research and development </div></td> <td> </td> <td> </td> <td align="right">61</td> <td> </td> <td> </td> <td> </td> <td align="right">446</td> <td> </td> <td> </td> <td> </td> <td align="right">507</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Sales and marketing </div></td> <td> </td> <td> </td> <td align="right">130</td> <td> </td> <td> </td> <td> </td> <td align="right">809</td> <td> </td> <td> </td> <td> </td> <td align="right">939</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">General and administrative </div></td> <td> </td> <td> </td> <td align="right">245</td> <td> </td> <td> </td> <td> </td> <td align="right">840</td> <td> </td> <td> </td> <td> </td> <td align="right">1,085</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">500</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,408</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,908</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Three months ended March 31, 2010</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cost of goods sold </div></td> <td> </td> <td align="left">$</td> <td align="right">77</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">275</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">352</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Research and development </div></td> <td> </td> <td> </td> <td align="right">75</td> <td> </td> <td> </td> <td> </td> <td align="right">266</td> <td> </td> <td> </td> <td> </td> <td align="right">341</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Sales and marketing </div></td> <td> </td> <td> </td> <td align="right">98</td> <td> </td> <td> </td> <td> </td> <td align="right">711</td> <td> </td> <td> </td> <td> </td> <td align="right">809</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">General and administrative </div></td> <td> </td> <td> </td> <td align="right">521</td> <td> </td> <td> </td> <td> </td> <td align="right">1,273</td> <td> </td> <td> </td> <td> </td> <td align="right">1,794</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">771</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2,525</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">3,296</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Stock-based compensation expense was recorded net of estimated forfeitures for the three months ended March 31, 2011 and 2010 such that expense was recorded only for those stock-based awards that are expected to vest. </div> </div>  <!-- Begin Block Tagged NotefalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringDisclosure of compensation-related costs for share-based compensation which may include disclosure of policies, compensation plan details, allocation of stock compensation, incentive distributions, share-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 falsefalseStock-Based Compensation12Stock-Based CompensationUnKnownUnKnownUnKnownUnKnownfalsetrue

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