8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2006

TEKELEC

(Exact name of registrant as specified in its charter)

California	0-15135	95-2746131
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5200 Paramount Parkway, Morrisville, North Carolina	27560
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (919) 460-5500

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

o Written Communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Item 1.01	Entry into a Material Definitive Agreement	1
Item 2.02	Results of Operations and Financial Condition	1
Item 2.05	Costs Associated with Exit or Disposal Activities	2
Item 9.01	Financial Statements and Exhibits	3
Exhibit 10.1
Exhibit 99.1

(i)

TABLE OF CONTENTS

EXHIBIT 10.1

EXHIBIT 99.1

Item 1.01 Entry into a Material Definitive Agreement

     Effective October 26, 2006, Tekelec (the “Company”) and Ronald W. Buckly, Senior Vice President, Corporate Affairs and General Counsel of the Company, entered into an agreement (the “Agreement”) confirming the terms and conditions under which Mr. Buckly has agreed to continue to serve as the Company’s Senior Vice President, Corporate Affairs and General Counsel through December 31, 2006.

     Pursuant to the Agreement, the Company has agreed to pay to Mr. Buckly, as additional compensation for serving as Senior Vice President, Corporate Affairs and General Counsel of the Company through December 31, 2006, a retention bonus equal to his 2006 annual base salary of $320,000 (the “Retention Bonus”) payable on or before December 31, 2006, plus the aggregate amount of any bonuses payable to Mr. Buckly under the Company’s 2006 Officer Bonus Plan (the “2006 Bonuses”), which amount is not yet determinable. The 2006 Bonuses will be payable at the same time as 2006 bonuses are paid to the other executive officers of the Company, and the Company will waive the requirement that Mr. Buckly be employed by the Company after December 31, 2006 as a condition to receiving the 2006 Bonuses.

     In the event Mr. Buckly’s employment is terminated prior to the close of business on December 31, 2006 either (i) by Mr. Buckly for Good Reason (as defined in the Company’s Officer Severance Plan, as amended (the “Severance Plan”), but excluding termination based on the relocation of the Company’s headquarters from California to North Carolina) or (ii) by the Company for any reason other than for Cause (as defined in the Severance Plan), then Mr. Buckly will be entitled to receive his full Retention Bonus and 2006 Bonuses. In the event Mr. Buckly terminates his employment prior to December 31, 2006 without Good Reason, then he will be entitled to receive a pro rata portion of his Retention Bonus but will not be entitled to receive any portion of his 2006 Bonuses.

     The Retention Bonus and the 2006 Bonuses are in addition to the severance compensation (in the amount of approximately $700,000) and benefits that Mr. Buckly is entitled to receive under the Severance Plan as a result of the Company’s relocation of its headquarters from California to North Carolina and Mr. Buckly’s decision to terminate his employment with the Company due to such relocation. The Severance Plan is filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987, and amendments to the Severance Plan are filed as exhibits to the Company’s Annual Reports on Form 10-K for the years ended December 31, 1998 and December 31, 1999.

     The foregoing description of the Agreement is qualified in its entirety by reference to the Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K.

Item 2.02 Results of Operations and Financial Condition

     On November 1, 2006, Tekelec issued a press release announcing, among other things, its financial results for the fiscal third quarter ended September 30, 2006. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

1

     The information in this Item 2.02 of this Form 8-K and in Exhibit 99.1 furnished herewith 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 it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Item 2.05 Costs Associated with Exit or Disposal Activities

     On October 31, 2006, Tekelec committed to a restructuring plan as part of its ongoing efforts to align its cost structure in the Company’s Switching Solutions Business Unit based in Plano, Texas with the Business Unit’s current business opportunities. The restructuring plan involves the Company’s (i) termination of 104 employees in the Business Unit and related customer service, operations and other personnel, (ii) decision not to replace 22 employees who had left the Company during the third quarter of 2006 and (iii) termination of approximately 25 contractors. The restructuring plan expanded the restructuring that the Company completed in June 2006 and that was reported in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on June 26, 2006.

     The Company currently estimates that it will incur charges in the quarter ended December 31, 2006 in the aggregate amount of approximately $3 million to $4 million related to employee severance arrangements entered into and other costs incurred in connection with the restructuring plan. (For purposes of clarification, these charges do not include the amounts payable to Ronald W. Buckly, the Company’s Senior Vice President, Corporate Affairs and General Counsel, under the Agreement and Officer Severance Plan described above in Item 1.01 of this Current Report on Form 8-K.) All of the severance payments are expected to be paid within a one-year period commencing in the fourth quarter of 2006. As a result of the restructuring plan, the Company currently expects to realize estimated annual operating cost savings of $17 million to $19 million. Due to the timing of the restructuring, the Company expects to realize the majority of these savings commencing in 2007.

FORWARD-LOOKING STATEMENTS

     Certain statements made in this Current Report on Form 8-K are forward looking, reflect the Company’s current intent, belief or expectations and involve certain risks and uncertainties. The Company’s actual future performance may not meet the Company’s expectations. As discussed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006, its Annual Report on Form 10-K for the year ended December 31, 2005 and its other filings with the Commission, the Company’s future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from the Company’s current expectations, in addition to those identified in the Company’s filings with the Commission, include, among others, the risk that the Company will not realize all the benefits of its restructuring activities. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

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Item 9.01 Financial Statements and Exhibits

     (d) Exhibits

           The following Exhibit 10.1 is filed, and the following Exhibit 99.1 is furnished, as a part of this Current Report on Form 8-K:

Exhibit No.	Description
10.1	Agreement effective October 26, 2006 between the Registrant and Ronald W. Buckly
99.1	Press Release dated November 1, 2006 of the Registrant

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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 hereunto duly authorized.

	Tekelec
Dated: November 1, 2006	By:	/s/ Franco Plastina
		Franco Plastina
		President and Chief Executive Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Agreement effective October 26, 2006 between the Registrant and Ronald W. Buckly
99.1	Press Release dated November 1, 2006 of the Registrant

EX-10.1

EXHIBIT 10.1

October 5, 2006

Mr. Ron Buckly
470 22^nd Street
Santa Monica, CA 90402

Re: Your Continuing Employment

Dear Ron:

This letter agreement confirms your discussions over the past several months with me and the Compensation Committee of the Tekelec Board of Directors concerning your anticipated termination of employment with the Company due to the relocation of Tekelec’s corporate headquarters from Southern California to North Carolina.

By signing this letter agreement, you and Tekelec agree as follows:

1.

You will be employed as Senior Vice President, Corporate Affairs and General Counsel of Tekelec through the close of business on December 31, 2006, subject to earlier termination by you as set forth in this paragraph. You may terminate your employment for any reason effective prior to January 1, 2007 with at least 30 days advance written notice to Tekelec. It is specifically understood that if no notice of termination is given by you in accordance with this paragraph, your termination date will be the close of business on December 31, 2006. In addition, commencing in the 2006 fourth quarter, you will work or be available to work 40 hours per week (i.e., 160 hours per calendar month). We understand that you wish to look for new employment and agree that you may search for new employment during this period provided that such efforts do not unreasonably or materially interfere with the performance of your responsibilities and duties as the Company’s General Counsel or with the transition of your responsibilities and duties as General Counsel to the Company’s legal department and/or outside law firms, and further provided that you may not begin new employment before your termination date without our prior written consent, which will not be unreasonably withheld..

2.

Provided that you remain an employee of Tekelec through December 31, 2006, you will be entitled to receive your bonuses under the Company’s 2006 Officer Bonus Plan for 2006 (“2006 Bonuses”), payable at such time as such bonuses are paid to other executive officers of the Company under such Plan, and the Company hereby waives any requirement that you be employed by the Company after December 31, 2006 as a condition to receiving your 2006 Bonuses. In consideration of the requirements of Section 409A of the Internal Revenue Code and the regulations promulgated thereunder, if such bonuses have not been paid prior to March 15, 2007, then such bonuses shall be paid upon the later of (i) July 2, 2007 or (ii) the date upon which such bonuses are paid to the other executive officers of the Company under the 2006 Officer Bonus Plan.

3.	The Company acknowledges and agrees that upon the termination of your employment with Tekelec, you will also irrevocably be entitled to receive severance compensation and benefits in accordance with the Company’s Officer Severance Plan (“OSP”), in effect as of your termination date, under Section 3(b)(v) (relocation of corporate headquarters), provided that your receipt of severance compensation and benefits thereunder shall be subject to your compliance with the terms of the OSP, including your timely execution of, and compliance with, a Severance Agreement reasonably acceptable to Tekelec and you. In consideration of Section 409A of the Internal Revenue Code and the regulations promulgated thereunder, the Company will pay you your severance payments during the period from July 1, 2007 through December 31, 2007, in seven installments as follows: 50% shall be due and payable on July 2, 2007, and the remaining 50% shall be due and payable in six equal monthly installments with the first of such installments due and payable on July 15, 2007 and one additional installment due and payable on the 15th day of each calendar month thereafter. Nothing in this letter agreement will affect your eligibility for or entitlement to benefits under the OSP. If your employment with Tekelec is terminated prior to January 1, 2007 by you or Tekelec for any reason, then you will nonetheless be entitled to receive severance compensation and benefits under the OSP as contemplated by this paragraph 3.
4.	In consideration of your agreement to remain with Tekelec on the terms set forth herein, you will receive a retention bonus equal to your 2006 annual base salary (as in effect on the date hereof), payable on or before December 31, 2006 (the “Retention Bonus”), less deductions and withholdings required by law. Notwithstanding anything to the contrary in this letter agreement, if your employment with Tekelec is terminated prior to January 1, 2007 by the Company for any reason other than for Cause (as Cause is defined in the OSP, but excluding death or disability) or by you for Good Reason (as defined in the OSP), other than the relocation of corporate headquarters, then you will be entitled to receive your full Retention Bonus (payable on or before December 31, 2006) and your full 2006 Bonuses (payable as provided herein as though you were employed through December 31, 2006), notwithstanding the termination of your employment. If you terminate your employment without Good Reason prior to December 31, 2006, then you will not be entitled to receive your 2006 Bonuses but you will be entitled to receive a pro rata portion of your Retention Bonus based on the number of days you are employed by Tekelec during 2006.
5.	This letter sets forth our entire understanding with respect to the matters described herein and supersedes any other agreements or understandings with respect thereto, but does not affect in any way your entitlement to compensation and benefits under the OSP or your rights or obligations under other written agreements with the Company. It can only be amended, in a writing, signed by you and the Chief Executive Officer of Tekelec.

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I appreciate your contributions, your interest in continuing to work for Tekelec, and your willingness to commute from California for many months during this period of transition.

Sincerely,

/s/ Frank Plastina

Frank Plastina
President and Chief Executive Officer

I Accept:

/s/ Ronald W. Buckly                     
Ronald W. Buckly

Date: October 26, 2006

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EX-99.1

     R             E             L              E             A             S             E

Tekelec Announces Q3 2006 Earnings
Achieves Record Telecom Revenues,
Books Impairment Charge for its Switching Solutions
Business Unit and Gain on Sale of IEX

Morrisville, N.C. November 1, 2006 — Tekelec (NASDAQ: TKLC), a leading developer of high-performance network applications for next-generation fixed, mobile and packet networks, today announced its earnings for the third quarter of 2006. The results for the quarter and nine months ended September 30, 2006 include a gain on the sale of the Company’s IEX contact center business reported in the results of discontinued operations, and an impairment charge related to intangibles and goodwill associated with its Switching Solutions Business Unit .

Results from Continuing Operations

Revenue from continuing operations for the third quarter of 2006 was a record $155.2 million, up 43% compared to $108.4 million for the third quarter of 2005. For the third quarter of 2006, the Company had orders for the Telecom business of $108.0 million, up 8% compared to $100.4 million for the second quarter of 2006 and down 20% compared to $135.6 million for the third quarter of 2005. Telecom backlog as of September 30, 2006 was $455.0 million compared to $502.2 million as of June 30, 2006 and $520.2 million as of December 31, 2005.

On a GAAP basis, the Company reported a loss from continuing operations for the third quarter of 2006 of $87.5 million, or $1.30 loss per diluted share, compared to a loss from continuing operations of $7.6 million, or $0.11 loss per diluted share, for the third quarter of 2005. GAAP operating results for the third quarter of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit.

On a non-GAAP basis, income from continuing operations for the third quarter of 2006 was $11.2 million, or $0.16 per diluted share, compared to a net loss from continuing operations of $3.1 million, or $0.05 loss per diluted share, for the third quarter of 2005. Please refer to the attached financial statement schedules for a reconciliation of the Company’s GAAP operating results to its non-GAAP operating results.

Revenue from continuing operations for the first nine months of 2006 was $399.2 million, up 15% compared to $347.9 million for the first nine months of 2005. For the first nine months of 2006, the Company had orders from continuing operations of $333.9 million, down 15% compared to $391.2 million for the first nine months of 2005.

On a GAAP basis, the Company reported a loss from continuing operations for the first nine months of 2006 of $102.1 million, or $1.52 loss per diluted share, compared to income from continuing operations of $6.6 million, or $0.10 per diluted share, for the first nine months of 2005. GAAP operating results for the first nine months of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit.

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

Q3 2006 Results

On a non-GAAP basis, income from continuing operations for the first nine months of 2006 was $11.9 million, or $0.17 per diluted share, compared to income from continuing operations of $17.8 million, or $0.26 per diluted share, for the first nine months of 2005. Please refer to the attached financial statement schedules for a reconciliation of the Company’s GAAP operating results to its non-GAAP operating results.

At September 30, 2006, Tekelec’s consolidated cash, cash equivalents and short-term investments totaled $426.8 million, up from $237.2 million at June 30 2006 due primarily to the Company’s receipt during the third quarter of 2006 of proceeds from the sale of the IEX Contact Center Business. Deferred revenue from continuing operations was $225.2 million at September 30, 2006, compared to $257.1 million at June 30, 2006.

Impairment Charge

In connection with its annual budgeting process initiated during the third quarter of 2006, the Company performed a comprehensive evaluation of the Switching Solutions Business Unit. Based on this evaluation and the significant shortfall in switching orders for the second half of 2006 compared to its earlier expectations, the Company significantly lowered its forecast for the Business Unit’s future revenues and cash flows. As a result, the Company has recognized non-cash impairment charges in the aggregate amount of $100.6 million in the third quarter of 2006. Approximately $25.6 million of these charges relate to the impairment of acquired technology and $75.0 million of these charges reflect the write-down of goodwill relating to the acquisitions of Santera Systems Inc. and Vocal Data Inc.

In connection with this comprehensive evaluation and assessment of its Switching Solutions Business Unit, the Company has retained J. P. Morgan Securities Inc. as an advisor to help identify and evaluate strategic alternatives to leverage its switching technology portfolio.

Results from Discontinued Operations

The sale of the IEX Contact Center business to NICE Systems, Inc. closed on July 6, 2006 and the operations of IEX have been presented in discontinued operations. On a GAAP basis, income from discontinued operations, net of taxes, in the third quarter of 2006 was $176.8 million, or $2.63 per diluted share, compared to income from discontinued operations, net of taxes, of $3.5 million, or $0.05 per diluted share, in the third quarter of 2005. On a GAAP basis, income from discontinued operations, net of taxes, for the first nine months of 2006 was $189.4 million, or $2.83 per diluted share, compared to income from discontinued operations, net of taxes, of $7.6 million, or $0.11 per diluted share, for the first nine months of 2005. Included in the income from discontinued operations for the three and nine months ended September 30, 2006 was a gain on the sale of IEX of $177.5 million, net of taxes.

Consolidated GAAP Results

The Company’s consolidated net income for the three months ended September 30, 2006 was $89.3 million, or $1.33 per diluted share, compared to a consolidated net loss for the three months ended September 30, 2005 of $4.1 million, or $0.06 loss per diluted share. The Company’s consolidated net income for the nine months ended September 30, 2006 was $87.3 million, or $1.30 per diluted share, compared to consolidated net income for the nine months ended September 30, 2005 of $14.2 million, or $0.21 per diluted share. Results for the third quarter and the first nine months of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit and a gain on the sale of IEX of $177.5 million, net of taxes.

Q3 2006 Results

Restructuring Plan

As a result of the continued losses in the Switching Solutions Business Unit (“SSG”), on November 1, 2006 the Company expanded the scope of the restructuring of SSG’s operations which was initiated in the second quarter of 2006. Specifically, as part of its ongoing efforts to align the cost structure with SSG’s current business opportunities, the Company has further reduced the size of its operations in Plano, Texas through: (i) the termination of the Company’s employment of 104 employees across SSG and related customer service, operations and other personnel; (ii) the decision not to replace 22 employees who left Tekelec during the third quarter of 2006; and (iii) the termination of approximately 25 contractors.

In addition, as a result of the relocation of the Company’s corporate headquarters to North Carolina from California, the California-based Senior Vice President, Corporate Affairs and General Counsel of the Company, Ron Buckly, has decided to resign effective December 31, 2006. The Company will incur charges under a retention agreement with Mr. Buckly and is also obligated to pay severance benefits to him under its Officer Severance Plan due to the relocation of the Company’s headquarters.

The Company currently estimates that it will incur charges in the fourth quarter of 2006 in the aggregate amount of approximately $4 to $5 million to cover severance and other costs associated with this SSG reduction in force and the resignation of the Senior Vice President, Corporate Affairs and General Counsel. The Company currently expects to realize estimated annual cost savings from this restructuring activity of $17 to $19 million. Due to the timing of this restructuring, the Company expects to realize the majority of these savings commencing in 2007. These savings are in addition to the estimated $8 million of annual cost savings that the Company expects to realize from its restructuring completed in the second quarter of 2006.

Conference Call

Tekelec has scheduled a conference call for Wednesday, November 1, 2006, for management to discuss third quarter 2006 results. The Company also plans to provide on its web site prior to the commencement of the call certain non-GAAP information for the third quarter and first nine months of 2006 and to discuss during this call certain forward looking information concerning the Company’s prospects for the full year of 2006.

“Live” Webcast and Replay

Tekelec will host a live webcast of its conference call on Wednesday, November 1, 2006 at 4:45 p.m. EDT. To access the webcast, visit Tekelec’s web site located at www.tekelec.com, enter the Investor Relations section and click on the webcast icon. A webcast replay will be available at approximately 7:45 p.m. on November 1 and for 90 days thereafter.

Telephone Replay

A telephone replay of the call will also be available for one week after the live webcast by calling either (800) 642-1687 or (706) 645-9291, and entering the conference ID # 9598613

Non-GAAP Information

Certain non-GAAP financial measures are included in this press release, including a full non-GAAP statement of operations. In the calculation of these measures, Tekelec generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges. Tekelec believes that excluding such items provides investors and management with a representation of the Company’s core operating performance and with information useful in assessing its prospects for the future and underlying trends in Tekelec’s operating expenditures and continuing operations. Management uses such non-GAAP measures and the resulting non-GAAP statements of operations to (i) evaluate financial results;(ii) manage the Company’s operations; and (iii) establish operational goals. Further, each of the individual non-GAAP measures within the non-GAAP statement of operations and the non-GAAP statement of operations itself

Q3 2006 Results

are utilized by the Company’s management and board of directors to determine incentive compensation and evaluate key trends within the business. In addition, since the Company has historically reported non-GAAP measures to the investment community, the Company believes the inclusion of this information provides consistency in our financial reporting. The attachments to this release provide a reconciliation of each of the non-GAAP measures, including the full non-GAAP statement of operations, referred to in this release to the most directly comparable GAAP measure, GAAP net income from continuing operations. The non-GAAP financial measures are not meant to be considered a substitute for the corresponding GAAP financial measures.

FORWARD-LOOKING STATEMENTS

Certain statements made in this press release are forward looking, reflect the Company’s current intent, belief or expectations and involve certain risks and uncertainties. The Company’s actual future performance may not meet the Company’s expectations. As discussed in the Company’s Quarterly Reports on Form 10-Qs (the “Form 10-Qs”) for the 2006 first and second quarter, its Annual Report on Form 10-K for 2005 (the “2005 Form 10-K”) and its other filings with the Securities and Exchange Commission (the “Commission”), the Company’s future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from the Company’s current expectations, in addition to those identified in the Company’s filings with the Commission, include, among others, the impact on future operating results of changes in revenue recognition described in the 2005 Form 10-K, the Form 10-Qs for the 2006 first and second quarter, and prior reports filed with the Commission, the risk of continued losses in the Company’s Switching Solutions Business Unit, the risk that the Company will not realize all the benefits of its restructuring activities and the risk that the Company’s financial results for the full year 2006 or 2007 will not meet the Company’s expectations. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

About Tekelec

Tekelec is a high-performance network applications company that is accelerating the transition to IP Multimedia Subsystem (IMS) networks for service providers around the globe. With its experience at the intersection of network applications and session control, Tekelec creates highly efficient platforms for managing media and delivering network solutions. Corporate headquarters are in Morrisville, N.C., in the Research Triangle Park area, with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com.

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

Q3 2006 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Thousands, except per share data)
Revenues	$	155,179		$	108,368		$	399,151		$	347,877
Cost of sales:
Cost of goods sold		70,174			51,108			180,494			135,334
Amortization of purchased technology		921			1,572			3,473			4,544
Impairment of purchased technology(1)		25,615			—			25,615			—
Total cost of sales		96,710			52,680			209,582			139,878
Gross profit		58,469			55,688			189,569			207,999
Operating expenses:
Research and development		39,736			30,034			112,048			88,797
Sales and marketing		22,782			19,522			68,559			62,009
General and administrative		18,274			16,014			52,143			45,312
Acquired in-process research and development(2)		—			1,210			—			1,210
Restructuring and other(3)		(7	)		1,589			3,412			4,349
Amortization of intangible assets		565			701			1,721			2,282
Impairment of goodwill(1)		75,000			—			75,000			—
Total operating expenses		156,350			69,070			312,883			203,959
Income (loss) from operations		(97,881	)		(13,382	)		(123,314	)		4,040
Other income (expense),net:
Interest income		3,554			1,763			7,081			4,734
Interest expense		(1,000	)		(1,020	)		(2,781	)		(2,925	)
Gain (loss)on sale of investments		—			(2	)		1,794			(1,346	)
Other, net		(496	)		(264	)		(848	)		(946	)
Total other income (expense), net		2,058			477			5,246			(483	)
Income (loss) from continuing operations before provision for income taxes		(95,823	)		(12,905	)		(118,068	)		3,557
Provision for (benefit from) income taxes		(8,306	)		(2,752	)		(16,017	)		7,177
Loss before minority interest		(87,517	)		(10,153	)		(102,051	)		(3,620	)
Minority interest(4)		—			2,602			—			10,248
Income (loss) from continuing operations		(87,517	)		(7,551	)		(102,051	)		6,628
Income from discontinued operations, net of taxes		176,779			3,473			189,354			7,554
Net income (loss)	$	89,262		$	(4,078	)	$	87,303		$	14,182
Earnings (loss) per share from continuing operations:
Basic	$	(1.30	)	$	(0.11	)	$	(1.52	)	$	0.10
Diluted		(1.30	)		(0.11	)		(1.52	)		0.10
Earnings per share from discontinued operations:
Basic	$	2.63		$	0.05		$	2.83		$	0.11
Diluted		2.63			0.05			2.83			0.11
Earnings (loss) per share:
Basic	$	1.33		$	(0.06	)	$	1.30		$	0.22
Diluted		1.33			(0.06	)		1.30			0.21
Weighted average number of shares outstanding:
Basic		67,283			66,113			67,016			65,811
Diluted(5)		67,283			66,113			67,016			68,042

Q3 2006 Results

Notes to Unaudited Condensed Consolidated Statements of Operations (in thousands):

(1)	For both the three and nine months ended September 30, 2006, impairment of purchased technology and of goodwill amount to $25,615 and $75,000, respectively. Both impairment charges are related to one of our reporting units, consisting of our Santera and VocalData product lines within our Switching Solutions Business Unit
(2)	For both the three and nine months and year ended September 30, 2005, the write-off of in-process research and development amounted to $1,210 and related to our acquisition of iptelorg in the second quarter of 2005.
(3)	This amount represents restructuring and other costs related principally to reductions in staff associated with the (i) restructuring of our operations in June 2006 (the “2006 Restructuring”), (ii) our corporate headquarters and Taqua relocations in 2005, and (iii) the relocation of our manufacturing operations in 2004. The 2006 Restructuring involved the termination of approximately 60 employees across all of our business units, customer service organization and operations group. The majority of the terminated employees worked directly for or in support of the Switching Solutions Business Unit based in Plano, Texas. The estimated annual operating cost savings resulting from the 2006 Restructuring is expected to be between $8.0 and $8.5 million.
(4)	On October 3, 2005, we acquired the remaining shares of Santera capital stock held by the minority shareholders and on that date, Santera became a wholly owned subsidiary of Tekelec. For all periods presented, the results of Santera are included in the consolidated results of operations of Tekelec. The consolidated provision for income taxes does not include any benefit from the losses generated by Santera prior to October 3, 2005 due to the following:

– Prior to October 3, 2005, Santera’s losses could not be included on Tekelec’s consolidated federal tax return because its ownership interest in Santera did not meet the threshold to consolidate under income tax rules and regulations.

– Prior to October 3, 2005, a full valuation allowance had been established on the income tax benefits generated by Santera as a result of Santera’s historical operating losses.

(5) For the three months ended September 30, 2006 and 2005, the calculation of consolidated diluted earnings per share (including discontinued operations) excludes the add-back to net income of $581 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. For the nine months ended September 30, 2006 and 2005, the calculation of diluted earnings per share excludes the add-back to net income of $1,743 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the three months ended September 30, 2006 and 2005 and for the nine months ended September 30, 2006 and 2005 excludes 6,361 shares related to the convertible debt using the “if-converted” method.

Q3 2006 Results

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006		2005			2006		2005
	(Thousands, except per share data)
Revenues	$	155,179	$	108,368		$	399,151	$	347,877
Cost of sales:
Cost of goods sold		68,746		50,529			176,249		133,585
Gross profit		86,433		57,839			222,902		214,292
Operating expenses:
Research and development		36,047		30,005			101,171		88,622
Sales and marketing		21,141		19,522			63,356		62,009
General and administrative		15,948		15,198			45,398		43,064
Total operating expenses		73,136		64,725			209,925		193,695
Income (loss) from operations		13,297		(6,886	)		12,977		20,597
Interest and other income (expense), net		2,058		477			3,453		861
Income from continuing operations before provision for income taxes		15,355		(6,409	)		16,430		21,458
Provision for income taxes (2)		4,127		(1,123	)		4,515		11,902
Income (loss) before minority interest		11,228		(5,286	)		11,915		9,556
Minority interest		—		2,210			—		8,280
Net income (loss)	$	11,228	$	(3,076	)	$	11,915	$	17,836
Earnings (loss) per share from continuing operations:
Basic	$	0.17	$	(0.05	)	$	0.18	$	0.27
Diluted (3)		0.16		(0.05	)		0.17		0.26
Weighted average number of shares outstanding-continuing operations:
Basic		67,283		66,113			67,016		65,811
Diluted (3)		74,414		66,113			68,420		68,042

Notes to Unaudited Non-GAAP Statements of Operations (in thousands):

(1)	Please refer to the attached reconciliation of the GAAP Statements of Operations to the above Non-GAAP Statements of Operations.
(2)	The above Non-GAAP Statements of Operations assume effective income tax rates of 27% and 27.5% for the three and nine months ended September 30, 2006, respectively, and effective income tax rates of 17.5% and 55.5% for the three and nine months ended September 30, 2005, respectively. For the three and nine months ended September 30, 2005, there were no income tax benefits associated with the losses generated by Santera.
(3)	For the three months ended September 30, 2006, the calculation of diluted earnings per share includes the add-back to net income of $581 for assumed after-tax interest cost related to the convertible debt using the “if-converted” method of accounting for diluted earnings per share. The weighted average number of shares outstanding for the three months ended September 30, 2006 includes 6,361 shares related to the convertible debt using the “if-converted” method. For the three months ended September 30, 2005 and both the nine months ended September 30, 2006 and 2005, these adjustments were excluded from the calculation of diluted earnings per share as these adjustments were anti-dilutive.

Q3 2006 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2006			2005
	(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	45,827		$	52,069
Short-term investments, at fair value		380,953			174,260
Total cash, cash equivalents and short-term investments		426,780			226,329
Accounts receivable, net		131,610			115,789
Inventories		53,868			43,906
Deferred income taxes		33,224			27,456
Deferred costs and prepaid commissions		81,060			81,796
Prepaid expenses and other current assets		22,110			15,298
Assets of discontinued operations		—			18,647
Total current assets		748,652			529,221
Property and equipment, net		46,577			40,474
Investments in privately held companies		7,322			7,322
Deferred income taxes, net		68,193			68,585
Other assets		3,620			6,047
Goodwill		40,882			116,324
Intangible assets, net		25,595			57,214
Total assets	$	940,841		$	825,187
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	33,204		$	32,347
Accrued expenses		44,805			47,960
Accrued payroll and related expenses		25,905			28,156
Short-term notes and current portion of notes payable		—			96
Current portion of deferred revenues		219,197			208,278
Income taxes payable		6,926			—
Liabilities of discontinued operations		—			23,279
Total current liabilities		330,037			340,116
Long-term convertible debt		125,000			125,000
Deferred income taxes		1,531			1,694
Long-term portion of deferred revenues		6,050			5,217
Total liabilities		462,618			472,027
Commitments and Contingencies (Note 11)
Shareholders’ equity:
Common stock, without par value, 200,000,000 shares authorized; 68,034,457 and 66,838,310 shares issued and outstanding, respectively		305,807			274,413
Deferred stock-based compensation		—			(5,680	)
Retained earnings		172,969			85,666
Accumulated other comprehensive income (loss)		(553	)		(1,239	)
Total shareholders’ equity	$	478,223		$	353,160
Total liabilities and shareholders’ equity	$	940,841		$	825,187

Q3 2006 Results

TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

	Nine Months Ended
	September 30,
	2006			2005
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	87,303		$	14,182
Income from discontinued operations		(189,354	)		(7,554	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (gain) on investments		(1,794	)		1,346
Minority interest		—			(10,248	)
Impairment of purchased technology		25,615			—
Impairment of goodwill		75,000			—
Provision for doubtful accounts and returns		457			3,066
Write-off of leasehold improvements and other assets relating to restructuring		—			191
Depreciation		17,109			13,689
Amortization of intangibles		6,004			7,807
Amortization, other		3,016			5,331
Acquired in-process research and development		—			1,210
Deferred income taxes		(5,725	)		(134	)
Stock-based compensation		26,707			2,697
Tax benefit related to stock options		—			1,822
Excess tax benefits from stock-based compensation		(448	)		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(16,149	)		12,683
Inventories		(9,953	)		(17,087	)
Income tax payable		(21,950	)		(6,088	)
Prepaid expenses and other current assets		(5,345	)		(18,693	)
Trade accounts payable		772			(568	)
Accrued expenses		(3,429	)		(262	)
Accrued payroll and related expenses		(2,387	)		947
Deferred revenues		11,501			27,745
Net cash provided by (used in) operating activities – continuing operations		(3,050	)		32,082
Net cash provided by operating activities – discontinued operations		12,566			13,330
Net cash provided by operating activities		9,516			45,412
Cash flows from investing activities:
Proceeds from sales and maturities of investments		656,743			346,884
Purchases of investments		(862,441	)		(314,490	)
Purchases of property and equipment		(23,202	)		(21,671	)
Cash paid for iptelorg, net of cash acquired		—			(6,894	)
Purchase of technology		—			(4,000	)
Change in other assets		1,858			865
Net cash provided by (used in) investing activities – continuing operations		(227,042	)		694
Net cash provided by (used in) investing activities – discontinued operations		199,902			(158	)
Net cash provided by (used in) investing activities		(27,140	)		536
Cash flows from financing activities:
Payments on notes payable and capital leases		(96	)		(1,427	)
Proceeds from issuance of common stock		10,781			9,599
Excess tax benefits from stock-based compensation		448			—
Net cash provided by financing activities		11,133			8,172
Effect of exchange rate changes on cash		249			(3	)
Net change in cash and cash equivalents		(6,242	)		54,117
Cash and cash equivalents at beginning of period		52,069			48,925
Cash and cash equivalents at end of period		45,827			103,042
Cash and cash equivalents of discontinued operations at end of period		—			788
Cash and cash equivalents at end of period	$	45,827		$	102,254

Q3 2006 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING OPERATIONS

	Three Months Ended September 30, 2006
	(thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues	$	155,179		$	—		$	155,179
Costs and expenses:
Cost of sales:
Cost of goods sold		70,174			(1,158	)(1)		68,746
					(270	)(2)
Amortization of purchased technology		921			(921	)(2)		—
Impairment of purchased technology		25,615			(25,615	)(3)		—
Total cost of sales		96,710			(27,964	)		68,746
Gross profit		58,469			27,964			86,433
Research and Development		39,736			(3,689	)(1)		36,047
Sales and Marketing		22,782			(1,641	)(1)		21,141
General and administrative		18,274			(2,326	)(1)		15,948
Restructuring and other		(7	)		7	(4)		—
Amortization of intangible assets		565			(565	)(2)		—
Impairment of goodwill		75,000			(75,000	)(3)		—
Total operating expenses		156,350			(83,214	)		73,136
Income (loss) from operations		(97,881	)		111,178			13,297
Interest and other income (expense), net		2,058			—			2,058
Income (loss) from continuing operations before provision for income taxes		(95,823	)		111,178			15,355
Provision for income taxes		(8,306	)		12,433	(5)		4,127
Income (loss) from continuing operations	$	(87,517	)	$	98,745		$	11,228
Earnings (loss) per share:
Basic		(1.30	)				$	0.17
Diluted (6)		(1.30	)					0.16
Earnings per share weighted average number of shares outstanding:
Basic		67,283						67,283
Diluted (6)		67,283						74,414

Q3 2006 Results

Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:
 

(1)	The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock purchase rights granted under our employee stock purchase plans.
(2)	The adjustments represent the amortization of purchased technology, other intangibles and acquired backlog related to the acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3)	The adjustment represents the elimination of the impairment charges incurred related to the intangible assets and the goodwill associated with our Switching reporting segment.
(4)	The adjustment represents the changes in estimates relating to our 2006 Restructuring.
(5)	The adjustment represents the income tax effect of footnotes (1), (2), (3), and in order to reflect our non-GAAP effective tax rate of 27%.
(6)	For the three months ended September 30, 2006, the calculations of non-GAAP diluted earnings per share include a potential add-back to net income of $581,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method.

Q3 2006 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING OPERATIONS

	Three Months Ended September 30, 2005
	(thousands, except per share data)
				IEX			GAAP						Non-GAAP
	Tekelec			(Discontinued			Continuing						Continuing
	(w/ IEX)			Operations)			Operations			Adjustments			Operations
Revenues	$	120,980		$	(12,612	)	$	108,368		$	—		$	108,368
Costs and expenses:
Cost of sales:
Cost of goods sold		53,791			(2,683	)		51,108			(203	)(1)		50,529
											(376	)(2)
Amortization of purchased technology		1,572			—			1,572			(1,572	)(2)		—
Impairment of purchased technology		—			—			—			—			—
Total cost of sales		55,363			(2,683	)		52,680			(2,151	)		50,529
Gross profit		65,617			(9,929	)		55,688			2,151			57,839
Research and Development		31,688			(1,654	)		30,034			(29	)(1)		30,005
Sales and Marketing		21,636			(2,114	)		19,522			—			19,522
General and administrative		16,735			(721	)		16,014			(816	)(1)		15,198
Acquired in-process research and development		1,210			—			1,210			(1,210	)(3)		—
Restructuring and other		1,589			—			1,589			(1,589	)(4)		—
Amortization of intangible assets		701			—			701			(701	)(2)		—
Impairment of goodwill		—			—			—			—			—
Total operating expenses		73,559			(4,489	)		69,070			(4,345	)		64,725
Income (loss) from operations		(7,942	)		(5,440	)		(13,382	)		6,496			(6,886	)
Interest and other income (expense), net		577			(100	)		477			—			477
Income (loss) from continuing operations before provision for income taxes		(7,365	)		(5,540	)		(12,905	)		6,496			(6,409	)
Provision for income taxes		(685	)		(2,067	)		(2,752	)		1,629	(5)		(1,123	)
Income (loss) before minority interest		(6,680	)		(3,473	)		(10,153	)		4,867			(5,286	)
Minority Interest		2,602			—			2,602			(392	)(6)		2,210
Income (loss) from continuing operations	$	(4,078	)	$	(3,473	)	$	(7,551	)	$	4,475		$	(3,076	)
Earnings (loss) per share:
Basic	$	(0.06	)				$	(0.11	)				$	(0.05	)
Diluted (7)		(0.06	)					(0.11	)					(0.05	)
Earnings per share weighted average number of shares outstanding:
Basic		66,113						66,113						66,113
Diluted (7)		66,113						66,113						66,113

Q3 2006 Results

Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:

(1)	The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock, restricted stock units and stock purchase rights granted under our employee stock purchase plans.
(2)	The adjustments represent the amortization of purchased technology, other intangibles and acquired backlog related to the acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3)	The adjustment represents acquired in-process research and development relating to the acquisition of iptelorg.
(4)	The adjustment represents restructuring and other costs related to our manufacturing, corporate headquarters and Taqua relocations.
(5)	The adjustment represents the income tax effect of footnotes (1), (2), and (4) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.
(6)	The adjustment represents the minority interest impact of footnote (2).
(7)	For the three months ended September 30, 2005, the calculations of diluted earnings per share exclude a potential add-back to net income of $581,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method as the effects of including such amounts are anti-dilutive.

Q3 2006 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING OPERATIONS

	Nine Months Ended September 30, 2006
	(thousands, except per share data)
	GAAP						Non-GAAP
	Continuing						Continuing
	Operations			Adjustments			Operations
Revenues	$	399,151		$	—		$	399,151
Costs and expenses:
Cost of sales:
Cost of goods sold		180,494			(3,435	)(1)		176,249
					(810	)(2)
Amortization of purchased technology		3,473			(3,473	)(2)		—
Impairment of purchased technology		25,615			(25,615	)(3)		—
Total cost of sales		209,582			(33,333	)		176,249
Gross profit		189,569			33,333			222,902
Research and Development		112,048			(10,877	)(1)		101,171
Sales and Marketing		68,559			(5,203	)(1)		63,356
General and administrative		52,143			(6,193	)(1)		45,398
					(342	)(4)
					(210	)(5)
Restructuring and other		3,412			(3,412	)(6)		—
Amortization of intangible assets		1,721			(1,721	)(2)		—
Impairment of goodwill		75,000			(75,000	)(3)		—
Total operating expenses		312,883			(102,958	)		209,925
Income (loss) from operations		(123,314	)		136,291			12,977
Interest and other income (expense), net		5,246			(1,793	)(7)		3,453
Income (loss) from continuing operations before provision for income taxes		(118,068	)		134,498			16,430
Provision for income taxes		(16,017	)		20,532	(8)		4,515
Income (loss) from continuing operations	$	(102,051	)	$	113,966		$	11,915
Earnings (loss) per share:
Basic	$	(1.52	)				$	0.18
Diluted (9)		(1.52	)					0.17
Earnings per share weighted average number of shares outstanding:
Basic		67,016						67,016
Diluted (9)		67,016						68,420

Q3 2006 Results

Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:

(1)	The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock purchase rights granted under our employee stock purchase plans.
(2)	The adjustments represent the amortization of purchased technology, other intangibles and acquired backlog related to the acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3)	The adjustment represents the elimination of the impairment charges incurred related to the intangible assets and the goodwill associated with our Switching reporting segment.
(4)	The adjustment represents $342,000 in legal expenses incurred to settle the IEX vs. Blue Pumpkin litigation.
(5)	The adjustment represents $210,000 in cost associated with the 2006 restatement of our consolidated financial statements.
(6)	The adjustment represents restructuring and other costs related to our 2006 restructuring and changes in estimates relating to the restructuring of our manufacturing, corporate headquarters and Taqua relocations in 2005 and 2004.
(7)	The adjustment represents the gain recognized related to our receipt of 642,610 shares of Lucent that were released from escrow.
(8)	The adjustment represents the income tax effect of footnotes (1) through (7) in order to reflect our non-GAAP effective tax rate of 27.5%.
(9)	For the nine months ended September 30, 2006, the calculations of diluted earnings per share exclude a potential add-back to net income of $1,743,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method as the effects of including such amounts are anti-dilutive.

Q3 2006 Results

TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING OPERATIONS

	Nine Months Ended September 30, 2005
	(thousands, except per share data)
				IEX			GAAP						Non-GAAP
	Tekelec			(Discontinued			Continuing						Continuing
	(w/ IEX)			Operations)			Operations			Adjustments			Operations
Revenues	$	382,571		$	(34,694	)	$	347,877		$	—		$	347,877
Costs and expenses:
Cost of sales:
Cost of goods sold		144,049			(8,715	)		135,334			(271	) (1)		133,585
											(1,478	) (2)
Amortization of purchased technology		4,544			—			4,544			(4,544	) (2)		—
Total cost of sales		148,593			(8,715	)		139,878			(6,293	)		133,585
Gross profit		233,978			(25,979	)		207,999			6,293			214,292
Research and Development		93,546			(4,749	)		88,797			(175	) (1)		88,622
Sales and Marketing		68,888			(6,879	)		62,009			—			62,009
General and administrative		47,564			(2,252	)		45,312			(2,248	) (1)		43,064
Acquired in-process research and development		1,210			—			1,210			(1,210	) (3)		—
Restructuring and other		4,349			—			4,349			(4,349	) (4)		—
Amortization of intangible assets		2,282			—			2,282			(2,282	) (2)		—
Total operating expenses		217,839			(13,880	)		203,959			(10,264	)		193,695
Income (loss) from operations		16,139			(12,099	)		4,040			16,557			20,597
Interest and other income (expense), net		(534	)		51			(483	)		1,344	(5)		861
Income (loss) from continuing operations before provision for income taxes		15,605			(12,048	)		3,557			17,901			21,458
Provision for income taxes		11,671			(4,494	)		7,177			4,725	(6)		11,902
Income (loss) before minority interest		3,934			(7,554	)		(3,620	)		13,176			9,556
Minority Interest		10,248			—			10,248			(1,968	) (7)		8,280
Income (loss) from continuing operations	$	14,182		$	(7,554	)	$	6,628		$	11,208		$	17,836
Earnings (loss) per share:
Basic	$	0.22					$	0.10					$	0.27
Diluted (8)		0.21						0.10						0.26
Earnings per share weighted average number of shares outstanding:
Basic		65,811						65,811						65,811
Diluted (8)		68,042						68,042						68,042

Q3 2006 Results

Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:

(1)	The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock, restricted stock units and stock purchase rights granted under our employee stock purchase plans.
(2)	The adjustments represent the amortization of purchased technology, other intangibles and acquired backlog related to the acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3)	The adjustment represents acquired in-process research and development relating to the acquisition of iptelorg.
(4)	The adjustment represents restructuring and other costs related to our manufacturing, corporate headquarters and Taqua relocations.
(5)	The adjustment represents a realized loss on the sale of Santera’s holdings of Alcatel shares received in conjunction with warrants exercised in December 2004.
(6)	The adjustment represents the income tax effect of footnotes (1), (2), (4) and (5) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera.
(7)	The adjustment represents the minority interest impact of footnotes (2) and (5).
(8)	For the nine months ended September 30, 2005, the calculations of diluted earnings per share exclude a potential add-back to net income of $1,743,000 for assumed after-tax interest cost and 6,361,000 weighted average shares related to the convertible debt using the “if-converted” method as the effects of including such amounts are anti-dilutive.