EX-99.1 2 v06236exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 TEKELEC ANNOUNCES Q4 RESULTS; ACHIEVES ORDERS OF $159.7 MILLION AND REVENUE OF $115.9 MILLION; ANNOUNCES SBC AS NEW SIGNALING CUSTOMER CALABASAS, CA (Feb 24, 2005)... Tekelec (Nasdaq: TKLC) today reported financial results for its fourth quarter and year ended December 31, 2004. Revenue for the fourth quarter of 2004 was $115.9 million, compared to $75.0 million in the fourth quarter of 2003. On a GAAP basis, Tekelec's net income was $13.3 million, or $0.18 per diluted share, for the fourth quarter of 2004, compared to net income of $7.3 million, or $0.11 per diluted share, in the fourth quarter of 2003. Fourth quarter 2004 net income includes a $3.8 million one-time, non-cash charge for the write-off of acquired in-process research and development related to the Steleus acquisition and a $20.3 million gain on Santera's warrants in Spatial Wireless common stock. Non-GAAP net income for the fourth quarter of 2004, which excludes the effects of acquisition-related amortization, the write-off of acquired in-process research and development, the restructuring charge related to our manufacturing move, and the gain recognized on Santera's warrants in Spatial Wireless common stock, was $11.9 million, or $0.17 per diluted share, compared to non-GAAP net income of $8.9 million, or $0.13 per diluted share, in the fourth quarter of 2003. Orders received in the fourth quarter for Tekelec products and services were $159.7 million, compared to $138.1 million in the fourth quarter in 2003. Revenue for the full year 2004 was $397.1 million compared to $263.7 million in 2003. GAAP net income for the full year 2004 was $37.6 million, compared to $18.5 million in 2003. Net income for 2004 includes $14.2 million in non-cash charges for the write-off of acquired in-process research and development related to the Taqua, VocalData, and Steleus acquisitions, a $9.9 million pre-tax gain on Tekelec's investment in Telica, a $2.2 million pre-tax gain on the settlement of the Catapult convertible notes, and a $20.3 million gain on Santera's warrants in Spatial Wireless common stock. Net income for 2003 includes a $2.9 million one-time, non-cash charge for the write-off of acquired in-process research and development related to the Santera acquisition and a $3.3 million gain on disposal of discontinued operations. Non-GAAP net income for 2004 was $44.3 million, or $0.64 per diluted share, compared to non-GAAP net income of $23.7 million, or $0.38 per diluted share, for 2003. Non-GAAP results for the full year 2004 exclude the effects of acquisition-related amortization, restructuring charges related to the manufacturing move, the write-offs of in-process research and development, the write-off of certain acquired intangibles as a result of our previously announced rebranding activities, the gain on Tekelec's investment in Telica, the gain on the settlement of the Catapult convertible notes, and the gain on Santera's warrants in Spatial Wireless common stock. Tekelec President and CEO Fred Lax commented, "As we recently announced, Tekelec has concluded its discussions with the SEC regarding the accounting for the acquisition of the Company's majority interest in its Santera subsidiary and the allocation of Santera's profits and losses between Tekelec and Santera's minority shareholders following the acquisition. The discussions resulted in no changes to the Company's prior accounting for the Santera acquisition, and Tekelec's previously issued financial statements are correct as previously reported. "I am pleased to report that Tekelec's performance in the fourth quarter was strong, with both revenue and earnings ahead of guidance. As we described in our earlier release, the $115.9 million of revenue this quarter is the highest in the history of the Company, increasing 9% sequentially and 54% year-over-year. The $159.7 million of orders generated during the quarter, a 16% increase year-over-year, is also the highest total in the history of the Company, surpassing the previous order record of $151 million achieved in Q3 `04. The book-to-bill ratio of approximately 1.4 indicates the continuing strength of Tekelec's business, with all Groups achieving a book-to-bill ratio above 1. For the full year, the order total of $520.1 million and revenues of $397.1 million represent a 54% order increase and 51% revenue increase over the 2003 totals, producing a 1.3 book-to-bill for the full year. These full year order, revenue, and book-to-bill ratios are all records for the Company. Finally, regarding global expansion, approximately 31% of sales during the quarter were from outside the U.S., demonstrating the progress we are making on our global expansion efforts. "Since we announced partial results a few weeks ago, I would like to highlight an important customer announcement reflecting our continued progress on our signaling solutions strategic initiative. We are delighted to announce a five-year contract with SBC Services to deploy Tekelec's Eagle 5 platform with LNP to upgrade the SBC signaling network. Over the next three to five years, approximately 20 Eagle systems will be activated in the SBC network. This is a significant customer win for Tekelec which highlights the ongoing growth opportunities for our signaling platform in the U.S. market and further confirms our ability to displace incumbent signaling providers." GROUP REVENUE RESULTS The year-over-year Group revenue results are as follows:
REVENUE ($ IN MILLIONS) GROUP Q4 2004 Q4 2003 Switching Solutions $20.4 $5.7 Network Signaling $78.9 $55.8 Communications Software (1) $5.1 $4.2 IEX Contact Center $11.5 $9.3
(1) As a result of the Steleus acquisition, a new operating Group, Communications Software Solutions, was created in Q4 2004. This Group consists of the Steleus solutions and Tekelec's existing business intelligence applications and other network element independent solutions that were previously reported as part of the Network Signaling Group. The revenue related to these products was reclassified from the Network Signaling Group to the Communications Software Solutions Group for 2003 and 2004. The Communications Software Solutions Group revenue for Q4 2003 does not include any Steleus revenue.
Q1 FINANCIAL GUIDANCE Q1 2005 GUIDANCE Q1 2004 ACTUAL RESULTS Total Revenues: $114.0 million - $117.0 million $78.9 million GAAP Net Income $0.07 - $0.09 per diluted share(1) $0.09 per diluted share
---------- (1) For the 1st quarter of 2005, Tekelec expects expenses to include amortization of acquired intangibles and amortization of non-cash stock based deferred compensation of approximately $3.0 million, pre-tax. Lax concluded, "The sequential revenue growth, strong book-to-bill ratio, on-going profitability and positive cash flow from operations achieved in the quarter demonstrate the traction we are gaining on our strategic objectives focused on signaling solutions, expanding our portfolio of value-added applications, developing our next-gen switching solutions, and prudently pursuing global expansion. As we look to 2005, we are confident that our approach of investing consistent with these strategic objectives has positioned us to take advantage of future growth opportunities." ABOUT TEKELEC Tekelec is a leading developer of now and next-generation switching and signaling telecommunications solutions, network performance management technology, and value-added applications. Tekelec's innovative solutions are widely deployed in traditional and next-generation wireline and wireless networks and contact centers worldwide. Corporate headquarters are located in Calabasas, CA. with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com. NON-GAAP INFORMATION Certain non-GAAP financial measures are included in this press release. In the calculation of these measures, Tekelec excludes certain items such as amortization of acquired intangibles, discontinued operations, non-cash stock based compensation charges, and unusual, non-recurring 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 our prospects for the future and underlying trends in Tekelec's operating expenditures and continuing operations. Management uses such non-GAAP measures to evaluate financial results and to establish operational goals. In addition, since the Company has historically reported non-GAAP measures to the investment community, we believe the inclusion of this information provides consistency in our financial reporting. The attachments to this release provide a reconciliation of non-GAAP net income 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 news release are forward looking, reflect the Company's current intent, belief or expectations and involve certain risks and uncertainties. There can be no assurance that the Company's actual future performance will meet the Company's expectations. As discussed in the Company's 2003 Annual Report on Form 10-K and other filings with the SEC, 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 include, among others: overall telecommunications spending, changes in general economic conditions, the timing of significant orders and shipments, the lengthy sales cycle for the Company's products, the timing of the convergence of voice and data networks, the success or failure of strategic alliances or acquisitions including the success or failure of the integration of Santera,Taqua, Steleus, and VocalData's operations with those of the Company, the ability of carriers to utilize excess capacity of signaling infrastructure and related products in their networks, the capital spending patterns of customers, the dependence on wireless customers for a significant percentage and growth of the Company's revenues, the timely development and introduction of new products and services, product mix, the geographic mix of the Company's revenues and the associated impact on gross margins, market acceptance of new products and technologies, carrier deployment of intelligent network services, the ability of our customers to obtain financing, the timing of revenue recognition of multiple elements in an arrangement sold as part of a bundled solution, the level and timing of research and development expenditures, regulatory changes, and the expansion of the Company's marketing and support organizations, both domestically and internationally. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. TEKELEC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 ---------------------------------------------------- (thousands, except earnings per share data) REVENUES $ 115,948 $ 75,025 $ 397,072 $ 263,700 COSTS AND EXPENSES: Cost of goods sold 32,429 14,688 101,451 58,697 Amortization of purchased technology 2,175 3,076 9,128 11,178 Research and development 27,943 22,145 98,192 73,328 Selling, general and administrative 43,757 29,566 151,796 104,247 Acquired in-process research and development 3,800 -- 14,200 2,900 Amortization of intangibles 801 532 2,505 1,900 Restructuring(1) 339 -- 1,666 -- --------- --------- --------- --------- Income (Loss) from operations 4,704 5,018 18,134 11,450 Interest and other income (expense), net 309 954 461 (2,483) Gain on warrants in privately-held company 20,321 -- 20,321 -- Gain on notes receivable -- -- 2,186 -- Gain on investment in privately-held company -- -- 9,869 -- --------- --------- --------- --------- Income (Loss) from continuing operations before provision for income taxes 25,334 5,972 50,971 8,967 Provision for income taxes(2) 7,028 5,966 34,106 13,600 --------- --------- --------- --------- Income (Loss) from continuing operations before minority interest 18,306 6 16,865 (4,633) Minority interest (5,004) 7,272 20,719 19,792 --------- --------- --------- --------- INCOME FROM CONTINUING OPERATIONS 13,302 7,278 37,584 15,159 --------- --------- --------- --------- Gain on disposal of discontinued operation(3) -- -- -- 3,293 NET INCOME (LOSS) $ 13,302 $ 7,278 $ 37,584 $ 18,452 ========= ========= ========= ========= EARNINGS PER SHARE FROM CONTINUING OPERATIONS Basic $ 0.21 $ 0.12 $ 0.60 $ 0.25 Diluted(4) 0.18 0.11 0.55 0.24 --------- --------- --------- --------- EARNINGS PER SHARE FROM GAIN ON DISPOSAL OF DISCONTINUED OPERATION Basic $ -- $ -- $ -- $ 0.05 Diluted(4) -- -- -- 0.05 --------- --------- --------- --------- EARNINGS PER SHARE Basic $ 0.21 $ 0.12 $ 0.60 $ 0.30 Diluted(4) 0.18 0.11 0.55 0.29 --------- --------- --------- --------- EARNINGS PER SHARE WEIGHTED AVERAGE NUMBER of shares outstanding: Basic 64,861 61,481 63,131 61,163 Diluted(4) 75,331 70,544 72,683 62,911
Notes to Condensed Consolidated Statements of Operations (000's): (1) This amount represents restructuring costs related to the relocation of our manufacturing operations. (2) For the three months and year ended December 31, 2004, Santera, a majority-owned company, is 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 due to the following: - Santera's losses cannot be included on Tekelec's consolidated federal tax return because its ownership interest in Santera does not meet the threshold to consolidate under income tax rules and regulations. - A full valuation allowance has been established on the income tax benefits generated by Santera as a result of Santera's historical operating losses. (3) The sale of the Network Diagnostics Division in August 2002 resulted in a gain on the disposal of discontinued operation for the year ended December 31, 2003 and was due to the settlement of the final working capital adjustment in accordance with the asset purchase agreement. (4) For the three months and year ended December 31, 2004 and the three months ended December 31, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $581, $2,324, and $590, respectively, 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 and year ended December 31, 2004 and the three months ended December 31, 2003 includes 6,361 shares, respectively, related to the convertible debt using the "if-converted" method. For the year ended December 31, 2003, the results of the "if-converted" calculations are anti-dilutive and therefore excluded form earnings per share. TEKELEC NON-GAAP (1) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 ------------------------------------------------------------ (thousands, except per share data) REVENUES $ 115,948 $ 75,025 $ 397,072 $ 263,700 COSTS AND EXPENSES: Cost of goods sold 32,620 14,931 102,247 59,349 Research and development 27,747 22,145 97,764 73,328 Selling, general and administrative 42,993 29,566 150,469 104,247 --------- --------- --------- --------- Income from operations 12,588 8,383 46,592 26,776 Interest and other income (expense), net 309 954 461 (1,437) --------- --------- --------- --------- Income before provision for income taxes 12,897 9,337 47,053 25,339 Provision for income taxes (2) 8,294 6,523 33,421 17,089 --------- --------- --------- --------- Income before minority interest 4,603 2,814 13,632 8,250 Minority interest 7,319 6,107 30,657 15,469 --------- --------- --------- --------- NON-GAAP NET INCOME $ 11,922 $ 8,921 $ 44,289 $ 23,719 --------- --------- --------- --------- NON-GAAP EARNINGS PER SHARE Basic $ 0.18 $ 0.15 $ 0.70 $ 0.39 Diluted 0.17 0.13 0.64 0.38 ========= ========= ========= ========= Non-GAAP earnings per share weighted average number of shares outstanding: Basic 64,861 61,481 63,131 61,163 Diluted 75,331(3) 70,544(4) 72,683(3) 62,911(4)
Notes to Non-GAAP Condensed Consolidated Statements of Operations (000's): (1) The above Non-GAAP Statements of Operations exclude the effects of the following: - For the three months and year ended December 31, 2004, restructuring costs related to the relocation of our manufacturing operations amounted to $339 and $1,666, respectively. - For the three months and year ended December 31, 2004, amortization of deferred stock compensation related to stock options and restricted stock units granted amounted to $964 and $1,433, respectively. - For three months and year ended December 31, 2004 the amortization of purchased technology and other intangibles related to the acquisitions of Santera, Taqua, VocalData and Steleus amounted to $2,781 and $10,827, respectively. The related income tax benefits for the three months and year ended December 31, 2004 were $818 and $2,340, respectively. For the three months and year ended December 31, 2004, the write-off of in-process research and development related to the acquisition of Steleus was $3,800. For the year ended December 31, 2004, the write-off of in-process research and development related to the acquisitions of Taqua and VocalData were $8,000 and $2,400, respectively. - For the three months and year ended December 31, 2003, the amortization of purchased technology and other tangibles related to the acquisition of IEX and Santera amounted to $3,365 and $12,426, respectively. The related income tax benefits for the three months and year ended December 31, 2003 were $557 and $3,133, respectively. For the year ended December 31, 2003, the write-off of in-process research and development related to the acquisition of Santera was $2,900. The minority interest impact of the amortization and write-off for the three months and year ended December 31, 2003 was $1,165 and $4,323, respectively. - For the three months and year ended December 31, 2004, a gain of $20,321 on Santera's warrants in Spatial Wireless common stock. - For the year ended December 31, 2004, a gain of $2,186 on the settlement of our convertible notes receivable from Catapult. - For the year ended December 31, 2004, a gain of $9,869 on the sale of our investment in Telica. - For the year ended December 31, 2003 write-off of bond issuance costs of $1,046 related to the July 2003 retirement of the convertible debt issued in 1999. - For the year ended December 31, 2003, the gain on disposal of discontinued operation of $3,293, net of income taxes, related to the sale of the Network Diagnostics Division. (2) The above Non-GAAP Statements of Operations assume an effective income tax rate of 35% and 34% for the Tekelec business excluding Santera for the three months and year ended December 31, 2004 and 2003, respectively. There were no income tax benefits associated with the losses generated by Santera. (3) For the three months and year ended December 31, 2004, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $581 and $2,324, respectively 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 both the three months and year ended December 31, 2004 includes 6,361 shares related to the convertible debt using the "if-converted" method. (4) For the three months ended December 31, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $590 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 December 31, 2003 includes 6,361 shares related to the convertible debt using the "if-converted" method. TEKELEC CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, December 31, 2004 2003 (unaudited) ------------------------- (thousands) ASSETS Current assets: Cash and cash equivalents $ 48,925 $ 45,261 Short-term investments, at fair value 136,851 83,800 Accounts receivable, net 107,850 52,781 Current portion of notes receivable ($17,300 principal amount) -- 17,580 Inventories 33,654 21,434 Deferred income taxes, net 29,307 4,958 Prepaid expenses and other current assets 44,639 22,088 -------- -------- Total current assets 401,226 247,902 Long-term investments, at fair value 93,622 210,298 Property and equipment, net 30,617 22,172 Investments in privately-held companies 7,322 17,322 Deferred income taxes 34,285 7,876 Other assets 6,757 6,342 Goodwill, net 130,174 68,903 Intangible assets, net 83,538 34,118 -------- -------- Total assets $787,541 $614,933 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of deferred revenues $ 92,182 $ 50,105 Other current liabilities 96,055 62,758 -------- -------- Total current liabilities 188,237 112,863 Long-term convertible debt 125,000 125,000 Long-term portion of notes payable 78 2,574 Long-term portion of deferred revenues 2,187 3,687 Deferred income taxes 20,600 790 -------- -------- Total liabilities 336,102 244,914 -------- -------- Minority interest 20,489 41,208 -------- -------- Total shareholders' equity 430,950 328,811 -------- -------- Total liabilities and shareholders' equity $787,541 $614,933 ======== ========
TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited)
THREE MONTHS ENDED DECEMBER 31, 2004 GAAP ADJUSTMENTS NON-GAAP -------------------------------------------------- (thousands, except per share data) REVENUES $ 115,948 $ -- $ 115,948 COSTS AND EXPENSES: Cost of goods sold 32,429 (579)(1)(2) 31,850 Amortization of purchased technology 2,175 (1,405)(2) 770 ------------- ------- ---------- Total cost of sales 34,604 (1,984) 32,620 ------------- ------- ---------- GROSS PROFIT 81,344 70.2% 1,984 83,328 71.9% ------------- ------- ---------- Research and development 27,943 (196)(1) 27,747 Selling, general and administrative 43,757 (764)(1) 42,993 Acquired in-process research and development 3,800 (3,800)(2) -- Amortization of intangibles 801 (801)(2) -- Restructuring 339 (339)(3) -- ------------- ------- ---------- Total operating expenses 76,640 (5,900) 70,740 ------------- ------- ---------- Income (Loss) from operations 4,704 7,884 12,588 Interest and other income (expense), net 309 -- 309 Gain on warrants in a privately-held company 20,321 (20,321)(4) -- ------------- ------- ---------- Income (Loss) from continuing operations before provision for income taxes 25,334 (12,437) 12,897 Provision for income taxes 7,028 1,266(5) 8,294 ------------- ------- ---------- Income (Loss) from continuing operations before minority interest 18,306 (13,703) 4,603 Minority Interest (5,004) 12,323(6) 7,319 ------------- ------- ---------- NET INCOME (LOSS) $ 13,302 $ (1,380) $ 11,922 ============= ========= ========== Earnings per share Basic $ 0.21 $ 0.18 Diluted (7) 0.18 0.17 ------------- ------- ---------- Earnings per share weighted average number of shares outstanding: Basic 64,861 64,861 Diluted (7) 75,331 75,331 ============= ========= ==========
(1) The adjustments represent the amortization of deferred stock compensation related to stock options and restricted stock units assumed or granted in 2004. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of Santera, Taqua, VocalData and Steleus and the write-off of acquired in-process research and development related to the acquisition of Steleus. (3) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (4) The adjustment represents a gain on Santera's warrants in Spatial Wireless common stock. (5) The adjustments represents the income tax effect of footnotes (1), (2), (3), 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) and (4). (7) For the three months ended December 31, 2004, the calculation of earnings per share includes for the purpose of calculation 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 December 31, 2004 includes 6,361 shares related to the convertible debt using the "if-converted" method. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited)
THREE MONTHS ENDED DECEMBER 31, 2003 GAAP ADJUSTMENTS NON-GAAP -------------------------------------------------------- (thousands, except per share data) Revenues $ 75,025 $ -- $ 75,025 Costs and expenses: Cost of goods sold 14,688 -- 14,688 Amortization of purchased technology 3,076 (2,833)(1) 243 ------------- ------------- ----------- Total cost of sales 17,764 (2,833) 14,931 ------------- ------------- ----------- Gross Profit 57,261 76.3% 2,833 60,094 80.1% ------------- ------------- ----------- Research and development 22,145 -- 22,145 Selling, general and administrative 29,566 -- 29,566 Amortization of intangibles 532 (532)(1) -- ------------- ------------- ----------- Total operating expenses 52,243 (532) 51,711 ------------- ------------- ----------- Income from operations 5,018 3,365 8,383 Interest and other income (expense), net 954 -- 954 ------------- ------------- ----------- Income from continuing operations before provision for income taxes 5,972 3,365 9,337 Provision for income taxes 5,966 557(2) 6,523 ------------- ------------- ----------- Income from continuing operations before minority interest 6 2,808 2,814 Minority interest 7,272 (1,165) 6,107 ------------- ------------- ----------- Net income $ 7,278 $ 1,643 8,921 ============= ============= =========== EARNINGS PER SHARE: Basic $ 0.12 $ 0.15 Diluted (4) 0.11 0.13 ============= ============= =========== EARNINGS PER SHARE WEIGHTED AVERAGE NUMBER of shares outstanding: Basic 61,481 61,481 Diluted (4) 70,544 70,544 ------------- ------------- -----------
(1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX and Santera. (2) The adjustment represents the income tax effect of the adjustment of amortization of technology and other intangibles in order to reflect our non-GAAP effective tax rate at 34% for the Tekelec business, excluding Santera. (3) The adjustment represents the minority interest impact of (1). (4) For the three months ended December 31, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $590 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 December 31, 2003 includes 6,361 shares related to the convertible debt using the "if-converted" method. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited)
YEAR ENDED DECEMBER 31, 2004 GAAP ADJUSTMENTS NON-GAAP (thousands, except per share data) Revenues $ 397,072 $ -- $ 397,072 Costs and expenses: Cost of goods sold 101,451 (588)(1)(2) 100,863 Amortization of purchased technology 9,128 (7,744)(2) 1,384 ------------- ------------ ------------ Total cost of sales 110,579 (8,332) 102,247 ------------- ------------ ------------ Gross profit 286,493 72.2% 8,332 294,825 74.2% ------------- ------------ ------------ Research and development 98,192 (428)(1) 97,764 Selling, general and administrative 151,796 (1,327)(1) 150,469 Acquired in-process research and development 14,200 (14,200)(2) -- Amortization of intangibles 2,505 (2,505)(2) -- Restructuring 1,666 (1,666)(3) -- ------------- ------------ ------------ Total operating expenses 268,359 (20,126) 248,233 ------------- ------------ ------------ Income from operations 18,134 28,458 46,592 Interest and other income (expense), net 461 -- 461 Gain on warrants in privately-held company 20,321 (20,321)(6) -- Gain on note receivable 2,186 (2,186)(4) -- Gain on investment in privately-held company 9,869 (9,869)(5) -- ------------- ------------ ------------ Income from continuing operations before provision for income taxes 50,971 (3,918) 47,053 Provision for income taxes 34,106 (685)(7) 33,421 ------------- ------------ ------------ Income (Loss) from continuing operations before minority interest 16,865 (3,233) 13,632 Minority Interest 20,719 9,938(8) 30,657 ------------- ------------ ------------ NET INCOME $ 37,584 6,705 $ 44,289 ============= ============ ============= EARNINGS PER SHARE Basic $ 0.60 $ 0.70 Diluted (9) 0.55 0.64 ------------- ------------ ------------ EARNINGS PER SHARE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 63,131 63,131 Diluted (9) 72,683 72,683 ============= ============ =============
(1) The adjustments represent the amortization of deferred stock compensation related to stock options and restricted stock units assumed or granted in 2004. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX, Santera, Taqua, VocalData and Steleus and the write-off of in-process research and development related to the acquisition of Taqua, VocalData and Steleus. (3) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (4) The adjustment represents a gain on the settlement of our convertible notes receivable from Catapult. (5) The adjustment represents a gain on the sale of our investment in Telica. (6) The adjustment represents a gain on Santera's warrants in Spatial Wireless common stock. (7) The adjustments represents the income tax effects of footnotes (1), (2), (3), (4), (5) and (6) in order to reflect our non- GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (8) The adjustment represents the minority interest impact of footnote (2) and (6). (9) For the year ended December 31, 2004, the calculation of earnings per share includes for the purpose of calculation the add-back to net income of $2,324 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 year ended December 31, 2004 includes 6,361 shares related to the convertible debt using the "if-converted" method. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited)
YEAR ENDED DECEMBER 31, 2003 GAAP ADJUSTMENTS NON-GAAP (thousands, except per share data) REVENUES $ 263,700 $ -- $ 263,700 COSTS AND EXPENSES: Cost of goods sold 58,697 -- 58,697 Amortization of purchased technology 11,178 (10,526) (1) 652 ------------- -------------- ------------- Total cost of sales 69,875 (10,526) 59,349 ------------- -------------- ------------- GROSS PROFIT 193,825 73.5% 10,526 204,351 77.5% ------------- -------------- ------------- Research and development 73,328 -- 73,328 Selling, general and administrative 104,247 -- 104,247 Acquired in-process research and development 2,900 (2,900) (1) -- Amortization of intangibles 1,900 (1,900) (1) -- ------------- -------------- ------------- Total operating expenses 182,375 (4,800) 177,575 ------------- -------------- ------------- Income from operations 11,450 15,326 26,776 Interest and other income (expense), net (2,483) 1,046 (2) (1,437) ------------- -------------- ------------- Income from continuing operations before provision for income taxes 8,967 16,372 25,339 Provision for income taxes 13,600 3,489 (3) 17,089 ------------- -------------- ------------- Income (Loss) from continuing operations before minority interest (4,633) 12,883 8,250 Minority interest 19,792 (4,323) (4) 15,469 ------------- -------------- ------------- INCOME FROM CONTINUING OPERATIONS 15,159 8,560 23,719 Gain on disposal of discontinued operation 3,293 (3,293) (5) -- ------------- -------------- ------------- NET INCOME $ 18,452 $ 5,267 $ 23,719 ============= ============== ============= EARNINGS PER SHARE FROM CONTINUING OPERATIONS: Basic $ 0.25 $ 0.39 Diluted 0.24 0.38 ------------- -------------- ------------- EARNINGS PER SHARE FROM GAIN ON DISPOSAL OF DISCONTINUED OPERATION: Basic $ 0.05 $ -- Diluted 0.05 -- ------------- -------------- ------------- EARNINGS PER SHARE: Basic $ 0.30 $ 0.39 Diluted 0.29 0.38 ============= ============== ============= EARNINGS PER SHARE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 61,163 61,163 Diluted 62,911 62,911 ------------- -------------- -------------
(1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX and Santera and the related income tax benefit and the write-off of in-process research and development related to the acquisition of Santera. (2) The adjustment represents the write-off of unamortized bond issuance costs of $1,046 related to the July 2003 retirement of the convertible debt issued in 1999. (3) The adjustment represents the income tax effects of footnotes (1) and (2) in order to reflect our non-GAAP effective tax rate at 34% for the Tekelec business, excluding Santera. (4) The adjustment represents minority interest impact of footnote (1). (5) The adjustment represents the gain on the sale of the Network Diagnostics Division and was due to the settlement of the final working capital adjustment in accordance with the asset purchase agreement.