-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6dSWJgqcfPB6uAvPbOQraDghfuO353D6vYeYP2wrrfUL2uDl9iHp5oo0yYrjX0R ZWdOYvV4VpSOI9O3DyMfSA== 0001157523-03-003428.txt : 20030729 0001157523-03-003428.hdr.sgml : 20030729 20030729163540 ACCESSION NUMBER: 0001157523-03-003428 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030729 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030729 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15135 FILM NUMBER: 03809026 BUSINESS ADDRESS: STREET 1: 26580 W AGOURA RD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188805656 MAIL ADDRESS: STREET 1: 26580 W AGOURA RD CITY: CALABASAS STATE: CA ZIP: 91302 8-K 1 a4443975.txt TEKELEC 8-K 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): July 29, 2003 TEKELEC ------------------------------------------------- (Exact name of registrant as specified in its charter) California ------------------------------------------------- (State or other jurisdiction of incorporation) 0-15135 95-2746131 ---------------------------------- -------------------------------- (Commission File Number) (I.R.S. Employer Identification No.) 26580 W. Agoura Road, Calabasas, CA 91302 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 880-5656 Item 7. Financial Statements and Exhibits. (c) Exhibits. The following exhibit is furnished as a part of this Current Report on Form 8-K: Exhibit No. Description ---------- ----------- 99.1 Press Release dated July 29, 2003 of Tekelec Item 12. Results of Operations and Financial Condition. On July 29, 2003, Tekelec issued a press release announcing its financial results for the fiscal quarter ended June 30, 2003. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The information in this Form 8-K and in the exhibit 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. 2 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: July 29, 2003 By: /s/ Frederick M. Lax ----------------------- Frederick M. Lax President and Chief Executive Officer 3 EXHIBIT INDEX Exhibit No. Description of Exhibit ---------- ---------------------- 99.1 Press Release dated July 29, 2003 of Tekelec 4 EX-99 3 a4443975ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 Tekelec Announces Second Quarter Financial Results; Achieves Revenue of $62.9 Million CALABASAS, Calif.--(BUSINESS WIRE)--July 29, 2003--Tekelec (Nasdaq:TKLC) today reported financial results for its second quarter ended June 30, 2003. Revenues for the second quarter were $62.9 million, compared to $68.0 million in the second quarter of 2002. On a GAAP basis, Tekelec's net income was $1.2 million, or $0.02 per diluted share for the second quarter of 2003, compared to $4.5 million, or $0.07 per diluted share, in the second quarter of 2002. Non-GAAP net income, which excludes the effects of acquisition-related amortization, the write-off of in-process research and development, and discontinued operation, was $4.0 million, or $0.07 per diluted share, for the second quarter of 2003, compared to non-GAAP net income of $6.5 million, or $0.11 per diluted share, in the second quarter of 2002. Orders received for Tekelec products and services in the second quarter were $68.0 million, compared to $71.8 million in the second quarter of 2002. All historical results stated above exclude any activities of the network diagnostics business, which Tekelec sold in the third quarter of 2002. Tekelec President and CEO Frederick M. Lax commented, "Our team executed well during the second quarter, with revenue increasing 14% sequentially, and orders up by 18% sequentially. Tekelec exceeded both consensus revenue and profit expectations, as well as generated strong cash flow from operations. We added five new Network Systems Division customers during the quarter, including three outside North America. Order volume provided us with a strong book-to-bill ratio. We achieved significant milestones on a number of important strategic and financial objectives, including the acquisition of a majority interest in Santera, forming our new next-generation switching subsidiary, our continued progress on global expansion, and the refinancing of our convertible debt on very favorable terms." "Customer reaction to Santera, a Tekelec company, has been very encouraging, and we have moved rapidly to integrate our operations and to complete transition activities. The market for next-generation switching solutions also appears to be gaining additional traction. We believe that our unique combination of signaling and switching expertise strengthens Tekelec's position as a provider of next-generation network solutions for service providers worldwide." "Regarding global expansion, approximately 22% of sales for the quarter were from outside North America, compared to 16% of sales during first quarter of the year. We were pleased to announce that Telecom Americas, a consortium of several Brazilian operators with over six million cellular subscribers, has ordered Tekelec's GSM migration and monitoring solution, demonstrating the success our efforts in Latin America have been able to achieve in a relatively short period of time." "Lastly, in July we completed the refinancing of our convertible debt on significantly better terms than our previous debt security. With our new debt offering, we will decrease our annual pretax interest expense by approximately $5.5 million and will reduce our annual cash interest payments related to the debt by approximately $1.5 million. This refinancing, combined with the strong operating cash flow generated during the quarter, provide us with a solid balance sheet with significant liquidity and financial flexibility." Divisional Results Network Systems revenue in the second quarter was $53.6 million, compared to $57.8 million in Q2 2002. IEX Contact Center Division revenue was $8.1 million, compared to $10.2 million in Q2 2002. Santera revenue for the 17 days of operations included in Tekelec's results was $1.2 million. Q3 FINANCIAL GUIDANCE Q3 2003 Guidance Comparable Q3 2002 Results Total Revenue: $69.0 million - $71.0 million $73.5 million(1) GAAP EPS from Continuing Ops $0.03 - $0.04 per diluted share(2) $0.16 per diluted share(1) (1) The Company's Comparable Q3 2002 Results exclude Tekelec's Network Diagnostics Division, whose sale to Catapult Communications was completed in Q3 2002. (2) For the 3rd quarter of 2003, Tekelec expects expenses to include amortization of acquired intangibles and the write-off of unamortized debt issuance costs related to the redemption of its 1999 convertible debt in the aggregate amount of approximately $2.5 million, pre-tax. In addition, the Company expects amortization of acquired intangibles at the Santera divisional level to total approximately $1.0 million, after the allocation to Santera's minority shareholders. Lax concluded, "Overall I am pleased with the Company's operating and financial performance, as we continue to make progress on our key strategic objectives of extending our signaling solutions leadership, developing our next-generation switching portfolio, and profitably pursuing global expansion. Our acquisition of a majority interest in Santera is an important milestone for the Company. As we look to the second half of 2003, I am confident we are well positioned to meet the evolving needs of our customers." About Tekelec Tekelec is a leading developer of telecommunications signaling solutions, packet-telephony infrastructure, network monitoring 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, California, 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, 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 business. 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, which have been prepared in accordance with generally accepted accounting principles. 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 2002 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's operations with those of the Company, the ability of carriers to utilize excess capacity of signaling infrastructure and related products in the network, 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 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 Six Months Ended Ended June 30, June 30, 2003 2002 2003 2002 - ---------------------------------------------------------------------- (thousands) Revenues $62,922 $68,010 $117,928 $128,374 Costs and expenses: Cost of goods sold 16,440 17,087 29,521 35,819 Amortization of purchased technology 2,607 2,590 5,138 5,187 Research and development 16,274 15,544 30,487 28,898 Selling, general and administrative 24,386 25,379 46,337 46,224 Acquired in-process research and development 2,900 -- 2,900 -- Amortization of intangibles 425 400 825 800 - ---------------------------------------------------------------------- Income (Loss) from operations (110) 7,010 2,720 11,446 Interest and other income (expense), net (1,170) 228 (1,854) (511) - ---------------------------------------------------------------------- Income (Loss) from continuing operations before provision for income taxes (1,280) 7,238 866 10,935 Provision for income taxes (1)(2) 2,015 2,503 2,647 3,687 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (3,295) 4,735 (1,781) 7,248 Minority interest 4,505 -- 4,505 -- - ---------------------------------------------------------------------- Income from continuing operations 1,210 4,735 2,724 7,248 - ---------------------------------------------------------------------- Loss from discontinued operation, net of income taxes of $178 and $1,154 for the three and six months ended June 30, 2002 -- (218) -- (1,410) - ---------------------------------------------------------------------- Net income $ 1,210 $ 4,517 $ 2,724 $ 5,838 - ---------------------------------------------------------------------- Earnings per share from continuing operations Basic $ 0.02 $ 0.08 $ 0.04 $ 0.12 Diluted 0.02 0.08 0.04 0.12 - ---------------------------------------------------------------------- Loss per share from discontinued operation Basic $ -- $ -- $ -- $ (0.02) Diluted -- (0.01) -- (0.03) - ---------------------------------------------------------------------- Earnings per share Basic $ 0.02 $ 0.08 $ 0.04 $ 0.10 Diluted 0.02 0.07 0.04 0.09 ====================================----------------================== Earnings (Loss) per share weighted average number of shares outstanding: Basic 61,032 60,197 60,983 60,170 Diluted 62,276 61,180 61,954 61,478 Notes to Condensed Consolidated Statements of Operations (000's): (1) Provision for income taxes includes the effect of nondeductible acquisition-related costs and a benefit for the utilization of deferred tax liabilities related to certain of these acquisition-related costs: - -- For the and three and six months ended June 30, 2003, the amortization of purchased technology and other intangibles related to the acquisition of IEX and Santera amounted to $3,804 and $6,604. The related income tax benefits for the three and six months ended June 30, 2003 were $969 and $2,019, resulting in a net exclusion of $2,835 and $4,585. -- For the three and six months ended June 30, 2002, the amortization of purchased technology and other intangibles related to the acquisition of IEX amounted to $2,800 and $5,600, respectively. The related income tax benefits for the three and six months ended June 30, 2002 were $1,010 and $2,060, respectively, resulting in a net exclusion of $1,790 and $3,540 respectively. (2) Provision for income taxes does not include any benefit from the losses generated by Santera due to: -- 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 tax benefits generated by Santera as a result of Santera's historical operating losses. TEKELEC NON-GAAP (1) STATEMENTS OF OPERATIONS (unaudited) Three Months Six Months Ended Ended June 30, June 30, 2003 2002 2003 2002 - ---------------------------------------------------------------------- (thousands) Revenues $62,922 $68,010 $117,928 $128,374 Costs and expenses: Cost of goods sold 16,575 17,277 29,787 36,206 Research and development 16,274 15,544 30,487 28,898 Selling, general and administrative 24,386 25,379 46,337 46,224 - ---------------------------------------------------------------------- Income from operations 5,687 9,810 11,317 17,046 Interest and other income (expense), net (1,170) 228 (1,854) (511) - ---------------------------------------------------------------------- Income before provision for income taxes 4,517 10,038 9,463 16,535 Provision for income taxes (2) 2,984 3,513 4,666 5,747 - ---------------------------------------------------------------------- Income before minority interest 1,533 6,525 4,797 10,788 Minority interest 2,512 -- 2,512 -- - ---------------------------------------------------------------------- Non-GAAP net income $ 4,045 $ 6,525 $ 7,309 $ 10,788 - ---------------------------------------------------------------------- Non-GAAP earnings per share Basic $ 0.07 $ 0.11 $ 0.12 $ 0.18 Diluted 0.07 0.11 0.12 0.18 Non-GAAP earnings per share weighted average number of shares outstanding: Basic 61,032 60,197 60,983 60,170 Diluted 62,276 61,180 61,954 61,478 Notes to Non-GAAP Statements of Operations (000's): (1) The above Non-GAAP Statements of Operations exclude the effects of the following: -- Results of operations related to the sale of Network Diagnostics Division completed in August 2002, resulting in an exclusion of loss from discontinued operation, net of income tax benefit, for the three and six months ended June 30, 2002 in the amounts of $218 and $1,410, respectively. -- For the three and six months ended June 30, 2003, the amortization of purchased technology and other intangibles related to the acquisition of IEX and Santera amounted to $3,804 and $6,604. The related income tax benefits for the three and six months ended June 30, 2003 were $969 and $2,019, resulting in a net exclusion of $2,835 and $4,585. -- For the three and six months ended June 30, 2002, the amortization of purchased technology and other intangibles related to the acquisition of IEX amounted to $2,800 and $5,600, respectively. The related income tax benefits for the three and six months ended June 30, 2002 were $1,010 and $2,060, respectively, resulting in a net exclusion of $1,790 and $3,540 respectively. (2) The above Non-GAAP Statements of Operations assume an effective tax rate of 34% for the Tekelec business excluding Santera for the three (3) and six months ended June 30, 2003. There were no tax benefits associated with the losses generated by Santera. An effective tax rate of 35% was included for the three and six months ended June 30, 2002. TEKELEC CONDENSED CONSOLIDATED BALANCE SHEETS June 30, Dec. 31, 2003 2002 - ------------------------------------------------------------ --------- (unaudited) (thousands) ASSETS Current assets: Cash and cash equivalents $ 315,831 $167,283 Short-term investments, at fair value 17,996 14,289 Accounts receivable, net 39,667 44,061 Inventories 15,677 10,560 Deferred income taxes, net 13,806 13,806 Prepaid expenses and other current assets 21,146 16,491 - ------------------------------------------------------------ --------- Total current assets 424,123 266,490 Long-term investments, at fair value 122,487 128,258 Property and equipment, net 25,388 21,387 Investments in privately-held companies 16,525 16,525 Deferred income taxes 11,502 11,502 Other assets 7,436 2,263 Long-term notes receivable ($17,300 face amount) 17,783 17,987 Goodwill, net 70,778 44,942 Intangible assets, net 38,109 16,329 - ------------------------------------------------------------ --------- Total assets $ 734,131 $525,683 ===================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of deferred revenues $ 39,389 $ 28,355 Other current liabilities 184,721 50,223 - ------------------------------------------------------------ --------- Total current liabilities 224,110 78,578 Long-term convertible debt 125,000 126,973 Long-term portion of notes payable 5,058 -- Long-term portion of deferred revenues 3,624 3,632 Deferred income taxes 12,474 14,493 - ------------------------------------------------------------ --------- Total liabilities 370,266 223,676 - ------------------------------------------------------------ --------- Minority interest 56,495 -- - ------------------------------------------------------------ --------- Total shareholders' equity 307,370 302,007 - ------------------------------------------------------------ --------- Total liabilities and shareholders' equity $ 734,131 $525,683 TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended June 30, 2003 (thousands) GAAP Adjustments Non-GAAP - ----------------------------------- -------------------- ------- ----- Revenues $62,922 $ -- $ 62,922 Costs and expenses: Cost of goods sold 16,440 -- 16,440 Amortization of purchased technology 2,607 (2,472)(1) 135 - ----------------------------------- -------------------- ------- ----- Total cost of sales 19,047 (2,472) 16,575 - ----------------------------------- -------------------- ------- ----- Gross Profit 43,875 69.7% 2,472 46,347 73.7% - ----------------------------------- -------------------- ------- ----- Research and development 16,274 -- 16,274 Selling, general and administrative 24,386 -- 24,386 Acquired in-process research and development 2,900 (2,900)(1) -- Amortization of intangibles 425 (425)(1) -- - ----------------------------------- -------------------- ------- ----- Total operating expenses 43,985 (3,325) 40,660 - ----------------------------------- -------------------- ------- ----- - ----------------------------------- -------------------- ------- ----- Income (Loss) from operations (110) 5,797 5,687 Interest and other income (expense), net (1,170) -- (1,170) - ----------------------------------- -------------------- ------- ----- Income (Loss) from continuing operations before provision for income taxes (1,280) 5,797 4,517 Provision for income taxes 2,015 969 (2) 2,984 - ----------------------------------- -------------------- ------- ----- Income (Loss) from continuing operations before minority interest (3,295) 4,828 1,533 Minority interest 4,505 (1,993)(3) 2,512 - ----------------------------------- -------------------- ------- ----- Net income $ 1,210 $ 2,835 $ 4,045 - ----------------------------------- -------------------- ------- ----- Earnings per share Basic $ 0.02 $ 0.07 Diluted 0.02 0.07 Earnings per share weighted average number of shares outstanding: Basic 61,032 61,032 Diluted 62,276 62,276 =================================== ==================== ======= ===== (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 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). TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended June 30, 2002 (thousands) GAAP Adjustments Non-GAAP - --------------------------------------- ------------------------------ Revenues $68,010 $ -- $ 68,010 Costs and expenses: Cost of goods sold 17,087 -- 17,087 Amortization of purchased technology 2,590 (2,400)(1) 190 - --------------------------------------- ---------------- ------- ----- Total cost of sales 19,677 (2,400) 17,277 - --------------------------------------- ---------------- ------- ----- Gross profit 48,333 71.1% 2,400 50,733 74.6% - --------------------------------------- ---------------- ------- ----- Research and development 15,544 -- 15,544 Selling, general and administrative 25,379 -- 25,379 Amortization of intangibles 400 (400)(1) -- - --------------------------------------- ---------------- ------- ----- Total operating expenses 41,323 (400) 40,923 - --------------------------------------- ---------------- ------- ----- - --------------------------------------- ---------------- ------- ----- Income (Loss) from operations 7,010 2,800 9,810 Interest and other income (expense), net 228 -- 228 - --------------------------------------- ---------------- ------- ----- Income from continuing operations before provision for income taxes 7,238 2,800 10,038 Provision for income taxes 2,503 1,010 (2) 3,513 - --------------------------------------- ---------------- ------- ----- Income from continuing operations 4,735 1,790 6,525 - --------------------------------------- ---------------- ------- ----- Loss from discontinued operation, net of income taxes of $178 for the three months ended June 30, 2002 (218) 218 (3) -- - --------------------------------------- ---------------- ------- ----- Net income $ 4,517 $ 2,008 $ 6,525 - --------------------------------------- ---------------- ------- ----- Earnings per share from continuing operations Basic $ 0.08 $ 0.11 Diluted 0.08 0.11 - --------------------------------------- ---------------- ------- ----- Earnings per share from discontinued operation Basic $ -- $ -- Diluted (0.01) -- - --------------------------------------- ---------------- ------- ----- Earnings per share Basic $ 0.08 $ 0.11 Diluted 0.07 0.11 Earnings per share weighted average number of shares outstanding: Basic 60,197 60,197 Diluted 60,180 61,180 ======================================= ================ ======= ===== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX and the related income tax benefit. (2) The adjustment represents the tax effect of the adjustment of the amortization of technology and other intangibles in order to reflect our non-GAAP effective tax rate at 35%. (3) The adjustment represents the results of the discontinued operation related to the sale of Network Diagnostics, net of income tax benefit. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Six Months Ended June 30, 2003 (thousands) GAAP Adjustments Non-GAAP - ---------------------------------------- --------------- ------------- Revenues $117,928 $ -- $ 117,928 Costs and expenses: Cost of goods sold 29,521 -- 29,521 Amortization of purchased technology 5,138 (4,872)(1) 266 - ---------------------------------------- --------------- ------------- Total cost of sales 34,659 (4,872) 29,787 - ---------------------------------------- --------------- ------------- Gross Profit 83,269 70.6% 4,872 88,141 74.7% - ---------------------------------------- --------------- ------------- Research and development 30,487 -- 30,487 Selling, general and administrative 46,337 -- 46,337 Acquired in-process research and development 2,900 (2,900)(1) -- Amortization of intangibles 825 (825)(1) -- - ---------------------------------------- --------------- ------------- Total operating expenses 80,549 (3,725) 76,824 - ---------------------------------------- --------------- ------------- - ---------------------------------------- --------------- ------------- Income from operations 2,720 8,597 11,317 Interest and other income (expense), net (1,854) -- (1,854) - ---------------------------------------- --------------- ------------- Income from continuing operations before provision for income taxes 866 8,597 9,463 Provision for income taxes 2,647 2,019 (2) 4,666 - ---------------------------------------- --------------- ------------- Income (Loss) from continuing operations before minority interest (1,781) 6,578 4,797 Minority interest 4,505 (1,993)(3) 2,512 - ---------------------------------------- --------------- ------------- Net income $ 2,724 $ 4,585 $ 7,309 - ---------------------------------------- --------------- ------------- Earnings per share Basic $ 0.04 $ 0.12 Diluted 0.04 0.12 Earnings per share weighted average number of shares outstanding: Basic 60,983 60,983 Diluted 61,954 61,954 ======================================== =============== ============= (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 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 minority interest impact of (1). TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Six Months Ended June 30, 2002 (thousands) GAAP Adjustments Non-GAAP - ------------------------------------ --------------------------------- Revenues $128,374 $ -- $ 128,374 Costs and expenses: Cost of goods sold 35,819 -- 35,819 Amortization of purchased technology 5,187 (4,800) (1) 387 - ------------------------------------ ----- ------------ -------- ----- Total cost of sales 41,006 (4,800) 36,206 - ------------------------------------ ----- ------------ -------- ----- Gross profit 87,368 68.1% 4,800 92,168 71.8% - ------------------------------------ ----- ------------ -------- ----- Research and development 28,898 -- 28,898 Selling, general and administrative 46,224 -- 46,224 Amortization of intangibles 800 (800) (1) -- - ------------------------------------ ----- ------------ -------- ----- Total operating expenses 75,922 (800) 75,122 - ------------------------------------ ----- ------------ -------- ----- - ------------------------------------ ----- ------------ -------- ----- Income from operations 11,446 5,600 17,046 Interest and other income (expense), net (511) -- (511) - ------------------------------------ ----- ------------ -------- ----- Income from continuing operations before provision for income taxes 10,935 5,600 16,535 Provision for income taxes 3,687 2,060 (2) 5,747 - ------------------------------------ ----- ------------ -------- ----- Income from continuing operations 7,248 3,540 10,788 - ------------------------------------ ----- ------------ -------- ----- Loss from discontinued operation, net of income taxes of $1,154 for the six months ended June 30, 2002 (1,410) 1,410 (3) -- - ------------------------------------ ----- ------------ -------- ----- Net income $ 5,838 $ 4,950 $ 10,788 - ------------------------------------ ----- ------------ -------- ----- Earnings per share from continuing operations Basic $ 0.12 $ 0.18 Diluted 0.12 0.18 - ------------------------------------ ----- ------------ -------- ----- Loss per share from discontinued operation Basic $ (0.02) $ -- Diluted (0.03) -- - ------------------------------------ ----- ------------ -------- ----- Earnings per share Basic $ 0.10 $ 0.18 Diluted 0.09 0.18 Earnings (Loss) per share weighted average number of shares outstanding: Basic 60,170 60,170 Diluted 61,478 61,478 ==================================== ===== ============ ======== ===== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX and the related income tax benefit. (2) The adjustment represents the tax effect of the adjustment of the amortization of technology and other intangibles in order to reflect our non-GAAP effective tax rate at 35%. (3) The adjustment represents the results of the discontinued operation related to the sale of Network Diagnostics, net of income tax benefit. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended September 30, 2002 (thousands) GAAP Adjustments Non-GAAP - ------------------------------------- -------------------------------- Revenues $73,544 $ -- $ 73,544 Costs and expenses: Cost of goods sold 16,479 -- 16,479 Amortization of purchased technology 2,476 (2,400) (1) 76 - ------------------------------------- ------------------ ------- ----- Total cost of sales 18,955 (2,400) 16,555 - ------------------------------------- ------------------ ------- ----- Gross profit 54,589 74.2% 2,400 56,989 77.5% - ------------------------------------- ------------------ ------- ----- Research and development 16,251 -- 16,251 Selling, general and administrative 22,654 -- 22,654 Amortization of intangibles 400 (400) (1) -- - ------------------------------------- ------------------ ------- ----- Total operating expenses 39,305 (400) 38,905 - ------------------------------------- ------------------ ------- ----- - ------------------------------------- ------------------ ------- ----- Income from operations 15,284 2,800 18,084 Interest and other income (expense), net (1,200) -- (1,200) - ------------------------------------- ------------------ ------- ----- Income from continuing operations before provision for income taxes 14,084 2,800 16,884 Provision for income taxes 4,760 1,149 (2) 5,909 - ------------------------------------- ------------------ ------- ----- Income from continuing operations 9,324 1,651 10,975 - ------------------------------------- ------------------ ------- ----- Loss from discontinued operation, net of income taxes of $1,553 for the three months ended September 30, 2002 (1,898) 1,898 (3) -- - ------------------------------------- ------------------ ------- ----- Gain on disposal of discontinued operation, net of income taxes of $13,345 28,312 (28,312) (3) -- - ------------------------------------- ------------------ ------- ----- Net income $35,738 $(24,763) $ 10,975 - ------------------------------------- ------------------ ------- ----- Earnings per share from continuing operations Basic $ 0.15 $ 0.18 Diluted 0.16 (4) 0.18 - ------------------------------------- ------------------ ------- ----- Loss per share from discontinued operation Basic $ (0.03) $ -- Diluted (0.03)(4) -- - ------------------------------------- ------------------ ------- ----- Earnings per share from gain on disposal of discontinued operation Basic $ 0.47 $ -- Diluted 0.41 (4) -- - ------------------------------------- ------------------ ------- ----- Earnings per share Basic $ 0.59 $ 0.18 Diluted 0.54 (4) 0.18 Earnings (Loss) per share weighted average number of shares outstanding: Basic 60,407 60,407 Diluted 68,793 (4) 61,478 ===================================== ================== ======= ===== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX and the related income tax benefit. (2) The adjustment represents the tax effect of the adjustment of the amortization of technology and other intangibles in order to reflect our non-GAAP effective tax rate at 35% (3) The adjustment represents the results of the discontinued operation related to the sale of Network Diagnostics, net of income taxes. (4) For the three months ended September 30, 2002, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $1,498 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, 2002 includes 7,606,000 shares related to the convertible debt using the "if-converted" method. For all other periods presented, the results of the "if-converted" calculation are anti-dilutive and therefore excluded from earnings per share. CONTACT: Tekelec, Calabasas, Calif. Michael Attar, 818-880-7821 -----END PRIVACY-ENHANCED MESSAGE-----