EX-99 3 a4499471_ex991.txt TEKELEC EXHIBIT 99.1 Exhibit 99.1 Tekelec Announces Third Quarter Financial Results; Achieves Revenue of $70.7 Million CALABASAS, Calif.--(BUSINESS WIRE)--Oct. 22, 2003--Tekelec (Nasdaq:TKLC) today reported financial results for its third quarter ended September 30, 2003. Revenue for the third quarter of 2003 was $70.7 million, compared to $73.5 million in the third quarter of 2002. On a GAAP basis, Tekelec's Income from Continuing Operations was $5.2 million, or $0.08 per diluted share, for the third quarter of 2003, compared to $9.3 million, or $0.16 per diluted share, in the third quarter of 2002. Non-GAAP net income for the third quarter of 2003, which excludes the effects of acquisition-related amortization, the write-off of unamortized bond issuance costs, and the gain on disposal of discontinued operations, was $7.5 million, or $0.12 per diluted share, compared to non-GAAP net income of $11.0 million, or $0.18 per diluted share, in the third quarter of 2002. Orders received for Tekelec products and services in the third quarter were $74.7 million, compared to $58.9 million in the third quarter of 2002. Tekelec President and CEO Fred Lax commented, "Our team executed very well during the third quarter, with revenue increasing 12% sequentially, and orders up by 10% sequentially. We continued to operate profitably, while exceeding both consensus revenue and profit expectations, and generated strong cash flow from operations. Order volume provided us with a strong book-to-bill ratio, and we made good progress on our global expansion efforts. Our signaling business continues to benefit from the essential role it fulfills in wireless networks and the strong growth that wireless operators are experiencing in new subscribers and network usage. "In the first full quarter of operations for our new Santera next-generation switching business unit, we added three new customers and the unit made a solid contribution to overall company revenues. Along with the success we are having in Class 4 deployments, the majority of the revenue in our next-generation switching business unit came from Class 5 and wireless applications, which is a positive indicator, given the market size and growth opportunities in these particular areas. Overall, the market for next-generation switching solutions continues to gain traction. "Today we also announced that Distributel, a Canadian provider of competitive long-distance and Internet services, has selected SanteraOne for a multi-switch deployment that will allow them to migrate voice traffic currently carried on leased facilities. This, along with the recent YAK announcement, highlights the success we are having in the Canadian market with our next-generation switching business. "Additionally, we announced that SFR, the second largest wireless operator in France, has ordered Tekelec's Equipment Identity Register and G-Flex HLR Manager solution, demonstrating the progress we are making both in our global expansion efforts and in leveraging our Eagle platform to provide our customers with value-added signaling applications." Business Unit Results Network Signaling revenue for the third quarter of 2003 was $56.8 million, compared to $62.8 million in third quarter of 2002. IEX Contact Center revenue was $9.3 million, compared to $10.7 million in third quarter of 2002. Next-Generation Switching revenue was $4.6 million in the current quarter. Q4 FINANCIAL GUIDANCE Q4 2003 Guidance Comparable Q4 2002 Results Total Revenue: $71.0 million - $58.4 million $73.0 million GAAP EPS: $0.07 - $0.08 per diluted share(1) ($0.01) per diluted share (1) For the 4th quarter of 2003, Tekelec expects expenses to include amortization of acquired intangibles of approximately $1.5 million, pre-tax. In addition, the Company expects amortization of acquired intangibles at the Santera business unit level to total approximately $1.0 million, after the allocation to Santera's minority shareholders. Lax concluded, "I am pleased with our performance in the third quarter, including our sequential revenue growth, strong book-to-bill, and both our ongoing profitability and net positive cash flow from operations on a consolidated basis. I am also encouraged by the early successes of our next-generation switching business unit, including our integration efforts, customer acceptance, and third quarter financial results. Overall, we continue to make solid progress on our key strategic objectives of extending our signaling solutions leadership, developing our next-generation switching portfolio, and prudently pursuing global expansion." About Tekelec Tekelec is a leading developer of telecommunications signaling and switching 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 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 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 Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---------------------------------------------------------------------- (thousands, except per share data) Revenues $70,747 $73,544 $188,675 $201,918 Costs and expenses: Cost of goods sold 14,488 16,479 44,009 52,298 Amortization of purchased technology 2,964 2,476 8,102 7,663 Research and development 20,696 16,251 51,183 45,149 Selling, general and administrative 28,344 22,654 74,681 68,878 Acquired in-process research and development -- -- 2,900 -- Amortization of intangibles 543 400 1,368 1,200 ----------------------------------------- -------- --------- --------- Income from operations 3,712 15,284 6,432 26,730 Interest and other income (expense), net (1,583) (1,200) (3,437) (1,710) ----------------------------------------- -------- --------- --------- Income from continuing operations before provision for income taxes 2,129 14,084 2,995 25,020 Provision for income taxes (1) (2) 4,987 4,760 7,634 8,448 ----------------------------------------- -------- --------- --------- Income (Loss) from continuing operations before minority interest (2,858) 9,324 (4,639) 16,572 Minority interest 8,015 -- 12,520 -- ----------------------------------------- -------- --------- --------- Income from continuing operations 5,157 9,324 7,881 16,572 ----------------------------------------- -------- --------- --------- Loss from discontinued operation, net of income taxes of $1,553 and $2,707 for the three and nine months ended September 30, 2002 -- (1,898) -- (3,308) ----------------------------------------- -------- --------- --------- Gain on disposal of discontinued operation, net of income taxes of $13,345 for the three and nine months ended September 30, 2002 (3) 3,293 28,312 3,293 28,312 ----------------------------------------- -------- --------- --------- Net income $ 8,450 $35,738 $ 11,174 $ 41,576 ========================================= ======== ========= ========= Earnings per share from continuing operations Basic $ 0.09 $ 0.15 $ 0.13 $ 0.27 Diluted (4) 0.08 0.16 0.12 0.31 ----------------------------------------- -------- --------- --------- Loss per share from discontinued operation Basic $ -- $ (0.03) $ -- $ (0.05) Diluted (4) -- (0.03) -- (0.05) ----------------------------------------- -------- --------- --------- Earnings per share from gain on disposal of discontinued operation Basic $ 0.05 $ 0.47 $ 0.05 $ 0.47 Diluted (4) 0.05 0.41 0.05 0.41 ----------------------------------------- -------- --------- --------- Earnings per share Basic $ 0.14 $ 0.59 $ 0.18 $ 0.69 Diluted (4) 0.13 0.54 0.17 0.67 ========================================= ========= ======== ========= Earnings (Loss) per share weighted average number of shares outstanding: Basic 61,206 60,407 61,057 60,249 Diluted (4) 69,915 68,793 68,848 68,987 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 three and nine months ended September 30, 2003, the amortization of purchased technology and other intangibles related to the acquisition of IEX and Santera amounted to $3,364 and $9,061, respectively. The related income tax benefits for three and nine months ended September 30, 2003 were $557 and $2,576, respectively. -- For the three and nine months ended September 30, 2002, the amortization of purchased technology and other intangibles related to the acquisition of IEX amounted to $2,800 and $8,400, respectively. The related income tax benefits for the three and nine months ended September 30, 2002 were $1,050 and $3,110, respectively. (2) 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 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 three and nine months ended September 30, 2003 and was due to the settlement of the final working capital adjustment in accordance with the asset purchase agreement. (4) For the three and nine months ended September 30, 2003 and the three and nine 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 $591, $684, $1,498 and $4,463, 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 and nine months ended September 30, 2003 and the three months ended September 30, 2002 includes 6,361, 6,361, 7,606 and 7,606 shares, respectively, related to the convertible debt using the "if-converted" method. TEKELEC NON-GAAP (1) STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 ---------------------------------------------------------------------- (thousands, except per share data) Revenues $70,747 $73,544 $188,675 $201,918 Costs and expenses: Cost of goods sold 14,631 16,555 44,418 52,761 Research and development 20,696 16,251 51,183 45,149 Selling, general and administrative 28,344 22,654 74,681 68,878 ----------------------------------------- ------------------ --------- Income from operations 7,076 18,084 18,393 35,130 Interest and other income (expense), net (537) (1,200) (2,391) (1,710) ----------------------------------------- ------------------ --------- Income before provision for income taxes 6,539 16,884 16,002 33,420 Provision for income taxes (2) 5,900 5,909 10,566 11,697 ----------------------------------------- ------------------ --------- Income before minority interest 639 10,975 5,436 21,723 Minority interest 6,850 -- 9,362 -- ----------------------------------------- ------------------ --------- Non-GAAP net income $ 7,489 $10,975 $ 14,798 $ 21,723 ========================================= ================== ========= Non-GAAP earnings per share Basic $ 0.12 $ 0.18 $ 0.24 $ 0.36 Diluted (3) 0.12 0.18 0.22 0.35 Non-GAAP earnings per share weighted average number of shares outstanding: Basic 61,206 60,407 61,057 60,249 Diluted (3) 69,915 61,188 68,848 61,381 Notes to Non-GAAP Statements of Operations (000's): (1) The above Non-GAAP Statements of Operations exclude the effects of the following: -- Write-off of bond issuance costs of $1,046 related to the July 2003 retirement of the convertible debt issued in 1999. -- 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 nine months ended September 30, 2002 in the amounts of $1,898 and $3,308, respectively. -- Gain on disposal of discontinued operation, net of income taxes, related to the sale of the Network Diagnostics Division for the three and nine months ended September 30, 2003 and 2002 in the amounts of $3,293 and $28,312, respectively. -- For the three and nine months ended September 30, 2003, the amortization of purchased technology and other intangibles related to the acquisitions of IEX and Santera amounted to $3,364 and $9,106, respectively. The related income tax benefits for the three and nine months ended September 30, 2003 were $557 and $2,576, respectively. For the nine months ended September 30, 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 and nine months ended September 30, 2003 was $1,165 and $3,158, respectively. -- For the three and nine months ended September 30, 2002, the amortization of purchased technology and other intangibles related to the acquisition of IEX amounted to $2,800 and $8,400, respectively. The related income tax benefits for the three and nine months ended September 30, 2002 were $1,050 and $3,110, 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 and nine months ended September 30, 2003. There were no income tax benefits associated with the losses generated by Santera. An effective tax rate of 35% was included for the three and nine months ended September 30, 2002. (3) For the three and nine months ended September 30, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $591 and $684, 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 and nine months ended September 30, 2003 and the three months ended September 30, 2002 includes 6,361 and 6,361 shares, respectively, 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. TEKELEC CONDENSED CONSOLIDATED BALANCE SHEETS Sept. 30, Dec. 31, 2003 2002 ------------------------------------------------------------ --------- (unaudited) (thousands) ASSETS Current assets: Cash and cash equivalents $ 161,707 $167,283 Short-term investments, at fair value 10,493 14,289 Accounts receivable, net 33,330 44,061 Inventories 19,142 10,560 Deferred income taxes, net 12,992 13,806 Prepaid expenses and other current assets 17,138 16,491 ------------------------------------------------------------ --------- Total current assets 254,802 266,490 Long-term investments, at fair value 167,592 128,258 Property and equipment, net 23,244 21,387 Investments in privately-held companies 16,525 16,525 Deferred income taxes 10,583 11,502 Other assets 6,080 2,263 Long-term notes receivable ($17,300 face amount) 17,681 17,987 Goodwill 70,775 44,942 Intangible assets, net 37,726 16,329 ------------------------------------------------------------ --------- Total assets $ 605,008 $525,683 ============================================================ ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of deferred revenues $ 40,256 $ 28,355 Other current liabilities 55,889 50,223 ------------------------------------------------------------ --------- Total current liabilities 96,145 78,578 Long-term convertible debt 125,000 126,973 Long-term portion of notes payable 4,344 -- Long-term portion of deferred revenues 2,015 3,632 Deferred income taxes 10,775 14,493 ------------------------------------------------------------ --------- Total liabilities 238,279 223,676 ------------------------------------------------------------ --------- Minority interest 48,480 -- ------------------------------------------------------------ --------- Total shareholders' equity 318,249 302,007 ------------------------------------------------------------ --------- Total liabilities and shareholders' equity $ 605,008 $525,683 ============================================================ ========= TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended September 30, 2003 (thousands, except per share data) GAAP Adjustments Non-GAAP ---------------------------------------------------------------------- Revenues $70,747 $ -- $70,747 Costs and expenses: Cost of goods sold 14,488 -- 14,488 Amortization of purchased technology 2,964 (2,821)(1) 143 ---------------------------------------------------------------------- Total cost of sales 17,452 (2,821) 14,631 ---------------------------------------------------------------------- Gross Profit 53,295 75.3% 2,821 56,116 79.3% ---------------------------------------------------------------------- Research and development 20,696 -- 20,696 Selling, general and administrative 28,344 -- 28,344 Amortization of intangibles 543 (543)(1) -- ---------------------------------------------------------------------- Total operating expenses 49,583 (543) 49,040 ---------------------------------------------------------------------- Income from operations 3,712 3,364 7,076 Interest and other income (expense), net (1,583) 1,046 (2) (537) ---------------------------------------------------------------------- Income from continuing operations before provision for income taxes 2,129 4,410 6,539 Provision for income taxes 4,987 913 (3) 5,900 ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (2,858) 3,497 639 Minority interest 8,015 (1,165)(4) 6,850 ---------------------------------------------------------------------- Income from continuing operations 5,157 2,332 7,489 Gain on disposal of discontinued operation 3,293 (3,293)(5) -- ---------------------------------------------------------------------- Net income $ 8,450 $ (961) $ 7,489 ====================================================================== Earnings per share from continuing operations Basic $ 0.09 $ 0.12 Diluted (6) 0.08 0.12 ---------------------------------------------------------------------- Earnings per share from gain on disposal of discontinued operation Basic $ 0.05 $ -- Diluted (6) 0.05 -- ---------------------------------------------------------------------- Earnings per share Basic $ 0.14 $ 0.12 Diluted (6) 0.13 0.12 ====================================================================== Earnings per share weighted average number of shares outstanding: Basic 61,206 61,206 Diluted (6) 69,915 69,915 ====================================================================== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of IEX and 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 the 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. (6) For the three months ended September 30, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $591 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, 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) Three Months Ended September 30, 2002 (thousands, except per share data) 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 ---------------------------------------------------------------------- Earnings 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 per share weighted average number of shares outstanding: Basic 60,407 60,407 Diluted 68,793 (4) 61,188 ====================================================================== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX. (2) The adjustments represent the income tax effect of footnote (1) in order to reflect our non-GAAP effective tax rate of 35%. (3) The adjustment represents the results of the discontinued operation and the gain related to the sale of Network Diagnostics Division, 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 shares related to the convertible debt using the "if-converted" method. TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Nine Months Ended September 30, 2003 (thousands, except per share data) GAAP Adjustments Non-GAAP ----------------------------------------- ---------------------------- Revenues $188,675 $ -- $188,675 Costs and expenses: Cost of goods sold 44,009 -- 44,009 Amortization of purchased technology 8,102 (7,693)(1) 409 ----------------------------------------- ---------------------------- Total cost of sales 52,111 (7,693) 44,418 ----------------------------------------- ---------------------------- Gross Profit 136,564 72.4% 7,693 144,257 76.5% ----------------------------------------- ---------------------------- Research and development 51,183 51,183 Selling, general and administrative 74,681 -- 74,681 Acquired in-process research and development 2,900 (2,900)(1) -- Amortization of intangibles 1,368 (1,368)(1) -- ----------------------------------------- ---------------------------- Total operating expenses 130,132 (4,268) 125,864 ----------------------------------------- ---------------------------- Income from operations 6,432 11,961 18,393 Interest and other income (expense), net (3,437) 1,046 (2) (2,391) ----------------------------------------- ---------------------------- Income from continuing operations before provision for income taxes 2,995 13,007 16,002 Provision for income taxes 7,634 2,932 (3) 10,566 ----------------------------------------- ---------------------------- Income (Loss) from continuing operations before minority interest (4,639) 10,075 5,436 Minority interest 12,520 (3,158)(4) 9,362 ----------------------------------------- ---------------------------- Income from continuing operations 7,881 6,917 14,798 Gain on disposal of discontinued operation 3,293 (3,293)(5) -- ----------------------------------------- ---------------------------- Net income $ 11,174 $ 3,624 $ 14,798 ========================================= ============================ Earnings per share from continuing operations Basic $ 0.13 $ 0.24 Diluted (6) 0.12 0.22 ----------------------------------------- ---------------------------- Earnings per share from gain on disposal of discontinued operation Basic $ 0.05 $ -- Diluted (6) 0.05 -- ----------------------------------------- ---------------------------- Earnings per share Basic $ 0.18 $ 0.24 Diluted (6) 0.17 0.22 ========================================= ============================ Earnings per share weighted average number of shares outstanding: Basic 61,057 61,057 Diluted (6) 68,848 68,848 ========================================= ============================ (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of IEX and Santera 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. (6) For the nine months ended September 30, 2003, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $684 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 nine months ended September 30, 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) Nine Months Ended September 30, 2002 (thousands, except per share data) GAAP Adjustments Non-GAAP ---------------------------------------------------------------------- Revenues $201,918 $ -- $201,918 Costs and expenses: Cost of goods sold 52,298 -- 52,298 Amortization of purchased technology 7,663 (7,200) (1) 463 ---------------------------------------------------------------------- Total cost of sales 59,961 (7,200) 52,761 ---------------------------------------------------------------------- Gross profit 141,957 70.3% 7,200 149,157 73.9% ---------------------------------------------------------------------- Research and development 45,149 -- 45,149 Selling, general and administrative 68,878 -- 68,878 Amortization of intangibles 1,200 (1,200) (1) -- ---------------------------------------------------------------------- Total operating expenses 115,227 (1,200) 114,027 Income from operations 26,730 8,400 35,130 ---------------------------------------------------------------------- Interest and other income (expense), net (1,710) -- (1,710) ---------------------------------------------------------------------- Income from continuing operations before provision for income taxes 25,020 8,400 33,420 Provision for income taxes 8,448 3,249 (2) 11,697 ---------------------------------------------------------------------- Income from continuing operations 16,572 5,151 21,723 ---------------------------------------------------------------------- Loss from discontinued operation, net of income taxes of $2,707 for the nine months ended September 30, 2002 (3,308) 3,308 (3) -- ---------------------------------------------------------------------- Gain on disposal of discontinued operation, net of income taxes of $13,345 28,312 (28,312) -- ---------------------------------------------------------------------- Net income $ 41,576 $ 19,853 $ 21,723 ====================================================================== Earnings per share from continuing operations Basic $ 0.27 $ 0.36 Diluted 0.31 (4) 0.35 ---------------------------------------------------------------------- Earnings per share from discontinued operation Basic $ (0.05) $ -- Diluted (0.05) (4) -- ---------------------------------------------------------------------- Earnings per share from gain on disposal of discontinued operation Basic $ 0.47 $ -- Diluted 0.41 (4) -- ---------------------------------------------------------------------- Earnings per share Basic $ 0.69 $ 0.36 Diluted 0.67 (4) 0.35 ====================================================================== Earnings (Loss) per share weighted average number of shares outstanding: Basic 60,249 60,249 Diluted 68,987 (4) 61,381 ====================================================================== (1) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX. (2) The adjustment represents the income tax effect of footnote (1) in order to reflect our non-GAAP effective tax rate at 35%. (3) The adjustment represents the results of the discontinued operation and the gain related to the sale of Network Diagnostics Division, net of income taxes. (4) For the nine 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 $4,463 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 nine months ended September 30, 2002, includes 7,606 shares related to the convertible debt using the "if-converted" method. CONTACT: Tekelec Michael Attar, 818-880-7821