-----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, WOPbut8esuUGEyyRER7v+Ioj5STAC3Vd7+frV1cUIxsT75HKKWDO38ufy36h+9Sv AzWSY7c+sR82jg+sRE3GUg== 0001157523-04-006738.txt : 20040723 0001157523-04-006738.hdr.sgml : 20040723 20040722165509 ACCESSION NUMBER: 0001157523-04-006738 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040722 ITEM INFORMATION: FILED AS OF DATE: 20040722 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: 04926968 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 a4686429.txt TEKELEC 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 22, 2004 ------------- 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 2 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 22, 2004 of Tekelec ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On July 22, 2004, Tekelec issued a press release announcing its financial results for the fiscal second quarter ended June 30, 2004. 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 22, 2004 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 22, 2004 of Tekelec 4 EX-99.1 2 a4686429ex991.txt NEWS RELEASE Exhbit 99.1 Tekelec Achieves Revenue of $95.6 Million and Orders of $123.6 Million, Next-Gen Switching Gear Deployed at Tier 1 Operators CALABASAS, Calif.--(BUSINESS WIRE)--July 22, 2004--Tekelec (Nasdaq:TKLC) today reported financial results for its second quarter ended June 30, 2004. Revenue for the second quarter of 2004 was $95.6 million, compared to $62.9 million in the second quarter of 2003. On a GAAP basis, Tekelec's net loss was $304,000, or $0.00 per diluted share, for the second quarter of 2004, compared to net income of $1.2 million, or $0.02 per diluted share, in the second quarter of 2003. Second quarter 2004 net income includes an $8.0 million one-time, non-cash charge for the write-off of in-process research and development related to the Taqua acquisition. Non-GAAP net income for the second quarter of 2004, which excludes the effects of acquisition-related amortization and the write-off of in-process research and development, was $9.4 million, or $0.14 per diluted share, compared to non-GAAP net income of $4.0 million, or $0.07 per diluted share, in the second quarter of 2003. Orders received in the second quarter for Tekelec products and services were $123.6 million, compared to $68.0 million in the second quarter in 2003. Tekelec President and CEO Fred Lax commented, "I am very pleased with Tekelec's performance in the second quarter, with revenue increasing 21% sequentially and 52% year-over-year, and with orders up 82% year-over-year. The $123.6 million of total orders booked during the quarter is the second highest order total in the history of the company, surpassed only by the order level achieved in Q4 2003. In particular, our next-generation switching business unit contributed significantly to this order total, generating a switching book-to-bill substantially higher than the overall company book-to-bill. In addition, we are very pleased to announce that Tekelec's next-gen switching equipment has been successfully deployed at two Tier 1 operators, helping to validate Tekelec as a major player in the next-gen switching space. Finally, our Network Signaling business unit generated $72.3 million of revenue, up 35% year-over-year, its highest revenue total in the history of the company, demonstrating that Tekelec's core business remains strong, while we continue to gain traction with our next-gen switching products. "With regard to next-gen switching, revenues increased 103% sequentially, primarily driven by Santera sales. We are very pleased to announce today that Sprint, one of the premier, most technologically forward-looking Tier 1 operators in the world, has deployed Tekelec's next-gen equipment in both its commercial network carrying live traffic, and in its lab for testing purposes. This attests to the carrier-grade quality, functionality, and reliability of Tekelec's large switch platform. "In another Tier 1 deployment, through the Company's relationship with Spatial Wireless, the Tekelec 8000 Wireless Multimedia Gateway has been deployed at a Tier 1 wireless operator. The Tekelec-Spatial solution is a high-capacity, distributed architecture core switch designed for Mobile Switching Center solutions with complete call control, mobility, and services management functionality for the mobile core network. This is a significant accomplishment and clearly demonstrates Spatial and Tekelec's leadership in bringing next-gen switching solutions to the wireless market. "As we continue our global expansion initiative, we are pleased to have been selected by PT Telkom for a multimillion dollar softswitch deployment. PT Telkom, the incumbent national telecommunications carrier of Indonesia, has chosen Tekelec's next-gen platform in an open-tender selection process over numerous other next-gen suppliers. "In another important international win announced today, Orascom Telecom Algeria will deploy Tekelec's Eagle 5 Signaling Application System to connect local, national, and international signaling traffic across its network. Orascom Telecom Holdings is the largest GSM network operator in the Middle East, Africa, and Pakistan. "Finally, in the area of signaling and value-added applications, we are pleased to have collaborated with Cingular on implementing its new star signaling architecture, involving Tekelec's Eagle 5 signaling platform and G-Flex Home Location Register manager solution. The architecture will provide a significant increase in Cingular's network capacity and will help to ensure seven-nines network reliability. We view this as another positive development in the relationship between Tekelec and the soon-to-be largest wireless operator in the United States." Business Unit Results Next-Generation Switching revenue for the second quarter of 2004 was $12.9, compared to $1.2 million in the second quarter of 2003. Network Signaling revenue was $72.3 million, compared to $53.6 million in second quarter of 2003. IEX Contact Center revenue was $10.4 million, compared to $8.1 million in second quarter of 2003. Q3 FINANCIAL GUIDANCE Q3 2004 Guidance Q3 2003 Actual Results Total Revenues: $102.0 million - $104.0 million $70.7 million GAAP Income from Continuing Operations $0.11 - $0.13 per diluted share(a) $0.08 per diluted share (a) For the 3rd quarter of 2004, Tekelec expects expenses to include amortization of acquired intangibles and amortization of non-cash stock based deferred compensation of approximately $1.5 million, pre-tax. In addition, the Company expects approximately $750,000, pretax, of restructuring charges related to the manufacturing move. This guidance excludes any potential gain resulting from the exercise of the Catapult convertible note or any potential gain on the sale of our equity investment in Telica. Lax concluded, "The strong revenue growth and book-to-bill ratio, coupled with the strength of our core signaling business and success of our value-added applications portfolio, combined with the announcement of Tier 1 deployments of our next-gen switching equipment, highlight the significant progress we are making executing on our strategy focused on signaling solutions leadership, next-gen switching, and global expansion. Tekelec will continue to focus on execution in order to capitalize on significant global opportunities." Employment Inducement Stock Options On July 21, 2004, 72 new Tekelec employees hired during the second quarter of 2004 were granted employment inducement stock options under Tekelec's equity incentive plan for new employees to purchase a total of 437,950 shares of Tekelec common stock, pursuant to NASDAQ Marketplace Rule 4350 (i) (1) (A) (iv). The number of shares involved in these grants amounts to less than 1% of the outstanding common shares of Tekelec. All option grants have an exercise price equal to Tekelec's closing price on July 21, 2004, and will vest over a four-year period. About Tekelec Tekelec is a leading developer of now and next-generation signaling and switching telecommunications solutions, 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, 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 and Taqua'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 Six Months Ended June 30, June 30, 2004 2003 2004 2003 - ---------------------------------------------------------------------- (thousands) Revenues $95,618 $62,922 $174,488 $117,928 Costs and expenses: Cost of goods sold 23,953 16,440 43,338 29,521 Amortization of purchased technology 2,392 2,607 5,456 5,138 Research and development 24,169 16,274 44,788 30,487 Selling, general and administrative 38,165 24,386 70,436 46,337 Acquired in-process research and development 8,000 2,900 8,000 2,900 Amortization of intangibles 409 425 941 825 Restructuring (a) 110 -- 1,052 -- - ---------------------------------------------------------------------- Income (Loss) from operations (1,580) (110) 477 2,720 Interest and other income (expense), net (353) (1,170) 115 (1,854) - ---------------------------------------------------------------------- Income (Loss) from continuing operations before provision for income taxes (1,933) (1,280) 592 866 Provision for income taxes (b) 6,952 2,015 13,205 2,647 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (8,885) (3,295) (12,613) (1,781) Minority interest 8,581 4,505 18,158 4,505 - ---------------------------------------------------------------------- Net income (loss) $(304) $1,210 $5,545 $2,724 - ---------------------------------------------------------------------- Earnings per share Basic $0.00 $0.02 $0.09 $0.04 Diluted 0.00 0.02 0.09 0.04 ====================================================================== Earnings per share weighted average number of shares outstanding: Basic 62,458 61,032 62,246 60,983 Diluted 62,458 62,276 65,174 61,954 Notes to Condensed Consolidated Statements of Operations (000's): (a) This amount represents restructuring costs related to the relocation of our manufacturing operations. (b) For the three and six months ended June 30, 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. TEKELEC NON-GAAP (a) STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 - ---------------------------------------------------------------------- (thousands) Revenues $95,618 $62,922 $174,488 $117,928 Costs and expenses: Cost of goods sold 24,143 16,575 43,759 29,787 Research and development 24,073 16,274 44,692 30,487 Selling, general and administrative 37,932 24,386 70,203 46,337 - ---------------------------------------------------------------------- Income from operations 9,470 5,687 15,834 11,317 Interest and other income (expense), net (353) (1,170) 115 (1,854) - ---------------------------------------------------------------------- Income before provision for income taxes 9,117 4,517 15,949 9,463 Provision for income taxes (b) 7,666 2,984 14,806 4,666 - ---------------------------------------------------------------------- Income before minority interest 1,451 1,533 1,143 4,797 Minority interest 7,925 2,512 16,337 2,512 - ---------------------------------------------------------------------- Non-GAAP net income $9,376 $4,045 $17,480 $7,309 - ---------------------------------------------------------------------- Non-GAAP earnings per share Basic $0.15 $0.07 $0.28 $0.12 Diluted 0.14 0.07 0.26 0.12 ====================================================================== Non-GAAP earnings per share weighted average number of shares outstanding: Basic 62,458 61,032 62,246 60,983 Diluted (c) 71,516 62,276 71,535 61,954 Notes to Condensed Consolidated Statements of Operations (000's): (a) The above Non-GAAP Statements of Operations exclude the effects of the following: -- For the three and six months ended June 30, 2004, restructuring costs related to the relocation of our manufacturing operations amounted to $110 and $1,052, respectively. -- For both the three and six months ended June 30, 2004, amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition amounted to $331. -- For three and six months ended June 30, 2004 the amortization of purchased technology and other intangibles related to the acquisition of IEX, Santera and Taqua amounted to $2,609 and $5,974, respectively. The related income tax benefits for the three and six months ended June 30, 2004 were $558 and $1,115, respectively. -- For the three and six months ended June 30, 2003, the amortization of purchased technology and other tangibles related to the acquisition of IEX and Santera amounted to $3,804 and $6,604, respectively. The related income tax benefits for the three and six months ended June 30, 2003 were $969 and $2,019, respectively. (b) 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 and six months ended June 30, 2004 and 2003, respectively. There were no income tax benefits associated with the losses generated by Santera. (c) For the three and six months ended June 30, 2004, the calculation of earnings per share includes, for the purposes of the calculation, the add-back to net income of $581 and $1,162, 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 and six months ended June 30, 2004 includes 6,361 shares related to the convertible debt using the "if- converted" method. For all other periods presented, the results of the "if-converted" calculations are anti-dilutive and therefore excluded from earnings per share. TEKELEC CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2004 2003 - ---------------------------------------------------------------------- (unaudited) (thousands) ASSETS Current assets: Cash and cash equivalents $37,928 $45,261 Short-term investments, at fair value 51,083 83,800 Accounts receivable, net 76,481 52,781 Current portion of notes receivable ($17,300 principal amount) 17,376 17,580 Inventories 31,887 21,434 Deferred income taxes, net 11,490 4,958 Prepaid expenses and other current assets 30,473 22,088 - ------------------------------------------------------------ --------- Total current assets 256,718 247,902 Long-term investments, at fair value 165,060 210,298 Property and equipment, net 28,032 22,172 Investments in privately-held companies 17,322 17,322 Deferred income taxes 32,927 7,876 Other assets 6,168 6,342 Goodwill, net 99,796 68,903 Intangible assets, net 58,383 34,118 - ------------------------------------------------------------ --------- Total assets $664,406 $614,933 ============================================================ ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of deferred revenues $62,222 $50,105 Other current liabilities 85,256 62,758 - ------------------------------------------------------------ --------- Total current liabilities 147,478 112,863 Long-term convertible debt 125,000 125,000 Long-term portion of notes payable 2,025 2,574 Long-term portion of deferred revenues 2,420 3,687 Deferred income taxes 11,297 790 - ------------------------------------------------------------ --------- Total liabilities 288,220 244,914 - ------------------------------------------------------------ --------- Minority interest 23,050 41,208 - ------------------------------------------------------------ --------- Total shareholders' equity 353,136 328,811 - ------------------------------------------------------------ --------- Total liabilities and shareholders' equity $664,406 $614,933 ============================================================ ========= TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended June 30, 2004 - ---------------------------------------------------------------------- (thousands) - ---------------------------------------------------------------------- GAAP Adjustments Non-GAAP - ---------------------------------------------------------------------- Revenues $95,618 $-- $95,618 Costs and expenses: Cost of goods sold 23,953 (2)(a) 23,951 Amortization of purchased technology 2,392 (2,200)(b) 192 - ---------------------------------------------------------------------- Total cost of sales 26,345 (2,202) 24,143 - ---------------------------------------------------------------------- Gross profit 69,273 72.4% 2,202 71,475 74.8% - ---------------------------------------------------------------------- Research and development 24,169 (96)(a) 24,073 Selling, general and administrative 38,165 (233)(a) 37,932 Acquired in-process research and development 8,000 (8,000)(b) -- Amortization of intangibles 409 (409)(b) -- Restructuring 110 (110)(c) -- - ---------------------------------------------------------------------- Total operating expenses 70,853 (8,848) 62,005 - ---------------------------------------------------------------------- Income (Loss) from operations (1,580) 11,050 9,470 Interest and other income (expense), net (353) -- (353) - ---------------------------------------------------------------------- Income (Loss) from continuing operations before provision for income taxes (1,933) 11,050 9,117 Provision for income taxes 6,952 714 (d) 7,666 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (8,885) 10,336 1,451 Minority Interest 8,581 (656)(e) 7,925 - ---------------------------------------------------------------------- Net income (loss) $(304) $9,680 $9,376 - ---------------------------------------------------------------------- Earnings per share Basic $0.00 $0.15 Diluted 0.00 0.14 Earnings per share weighted average number of shares outstanding: Basic 62,458 62,458 Diluted 62,458 71,516 (f) ====================================================================== (a) The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition. (b) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX, Santera and Taqua and the write-off of in-process research and development related to the acquisition of Taqua. (c) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (d) The adjustments represents the income tax effect of footnotes (a), (b) and (c) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (e) The adjustment represents the minority interest impact of footnote (b). (f) For the three months ended June 30, 2004, the non-GAAP 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 June 30, 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 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)(a) 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)(a) -- Amortization of intangibles 425 (425)(a) -- - ---------------------------------------------------------------------- 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 (b) 2,984 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (3,295) 4,828 1,533 Minority interest 4,505 (1,993)(c) 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 ====================================================================== (a) 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. (b) 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. (c) The adjustment represents the minority interest impact of (a). TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Six Months Ended June 30, 2004 - ---------------------------------------------------------------------- (thousands) - ---------------------------------------------------------------------- GAAP Adjustments Non-GAAP - ---------------------------------------------------------------------- Revenues $174,488 $-- $174,488 Costs and expenses: Cost of goods sold 43,338 (2)(a) 43,336 Amortization of purchased technology 5,456 (5,033)(b) 423 - ---------------------------------------------------------------------- Total cost of sales 48,794 (5,035) 43,759 - ---------------------------------------------------------------------- Gross profit 125,694 72.0% 5,035 130,729 74.9% - ---------------------------------------------------------------------- Research and development 44,788 (96)(a) 44,692 Selling, general and administrative 70,436 (233)(a) 70,203 Acquired in-process research and development 8,000 (8,000)(b) -- Amortization of intangibles 941 (941)(b) -- Restructuring 1,052 (1,052)(c) -- - ---------------------------------------------------------------------- Total operating expenses 125,217 (10,322) 114,895 - ---------------------------------------------------------------------- Income from operations 477 15,357 15,834 Interest and other income (expense), net 115 -- 115 - ---------------------------------------------------------------------- Income from continuing operations before provision for income taxes 592 15,357 15,949 Provision for income taxes 13,205 1,601 (d) 14,806 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (12,613) 13,756 1,143 Minority Interest 18,158 (1,821)(e) 16,337 - ---------------------------------------------------------------------- Net income $5,545 $11,935 $17,480 - ---------------------------------------------------------------------- Earnings per share Basic $0.09 $0.28 Diluted 0.09 0.26 Earnings per share weighted average number of shares outstanding: Basic 62,246 62,246 Diluted 65,174 71,535 (f) ====================================================================== (a) The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options granted as part of the Taqua acquisition. (b) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX, Santera and Taqua and the write-off of in-process research and development related to the acquisition of Taqua. (c) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (d) The adjustments represents the income tax effects of footnotes (a), (b) and (c) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (e) The adjustment represents the minority interest impact of footnote (b). (f) For the six months ended June 30, 2004, the non-GAAP calculation of earnings per share includes for the purpose of calculation the add-back to net income of $1,162 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 six months ended June 30, 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) 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)(a) 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)(a) -- Amortization of intangibles 825 (825)(a) -- - ---------------------------------------------------------------------- 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 (b) 4,666 - ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (1,781) 6,578 4,797 Minority interest 4,505 (1,993)(c) 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 ====================================================================== (a) 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. (b) 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. (c) The adjustment represents minority interest impact of (a). CONTACT: Tekelec Michael Attar, 818-880-7821 (Investor Relations) -----END PRIVACY-ENHANCED MESSAGE-----