Income Taxes	6 Months Ended
Jun. 30, 2011
Income Taxes
Income Taxes	Note 9 — Income Taxes As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the "Effective Rate"). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of "more likely than not" based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. The assessment of the amounts and timing of future taxable income involves significant estimates and management judgement. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income an adjustment resulting from the establishment of a valuation allowance in the period such a determination was made and such adjustment maybe material. We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service ("IRS") completed an examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. In the first quarter of 2011, the IRS commenced its examination of tax years 2007 through 2009 as a result of Tekelec having filed in 2010 a refund claim related to a capital loss generated in 2009. As a result, we have extended the statute of limitations on our 2007 tax year. With respect to our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions with one exception. The state of North Carolina is examining our 2006 tax year as a result of a refund claim filed during 2010. The 2006 tax year was previously examined. During the second quarter of 2011 we favorably settled an examination by the state of North Carolina relating to a refund claim filed with respect to our 2007 and 2008 tax years. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior to 2003. Although it is possible that certain tax examinations, including the IRS examination, could be resolved during the next 12 months, the timing and outcomes are uncertain. With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur. For the three months ended June 30, 2011, we incurred a tax expense of $1.2 million despite recording a loss of ($5.3) million during the quarter. The tax expense of $1.2 million for the three months ended June 30, 2011 differs from a tax benefit of ($1.9) million, calculated based on the statutory rate of 35%, primarily due to (i) a discrete tax expense of $1.6 million resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, (ii) a discrete tax expense of $0.9 million related to the establishment of a valuation allowance against certain foreign tax credits and (iii) the cumulative effect of shifting projected income from international locations with lower tax rates to the U.S. This tax expense is partially offset (i) research and development tax credits in various jurisdictions, (ii) U.S. state income tax benefit, and (iii) the forecasted jurisdictional split of our global income in countries with lower tax rates. For the six months ended June 30, 2011 the effective rate of 31% differs from the statutory rate of 35% primarily due discrete items relating to (i) the recognition of certain previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies, and (ii) discrete tax expense for the first six months of $3.2 million resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, and (iii) a discrete tax expense of $0.9 million related to the establishment of a valuation allowance against certain foreign tax credits. For the three and six months ended June 30, 2010 our effective tax rate was 20% and 30%, respectively. The effective rate for the three months ended June 30, 2010 differs from the statutory rate of 35% primarily due to (i) a higher percentage of our projected income for the full year being derived from international locations with lower tax rates than the U.S., (ii) the cumulative effect of reducing our full year estimated effective tax rate as a result of the shift of income to lower tax jurisdictions discussed in item (i), and (iii) a discrete tax benefit of ($1.0) million recognized as the result of certain amended state tax filings. These tax benefits were partially offset by (i) state income tax expense, (ii) tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, and (iii) tax expense resulting from nondeductible acquisition expenses incurred during the second quarter of 2010 in the acquisition of Camiant and Blueslice. For the six months ended June 30, 2010 the effective rate differs from the statutory rate of 35% primarily due to the impact of a higher percentage of our projected income for the full year being derived from international locations with lower tax rates than the U.S., and the discrete items discussed above. We no longer have a "pool of windfall tax benefits" as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three and six months ended June 30, 2011, we recorded a discrete tax expense of $1.6 million and $3.2 million, respectively, as compared to $0.5 million and $1.1 million recorded for the three and six months ended June 30, 2010, respectively, associated with our stock compensation plans.

Note 9 — Income Taxes

As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the "Effective Rate"). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets.

Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of "more likely than not" based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. The assessment of the amounts and timing of future taxable income involves significant estimates and management judgement. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income an adjustment resulting from the establishment of a valuation allowance in the period such a determination was made and such adjustment maybe material.

We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service ("IRS") completed an examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. In the first quarter of 2011, the IRS commenced its examination of tax years 2007 through 2009 as a result of Tekelec having filed in 2010 a refund claim related to a capital loss generated in 2009. As a result, we have extended the statute of limitations on our 2007 tax year. With respect to our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions with one exception. The state of North Carolina is examining our 2006 tax year as a result of a refund claim filed during 2010. The 2006 tax year was previously examined. During the second quarter of 2011 we favorably settled an examination by the state of North Carolina relating to a refund claim filed with respect to our 2007 and 2008 tax years. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior to 2003. Although it is possible that certain tax examinations, including the IRS examination, could be resolved during the next 12 months, the timing and outcomes are uncertain.

With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur.

For the three months ended June 30, 2011, we incurred a tax expense of $1.2 million despite recording a loss of ($5.3) million during the quarter. The tax expense of $1.2 million for the three months ended June 30, 2011 differs from a tax benefit of ($1.9) million, calculated based on the statutory rate of 35%, primarily due to (i) a discrete tax expense of $1.6 million resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, (ii) a discrete tax expense of $0.9 million related to the establishment of a valuation allowance against certain foreign tax credits and (iii) the cumulative effect of shifting projected income from international locations with lower tax rates to the U.S. This tax expense is partially offset (i) research and development tax credits in various jurisdictions, (ii) U.S. state income tax benefit, and (iii) the forecasted jurisdictional split of our global income in countries with lower tax rates.

For the six months ended June 30, 2011 the effective rate of 31% differs from the statutory rate of 35% primarily due discrete items relating to (i) the recognition of certain previously unrecognized tax benefits resulting from the completion of studies related to our global transfer pricing policies, and (ii) discrete tax expense for the first six months of $3.2 million resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, and (iii) a discrete tax expense of $0.9 million related to the establishment of a valuation allowance against certain foreign tax credits.

For the three and six months ended June 30, 2010 our effective tax rate was 20% and 30%, respectively. The effective rate for the three months ended June 30, 2010 differs from the statutory rate of 35% primarily due to (i) a higher percentage of our projected income for the full year being derived from international locations with lower tax rates than the U.S., (ii) the cumulative effect of reducing our full year estimated effective tax rate as a result of the shift of income to lower tax jurisdictions discussed in item (i), and (iii) a discrete tax benefit of ($1.0) million recognized as the result of certain amended state tax filings. These tax benefits were partially offset by (i) state income tax expense, (ii) tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below, and (iii) tax expense resulting from nondeductible acquisition expenses incurred during the second quarter of 2010 in the acquisition of Camiant and Blueslice. For the six months ended June 30, 2010 the effective rate differs from the statutory rate of 35% primarily due to the impact of a higher percentage of our projected income for the full year being derived from international locations with lower tax rates than the U.S., and the discrete items discussed above.

We no longer have a "pool of windfall tax benefits" as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs. For the three and six months ended June 30, 2011, we recorded a discrete tax expense of $1.6 million and $3.2 million, respectively, as compared to $0.5 million and $1.1 million recorded for the three and six months ended June 30, 2010, respectively, associated with our stock compensation plans.