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Tekelec Announces Q2 Results: Achieves Orders of $156.4 Million, Revenue of $133.0 Million, and 1.18 Book-to-Bill; Agrees to Acquire Remaining Interest in SanteraMORRISVILLE, N.C. --(Business Wire)-- Aug. 3, 2005 -- Tekelec (Nasdaq:TKLC) today reported financial results for its 2005 second quarter. Revenue for the second quarter of 2005 was $133.0 million, compared to $95.6 million in the second quarter of 2004. On a GAAP basis, Tekelec's net income was $5.6 million, or $0.08 per diluted share, for the second quarter of 2005, compared to a net loss of $304,000, or $0.00 per diluted share, in the second quarter of 2004. Non-GAAP net income for the second quarter of 2005, which excludes the effects of acquisition-related amortization, non-cash stock-based deferred compensation, and restructuring and other charges, related to the relocation of corporate headquarters and the consolidation of Taqua's manufacturing operations, was $9.4 million, or $0.14 per diluted share, compared to non-GAAP net income of $9.4 million, or $0.14 per diluted share, in the second quarter of 2004. Non-GAAP net income for the second quarter of 2004 excludes the effects of acquisition-related amortization, the write-off of in-process research and development related to the Taqua acquisition in April 2004 and restructuring charges related to the relocation of manufacturing operations. Orders received in the second quarter for Tekelec products and services were $156.4 million, compared to $123.6 million in the second quarter in 2004. As previously announced today, Tekelec has agreed to purchase the minority interest in Santera for cash in the amount of $75.6 million. The transaction is expected to close in early October 2005. Tekelec President and CEO Fred Lax commented, "Tekelec's results were strong in the second quarter, with orders up 27% year-over-year and up 29% sequentially, and revenue increasing 39% year-over-year and up 11% sequentially. For the eleventh consecutive quarter, strong order volumes provided us with a book-to-bill ratio greater than one. "Network Signaling Group revenue increased to $81.5 million, up 20%, compared to $68.0 million in Q2 '04, and increased 10% sequentially, marking the highest quarterly signaling revenue in the history of the Company. We are pleased to announce that Bell Canada has selected Tekelec's Eagle 5 Signaling Application System and integrated network monitoring platform to address its evolving signaling requirements as it enhances its core infrastructure. Bell Canada is replacing legacy signaling and monitoring equipment with Tekelec solutions. "Switching Solutions Group revenue increased to $33.3 million, up 158%, compared to $12.9 million in Q2 '04, and increased 34% sequentially, as we added 19 new switching customers during the quarter. In another deployment of our wireless media gateway, Celcom, Malaysia's largest mobile operator, will be deploying the T8000 as part of an IP-based next-gen switching solution. "Communications Software Solutions Group revenue increased to $7.1 million, up 65%, compared to $4.3 million in Q2 '04, but declined 26% sequentially, or $2.4 million. As part of a bundled Tekelec solution, Bell Canada is also deploying Tekelec's network-wide monitoring solution. This implementation will feed the critical business intelligence data required for the applications that run the carrier's customer care, call center operations and customer settlements processes. In a stand-alone deployment, we are pleased to announce that DTAC Thailand, a leading Thai mobile operator, has selected Tekelec's Integrated Application Solution for roaming management. This solution will allow DTAC to better understand the performance of its network, resulting in better service delivery and higher customer satisfaction. "At Supercomm, we announced our strategy to enable operators to deliver advanced, IP-based services over any fixed or mobile network, utilizing Tekelec's unique combination of signaling, switching, and applications solutions. Today we are pleased to announce a key milestone in the development of this strategy with the purchase of iptelorg, a German and Czech-based developer of leading edge Session Initiation Protocol (SIP) routing software. This purchase secures a critical IP Multimedia Subsystem (IMS) capability for Tekelec and is part of our strategic focus on providing the same level of carrier-grade reliability, scalability, and innovation to customers' SIP signaling needs that we already supply for their SS7 networks. "Finally, regarding global expansion, approximately 35% of revenues were generated outside the U.S. during the quarter. This international percentage treats all revenue associated with the Alcatel channel as U.S. sourced revenue, although some of the products are destined for international deployment. In a significant validation of our global expansion initiative, we recently announced that FiberHome Technologies Group, one of the largest providers of telecom equipment and services in China, has agreed to integrate the T9000 distributed switching solution into FiberHome's next-gen network portfolio and to exclusively deploy Tekelec's media gateway in any mid or large size carrier opportunities. This agreement expands Tekelec's presence in China, one of the fastest growing telecom markets in the world." -0- *T COMPARATIVE TEKELEC GROUP REVENUES Revenue ($ in Millions) Q2 2005 Q2 2004 Switching Solutions Group $33.3 $12.9 Network Signaling Group $81.5 $68.0 Communications Software Solutions Group(1) $7.1 $4.3 IEX Contact Center Group $11.1 $10.4 (1) As a result of the Steleus acquisition, a new operating group, the Communications Software Solutions Group, was created in Q4 2004. This Group's products consist of the Steleus solutions and Tekelec's business intelligence applications and other network element independent solutions that were previously reported as part of the Network Signaling Group. The revenue related to these Network Signaling Group solutions was reclassified from the Network Signaling Group to the Communications Software Solutions Group for 2004. The Communications Software Solutions Group revenue for Q2 2004 does not include any Steleus revenue. Q3 FINANCIAL GUIDANCE Q3 2005 Guidance Q3 2004 Actual Results Total Revenue: $143.0 million - $106.6 million $147.0 million GAAP Net Income: $0.10 - $0.13 per diluted $0.27 per diluted share(1) share(2) (1) For the 3rd quarter of 2005, Tekelec expects expenses to include amortization of acquired intangibles, amortization of non-cash stock-based deferred compensation, and restructuring and other charges related to our Hyannis and Corporate relocations in the aggregate amount of approximately $5.0 million, pre-tax. This guidance excludes any potential one-time, non-cash charge for the write-off of acquired in-process research and development related to the iptelorg acquisition. (2) Third quarter 2004 net income includes a $2.4 million one-time, non-cash charge for the write-off of acquired in-process research and development related to the VocalData acquisition, a $9.9 million pre-tax gain on Tekelec's investment in Telica and a $2.2 million pre-tax gain on the settlement of the Catapult convertible notes. *T Lax concluded, "The strong revenue growth and book-to-bill ratio, coupled with the record quarter for our signaling business and success of our next-gen switching initiative, highlight the significant progress we are making executing on our strategy focused on next-gen switching, signaling, value-added applications, and global expansion. I believe that as IMS architected networks are rolled-out, Tekelec's unique portfolio of solutions will help distinguish us from our competitors. Finally, we will continue to work on improving our operating margins by focusing on gross margin improvement initiatives and by closely managing operating expenses." Employment Inducement Stock Options On August 2, 2005, 67 new Tekelec employees hired during the second quarter of 2005 and through the date of this earnings release were granted options to purchase a total of 719,850 shares of Tekelec common stock, of which options to purchase 200,000 shares were granted to Ron De Lange, president and general manager of Tekelec's Network Signaling Group. In addition, in connection with the iptelorg acquisition, 12 iptelorg employees were granted options to purchase a total of 346,535 shares of Tekelec common stock. The total number of shares subject to such options amounts to less than 2% of the outstanding shares of Tekelec common stock. The option grants were made under Tekelec's 2004 Equity Incentive Plan for New Employees and met the "employment inducement" exception to the Nasdaq rules requiring shareholder approval of equity-based incentive plans. About Tekelec Tekelec is a leading developer of now and next-generation switching and signaling telecommunications solutions, network performance management technology, and value-added applications. Tekelec's innovative solutions are widely deployed in traditional and next-generation wireline and wireless networks and contact centers worldwide. Corporate headquarters are located in Morrisville, NC 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 generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and 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 2004 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, unexpected changes in economic, social, or political conditions in the countries in which the Company operates, the timing of significant orders and shipments, the lengthy sales cycle for the Company's products, the timing of revenue recognition of multiple elements in an arrangement sold as part of a bundled solution, the timing of the convergence of voice and data networks, the success or failure of strategic alliances or acquisitions including the success or failure of the integration of Santera, Taqua, Steleus, VocalData, and iptelorg's operations with those of the Company, litigation or regulatory matters such as the litigation described in Tekelec's SEC reports and the costs and expenses associated therewith, 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, and sales, marketing, and compensation expenses, 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. Webcast Tekelec will host a live webcast of the conference call on August 3 at 4:45 p.m. ET. To access the webcast, visit Tekelec's web site located at www.tekelec.com, enter the Investor Relations section and click on the webcast icon. Telephone Replay A telephone replay of the call will also be available for one week after the live call by calling (719) 457-0820, and entering the reservation number, 4307795. -0- *T TEKELEC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 ---------------------------------------------------------------------- (thousands) Revenues $133,044 $95,618 $252,419 $174,488 Costs and expenses: Cost of goods sold 39,692 23,953 71,294 43,338 Amortization of purchased technology 1,997 2,392 3,752 5,456 Research and development 30,966 24,169 60,972 44,788 Selling, general and administrative 50,942 38,165 98,330 70,436 Acquired in-process research and development -- 8,000 -- 8,000 Amortization of intangibles 702 409 1,581 941 Restructuring and other charges(1) 2,503 110 2,760 1,052 ---------------------------------------------------------------------- Income (Loss) from operations 6,242 (1,580) 13,730 477 Interest and other income (expense), net 426 (353) (1,092) 115 ---------------------------------------------------------------------- Income (Loss) before provision for income taxes 6,668 (1,933) 12,638 592 Provision for income taxes (2) 3,942 6,952 9,631 13,205 ---------------------------------------------------------------------- Income (Loss) before minority interest 2,726 (8,885) 3,007 (12,613) Minority interest 2,850 8,581 9,225 18,158 ---------------------------------------------------------------------- Net income (loss) $5,576 $(304) $12,232 $5,545 ---------------------------------------------------------------------- Earnings per share Basic $0.08 $0.00 $0.19 $0.09 Diluted 0.08 0.00 0.18 0.09 ====================================================================== Weighted average number of shares outstanding: Basic 65,723 62,458 65,660 62,246 Diluted 67,258 62,458 67,652 65,174 Notes to Condensed Consolidated Statements of Operations (000's): (1) This amount represents restructuring and other costs (e.g., costs associated with duplicate staff during the transition, recruiting fees, etc.) related to the relocation of our corporate headquarters. (2) For the three and six months ended June 30, 2004 and 2005, 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(1) STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 ---------------------------------------------------------------------- (thousands) Revenues $133,044 $95,618 $252,419 $174,488 Costs and expenses: Cost of goods sold 39,638 24,143 70,904 43,759 Research and development 30,983 24,073 60,826 44,692 Selling, general and administrative 50,015 37,932 96,649 70,203 ---------------------------------------------------------------------- Income from operations 12,408 9,470 24,040 15,834 Interest and other income (expense), net 426 (353) 252 115 ---------------------------------------------------------------------- Income before provision for income taxes 12,834 9,117 24,292 15,949 Provision for income taxes (2) 5,836 7,666 12,820 14,806 ---------------------------------------------------------------------- Income before minority interest 6,998 1,451 11,472 1,143 Minority interest 2,383 7,925 7,649 16,337 ---------------------------------------------------------------------- Non-GAAP net income $9,381 $9,376 $19,121 $17,480 ---------------------------------------------------------------------- Non-GAAP earnings per share Basic $0.14 $0.15 $0.29 $0.28 Diluted 0.14 0.14 0.27 0.26 ---------------------------------------------------------------------- Non-GAAP earnings per share weighted average number of shares outstanding: Basic 65,723 62,458 65,660 62,246 Diluted (3) 73,619 71,516 74,013 71,535 Notes to Condensed Consolidated Statements of Operations (000's): (1) The above Non-GAAP Statements of Operations exclude the effects of the following: For the three and six months ended June 30, 2005, restructuring and other costs related to the relocation of our corporate headquarters amounting to $2,503 and $2,760, respectively. Included in restructuring and other costs for the three and six months ended June 30, 2005 are $184 of transition costs, consisting primarily of recruiting costs of new personnel, the duplicative salary for the period in which the Company had two personnel performing the same function, travel and other miscellaneous transition costs. For the three and six months ended June 30, 2005, amortization of deferred stock-based compensation related to stock options and restricted stock units granted amounting to $975 and $1,895, respectively. For the three and six months ended June 30, 2005 the amortization of purchased technology and other intangibles related to the acquisition of Taqua, VocalData, Steleus and the majority interest in Santera amounting to $2,688 and $5,655, respectively. The related income tax benefits for the three and six months ended June 30, 2005 were $1,894 and $3,189 respectively. For the six months ended June 30, 2005, the loss on sale of investments amounting to $1,344 relates to the sale of Santera's holdings of Alcatel shares received in conjunction with warrants exercised in December 2004. 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 stock options granted amounting to $331. For the three and six months ended June 30, 2004 the amortization of purchased technology and other intangibles related to the acquisition of IEX, Taqua and majority interest in Santera amounting to $2,609 and $5,974, respectively. The related income tax benefits for the three and six months ended June 30, 2004 were $714 and $1,601, respectively. For the three and six months ended June 30, 2004, the write-off of in-process research and development related to the acquisition of Taqua amounting to $8,000. (2) The above Non-GAAP Statements of Operations assume an effective income tax rate of 35% for the Tekelec business excluding Santera for the three and six months ended June 30, 2005 and 2004. There were no income tax benefits associated with the losses generated by Santera. (3) For the three and six months ended June 30, 2005 and June 30, 2004, the calculation of earnings per share includes 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, 2005 and June 30, 2004 includes 6,361 shares related to the convertible debt using the "if-converted" method. TEKELEC CONDENSED CONSOLIDATED BALANCE SHEETS June December 30, 31, 2005 2004 ---------------------------------------------------------------------- (unaudited) (unaudited) (thousands) ASSETS Current assets: Cash and cash equivalents $34,549 $48,925 Short-term investments, at fair value 173,478 134,435 Accounts receivable, net 99,817 107,850 Inventories 51,372 33,654 Deferred income taxes, net 13,703 15,804 Prepaid expenses and other current assets 51,482 44,639 ---------------------------------------------------------------------- Total current assets 424,401 385,307 Long-term investments, at fair value 93,293 93,622 Property and equipment, net 38,083 30,617 Investments in privately-held companies 7,322 7,322 Deferred income taxes 46,829 45,748 Other assets 5,616 6,757 Goodwill, net 128,851 128,732 Intangible assets, net 80,529 83,538 ---------------------------------------------------------------------- Total assets $824,924 $781,643 ====================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of deferred revenues $127,328 $92,182 Other current liabilities 94,081 93,123 ---------------------------------------------------------------------- Total current liabilities 221,409 185,305 Long-term convertible debt 125,000 125,000 Long-term portion of notes payable 45 78 Long-term portion of deferred revenues 3,852 2,187 Deferred income taxes 18,026 19,586 ---------------------------------------------------------------------- Total liabilities 368,332 332,156 ---------------------------------------------------------------------- Minority interest 11,264 20,489 ---------------------------------------------------------------------- Total shareholders' equity 445,328 428,998 ---------------------------------------------------------------------- Total liabilities and shareholders' equity $824,924 $781,643 ====================================================================== TEKELEC IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME (unaudited) Three Months Ended June 30, 2005 ---------------------------------------------------------------------- (thousands) ---------------------------------------------------------------------- GAAP Adjustments Non-GAAP ---------------------------------------------------------------------- Revenues $133,044 $-- $ 133,044 Costs and expenses: Cost of goods sold 39,692 (257)(1)(2) 39,435 Amortization of purchased technology 1,997 (1,794)(2) 203 ---------------------------------------------------------------------- Total cost of sales 41,689 (2,051) 39,638 ---------------------------------------------------------------------- Gross profit 91,355 68.7% 2,051 93,406 70.2% ---------------------------------------------------------------------- Research and development 30,966 17(1) 30,983 Selling, general and administrative 50,942 (927)(1) 50,015 Amortization of intangibles 702 (702)(2) -- Restructuring and other charges 2,503 (2,503)(3) -- ---------------------------------------------------------------------- Total operating expenses 85,113 (4,115) 80,998 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Income (Loss) from operations 6,242 6,166 12,408 Interest and other income (expense), net 426 -- 426 ---------------------------------------------------------------------- Income before provision for income taxes 6,668 6,166 12,834 Provision for income taxes 3,942 1,894(4) 5,836 ---------------------------------------------------------------------- Income before minority interest 2,726 4,272 6,998 Minority interest 2,850 (467)(5) 2,383 ---------------------------------------------------------------------- Net income $5,576 $3,805 $9,381 ---------------------------------------------------------------------- Earnings per share Basic $0.08 $0.14 Diluted 0.08 0.14 Earnings per share weighted average number of shares outstanding: Basic 65,723 65,723 Diluted 67,258 73,619(6) ===================================--================================= (1) The adjustments represent the amortization of deferred stock-based compensation related to stock options and restricted stock units assumed or granted. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition Taqua, VocalData, Steleus and the majority interest in Santera. (3) The adjustment represents restructuring and other costs related to the relocation of our corporate headquarters. (4) The adjustments represents the income tax effect of footnotes (1), (2) and (3) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (5) The adjustment represents the minority interest impact of footnote (2). (6) For the three months ended June 30, 2005, the non-GAAP calculation of earnings per share includes 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, 2005 includes 6,361 shares related to the convertible debt using the "if-converted" method. 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)(1) 23,951 Amortization of purchased technology 2,392 (2,200)(2) 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)(1) 24,073 Selling, general and administrative 38,165 (233)(1) 37,932 Acquired in-process research and development 8,000 (8,000)(2) -- Amortization of intangibles 409 (409)(2) -- Restructuring 110 (110)(3) -- ---------------------------------------------------------------------- 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) before provision for income taxes (1,933) 11,050 9,117 Provision for income taxes 6,952 714(4) 7,666 ---------------------------------------------------------------------- Income (Loss) before minority interest (8,885) 10,336 1,451 Minority interest 8,581 (656)(5) 7,925 ---------------------------------------------------------------------- Net income (loss) $(304) $9,680 $9,376 ---------------------------------------------------------------------- Earnings (loss) 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(6) ====================================================================== (1) The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options assumed or granted as part of the Taqua acquisition. (2) 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. (3) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (4) The adjustments represents the income tax effect of footnotes (1), (2) and (3) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (5) The adjustment represents the minority interest impact of footnote (2). (6) For the three months ended June 30, 2004, the non-GAAP calculation of earnings per share includes 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) Six Months Ended June 30, 2005 ---------------------------------------------------------------------- (thousands) ---------------------------------------------------------------------- GAAP Adjustments Non-GAAP ---------------------------------------------------------------------- Revenues $252,419 $-- $252,419 Costs and expenses: Cost of goods sold 71,294 (863)(1)(2) 70,431 Amortization of purchased technology 3,752 (3,279)(2) 473 ---------------------------------------------------------------------- Total cost of sales 75,046 (4,142) 70,904 ---------------------------------------------------------------------- Gross profit 177,373 70.3% 4,142 181,515 71.9% ---------------------------------------------------------------------- Research and development 60,972 (146)(1) 60,826 Selling, general and administrative 98,330 (1,681)(1) 96,649 Amortization of intangibles 1,581 (1,581)(2) -- Restructuring 2,760 (2,760)(3) -- ---------------------------------------------------------------------- Total operating expenses 163,643 (6,168) 157,475 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Income from operations 13,730 10,310 24,040 Interest and other income (expense), net (1,092) 1,344(4) 252 ---------------------------------------------------------------------- Income before provision for income taxes 12,638 11,654 24,292 Provision for income taxes 9,631 3,189(5) 12,820 ---------------------------------------------------------------------- Income before minority interest 3,007 8,465 11,472 Minority interest 9,225 (1,576)(6) 7,649 ---------------------------------------------------------------------- Net income $12,232 $6,889 $19,121 ---------------------------------------------------------------------- Earnings per share Basic $0.19 $0.29 Diluted 0.18 0.27 Earnings per share weighted average number of shares outstanding: Basic 65,660 65,660 Diluted 67,652 74,013(7) ====================================================================== (1) The adjustments represent the amortization of deferred stock compensation related to stock options and restricted stock units assumed or granted. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition Taqua, VocalData, Steleus and majority interest in Santera. (3) The adjustment represents restructuring and other costs related to the relocation of our corporate headquarters. (4) The adjustment represents the realized loss on the sale of Santera's holdings of Alcatel shares received in conjunction with warrants exercised in December 2004. (5) The adjustments represents the income tax effect of footnotes (1), (2) (3) and (4) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (6) The adjustment represents the minority interest impact of footnote (2) and (4). (7) For the six months ended June 30, 2005, the non-GAAP calculation of earnings per share includes 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, 2005 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, 2004 ---------------------------------------------------------------------- (thousands) ---------------------------------------------------------------------- GAAP Adjustments Non-GAAP ---------------------------------------------------------------------- Revenues $174,488 $-- $174,488 Costs and expenses: Cost of goods sold 43,338 (2)(1) 43,336 Amortization of purchased technology 5,456 (5,033)(2) 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)(1) 44,692 Selling, general and administrative 70,436 (233)(1) 70,203 Acquired in- process research and development 8,000 (8,000)(2) -- Amortization of intangibles 941 (941)(2) -- Restructuring 1,052 (1,052)(3) -- ---------------------------------------------------------------------- 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(4) 14,806 ---------------------------------------------------------------------- Income (Loss) from continuing operations before minority interest (12,613) 13,756 1,143 Minority Interest 18,158 (1,821)(5) 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(6) ====================================================================== (1) The adjustments represent the amortization of deferred stock compensation related to the unvested portion of stock options assumed or granted as part of the Taqua acquisition. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisition of IEX, Taqua, and the majority interest in Santera and the write-off of in-process research and development related to the acquisition of Taqua. (3) The adjustment represents restructuring costs related to the relocation of our manufacturing operation. (4) The adjustments represents the income tax effects of footnotes (1), (2) and (3) in order to reflect our non-GAAP effective tax rate at 35% for the Tekelec business, excluding Santera. (5) The adjustment represents the minority interest impact of footnote (2). (6) For the six months ended June 30, 2004, the non-GAAP calculation of earnings per share includes 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. *T |
