[November 01, 2006] |
|
Tekelec Announces Q3 2006 Earnings
MORRISVILLE, N.C. --(Business Wire)-- Tekelec (NASDAQ: TKLC), a leading developer of high-performance network applications for next-generation fixed, mobile and packet networks, today announced its earnings for the third quarter of 2006. The results for the quarter and nine months ended September 30, 2006 include a gain on the sale of the Company's IEX contact center business reported in the results of discontinued operations, and an impairment charge related to intangibles and goodwill associated with its Switching Solutions Business Unit.
Results from Continuing Operations
Revenue from continuing operations for the third quarter of 2006 was a record $155.2 million, up 43% compared to $108.4 million for the third quarter of 2005. For the third quarter of 2006, the Company had orders for the Telecom business of $108.0 million, up 8% compared to $100.4 million for the second quarter of 2006 and down 20% compared to $135.6 million for the third quarter of 2005. Telecom backlog as of September 30, 2006 was $455.0 million compared to $502.2 million as of June 30, 2006 and $520.2 million as of December 31, 2005.
On a GAAP basis, the Company reported a loss from continuing operations for the third quarter of 2006 of $87.5 million, or $1.30 loss per diluted share, compared to a loss from continuing operations of $7.6 million, or $0.11 loss per diluted share, for the third quarter of 2005. GAAP operating results for the third quarter of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit.
On a non-GAAP basis, income from continuing operations for the third quarter of 2006 was $11.2 million, or $0.16 per diluted share, compared to a net loss from continuing operations of $3.1 million, or $0.05 loss per diluted share, for the third quarter of 2005. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP operating results to its non-GAAP operating results.
Revenue from continuing operations for the first nine months of 2006 was $399.2 million, up 15% compared to $347.9 million for the first nine months of 2005. For the first nine months of 2006, the Company had orders from continuing operations of $333.9 million, down 15% compared to $391.2 million for the first nine months of 2005.
On a GAAP basis, the Company reported a loss from continuing operations for the first nine months of 2006 of $102.1 million, or $1.52 loss per diluted share, compared to income from continuing operations of $6.6 million, or $0.10 per diluted share, for the first nine months of 2005. GAAP operating results for the first nine months of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit.
On a non-GAAP basis, income from continuing operations for the first nine months of 2006 was $11.9 million, or $0.17 per diluted share, compared to income from continuing operations of $17.8 million, or $0.26 per diluted share, for the first nine months of 2005. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP operating results to its non-GAAP operating results.
At September 30, 2006, Tekelec's consolidated cash, cash equivalents and short-term investments totaled $426.8 million, up from $237.2 million at June 30 2006 due primarily to the Company's receipt during the third quarter of 2006 of proceeds from the sale of the IEX Contact Center Business. Deferred revenue from continuing operations was $225.2 million at September 30, 2006, compared to $257.1 million at June 30, 2006.
Impairment Charge
In connection with its annual budgeting process initiated during the third quarter of 2006, the Company performed a comprehensive evaluation of the Switching Solutions Business Unit. Based on this evaluation and the significant shortfall in switching orders for the second half of 2006 compared to its earlier expectations, the Company significantly lowered its forecast for the Business Unit's future revenues and cash flows. As a result, the Company has recognized non-cash impairment charges in the aggregate amount of $100.6 million in the third quarter of 2006. Approximately $25.6 million of these charges relate to the impairment of acquired technology and $75.0 million of these charges reflect the write-down of goodwill relating to the acquisitions of Santera Systems Inc. and Vocal Data Inc.
In connection with this comprehensive evaluation and assessment of its Switching Solutions Business Unit, the Company has retained J. P. Morgan Securities Inc. as an advisor to help identify and evaluate strategic alternatives to leverage its switching technology portfolio.
Results from Discontinued Operations
The sale of the IEX Contact Center business to NICE Systems, Inc. closed on July 6, 2006 and the operations of IEX have been presented in discontinued operations. On a GAAP basis, income from discontinued operations, net of taxes, in the third quarter of 2006 was $176.8 million, or $2.63 per diluted share, compared to income from discontinued operations, net of taxes, of $3.5 million, or $0.05 per diluted share, in the third quarter of 2005. On a GAAP basis, income from discontinued operations, net of taxes, for the first nine months of 2006 was $189.4 million, or $2.83 per diluted share, compared to income from discontinued operations, net of taxes, of $7.6 million, or $0.11 per diluted share, for the first nine months of 2005. Included in the income from discontinued operations for the three and nine months ended September 30, 2006 was a gain on the sale of IEX of $177.5 million, net of taxes.
Consolidated GAAP Results
The Company's consolidated net income for the three months ended September 30, 2006 was $89.3 million, or $1.33 per diluted share, compared to a consolidated net loss for the three months ended September 30, 2005 of $4.1 million, or $0.06 loss per diluted share. The Company's consolidated net income for the nine months ended September 30, 2006 was $87.3 million, or $1.30 per diluted share, compared to consolidated net income for the nine months ended September 30, 2005 of $14.2 million, or $0.21 per diluted share. Results for the third quarter and the first nine months of 2006 include a non-cash impairment charge of $100.6 million related to the write-down of certain goodwill and acquired technology assets of the Switching Solutions Business Unit and a gain on the sale of IEX of $177.5 million, net of taxes.
Restructuring Plan
As a result of the continued losses in the Switching Solutions Business Unit ("SSG"), on November 1, 2006 the Company expanded the scope of the restructuring of SSG's operations which was initiated in the second quarter of 2006. Specifically, as part of its ongoing efforts to align the cost structure with SSG's current business opportunities, the Company has further reduced the size of its operations in Plano, Texas through: (i) the termination of the Company's employment of 104 employees across SSG and related customer service, operations and other personnel; (ii) the decision not to replace 22 employees who left Tekelec during the third quarter of 2006; and (iii) the termination of approximately 25 contractors.
In addition, as a result of the relocation of the Company's corporate headquarters to North Carolina from California, the California-based Senior Vice President, Corporate Affairs and General Counsel of the Company, Ron Buckly, has decided to resign effective December 31, 2006. The Company will incur charges under a retention agreement with Mr. Buckly and is also obligated to pay severance benefits to him under its Officer Severance Plan due to the relocation of the Company's headquarters.
The Company currently estimates that it will incur charges in the fourth quarter of 2006 in the aggregate amount of approximately $4 to $5 million to cover severance and other costs associated with this SSG reduction in force and the resignation of the Senior Vice President, Corporate Affairs and General Counsel. The Company currently expects to realize estimated annual cost savings from this restructuring activity of $17 to $19 million. Due to the timing of this restructuring, the Company expects to realize the majority of these savings commencing in 2007. These savings are in addition to the estimated $8 million of annual cost savings that the Company expects to realize from its restructuring completed in the second quarter of 2006.
Conference Call
Tekelec has scheduled a conference call for Wednesday, November 1, 2006, for management to discuss third quarter 2006 results. The Company also plans to provide on its web site prior to the commencement of the call certain non-GAAP information for the third quarter and first nine months of 2006 and to discuss during this call certain forward looking information concerning the Company's prospects for the full year of 2006.
"Live" Webcast and Replay
Tekelec will host a live webcast of its conference call on Wednesday, November 1, 2006 at 4:45 p.m. EDT. 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. A webcast replay will be available at approximately 7:45 p.m. on November 1 and for 90 days thereafter.
Telephone Replay
A telephone replay of the call will also be available for one week after the live webcast by calling either (800) 642-1687 or (706) 645-9291, and entering the conference ID # 9598613
Non-GAAP Information
Certain non-GAAP financial measures are included in this press release, including a full non-GAAP statement of operations. 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 its prospects for the future and underlying trends in Tekelec's operating expenditures and continuing operations. Management uses such non-GAAP measures and the resulting non-GAAP statements of operations to (i) evaluate financial results;(ii) manage the Company's operations; and (iii) establish operational goals. Further, each of the individual non-GAAP measures within the non-GAAP statement of operations and the non-GAAP statement of operations itself are utilized by the Company's management and board of directors to determine incentive compensation and evaluate key trends within the business. In addition, since the Company has historically reported non-GAAP measures to the investment community, the Company believes the inclusion of this information provides consistency in our financial reporting. The attachments to this release provide a reconciliation of each of the non-GAAP measures, including the full non-GAAP statement of operations, 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 press release are forward looking, reflect the Company's current intent, belief or expectations and involve certain risks and uncertainties. The Company's actual future performance may not meet the Company's expectations. As discussed in the Company's Quarterly Reports on Form 10-Qs (the "Form 10-Qs") for the 2006 first and second quarter, its Annual Report on Form 10-K for 2005 (the "2005 Form 10-K") and its other filings with the Securities and Exchange Commission (the "Commission"), 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, in addition to those identified in the Company's filings with the Commission, include, among others, the impact on future operating results of changes in revenue recognition described in the 2005 Form 10-K, the Form 10-Qs for the 2006 first and second quarter, and prior reports filed with the Commission, the risk of continued losses in the Company's Switching Solutions Business Unit, the risk that the Company will not realize all the benefits of its restructuring activities and the risk that the Company's financial results for the full year 2006 or 2007 will not meet the Company's expectations. The Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
About Tekelec
Tekelec is a high-performance network applications company that is accelerating the transition to IP Multimedia Subsystem (IMS) networks for service providers around the globe. With its experience at the intersection of network applications and session control, Tekelec creates highly efficient platforms for managing media and delivering network solutions. Corporate headquarters are in Morrisville, N.C., in the Research Triangle Park area, with research and development facilities and sales offices throughout the world. For more information, please visit www.tekelec.com.
TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
(Thousands, except per share data)
Revenues $155,179 $108,368 $399,151 $347,877
Cost of sales:
Cost of goods sold 70,174 51,108 180,494 135,334
Amortization of purchased
technology 921 1,572 3,473 4,544
Impairment of purchased
technology(1) 25,615 -- 25,615 --
--------- --------- --------- ---------
Total cost of sales 96,710 52,680 209,582 139,878
--------- --------- --------- ---------
Gross profit 58,469 55,688 189,569 207,999
--------- --------- --------- ---------
Operating expenses:
Research and development 39,736 30,034 112,048 88,797
Sales and marketing 22,782 19,522 68,559 62,009
General and administrative 18,274 16,014 52,143 45,312
Acquired in-process research
and development(2) -- 1,210 -- 1,210
Restructuring and other(3) (7) 1,589 3,412 4,349
Amortization of intangible
assets 565 701 1,721 2,282
Impairment of goodwill(1) 75,000 -- 75,000 --
--------- --------- --------- ---------
Total operating expenses 156,350 69,070 312,883 203,959
--------- --------- --------- ---------
Income (loss) from operations (97,881) (13,382) (123,314) 4,040
Other income (expense),net:
Interest income 3,554 1,763 7,081 4,734
Interest expense (1,000) (1,020) (2,781) (2,925)
Gain (loss)on sale of
investments -- (2) 1,794 (1,346)
Other, net (496) (264) (848) (946)
--------- --------- --------- ---------
Total other income
(expense), net 2,058 477 5,246 (483)
--------- --------- --------- ---------
Income (loss) from continuing
operations before provision
for income taxes (95,823) (12,905) (118,068) 3,557
Provision for (benefit from)
income taxes (8,306) (2,752) (16,017) 7,177
--------- --------- --------- ---------
Loss before minority interest (87,517) (10,153) (102,051) (3,620)
Minority interest(4) -- 2,602 -- 10,248
--------- --------- --------- ---------
Income (loss) from continuing
operations (87,517) (7,551) (102,051) 6,628
Income from discontinued
operations, net of taxes 176,779 3,473 189,354 7,554
--------- --------- --------- ---------
Net income (loss) $89,262 $(4,078) $87,303 $14,182
========= ========= ========= =========
Earnings (loss) per share from
continuing operations:
Basic $(1.30) $(0.11) $(1.52) $0.10
Diluted (1.30) (0.11) (1.52) 0.10
Earnings per share from
discontinued operations:
Basic $2.63 $0.05 $2.83 $0.11
Diluted 2.63 0.05 2.83 0.11
Earnings (loss) per share:
Basic $1.33 $(0.06) $1.30 $0.22
Diluted 1.33 (0.06) 1.30 0.21
Weighted average number of
shares outstanding:
Basic 67,283 66,113 67,016 65,811
Diluted(5) 67,283 66,113 67,016 68,042
Notes to Unaudited Condensed Consolidated Statements of Operations (in
thousands):
(1) For both the three and nine months ended September 30, 2006,
impairment of purchased technology and of goodwill amount to $25,615
and $75,000, respectively. Both impairment charges are related to one
of our reporting units, consisting of our Santera and VocalData
product lines within our Switching Solutions Business Unit.
(2) For both the three and nine months and year ended September 30,
2005, the write-off of in-process research and development amounted
to $1,210 and related to our acquisition of iptelorg in the second
quarter of 2005.
(3) This amount represents restructuring and other costs related
principally to reductions in staff associated with the (i)
restructuring of our operations in June 2006 (the "2006
Restructuring"), (ii) our corporate headquarters and Taqua
relocations in 2005, and (iii) the relocation of our manufacturing
operations in 2004. The 2006 Restructuring involved the termination
of approximately 60 employees across all of our business units,
customer service organization and operations group. The majority of
the terminated employees worked directly for or in support of the
Switching Solutions Business Unit based in Plano, Texas. The
estimated annual operating cost savings resulting from the 2006
Restructuring is expected to be between $8.0 and $8.5 million.
(4) On October 3, 2005, we acquired the remaining shares of Santera
capital stock held by the minority shareholders and on that date,
Santera became a wholly owned subsidiary of Tekelec. For all periods
presented, the results of Santera are 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 prior to October 3, 2005 due to the following:
-- Prior to October 3, 2005, Santera's losses could not be included on
Tekelec's consolidated federal tax return because its ownership
interest in Santera did not meet the threshold to consolidate under
income tax rules and regulations.
-- Prior to October 3, 2005, a full valuation allowance had been
established on the income tax benefits generated by Santera as a
result of Santera's historical operating losses.
(5) For the three months ended September 30, 2006 and 2005, the
calculation of consolidated diluted earnings per share (including
discontinued operations) excludes 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. For the nine months ended September 30, 2006 and 2005, the
calculation of diluted earnings per share excludes the add-back to
net income of $1,743 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, 2006 and 2005
and for the nine months ended September 30, 2006 and 2005 excludes
6,361 shares related to the convertible debt using the "if-converted"
method.
[FEED_PRE_BEG IN]
TEKELEC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
----------------- -------------
(Thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 45,827 $ 52,069
Short-term investments, at fair
value 380,953 174,260
----------------- -------------
Total cash, cash equivalents and
short-term investments 426,780 226,329
Accounts receivable, net 131,610 115,789
Inventories 53,868 43,906
Deferred income taxes 33,224 27,456
Deferred costs and prepaid
commissions 81,060 81,796
Prepaid expenses and other current
assets 22,110 15,298
Assets of discontinued operations -- 18,647
----------------- -------------
Total current assets 748,652 529,221
Property and equipment, net 46,577 40,474
Investments in privately held
companies 7,322 7,322
Deferred income taxes, net 68,193 68,585
Other assets 3,620 6,047
Goodwill 40,882 116,324
Intangible assets, net 25,595 57,214
----------------- -------------
Total assets $ 940,841 $ 825,187
================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 33,204 $ 32,347
Accrued expenses 44,805 47,960
Accrued payroll and related
expenses 25,905 28,156
Short-term notes and current
portion of notes payable -- 96
Current portion of deferred
revenues 219,197 208,278
Income taxes payable 6,926 --
Liabilities of discontinued
operations -- 23,279
----------------- -------------
Total current liabilities 330,037 340,116
Long-term convertible debt 125,000 125,000
Deferred income taxes 1,531 1,694
Long-term portion of deferred revenues 6,050 5,217
----------------- -------------
Total liabilities 462,618 472,027
----------------- -------------
Commitments and Contingencies (Note
11)
Shareholders' equity:
Common stock, without par value,
200,000,000 shares authorized;
68,034,457 and 66,838,310 shares
issued and outstanding,
respectively 305,807 274,413
Deferred stock-based compensation -- (5,680)
Retained earnings 172,969 85,666
Accumulated other comprehensive
income (loss) (553) (1,239)
----------------- -------------
Total shareholders' equity $ 478,223 $ 353,160
================= =============
Total liabilities and
shareholders' equity $ 940,841 $ 825,187
================= =============
TEKELEC
UNAUDITED NON-GAAP(1) STATEMENTS OF OPERATIONS FOR CONTINUING
OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
(Thousands, except per share data)
Revenues $155,179 $108,368 $399,151 $347,877
Cost of sales:
Cost of goods sold 68,746 50,529 176,249 133,585
--------- --------- --------- ---------
Gross profit 86,433 57,839 222,902 214,292
--------- --------- --------- ---------
Operating expenses:
Research and development 36,047 30,005 101,171 88,622
Sales and marketing 21,141 19,522 63,356 62,009
General and administrative 15,948 15,198 45,398 43,064
--------- --------- --------- ---------
Total operating expenses 73,136 64,725 209,925 193,695
--------- --------- --------- ---------
Income (loss) from operations 13,297 (6,886) 12,977 20,597
Interest and other income
(expense), net 2,058 477 3,453 861
--------- --------- --------- ---------
Income from continuing
operations before provision
for income taxes 15,355 (6,409) 16,430 21,458
Provision for income taxes (2) 4,127 (1,123) 4,515 11,902
--------- --------- --------- ---------
Income (loss) before minority
interest 11,228 (5,286) 11,915 9,556
Minority interest -- 2,210 -- 8,280
--------- --------- --------- ---------
Net income (loss) $11,228 $(3,076) $11,915 $17,836
========= ========= ========= =========
Earnings (loss) per share from
continuing operations:
Basic $0.17 $(0.05) $0.18 $0.27
Diluted (3) 0.16 (0.05) 0.17 0.26
Weighted average number of
shares outstanding-continuing
operations:
Basic 67,283 66,113 67,016 65,811
Diluted (3) 74,414 66,113 68,420 68,042
Notes to Unaudited Non-GAAP Statements of Operations (in thousands):
(1) Please refer to the attached reconciliation of the GAAP Statements
of Operations to the above Non-GAAP Statements of Operations.
(2) The above Non-GAAP Statements of Operations assume effective
income tax rates of 27% and 27.5% for the three and nine months ended
September 30, 2006, respectively, and effective income tax rates of
17.5% and 55.5% for the three and nine months ended September 30,
2005, respectively. For the three and nine months ended September 30,
2005, there were no income tax benefits associated with the losses
generated by Santera.
(3) For the three months ended September 30, 2006, the calculation of
diluted 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 September 30, 2006 includes 6,361 shares
related to the convertible debt using the "if-converted" method. For
the three months ended September 30, 2005 and both the nine months
ended September 30, 2006 and 2005, these adjustments were excluded
from the calculation of diluted earnings per share as these
adjustments were anti-dilutive.
TEKELEC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended
September 30,
---------------------
2006 2005
---------- ----------
Cash flows from operating activities: (Thousands)
Net income (loss) $ 87,303 $ 14,182
Income from discontinued operations (189,354) (7,554)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss (gain) on investments (1,794) 1,346
Minority interest -- (10,248)
Impairment of purchased technology 25,615 --
Impairment of goodwill 75,000 --
Provision for doubtful accounts and returns 457 3,066
Write-off of leasehold improvements and other
assets relating to restructuring -- 191
Depreciation 17,109 13,689
Amortization of intangibles 6,004 7,807
Amortization, other 3,016 5,331
Acquired in-process research and development -- 1,210
Deferred income taxes (5,725) (134)
Stock-based compensation 26,707 2,697
Tax benefit related to stock options -- 1,822
Excess tax benefits from stock-based
compensation (448) --
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (16,149) 12,683
Inventories (9,953) (17,087)
Income tax payable (21,950) (6,088)
Prepaid expenses and other current assets (5,345) (18,693)
Trade accounts payable 772 (568)
Accrued expenses (3,429) (262)
Accrued payroll and related expenses (2,387) 947
Deferred revenues 11,501 27,745
---------- ----------
Net cash provided by (used in)
operating activities - continuing
operations (3,050) 32,082
Net cash provided by operating
activities - discontinued operations 12,566 13,330
---------- ----------
Net cash provided by operating
activities 9,516 45,412
---------- ----------
Cash flows from investing activities:
Proceeds from sales and maturities of
investments 656,743 346,884
Purchases of investments (862,441) (314,490)
Purchases of property and equipment (23,202) (21,671)
Cash paid for iptelorg, net of cash acquired -- (6,894)
Purchase of technology -- (4,000)
Change in other assets 1,858 865
---------- ----------
Net cash provided by (used in)
investing activities - continuing
operations (227,042) 694
Net cash provided by (used in)
investing activities - discontinued
operations 199,902 (158)
---------- ----------
Net cash provided by (used in)
investing activities (27,140) 536
---------- ----------
Cash flows from financing activities:
Payments on notes payable and capital leases (96) (1,427)
Proceeds from issuance of common stock 10,781 9,599
Excess tax benefits from stock-based
compensation 448 --
---------- ----------
Net cash provided by financing
activities 11,133 8,172
---------- ----------
Effect of exchange rate changes on cash 249 (3)
---------- ----------
Net change in cash and cash equivalents (6,242) 54,117
Cash and cash equivalents at beginning of period 52,069 48,925
---------- ----------
Cash and cash equivalents at end of period 45,827 103,042
Cash and cash equivalents of discontinued
operations at end of period -- 788
---------- ----------
Cash and cash equivalents at end of period $ 45,827 $ 102,254
========== ==========
TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING
OPERATIONS
Three Months Ended September 30, 2006
----------------------------------------------------------------- -----
(thousands, except per share data)
---------------------------------------------------------------- ------
GAAP Non-GAAP
Continuing Continuing
Operations Adjustments Operations
------------------------------------------ ----------- --- -----------
Revenues $155,179 $- $155,179
Costs and expenses:
Cost of sales:
Cost of goods sold 70,174 (1,158) (1) 68,746
(270) (2)
Amortization of purchased
technology 921 (921) (2) -
Impairment of purchased
technology 25,615 (25,615) (3) -
------------------------------------------ ----------- --- -----------
Total cost of sales 96,710 (27,964) 68,746
------------------------------------------ ----------- --- -----------
Gross profit 58,469 27,964 86,433
------------------------------------------ ----------- --- -----------
Research and Development 39,736 (3,689) (1) 36,047
Sales and Marketing 22,782 (1,641) (1) 21,141
General and administrative 18,274 (2,326) (1) 15,948
Restructuring and other (7) 7 (4) -
Amortization of intangible
assets 565 (565) (2) -
Impairment of goodwill 75,000 (75,000) (3) -
------------------------------------------ ----------- --- -----------
Total operating expenses 156,350 (83,214) 73,136
------------------------------------------ ----------- --- -----------
Income (loss) from operations (97,881) 111,178 13,297
------------------------------------------ ----------- --- -----------
Interest and other income
(expense), net 2,058 - 2,058
------------------------------------------ ----------- --- -----------
Income (loss) from continuing
operations before provision
for income taxes (95,823) 111,178 15,355
------------------------------------------ ----------- --- -----------
Provision for income taxes (8,306) 12,433 (5) 4,127
------------------------------------------ ----------- --- -----------
Income (loss) from continuing
operations $(87,517) $98,745 $11,228
------------------------------------------ ----------- --- -----------
Earnings (loss) per share:
Basic $(1.30) $0.17
Diluted (6) (1.30) 0.16
Earnings per share weighted
average number of shares
outstanding:
Basic 67,283 67,283
Diluted (6) 67,283 74,414
Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:
(1) The adjustments represent stock-based compensation expense
recognized related to awards of stock options, restricted stock or
restricted stock units and stock purchase rights granted under our
employee stock purchase plans.
(2) The adjustments represent the amortization of purchased
technology, other intangibles and acquired backlog related to the
acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3) The adjustment represents the elimination of the impairment
charges incurred related to the intangible assets and the goodwill
associated with our Switching reporting segment.
(4) The adjustment represents changes in estimates relating to our
2006 Restructuring.
(5) The adjustment represents the income tax effect of footnotes (1),
(2), (3), and (4) in order to reflect our non-GAAP effective tax rate
of 27%.
(6) For the three months ended September 30, 2006, the calculations of
non-GAAP diluted earnings per share include a potential add-back to
net income of $581,000 for assumed after-tax interest cost and
6,361,000 weighted average shares related to the convertible debt
using the "if-converted" method.
TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING
OPERATIONS
Three Months Ended September 30, 2005
-------------------- -------------------------------------------------
(thousands, except per share data)
-------------------- -------------------------------------------------
IEX GAAP
Tekelec (Discontinued Continuing
(w/IEX) Operations) Operations
------------------------------- --------- --------------- ------------
Revenues $120,980 $(12,612) $108,368
Costs and expenses:
Cost of sales:
Cost of goods sold 53,791 (2,683) 51,108
Amortization of purchased
technology 1,572 - 1,572
Impairment of purchased
technology - - -
------------------------------- --------- --------------- ------------
Total cost of sales 55,363 (2,683) 52,680
------------------------------- --------- --------------- ------------
Gross profit 65,617 (9,929) 55,688
------------------------------- --------- --------------- ------------
Research and Development 31,688 (1,654) 30,034
Sales and Marketing 21,636 (2,114) 19,522
General and administrative 16,735 (721) 16,014
Acquired in-process research
and development 1,210 - 1,210
Restructuring and other 1,589 - 1,589
Amortization of intangible
assets 701 - 701
Impairment of goodwill - - -
------------------------------- --------- --------------- ------------
Total operating expenses 73,559 (4,489) 69,070
------------------------------- --------- --------------- ------------
Income (loss) from operations (7,942) (5,440) (13,382)
------------------------------- --------- --------------- ------------
Interest and other income
(expense), net 577 (100) 477
------------------------------- --------- --------------- ------------
Income (loss) from continuing
operations before provision
for income taxes (7,365) (5,540) (12,905)
------------------------------- --------- --------------- ------------
Provision for income taxes (685) (2,067) (2,752)
------------------------------- --------- --------------- ------------
Income (loss) before minority
interest (6,680) (3,473) (10,153)
------------------------------- --------- --------------- ------------
Minority Interest 2,602 - 2,602
------------------------------- --------- --------------- ------------
Income (loss) from continuing
operations $(4,078) $(3,473) $(7,551)
------------------------------- --------- --------------- ------------
Earnings (loss) per share:
Basic $(0.06) $(0.11)
Diluted (7) (0.06) (0.11)
Earnings per share weighted
average number of shares
outstanding:
Basic 66,113 66,113
Diluted (7) 66,113 66,113
Non-GAAP
Continuing
Adjustments Operations
------------------------------------------- --------------------------
Revenues $- $108,368
Costs and expenses:
Cost of sales:
Cost of goods sold (203)(1) 50,529
(376)(2)
Amortization of purchased technology (1,572)(2) -
Impairment of purchased technology - -
------------------------------------------- --------------------------
Total cost of sales (2,151) 50,529
------------------------------------------- --------------------------
Gross profit 2,151 57,839
------------------------------------------- --------------------------
Research and Development (29)(1) 30,005
Sales and Marketing - 19,522
General and administrative (816)(1) 15,198
Acquired in-process research and
development (1,210)(3) -
Restructuring and other (1,589)(4) -
Amortization of intangible assets (701)(2) -
Impairment of goodwill - -
------------------------------------------- --------------------------
Total operating expenses (4,345) 64,725
------------------------------------------- --------------------------
Income (loss) from operations 6,496 (6,886)
------------------------------------------- --------------------------
Interest and other income (expense), net - 477
------------------------------------------- --------------------------
Income (loss) from continuing operations
before provision for income taxes 6,496 (6,409)
------------------------------------------- --------------------------
Provision for income taxes 1,629 (5) (1,123)
------------------------------------------- --------------------------
Income (loss) before minority interest 4,867 (5,286)
------------------------------------------- --------------------------
Minority Interest (392)(6) 2,210
------------------------------------------- --------------------------
Income (loss) from continuing operations $4,475 $(3,076)
------------------------------------------- --------------------------
Earnings (loss) per share:
Basic $(0.05)
Diluted (7) (0.05)
Earnings per share weighted average number
of shares outstanding:
Basic 66,113
Diluted (7) 66,113
Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:
(1) The adjustments represent stock-based compensation expense
recognized related to awards of stock options, restricted stock,
restricted stock units and stock purchase rights granted under our
employee stock purchase plans.
(2) The adjustments represent the amortization of purchased
technology, other intangibles and acquired backlog related to the
acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3) The adjustment represents acquired in-process research and
development relating to the acquisition of iptelorg.
(4) The adjustment represents restructuring and other costs related to
our manufacturing, corporate headquarters and Taqua relocations.
(5) The adjustment represents the income tax effect of footnotes (1),
(2), 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).
(7) For the three months ended September 30, 2005, the calculations of
diluted earnings per share exclude a potential add-back to net income
of $581,000 for assumed after-tax interest cost and 6,361,000
weighted average shares related to the convertible debt using the
"if-converted" method as the effects of including such amounts are
anti-dilutive.
TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING
OPERATIONS
Nine Months Ended September 30, 2006
----------------------------------------------------------------- -----
(thousands, except per share data)
---------------------------------------------------------------- ------
GAAP Non-GAAP
Continuing Continuing
Operations Adjustments Operations
----------------------------------------------------------- -----------
Revenues $399,151 $- $399,151
Costs and expenses:
Cost of sales:
Cost of goods sold 180,494 (3,435)(1) 176,249
(810)(2)
Amortization of purchased
technology 3,473 (3,473)(2) -
Impairment of purchased
technology 25,615 (25,615)(3) -
-------------------------------------------------------------------- --
Total cost of sales 209,582 (33,333) 176,249
-------------------------------------------------------------- --------
Gross profit 189,569 33,333 222,902
-------------------------------------------------------------- --------
Research and Development 112,048 (10,877)(1) 101,171
Sales and Marketing 68,559 (5,203)(1) 63,356
General and administrative 52,143 (6,193)(1) 45,398
(342)(4)
(210)(5)
Restructuring and other 3,412 (3,412)(6) -
Amortization of intangible
assets 1,721 (1,721)(2) -
Impairment of goodwill 75,000 (75,000)(3) -
-------------------------------------------------------------------- --
Total operating expenses 312,883 (102,958) 209,925
-------------------------------------------------------------- --------
Income (loss) from
operations (123,314) 136,291 12,977
--------------------------------------------------------------- -------
Interest and other income
(expense), net 5,246 (1,793)(7) 3,453
---------------------------------------------------------------- ------
Income (loss) from
continuing operations
before provision for income
taxes (118,068) 134,498 16,430
--------------------------------------------------------------- -------
Provision for income taxes (16,017) 20,532 (8) 4,515
---------------------------------------------------------------- ------
Income (loss) from
continuing operations $(102,051) $113,966 $11,915
-------------------------------------------------------------- --------
Earnings (loss) per share:
Basic $(1.52) $0.18
Diluted (9) (1.52) 0.17
Earnings per share weighted
average number of shares
outstanding:
Basic 67,016 67,016
Diluted (9) 67,016 68,420
Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:
(1) The adjustments represent stock-based compensation expense
recognized related to awards of stock options, restricted stock or
restricted stock units and stock purchase rights granted under our
employee stock purchase plans.
(2) The adjustments represent the amortization of purchased
technology, other intangibles and acquired backlog related to the
acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3) The adjustment represents the elimination of the impairment
charges incurred related to the intangible assets and the goodwill
associated with our Switching reporting segment.
(4) The adjustment represents $342,000 in legal expenses incurred to
settle the IEX vs. Blue Pumpkin litigation.
(5) The adjustment represents $210,000 in cost associated with the
2006 restatement of our consolidated financial statements.
(6) The adjustment represents restructuring and other costs related to
our 2006 restructuring and changes in estimates relating to the
restructuring of our manufacturing, corporate headquarters and Taqua
relocations in 2005 and 2004.
(7) The adjustment represents the gain recognized related to our
receipt of 642,610 shares of Lucent that were released from escrow.
(8) The adjustment represents the income tax effect of footnotes (1)
through (7) in order to reflect our non-GAAP effective tax rate of
27.5%.
(9) For the nine months ended September 30, 2006, the calculations of
diluted earnings per share exclude a potential add-back to net income
of $1,743,000 for assumed after-tax interest cost and 6,361,000
weighted average shares related to the convertible debt using the
"if-converted" method as the effects of including such amounts are
anti-dilutive.
TEKELEC
UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME FROM CONTINUING
OPERATIONS
Nine Months Ended September 30, 2005
--------------- ------------------------------------------------------
(thousands, except per share data)
--------------- ------------------------------------------------------
IEX GAAP
Tekelec (Discontinued Continuing
(w/IEX) Operations) Operations
------------------------------- --------- --------------- ------------
Revenues $382,571 $(34,694) $347,877
Costs and expenses:
Cost of sales:
Cost of goods sold 144,049 (8,715) 135,334
Amortization of purchased
technology 4,544 - 4,544
------------------------------- --------- --------------- ------------
Total cost of sales 148,593 (8,715) 139,878
------------------------------- --------- --------------- ------------
Gross profit 233,978 (25,979) 207,999
------------------------------- --------- --------------- ------------
Research and Development 93,546 (4,749) 88,797
Sales and Marketing 68,888 (6,879) 62,009
General and administrative 47,564 (2,252) 45,312
Acquired in-process research
and development 1,210 - 1,210
Restructuring and other 4,349 - 4,349
Amortization of intangible
assets 2,282 - 2,282
------------------------------- --------- --------------- ------------
Total operating expenses 217,839 (13,880) 203,959
------------------------------- --------- --------------- ------------
Income (loss) from operations 16,139 (12,099) 4,040
------------------------------- --------- --------------- ------------
Interest and other income
(expense), net (534) 51 (483)
------------------------------- --------- --------------- ------------
Income (loss) from continuing
operations before provision
for income taxes 15,605 (12,048) 3,557
------------------------------- --------- --------------- ------------
Provision for income taxes 11,671 (4,494) 7,177
------------------------------- --------- --------------- ------------
Income (loss) before minority
interest 3,934 (7,554) (3,620)
------------------------------- --------- --------------- ------------
Minority Interest 10,248 - 10,248
------------------------------- --------- --------------- ------------
Income (loss) from continuing
operations $14,182 $(7,554) $6,628
------------------------------- --------- --------------- ------------
Earnings (loss) per share:
Basic $0.22 $0.10
Diluted (8) 0.21 0.10
Earnings per share weighted
average number of shares
outstanding:
Basic 65,811 65,811
Diluted (8) 68,042 68,042
Non-GAAP
Continuing
Adjustments Operations
------------------------------------------- --------------------------
Revenues $- $347,877
Costs and expenses:
Cost of sales:
Cost of goods sold (271)(1) 133,585
(1,478)(2)
Amortization of purchased technology (4,544)(2) -
------------------------------------------- --------------------------
Total cost of sales (6,293) 133,585
------------------------------------------- --------------------------
Gross profit 6,293 214,292
------------------------------------------- --------------------------
Research and Development (175)(1) 88,622
Sales and Marketing - 62,009
General and administrative (2,248)(1) 43,064
Acquired in-process research and
development (1,210)(3) -
Restructuring and other (4,349)(4) -
Amortization of intangible assets (2,282)(2) -
------------------------------------------- --------------------------
Total operating expenses (10,264) 193,695
------------------------------------------- --------------------------
Income (loss) from operations 16,557 20,597
------------------------------------------- --------------------------
Interest and other income (expense), net 1,344 (5) 861
------------------------------------------- --------------------------
Income (loss) from continuing operations
before provision for income taxes 17,901 21,458
------------------------------------------- --------------------------
Provision for income taxes 4,725 (6) 11,902
------------------------------------------- --------------------------
Income (loss) before minority interest 13,176 9,556
------------------------------------------- --------------------------
Minority Interest (1,968)(7) 8,280
------------------------------------------- --------------------------
Income (loss) from continuing operations $11,208 $17,836
------------------------------------------- --------------------------
Earnings (loss) per share:
Basic $0.27
Diluted (8) 0.26
Earnings per share weighted average number
of shares outstanding:
Basic 65,811
Diluted (8) 68,042
Notes to Unaudited Impact of Non-GAAP Adjustments on Net Income:
(1) The adjustments represent stock-based compensation expense
recognized related to awards of stock options, restricted stock,
restricted stock units and stock purchase rights granted under our
employee stock purchase plans.
(2) The adjustments represent the amortization of purchased
technology, other intangibles and acquired backlog related to the
acquisitions of Taqua, VocalData, Steleus, iptelorg and Santera.
(3) The adjustment represents acquired in-process research and
development relating to the acquisition of iptelorg.
(4) The adjustment represents restructuring and other costs related to
our manufacturing, corporate headquarters and Taqua relocations.
(5) The adjustment represents a realized loss on the sale of Santera's
holdings of Alcatel shares received in conjunction with warrants
exercised in December 2004.
(6) The adjustment represents the income tax effect of footnotes (1),
(2), (4) and (5) in order to reflect our non-GAAP effective tax rate
at 35% for the Tekelec business, excluding Santera.
(7) The adjustment represents the minority interest impact of
footnotes (2) and (5).
(8) For the nine months ended September 30, 2005, the calculations of
diluted earnings per share exclude a potential add-back to net income
of $1,743,000 for assumed after-tax interest cost and 6,361,000
weighted average shares related to the convertible debt using the
"if-converted" method as the effects of including such amounts are
anti-dilutive.
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