Science & Technology
Science and Technology
Science and Technology
Wed, August 5, 2009
Tekelec: Tekelec Announces Q2 2009 Results
MORRISVILLE, NC--(Marketwire - August 5, 2009) - Tekelec ("the Company") (
2009 Second Quarter Results from Continuing Operations
Revenue from continuing operations for the second quarter of 2009 was $114.2 million, down 2% compared to $116.4 million for the second quarter of 2008. The Company had orders of $104.7 million for the quarter, down 15% from $122.9 million for the second quarter of 2008. As of June 30, 2009, backlog was $353.3 million compared to $359.3 million as of March 31, 2009 and $387.6 million as of June 30, 2008.
On a GAAP basis, the Company reported income from continuing operations and consolidated net income for the second quarter of 2009 of $9.8 million, or $0.14 per diluted share, with the earnings per share down 36% compared to $15.3 million, or $0.22 per diluted share, for the second quarter of 2008. The second quarter 2009 GAAP results include a non-cash impairment charge of $2.8 million, or $0.04 per diluted share related to a decline in the fair value of the equity interest in Genband, a privately held investment. The second quarter of 2008 results included a one-time tax benefit of $3.7 million, or $0.05 per diluted share resulting from the utilization of certain capital losses generated by the sale of our Switching business. GAAP operating margins from continuing operations were 17% for the second quarter of 2009 and 13% for the second quarter of 2008.
On a non-GAAP basis, net income from continuing operations and consolidated net income for the second quarter of 2009 was $16.8 million, or $0.25 per diluted share, with the earnings per share up 9% compared to $15.7 million, or $0.23 per diluted share, for the second quarter of 2008. Non-GAAP operating margins from continuing operations for the second quarter of 2009 were 22% compared with 17% for the second quarter of 2008. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP operating results to its non-GAAP operating results.
Frank Plastina, Tekelec's president and chief executive officer, stated, "In the second quarter Tekelec continued to achieve solid operating results with strong revenues and operating margins despite a challenging economic backdrop around the world. Our orders in the first half of the year were consistent with our expectations and we continue to expect our orders to strengthen in the second half of the year. We generated operating margins of 22% on a non-GAAP basis in the second quarter while continuing to aggressively invest in new products."
Year-to-Date Results from Continuing Operations
For the first six months of 2009, revenue from continuing operations was $230.8 million, down 2% compared to $234.7 million for the first six months of 2008. For the first six months of 2009, the Company had orders from continuing operations of $172.7 million, down 16% compared to $205.3 million for the first six months of 2008.
On a GAAP basis, the Company reported income from continuing operations for the first six months of 2009 of $22.1 million, or $0.33 per diluted share, with the earnings per share down 15% compared to $27.2 million, or $0.39 per diluted share, for the first six months of 2008. The GAAP results for the first six months of 2009 include a non-cash impairment charge of $2.8 million, or $0.04 per diluted share related to a decline in the fair value of the equity interest in Genband, a privately held investment. The GAAP results for the first six months of 2008 included a one-time tax benefit of $3.7 million, or $0.05 per diluted share resulting from the utilization of certain capital losses generated by the sale of our Switching business. GAAP operating margins from continuing operations were 16% and 14% for the six months ended June 30, 2009 and 2008, respectively.
On a non-GAAP basis, net income from continuing operations for the first six months of 2009 was $32.8 million, or $0.49 per diluted share, with the earnings per share up 2%, compared to $34.0 million, or $0.48 per diluted share, for the first six months of 2008. Non-GAAP operating margins from continuing operations for the first six months of 2009 were 21% as compared with 19% for the first six months of 2008. Please refer to the attached financial statement schedules for a reconciliation of the Company's GAAP financial measures and operating results to its non-GAAP financial measures and operating results.
Balance Sheet and Liquidity
As of June 30, 2009, the Company's consolidated cash and cash equivalents totaled $242.9 million, compared to $231.6 million at March 31, 2009. Cash flows from continuing operations were $12.2 million for the second quarter of 2009, compared to $18.5 million for the second quarter of 2008. Working capital at June 30, 2009 was $358.5 million, compared to $233.8 million at March 31, 2009, with the increase due primarily to the reclassification of $87.3 million of auction rate securities and the related Put right of $14.6 million from long-term in the prior quarter to short-term in the current quarter.
2009 Full Year Guidance
For the full year 2009, we continue to believe that our full year 2009 order entry will range between $420 million and $460 million and gross margins will range between 65% and 67%. Based on year-to-date results and current expectations for the remainder of the year, we are raising the lower end of the guidance for revenues and non-GAAP Diluted EPS. We now expect full year revenues to range between $450 million and $460 million and non-GAAP Diluted EPS to range between $0.90 and $0.95 cents per share. We expect GAAP Diluted EPS to range between $0.63 to $0.68 cents per share. See table below for reconciliation of GAAP to non-GAAP measures.
2009 Guidance Orders $420M - $460M Revenues $450M - $460M Non-GAAP GM % 65% - 67% * GAAP Diluted EPS $0.63 - $0.68 Non-GAAP Diluted EPS $0.90 - $0.95 * * Excludes $14.2M of estimated stock-based compensation expense, $8.2M of estimated amortization of purchased technology and acquisition-related expenses, and a $2.8M impairment charge related to the decline in fair value of the equity interest in Genband, a privately held investment, (net of associated tax impact of approximately $6.7M) which are included in GAAP EPS. These Non-GAAP adjustments after tax represent approximately $0.27 per share. Of these amounts, approximately $7.0M would increase Non-GAAP cost of sales and reduce the Non-GAAP gross margin.
"Live" Webcast and Replay
Tekelec will host a live webcast of its conference call on Wednesday, August 5, 2009 at 8:00 a.m. EDT for its management to discuss second quarter 2009 results and certain forward-looking information concerning management's outlook for the business. 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 11:00 a.m. EDT on Wednesday, August 5, 2009, and for 90 days thereafter. The Company also plans to provide on its web site prior to the commencement of the call certain GAAP and non-GAAP information (including GAAP to non-GAAP reconciliations) for the second quarters of 2009 and 2008 and to discuss during this call certain forward-looking information concerning management's outlook for the business.
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 # 19458335.
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 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 assist in determining incentive compensation and evaluating 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 release and the attachments to this release provide a reconciliation of each of the non-GAAP measures, including those included in the full non-GAAP statement of operations, referred to in this release to the most directly comparable GAAP measure. 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 differ materially from such expectations as a result of important risk factors, which include, in addition to those identified in the Company's 2008 Form 10-K, 2009 First and Second Quarter Form 10-Q and its other filings with the Securities and Exchange Commission, the effect of the current or escalating economic crisis including the impact of credit availability and currency fluctuations on overall capital spending by our customers, the current or further detrimental changes in general economic, social, or political conditions in the countries in which we operate, the timeliness and functional competitiveness of our product releases, the timing of our recognition of revenues and changes to the accounting rules related thereto, our ability to maintain OEM, partner, and vendor support and supply relationships, business interruptions at the Company, its suppliers or customers resulting from the recent or subsequent flu pandemics, our ability to compete with other manufacturers that have lower cost bases than ours and/or are partially supported by foreign governments or employ other unfair trade practices, our ability to integrate acquisitions, our ability to protect intellectual property rights or the risk of infringing and litigating with others regarding their intellectual property rights, and changes in the market price of the Company's common stock. 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, a global leader in core multimedia session control and network intelligence, ensures scalable, secure and highly available communications. The company's market-leading signaling solutions enable the interworking of different network applications, technologies and protocols, providing a smooth transition to next-generation networks. Tekelec has more than 20 offices around the world serving customers in more than 100 countries, with corporate headquarters located near Research Triangle Park in Morrisville, N.C., U.S.A. For more information, please visit [ www.tekelec.com ].
TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1) Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2009 2008 2009 2008 --------- --------- --------- --------- (Thousands, except per share data) ------------------------------------------ Revenues $ 114,183 $ 116,422 $ 230,841 $ 234,665 Cost of sales: Cost of goods sold 36,364 42,392 76,713 82,338 Amortization of purchased technology 1,515 587 3,032 1,174 --------- --------- --------- --------- Total cost of sales 37,879 42,979 79,745 83,512 --------- --------- --------- --------- Gross profit 76,304 73,443 151,096 151,153 --------- --------- --------- --------- Operating expenses: Research and development 25,551 26,216 51,403 50,624 Sales and marketing 17,110 18,906 34,406 37,110 General and administrative 13,717 12,948 27,140 27,205 Restructuring and other - 293 - 243 Acquired in-process research and development - - - 2,690 Amortization of intangible assets 315 109 633 218 --------- --------- --------- --------- Total operating expenses 56,693 58,472 113,582 118,090 --------- --------- --------- --------- Income from operations 19,611 14,971 37,514 33,063 --------- --------- --------- --------- Other income (expense), net: Interest income 264 2,295 634 5,576 Interest expense (57) (779) (112) (1,911) Impairment of investment in privately-held company (2,758) - (2,758) - Loss on sale of investments - - - (2) Unrealized gain on ARS portfolio and Put right, net 321 - 1,435 - Other, net (402) (990) (1,820) (1,506) --------- --------- --------- --------- Total other income (expense), net (2,632) 526 (2,621) 2,157 --------- --------- --------- --------- Income from continuing operations before provision for income taxes 16,979 15,497 34,893 35,220 Provision for income taxes 7,226 179 12,775 8,039 --------- --------- --------- --------- Income from continuing operations 9,753 15,318 22,118 27,181 Income from discontinued operations, net of taxes - - - 1,618 --------- --------- --------- --------- Net income $ 9,753 $ 15,318 $ 22,118 $ 28,799 ========= ========= ========= ========= Earnings per share from continuing operations: Basic $ 0.15 $ 0.23 $ 0.33 $ 0.41 Diluted 0.14 0.22 0.33 0.39 Earnings per share from discontinued operations: Basic $ - $ - $ - $ 0.02 Diluted - - - 0.02 Earnings per share: Basic $ 0.15 $ 0.23 $ 0.33 $ 0.43 Diluted 0.14 0.22 0.33 0.41 Weighted average number of shares outstanding-continuing operations: Basic 66,744 65,638 66,514 66,578 Diluted 67,502 71,953 67,185 73,076 Weighted average number of shares outstanding: Basic 66,744 65,638 66,514 66,578 Diluted 67,502 71,953 67,185 73,076 (1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Statements of Operations are for the thirteen and twenty-six weeks ended July 3, 2009 and June 27, 2008. TEKELEC UNAUDITED NON-GAAP STATEMENTS OF OPERATIONS FOR CONTINUING OPERATIONS (1)(3) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2009 2008 2009 2008 --------- --------- --------- --------- (Thousands, except per share data) --------------------------------------- Revenues $ 114,183 $ 116,422 $ 230,841 $ 234,665 Cost of sales: Cost of goods sold 36,092 42,062 76,215 81,637 --------- --------- --------- --------- Gross profit 78,091 74,360 154,626 153,028 --------- --------- --------- --------- Research and development 24,821 25,436 49,916 49,035 Sales and marketing 16,314 18,227 32,870 35,684 General and administrative 11,634 11,132 23,248 22,921 --------- --------- --------- --------- Total operating expenses 52,769 54,795 106,034 107,640 --------- --------- --------- --------- Income from operations 25,322 19,565 48,592 45,388 Interest and other income, net 126 526 137 2,157 --------- --------- --------- --------- Income from continuing operations before provision for income taxes 25,448 20,091 48,729 47,545 Provision for income taxes (2) 8,643 4,392 15,886 13,589 --------- --------- --------- --------- Net income from continuing operations $ 16,805 $ 15,699 $ 32,843 $ 33,956 ========= ========= ========= ========= Earnings per share: Basic $ 0.25 $ 0.24 $ 0.49 $ 0.51 Diluted 0.25 0.23 0.49 0.48 Weighted average number of shares outstanding: Basic 66,744 65,638 66,514 66,578 Diluted 67,502 71,953 67,185 73,076 (1) Please refer to the attached reconciliations of the GAAP Statements of Operations to the above Non-GAAP Statements of Operations. (2) The above Non-GAAP Statements of Operations assume non-GAAP effective income tax rates of 34.0% and 21.9% for the three months ended June 30, 2009 and 2008, respectively. The above Non-GAAP Statements of Operations assume non-GAAP effective income tax rates of 32.6% and 28.6% for the six months ended June 30, 2009 and 2008, respectively. (3) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Non-GAAP Statements of Operations for Continuing Operations are for the thirteen and twenty-six weeks ended July 3, 2009 and June 27, 2008. TEKELEC UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS June 30, (1) December 31, ------------- ------------- 2009 2008 ------------- ------------- (Thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 242,905 $ 209,441 Trading securities, at fair value 87,296 - Put right, at fair value 14,575 - Accounts receivable, net 126,996 171,630 Income taxes receivable 777 - Inventories 30,705 23,704 Deferred income taxes 41,952 44,253 Deferred costs and prepaid commissions 45,810 56,588 Prepaid expenses and other current assets 9,666 11,061 ------------- ------------- Total current assets 600,682 516,677 Long-term trading securities, at fair value - 87,198 Put right, at fair value - 18,738 Property and equipment, net 37,473 34,904 Investments in privately held companies 19,539 22,297 Deferred income taxes, net 66,341 71,287 Other assets 1,371 1,415 Goodwill 41,614 41,741 Intangible assets, net 34,207 37,703 ------------- ------------- Total assets $ 801,227 $ 831,960 ============= ============= LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 29,370 $ 25,308 Accrued expenses 25,362 30,723 Accrued compensation and related expenses 27,028 40,953 Current portion of deferred revenues 160,416 201,838 Income taxes payable - 7,300 Liabilities of discontinued operations - 184 ------------- ------------- Total current liabilities 242,176 306,306 Deferred income taxes 6,026 7,071 Long-term portion of deferred revenues 7,104 7,591 Other long-term liabilities 7,079 6,146 ------------- ------------- Total liabilities 262,385 327,114 ------------- ------------- Commitments and Contingencies Shareholders’ equity: Common stock, without par value, 200,000,000 shares authorized; 66,972,524 and 66,139,690 shares issued and outstanding, respectively 320,997 309,550 Retained earnings 216,536 194,418 Accumulated other comprehensive income 1,309 878 ------------- ------------- Total shareholders’ equity 538,842 504,846 ------------- ------------- Total liabilities and shareholders’ equity $ 801,227 $ 831,960 ============= ============= (1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Balance Sheet is as of July 3, 2009. TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (1) -------------------- 2009 2008 --------- --------- (Thousands) Cash flows from operating activities: Net income $ 22,118 $ 28,799 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations - (1,618) Loss on sale of investments - 2 Impairment of investment in privately-held company 2,758 - Unrealized gain on ARS portfolio and Put right, net (1,435) - Provision for (recovery of) doubtful accounts and sales returns 185 (84) Provision for warranty 5,000 2,800 Inventory write downs 1,207 3,223 Loss on disposals of fixed assets 54 279 Depreciation 9,358 8,465 Amortization of intangibles 3,665 1,392 Amortization, other 375 487 Acquired in-process research and development - 2,690 Deferred income taxes 5,877 (12,920) Stock-based compensation 6,973 6,517 Excess tax benefits from stock-based compensation (544) (1,234) Changes in operating assets and liabilities: Accounts receivable 46,101 5,105 Inventories (8,168) (4,562) Deferred costs 11,133 (1,512) Prepaid expenses and other assets 1,219 4,416 Accounts payable 3,947 (16,627) Accrued expenses (10,663) 4,813 Accrued compensation and related expenses (15,879) (7,281) Deferred revenues (43,858) 17,441 Income taxes receivable/payable (6,502) 16,340 --------- --------- Total adjustments 10,803 28,132 --------- --------- Net cash provided by operating activities - continuing operations 32,921 56,931 Net cash used in operating activities - discontinued operations (184) (1,767) --------- --------- Net cash provided by operating activities 32,737 55,164 --------- --------- Cash flows from investing activities: Proceeds from sales and maturities of investments 5,500 772,583 Purchases of investments - (584,524) Payments related to acquired in-process research and development - (2,690) Purchases of property and equipment (12,138) (10,441) Other non-operating assets - (71) --------- --------- Net cash provided by (used in) investing activities (6,638) 174,857 --------- --------- Cash flows from financing activities: Repayment of convertible debt - (125,000) Repurchase of common stock - (33,700) Proceeds from issuance of common stock 5,987 9,547 Excess tax benefits from stock-based compensation 544 1,234 --------- --------- Net cash provided by (used in) financing activities 6,531 (147,919) --------- --------- Effect of exchange rate changes on cash 834 491 --------- --------- Net change in cash and cash equivalents 33,464 82,593 Cash and cash equivalents, beginning of period 209,441 105,550 --------- --------- Cash and cash equivalents, end of period $ 242,905 $ 188,143 ========= ========= (1) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying Unaudited Condensed Consolidated Statements of Cash Flows are for the twenty-six weeks ended July 3, 2009 and June 27, 2008. TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME Three Months Ended June 30, 2009 (6) ------------------------------------ (Thousands, except per share data) ------------------------------------ GAAP Non-GAAP Continuing Continuing Operations Adjustments Operations --------- ------------- ---------- Revenues $ 114,183 $ - $ 114,183 Cost of sales: Cost of goods sold 36,364 (272) (1) 36,092 Amortization of purchased technology 1,515 (1,515) (2) - ========= ========= == ========== Total cost of sales 37,879 (1,787) 36,092 ========= ========= == ========== Gross profit 76,304 1,787 78,091 ========= ========= == ========== Operating Expenses: Research and development 25,551 (510) (1) 24,821 (220) (3) Sales and marketing 17,110 (796) (1) 16,314 General and administrative 13,717 (2,083) (1) 11,634 Amortization of intangible assets 315 (315) (2) - ========= ========= == ========== Total operating expenses 56,693 (3,924) 52,769 ========= ========= == ========== Income from operations 19,611 5,711 25,322 ========= ========= == ========== Interest and other income, net (2,632) 2,758 (4) 126 ========= ========= == ========== Income from continuing operations before provision for income taxes 16,979 8,469 25,448 ========= ========= == ========== Provision for income taxes 7,226 1,417 (5) 8,643 ========= ========= == ========== Net income from continuing operations $ 9,753 $ 7,052 $ 16,805 ========= ========= == ========== Earnings per share: Basic $ 0.15 $ 0.25 Diluted $ 0.14 $ 0.25 Weighted average number of shares outstanding: Basic 66,744 66,744 Diluted 67,502 67,502 (1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus, iptelorg and mBalance. (3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec. (4) The adjustment represents an impairment charge as a result of a decline in the estimated fair value as compared to historical cost for one of our investments in privately held companies. (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. (6) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirteen weeks ended July 3, 2009. TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME Six Months Ended June 30, 2009 (6) ------------------------------------ (Thousands, except per share data) ------------------------------------ GAAP Non-GAAP Continuing Continuing Operations Adjustments Operations --------- ------------- ---------- Revenues $ 230,841 $ - $ 230,841 Cost of sales: Cost of goods sold 76,713 (498) (1) 76,215 Amortization of purchased technology 3,032 (3,032) (2) - ========= ========= == ========== Total cost of sales 79,745 (3,530) 76,215 ========= ========= == ========== Gross profit 151,096 3,530 154,626 ========= ========= == ========== Operating Expenses: Research and development 51,403 (1,047) (1) 49,916 (440) (3) Sales and marketing 34,406 (1,536) (1) 32,870 General and administrative 27,140 (3,892) (1) 23,248 Amortization of intangible assets 633 (633) (2) - ========= ========= == ========== Total operating expenses 113,582 (7,548) 106,034 ========= ========= == ========== Income from operations 37,514 11,078 48,592 ========= ========= == ========== Interest and other income, net (2,621) 2,758 (4) 137 ========= ========= == ========== Income from continuing operations before provision for income taxes 34,893 13,836 48,729 ========= ========= == ========== Provision for income taxes 12,775 3,111 (5) 15,886 ========= ========= == ========== Net income from continuing operations $ 22,118 $ 10,725 $ 32,843 ========= ========= == ========== Earnings per share: Basic $ 0.33 $ 0.49 Diluted $ 0.33 $ 0.49 Weighted average number of shares outstanding: Basic 66,514 66,514 Diluted 67,185 67,185 (1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus, iptelorg and mBalance. (3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec. (4) The adjustment represents an impairment charge as a result of a decline in the estimated fair value as compared to historical cost for one of our investments in privately held companies. (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. (6) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the twenty-six weeks ended July 3, 2009. TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME Three Months Ended June 30, 2008(7) --------------------------------------- (Thousands, except per share data) --------------------------------------- GAAP Non-GAAP Continuing Continuing Operations Adjustments Operations --------- ------------------ --------- Revenues $ 116,422 $ - $ 116,422 Cost of sales: Cost of goods sold 42,392 (330) (1) 42,062 Amortization of purchased technology 587 (587) (2) - ========= ======== ======== ========= Total cost of sales 42,979 (917) 42,062 ========= ======== ======== ========= Gross profit 73,443 917 74,360 ========= ======== ======== ========= Operating Expenses: Research and development 26,216 (560) (1) 25,436 (220) (3) Sales and marketing 18,906 (679) (1) 18,227 General and administrative 12,948 (1,816) (1) 11,132 Restructuring and other 293 (289) (4) - (4) (1),(4) Amortization of intangible assets 109 (109) (2) - ========= ======== ======== ========= Total operating expenses 58,472 (3,677) 54,795 ========= ======== ======== ========= Income from operations 14,971 4,594 19,565 ========= ======== ======== ========= Interest and other income, net 526 - 526 ========= ======== ======== ========= Income from continuing operations before provision for income taxes 15,497 4,594 20,091 ========= ======== ======== ========= Provision for income taxes 179 4,213 (5) 4,392 ========= ======== ======== ========= Net income from continuing operations $ 15,318 $ 381 $ 15,699 ========= ======== ======== ========= Earnings per share: Basic $ 0.23 $ 0.24 Diluted (6) 0.22 0.23 Weighted average number of shares outstanding: Basic 65,638 65,638 Diluted (6) 71,953 71,953 (1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus and iptelorg. (3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec. (4) The adjustment represents the elimination of costs incurred during 2008 related to restructuring certain functions in our EAAA region. (5) The adjustment represents the income tax effect of excluding second quarter discrete tax benefits totaling $3.7 million related to reversing a valuation allowance on deferred tax assets generated by the loss on sale of SSG. Also included in the adjustment is the income tax effect of footnotes (1), (2), (3) and (4) in order to reflect our Non-GAAP effective tax rate. (6) For the three months ended June 30, 2008, the calculations of diluted earnings per share include a potential add-back to net income of $504,000 for assumed after-tax interest cost and 5,522,000 weighted average shares related to our formerly outstanding convertible debt using the "if-converted" method. (7) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the thirteen weeks ended June 27, 2008. TEKELEC UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME Six Months Ended June 30, 2008 (10) --------------------------------------- (Thousands, except per share data) --------------------------------------- GAAP Non-GAAP Continuing Continuing Operations Adjustments Operations --------- ------------------ --------- Revenues $ 234,665 $ - $ 234,665 Cost of sales: Cost of goods sold 82,338 (701) (1) 81,637 Amortization of purchased technology 1,174 (1,174) (2) - ========= ======== ======== ========= Total cost of sales 83,512 (1,875) 81,637 ========= ======== ======== ========= Gross profit 151,153 1,875 153,028 ========= ======== ======== ========= Operating Expenses: Research and development 50,624 (1,222) (1) 49,035 (367) (3) Sales and marketing 37,110 (1,426) (1) 35,684 General and administrative 27,205 (3,384) (1) 22,921 (900) (4) Acquired in-process research and development 2,690 (2,690) (5) - Restructuring and other 243 (459) (6) - 216 (1),(6) Amortization of intangible assets 218 (218) (2) - ========= ======== ======== ========= Total operating expenses 118,090 (10,450) 107,640 ========= ======== ======== ========= Income from operations 33,063 12,325 45,388 ========= ======== ======== ========= Interest and other income, net 2,157 - 2,157 ========= ======== ======== ========= Income from continuing operations before provision for income taxes 35,220 12,325 47,545 ========= ======== ======== ========= Provision for income taxes 8,039 5,550 (7) 13,589 ========= ======== ======== ========= Income from continuing operations 27,181 6,775 33,956 ========= ======== ======== ========= Income from discontinued operations, net of taxes 1,618 (1,618) (8) - ========= ======== ======== ========= Net income from continuing operations $ 28,799 $ 5,157 $ 33,956 ========= ======== ======== ========= Earnings per share from continuing operations: Basic $ 0.41 $ 0.51 Diluted (9) 0.39 0.48 Earnings per share: Basic $ 0.43 $ 0.51 Diluted (9) 0.41 0.48 Weighted average number of shares outstanding: Basic 66,578 66,578 Diluted (9) 73,076 73,076 (1) The adjustments represent stock-based compensation expense recognized related to awards of stock options, restricted stock or restricted stock units and stock appreciation rights granted under our equity incentive plans and stock purchase rights granted under our employee stock purchase plan. (2) The adjustments represent the amortization of purchased technology and other intangibles related to the acquisitions of Steleus and iptelorg. (3) The adjustment represents consideration payable to Estacado that is contingent upon the continued employment of certain former Estacado employees by Tekelec. (4) The adjustment represents an arbitration award and associated legal fees in favor of our former President and CEO, Fred Lax. (5) The adjustment represents acquired in-process research and development related to the Estacado purchase. (6) The adjustment represents the elimination of costs incurred during 2008 related to restructuring certain functions in our EAAA region and changes in estimates related to our 2007 realignment activities. (7) The adjustment represents the income tax effect of excluding second quarter discrete tax benefits totaling $3.7 million related to reversing a valuation allowance on deferred tax assets generated by the loss on sale of SSG. Also included in the adjustment is the income tax effect of footnotes (1), (2), (3), (4), (5) and (6) in order to reflect our Non-GAAP effective tax rate. (8) The adjustment represents the elimination of our discontinued operations. (9) For the six months ended June 30, 2008, the calculations of diluted earnings per share include a potential add-back to net income of $1,085,000 for assumed after-tax interest cost and 5,942,000 weighted average shares related to our formerly outstanding convertible debt using the "if-converted" method. (10) We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last day of the calendar quarter. The accompanying schedule of Unaudited Impact of Non-GAAP Adjustments on Net Income is for the twenty-six weeks ended June 27, 2008.
