Tekelec Announces Q3 Results: Achieves Orders of $150.7 M and Record Revenue of $148.1 M; International Sales Reach 41% of Revenue

Revenue for the third quarter of 2005 was $148.1 million, comparedto $106.6 million in the third quarter of 2004. On a GAAP basis,Tekelec's net income was $8.7 million, or $0.12 per diluted share, forthe third quarter of 2005, compared to net income of $18.7 million, or$0.27 per diluted share, in the third quarter of 2004. Non-GAAP netincome for the third quarter of 2005, which excludes the effects ofacquisition-related amortization, non-cash stock-based deferredcompensation, a one-time, non-cash charge for the write-off ofacquired in-process research and development related to the iptelorgacquisition and restructuring and other charges related to therelocation of corporate headquarters, was $13.4 million, or $0.19 perdiluted share, compared to non-GAAP net income of $14.9 million, or$0.21 per diluted share, in the third quarter of 2004. Non-GAAP netincome for the third quarter of 2004 excludes the effects ofacquisition-related amortization, the write-off of in-process researchand development, the restructuring charge related to the relocation ofmanufacturing operations, the write-off of certain acquiredintangibles as a result of rebranding activities, the gain onTekelec's investment in Telica and the gain on the settlement of theCatapult convertible notes. Orders received in the third quarter forTekelec products and services were $150.7 million, compared to $150.8million in the third quarter in 2004.

Tekelec President and CEO Fred Lax commented, "Tekelec's resultswere strong in the third quarter, with revenue increasing 39%year-over-year, as well as up 11% sequentially. And, for the twelfthconsecutive quarter, our order volumes provided us with a book-to-billratio greater than one, with a Q3 book-to-bill of 1.02.

"Network Signaling Group revenue increased to $88.2 million, up13%, compared to $78.0 million in Q3 '04, and increased 8%sequentially, marking the highest quarterly signaling revenue in thehistory of the Company. As one example contributing to this success,we are pleased to announce that Mobinil, a leading Egyptian wirelessoperator, is significantly expanding the signaling capacity of itsexisting Eagle 5 platform and is also expanding its deployment ofTekelec's network-wide monitoring solution. Mobinil is part of theOrange Group, a subsidiary of France Telecom and one of the world'slargest mobile operators.

"Switching Solutions Group revenue increased to $37.6 million, up149%, compared to $15.1 million in Q3 '04, and increased 13%sequentially, as we added 16 new switching customers during thequarter. As was announced recently, we are pleased that the Tekelec8000 wireless multimedia gateway has been successfully deployed byZhejiang Mobile, a subsidiary of China Mobile, the world's largestwireless operator. This represents the first deployment of theTekelec-Alcatel mobile next-gen solution in China and will allow theoperator to improve its quality of service and reduce networkoperation and maintenance costs.

"Communications Software Solutions Group revenue increased to $9.8million, up 216%, compared to $3.1 million in Q3 '04, and increased38% sequentially. As part of a bundled Tekelec implementation, Mobinilis also expanding its deployment of our network-wide monitoringsolution. This solution will feed the critical business intelligencedata required for the applications that run the carrier's customercare, call center operations and customer settlements processes.

"Finally, regarding global expansion, approximately 41% ofrevenues were generated outside the U.S. during the quarter. Thisinternational percentage treats all revenue associated with theAlcatel channel as U.S. sourced revenue, although some of the productsare destined for international deployment. As one example of thissuccess, we are pleased to announce today that Mobilink, part ofOrascom Telecom's operations in Pakistan, with more than 8 millionsubscribers, or approximately 61% of all mobile phone users inPakistan, has selected Tekelec's Eagle 5 Signaling platform toincrease its network capacity and support the operator's rapidgrowth."

COMPARATIVE TEKELEC GROUP REVENUES

Revenue ($ in Millions)
Q3 2005 Q3 2004
Switching Solutions Group $37.6 $15.1
Network Signaling Group $88.2 $78.0
Communications Software Solutions Group (1) $9.8 $3.1
IEX Contact Center Group $12.5 $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 Q3 2004 does not
include any Steleus revenue.


Q4 FINANCIAL GUIDANCE

Q4 2005 Guidance Q4 2004 Actual Results

Total Revenue: $150.0 million-$156.0 million $115.9 million
GAAP
Net
Income $0.12-$0.16 per diluted share(1) $0.17 per diluted share(2)


(1) For the fourth 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 Corporate and Hyannis relocations in the aggregate
amount of approximately $5.8 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 acquisition of
Santera's Minority Interest on October 3, 2005.

(2) Fourth quarter 2004 net income includes a $3.8 million
one-time, non-cash charge for the write-off of acquired in-process
research and development related to the Steleus acquisition, a $20.3
million gain on Santera's warrants in Spatial Wireless common stock,
and an adjustment made in Q4 2004 to reduce the gain on sale of
investment in privately held company previously recorded in Q3 2004,
by $1.3 million, net of tax.

Lax concluded, "The record quarterly revenues for all of ouroperating groups highlight the progress we are making executing on ourstrategy focused on next-gen switching, signaling, value-addedapplications, and global expansion. I believe Tekelec is wellpositioned as a market leader in signaling and continues to strengthenits position globally in next-gen switching and communicationssoftware solutions."

Employment Inducement Stock Options

On October 26, 2005, 82 new Tekelec employees hired during thethird quarter of 2005 and through the date of this earnings releasewere granted options to purchase a total of 619,550 shares of Tekeleccommon stock. The total number of shares subject to such optionsamounts to less than 1% of the outstanding shares of Tekelec commonstock. The option grants were made under Tekelec's 2004 EquityIncentive Plan for New Employees and met the "employment inducement"exception to the Nasdaq rules requiring shareholder approval ofequity-based incentive plans.

About Tekelec

Tekelec is a leading developer of now and next-generationswitching and signaling telecommunications solutions, networkperformance management technology, and value-added applications.Tekelec's innovative solutions are widely deployed in traditional andnext-generation wireline and wireless networks and contact centersworldwide. Corporate headquarters are located in Morrisville, NC withresearch and development facilities and sales offices throughout theworld. For more information, please visit www.tekelec.com.

Non-GAAP Information

Certain non-GAAP financial measures are included in this pressrelease. In the calculation of these measures, Tekelec generallyexcludes certain items such as amortization of acquired intangibles,restructuring and other charges, non-cash stock-based compensationcharges, and unusual, non-recurring gains and charges. Tekelecbelieves that excluding such items provides investors and managementwith a representation of the Company's core operating performance andwith information useful in assessing our prospects for the future andunderlying trends in Tekelec's operating expenditures and continuingoperations. Management uses such non-GAAP measures to evaluatefinancial results and to establish operational goals. In addition,since the Company has historically reported non-GAAP measures to theinvestment community, we believe the inclusion of this informationprovides consistency in our financial reporting. The attachments tothis release provide a reconciliation of non-GAAP net income referredto in this release to the most directly comparable GAAP measure, GAAPnet income from continuing operations. The non-GAAP financial measuresare not meant to be considered a substitute for the corresponding GAAPfinancial measures.

Forward-Looking Statements

Certain statements made in this news release are forward looking,reflect the Company's current intent, belief or expectations andinvolve certain risks and uncertainties. There can be no assurancethat the Company's actual future performance will meet the Company'sexpectations. As discussed in the Company's 2004 Annual Report on Form10-K and other filings with the SEC, the Company's future operatingresults are difficult to predict and subject to significantfluctuations. Factors that may cause future results to differmaterially from the Company's current expectations include, amongothers: overall telecommunications spending, changes in generaleconomic conditions, unexpected changes in economic, social, orpolitical conditions in the countries in which the Company operates,the timing of significant orders and shipments, the lengthy salescycle for the Company's products, the timing of revenue recognition ofmultiple elements in an arrangement sold as part of a bundledsolution, the timing of the convergence of voice and data networks,the success or failure of strategic alliances or acquisitionsincluding the success or failure of the integration of Santera, Taqua,Steleus, VocalData, and iptelorg's operations with those of theCompany, litigation or regulatory matters such as the litigationdescribed in Tekelec's SEC reports and the costs and expensesassociated therewith, the ability of carriers to utilize excesscapacity of signaling infrastructure and related products in theirnetworks, the capital spending patterns of customers, the dependenceon wireless customers for a significant percentage and growth of theCompany's revenues, the timely development and introduction of newproducts and services, product mix, the geographic mix of theCompany's revenues and the associated impact on gross margins, marketacceptance of new products and technologies, carrier deployment ofintelligent network services, the ability of our customers to obtainfinancing, the level and timing of research and developmentexpenditures, and sales, marketing, and compensation expenses,regulatory changes, and the expansion of the Company's marketing andsupport organizations, both domestically and internationally. TheCompany undertakes no obligation to publicly update anyforward-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 October27 at 4:45 p.m. ET. To access the webcast, visit Tekelec's web sitelocated at www.tekelec.com, enter the Investor Relations section andclick on the webcast icon.

Telephone Replay

A telephone replay of the call will also be available for one weekafter the live call by calling (719) 457-0820, and entering thereservation number, 4663095.

TEKELEC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months
Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------------------------------------------------------------------
(thousands, except earnings per share data)
Revenues $148,103 $106,636 $400,522 $281,124
Costs and expenses:
Cost of goods sold 49,166 25,684 120,460 69,022
Amortization of purchased
technology 1,963 1,497 5,715 6,953
Research and development 31,262 25,461 92,234 70,249
Selling, general and
administrative 50,061 37,603 148,391 108,039
Acquired in-process research
and development 1,210 2,400 1,210 10,400
Amortization of intangibles 701 763 2,282 1,704
Restructuring and other
charges (1) 1,589 275 4,349 1,327
----------------------------------------------------------------------
Income from operations 12,151 12,953 25,881 13,430
Interest and other income
(expense), net 592 37 (500) 152
Gain on notes receivable -- 2,186 -- 2,186
Gain on investment in
privately-held company -- 9,869 -- 9,869

----------------------------------------------------------------------
Income before provision for income
taxes 12,743 25,045 25,381 25,637
Provision for income taxes (2) 6,021 13,873 15,652 27,078
----------------------------------------------------------------------
Income (Loss) before minority
interest 6,722 11,172 9,729 (1,441)
Minority interest 2,014 7,565 11,239 25,723
----------------------------------------------------------------------
Net income $ 8,736 $ 18,737 $ 20,968 $ 24,282

----------------------------------------------------------------------
Earnings per share
Basic $ 0.13 $ 0.30 $ 0.32 $ 0.39
Diluted 0.12 0.27 0.31 0.36

======================================================================
Weighted average number
of shares outstanding:
Basic 66,113 63,172 65,811 62,554
Diluted (3) 75,183 72,332 74,403 71,801

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 and Hyannis facilities.

(2) For the three and nine months ended September 30, 2005, the
consolidated provision for income taxes excludes any benefit relating
to the expense recognized for acquired in-process research and
development as this is non-deductible for income tax purposes. For the
three and nine months ended September 30, 2005 and 2004, Santera, a
majority-owned company, is included in the consolidated results of
operations of Tekelec. The consolidated provision for income taxes
does not include any benefit from the losses generated by Santera due
to the following:

-- Santera's losses cannot be included on Tekelec's consolidated
federal tax return because its ownership interest in Santera
does not meet the threshold to consolidate under income tax
rules and regulations.

-- A full valuation allowance has been established on the income
tax benefits generated by Santera as a result of Santera's
historical operating losses.

(3) For the three and nine months ended September 30, 2005 and
2004, the calculation of earnings per share includes the add-back to
net income of $581 and $1,743, 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
nine months ended September 30, 2005 and September 30, 2004 includes
6,361 shares related to the convertible debt using the "if-converted"
method.


TEKELEC
NON-GAAP (1) STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------------------------------------------------------------------
(thousands, except earnings per share data)
Revenues $148,103 $106,636 $400,522 $281,124
Costs and expenses:
Cost of goods sold 48,978 25,868 119,882 69,627
Research and development 31,233 25,325 92,059 70,017
Selling, general and
administrative 48,992 37,273 145,641 107,476

----------------------------------------------------------------------
Income from operations 18,900 18,170 42,940 34,004
Interest and other income, net 592 37 844 152

----------------------------------------------------------------------
Income before provision for
income taxes 19,492 18,207 43,784 34,156
Provision for income taxes (2) 7,738 10,321 20,558 25,127
----------------------------------------------------------------------
Income before minority interest 11,754 7,886 23,226 9,029
Minority interest 1,622 7,001 9,271 23,338
----------------------------------------------------------------------
Non-GAAP net income $ 13,376 $ 14,887 $ 32,497 $ 32,367

----------------------------------------------------------------------
Non-GAAP earnings per share
Basic $ 0.20 $ 0.24 $ 0.49 $ 0.52
Diluted 0.19 0.21 0.46 0.48


Non-GAAP earnings per share weighted average
number
of shares outstanding:
Basic 66,113 63,172 65,811 62,554
Diluted (3) 75,183 72,332 74,403 71,801


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 nine months ended September 30, 2005,
restructuring and other costs related to the relocation of our
Corporate headquarters and Hyannis facilities amounting to
$1,589 and $4,349, respectively. The related income tax
benefits for the three and nine months ended September 30,
2005 were $556 and $1,522 respectively.

-- For the three and nine months ended September 30, 2005,
amortization of deferred stock-based compensation related to
stock options and restricted stock units granted amounting to
$1,301 and $3,196, respectively. The related income tax
benefits for the three and nine months ended September 30,
2005 were $455 and $1,118 respectively.

-- For the three and nine months ended September 30, 2005 the
amortization of purchased technology and other intangibles
related to the acquisition of Taqua, VocalData, Steleus,
iptelorg and the majority interest in Santera amounting to
$2,649 and $8,304, respectively. The related income tax
benefits for the three and nine months ended September 30,
2005 were $706 and $2,266 respectively. The minority interest
impact of the amortization and write-off for the three and
nine months ended September 30, 2004 was $392 and $1,968,
respectively.

-- For the three and nine months ended September 30, 2005, the
write-off of in-process research and development relating to
the acquisition of iptelorg amounting to $1,210.

-- For the nine months ended September 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 nine months ended September 30, 2004,
restructuring costs related to the relocation of our
manufacturing operations amounted to $275 and $1,327,
respectively.

-- For the three and nine months ended September 30, 2004,
amortization of deferred stock compensation related to the
unvested portion of stock options granted as part of the Taqua
acquisition amounted to $469 and $800, respectively.

-- For three and nine months ended September 30, 2004 the
amortization of purchased technology and other intangibles
related to the acquisitions of Santera, Taqua and VocalData
amounted to $763 and $6,737, respectively. The related income
tax benefits for the three and nine months ended September 30,
2004 were $551 and $1,666, respectively.

-- For the three and nine months ended September 30, 2004, a gain
of $2,186 on the settlement of our convertible notes
receivable from Catapult.

-- For the three and nine months ended September 30, 2004, a gain
of $9,869 on the sale of our investment in Telica.

(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 nine months ended September 30, 2005 and
2004. There were no income tax benefits associated with the losses
generated by Santera.

(3) For the three and nine months ended September 30, 2005 and
2004, the calculation of earnings per share includes the add- back to
net income of $581 and $1,743, 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
nine months ended September, 2005 and September 30, 2004 includes
6,361 shares related to the convertible debt using the "if-converted"
method.


TEKELEC
CONDENSED CONSOLIDATED BALANCE SHEETS

September December
30, 31,
2005 2004
----------------------------------------------------------------------
(unaudited) (unaudited)
(thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 103,042 $ 48,925
Short-term investments, at fair value 138,701 134,435
Accounts receivable, net 90,404 107,850
Inventories 53,007 33,654
Deferred income taxes, net 16,163 15,804
Prepaid expenses and other current assets 55,633 44,639
----------------------------------------------------------------------
Total current assets 456,950 385,307
Long-term investments, at fair value 50,852 93,622
Property and equipment, net 38,578 30,617
Investments in privately-held companies 7,322 7,322
Deferred income taxes 41,671 45,748
Other assets 5,239 6,757
Goodwill 135,664 128,732
Intangible assets, net 81,853 83,538
----------------------------------------------------------------------
Total assets $ 818,129 $ 781,643
======================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of deferred revenues $ 103,272 $ 92,182
Other current liabilities 94,130 93,123
----------------------------------------------------------------------
Total current liabilities 197,402 185,305
Long-term convertible debt 125,000 125,000
Long-term portion of notes payable -- 78
Long-term portion of deferred revenues 4,218 2,187
Deferred income taxes 19,076 19,586
----------------------------------------------------------------------
Total liabilities 345,696 332,156
----------------------------------------------------------------------
Minority interest(1) 9,250 20,489
----------------------------------------------------------------------
Total shareholders' equity 463,183 428,998

----------------------------------------------------------------------
Total liabilities and shareholders' equity $ 818,129 $ 781,643
======================================================================

(1) On October 3, 2005, Tekelec completed the purchase of the
minority interest of Santera for $75.6 million in cash.


TEKELEC
IMPACT OF NON-GAAP ADJUSTMENTS ON NET INCOME
(unaudited)

Three Months Ended September 30, 2005
----------------------------------------------------------------------
(thousands, except for earnings per share data)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $148,103 $ -- $148,103
Costs and expenses:
Cost of goods sold 49,166 (391)(1)(2) 48,775
Amortization of purchased
technology 1,963 (1,760) (2) 203
----------------------------------------------------------------------
Total cost of sales 51,129 (2,151) 48,978
----------------------------------------------------------------------
Gross profit 96,974 65.5% 2,151 99,125 66.9%
----------------------------------------------------------------------

Research and development 31,262 (29) (1) 31,233
Selling, general and
administrative 50,061 (1,069) (1) 48,992
Acquired in-process
research and
development 1,210 (1,210) (4) --
Amortization of
intangibles 701 (701) (2) --
Restructuring and
other charges 1,589 (1,589) (3) --
----------------------------------------------------------------------
Total operating
expenses 84,823 (4,598) 80,225
----------------------------------------------------------------------

----------------------------------------------------------------------
Income from operations 12,151 6,749 18,900
Interest and other income,
net 592 -- 592

----------------------------------------------------------------------
Income before provision for
income taxes 12,743 6,749 19,492
Provision for income taxes 6,021 1,717 (5) 7,738
----------------------------------------------------------------------
Income before minority
interest 6,722 5,032 11,754
Minority interest 2,014 (392) (6) 1,622
----------------------------------------------------------------------
Net income $ 8,736 $ 4,640 $ 13,376

----------------------------------------------------------------------
Earnings per share
Basic $ 0.13 $ 0.20
Diluted (7) 0.12 0.19
Earnings per share weighted
average number
of shares outstanding:
Basic 66,113 66,113
Diluted (7) 75,183 75,183
======================================================================

(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, iptelorg and the majority interest in Santera.

(3) The adjustment represents restructuring and other costs
related to the relocation of our Corporate headquarters and Hyannis
facilities.

(4) The adjustment represents acquired in-process research and
development relating to the acquisition of iptelorg.

(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).

(7) For the three months ended September 30, 2005, calculations of
earnings per share include 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, 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)

Three Months Ended September 30, 2004
----------------------------------------------------------------------
(thousands, except earnings per share data)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $106,636 $ -- $106,636
Costs and expenses:
Cost of goods sold 25,684 (7)(1)(2) 25,677
Amortization of purchased
technology 1,497 (1,306) (2) 191
----------------------------------------------------------------------
Total cost of sales 27,181 (1,313) 25,868
----------------------------------------------------------------------
Gross profit 79,455 74.5% 1,313 80,768 75.7%
----------------------------------------------------------------------

Research and development 25,461 (136) (1) 25,325
Selling, general and
administrative 37,603 (330) (1) 37,273
Acquired in-process
research and
development 2,400 (2,400) (2) --
Amortization of
intangibles 763 (763) (2) --
Restructuring 275 (275) (3) --
----------------------------------------------------------------------
Total operating
expenses 66,502 (3,904) 62,598
----------------------------------------------------------------------
Income from operations 12,953 5,217 18,170
Interest and other income,
net 37 -- 37
Gain on notes
receivable 2,186 (2,186) (4) --
Gain on investment in
privately-held
company 9,869 (9,869) (5) --
----------------------------------------------------------------------
Income (Loss) before
provision for income taxes 25,045 (6,838) 18,207
Provision for income taxes 13,873 (3,552) (6) 10,321
----------------------------------------------------------------------
Income (Loss) before minority
interest 11,172 (3,286) 7,886
Minority Interest 7,565 (564) (7) 7,001
----------------------------------------------------------------------
Net income (loss) $ 18,737 $(3,850) $ 14,887

======================================================================
Earnings per share
Basic $ 0.30 $ 0.24 0
Diluted (8) 0.27 0.21 0
----------------------------------------------------------------------
Earnings per share weighted
average number
of shares outstanding:
Basic 63,172 63,172
Diluted (8) 72,332 72,332
======================================================================

(1) The adjustments represent the amortization of deferred stock
compensation related to the unvested portion of stock options granted
as part of the Taqua acquisition.

(2) The adjustments represent the amortization of purchased
technology and other intangibles related to the acquisition of
Santera, Taqua and VocalData and the write-off of acquired in-process
research and development related to the acquisition of VocalData.

(3) The adjustment represents restructuring costs related to the
relocation of our manufacturing operation.

(4) The adjustment represents a gain on the settlement of our
convertible notes receivable from Catapult.

(5) The adjustment represents a gain on the sale of our investment
in Telica.

(6) The adjustments represent the income tax effect of footnotes
(1), (2), (3), (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
footnote (2).

(8) For the three months ended September 30, 2004, calculations of
earnings per share include 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, 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)

Nine Months Ended September 30, 2005
----------------------------------------------------------------------
(thousands, except for earnings per share data)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $400,522 $ -- $400,522
Costs and expenses:
Cost of goods sold 120,460 (1,254)(1)(2)119,206
Amortization of purchased
technology 5,715 (5,039) (2) 676
----------------------------------------------------------------------
Total cost of sales 126,175 (6,293) 119,882
----------------------------------------------------------------------
Gross profit 274,347 68.5% 6,293 280,640 70.1%
----------------------------------------------------------------------

Research and development 92,234 (175) (1) 92,059
Selling, general and
administrative 148,391 (2,750) (1)145,641
Acquired of in-
process research
and development 1,210 (1,210) (4) --
Amortization of
intangibles 2,282 (2,282) (2) --
Restructuring and
other charges 4,349 (4,349) (3) --
----------------------------------------------------------------------
Total operating
expenses 248,466 (10,766) 237,700
----------------------------------------------------------------------

----------------------------------------------------------------------
Income from operations 25,881 17,059 42,940
Interest and other
(expense) income, net (500) 1,344 (5) 844

----------------------------------------------------------------------
Income before provision for
income taxes 25,381 18,403 43,784
Provision for income
taxes 15,652 4,906 (6) 20,558
----------------------------------------------------------------------
Income before minority
interest 9,729 13,497 23,226
Minority interest 11,239 (1,968) (7) 9,271
----------------------------------------------------------------------
Net income $ 20,968 $ 11,529 $ 32,497

----------------------------------------------------------------------
Earnings per share
Basic $ 0.32 $ 0.49
Diluted (8) 0.31 0.46
Earnings per share weighted
average number
of shares outstanding:
Basic 65,811 65,811
Diluted (8) 74,403 74,403
======================================================================

(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 and Hyannis
facilities.

(4) The adjustment represents acquired in-process research and
development relating to the acquisition of iptelorg.

(5) The adjustment represents the a realized loss on the sale of
Santera's holdings of Alcatel shares received in conjunction with
warrants exercised in December 2004.

(6) The adjustments represent the income tax effect of footnotes
(1), (2), (3), (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
footnote (2) and (4).

(8) For the nine months ended September 30, 2005, calculations of
earnings per share include 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 nine
months ended September 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)

Nine Months Ended September 30, 2004
----------------------------------------------------------------------
(thousands, except earnings per share data)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $281,124 $ -- $281,124
Costs and expenses:
Cost of goods sold 69,022 (9)(1) (2) 69,013
Amortization of
purchased technology 6,953 (6,339) (2) 614
----------------------------------------------------------------------
Total cost of sales 75,975 (6,348) 69,627
----------------------------------------------------------------------
Gross profit 205,149 73.0% 6,348 211,497 75.2%
----------------------------------------------------------------------
Research and development 70,249 (232) (1) 70,017
Selling, general and
administrative 108,039 (563) (1)107,476
Acquired in-process
research and
development 10,400 (10,400) (2) --
Amortization of
intangibles 1,704 (1,704) (2) --
Restructuring 1,327 (1,327) (3) --
----------------------------------------------------------------------
Total operating
expenses 191,719 (14,226) 177,493
----------------------------------------------------------------------
Income from operations 13,430 20,574 34,004
Interest and other
income, net 152 -- 152
Gain on note
receivable 2,186 (2,186) (4) --
Gain on investment
in privately-held
company 9,869 (9,869) (5) --
----------------------------------------------------------------------
Income before provision
for income taxes 25,637 8,519 34,156
Provision for income
taxes 27,078 (1,951) (6) 25,127
----------------------------------------------------------------------
Income (Loss) before
minority interest (1,441) 10,470 9,029
Minority Interest 25,723 (2,385) (7) 23,338
----------------------------------------------------------------------
Net Income $ 24,282 8,085 $ 32,367
======================================================================
Earnings per share
Basic $ 0.39 $ 0.52
Diluted (8) 0.36 0.48
----------------------------------------------------------------------
Earnings per share weighted
average number
of shares outstanding:
Basic 62,554 62,554
Diluted (8) 71,801 71,801
======================================================================

(1) The adjustments represent the amortization of deferred stock
compensation related to the unvested portion of stock options 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, Taqua and VocalData and the
write-off of in-process research and development related to the
acquisition of Taqua and VocalData.

(3) The adjustment represents restructuring costs related to the
relocation of our manufacturing operation.

(4) The adjustment represents a gain on the settlement of our
convertible notes receivable from Catapult.

(5) The adjustment represents a gain on the sale of our investment
in Telica.

(6) The adjustments represent the income tax effects of footnotes
(1), (2), (3), (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
footnote (2).

(8) For the nine months ended September 30, 2004, calculations of
earnings per share include 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 nine
months ended September 30, 2004 includes 6,361 shares related to the
convertible debt using the "if-converted" method.