Tekelec Announces Q2 Results: Achieves Orders of $156.4 Million, Revenue of $133.0 Million, and 1.18 Book-to-Bill; Agrees to Acquire Remaining Interest in Santera

Revenue for the second quarter of 2005 was $133.0 million,compared to $95.6 million in the second quarter of 2004. On a GAAPbasis, Tekelec's net income was $5.6 million, or $0.08 per dilutedshare, for the second quarter of 2005, compared to a net loss of$304,000, or $0.00 per diluted share, in the second quarter of 2004.Non-GAAP net income for the second quarter of 2005, which excludes theeffects of acquisition-related amortization, non-cash stock-baseddeferred compensation, and restructuring and other charges, related tothe relocation of corporate headquarters and the consolidation ofTaqua's manufacturing operations, was $9.4 million, or $0.14 perdiluted share, compared to non-GAAP net income of $9.4 million, or$0.14 per diluted share, in the second quarter of 2004. Non-GAAP netincome for the second quarter of 2004 excludes the effects ofacquisition-related amortization, the write-off of in-process researchand development related to the Taqua acquisition in April 2004 andrestructuring charges related to the relocation of manufacturingoperations. Orders received in the second quarter for Tekelec productsand services were $156.4 million, compared to $123.6 million in thesecond quarter in 2004.

As previously announced today, Tekelec has agreed to purchase theminority interest in Santera for cash in the amount of $75.6 million.The transaction is expected to close in early October 2005.

Tekelec President and CEO Fred Lax commented, "Tekelec's resultswere strong in the second quarter, with orders up 27% year-over-yearand up 29% sequentially, and revenue increasing 39% year-over-year andup 11% sequentially. For the eleventh consecutive quarter, strongorder volumes provided us with a book-to-bill ratio greater than one.

"Network Signaling Group revenue increased to $81.5 million, up20%, compared to $68.0 million in Q2 '04, and increased 10%sequentially, marking the highest quarterly signaling revenue in thehistory of the Company. We are pleased to announce that Bell Canadahas selected Tekelec's Eagle 5 Signaling Application System andintegrated network monitoring platform to address its evolvingsignaling requirements as it enhances its core infrastructure. BellCanada is replacing legacy signaling and monitoring equipment withTekelec solutions.

"Switching Solutions Group revenue increased to $33.3 million, up158%, compared to $12.9 million in Q2 '04, and increased 34%sequentially, as we added 19 new switching customers during thequarter. In another deployment of our wireless media gateway, Celcom,Malaysia's largest mobile operator, will be deploying the T8000 aspart of an IP-based next-gen switching solution.

"Communications Software Solutions Group revenue increased to $7.1million, up 65%, compared to $4.3 million in Q2 '04, but declined 26%sequentially, or $2.4 million. As part of a bundled Tekelec solution,Bell Canada is also deploying Tekelec's network-wide monitoringsolution. This implementation will feed the critical businessintelligence data required for the applications that run the carrier'scustomer care, call center operations and customer settlementsprocesses. In a stand-alone deployment, we are pleased to announcethat DTAC Thailand, a leading Thai mobile operator, has selectedTekelec's Integrated Application Solution for roaming management. Thissolution will allow DTAC to better understand the performance of itsnetwork, resulting in better service delivery and higher customersatisfaction.

"At Supercomm, we announced our strategy to enable operators todeliver advanced, IP-based services over any fixed or mobile network,utilizing Tekelec's unique combination of signaling, switching, andapplications solutions. Today we are pleased to announce a keymilestone in the development of this strategy with the purchase ofiptelorg, a German and Czech-based developer of leading edge SessionInitiation Protocol (SIP) routing software. This purchase secures acritical IP Multimedia Subsystem (IMS) capability for Tekelec and ispart of our strategic focus on providing the same level ofcarrier-grade reliability, scalability, and innovation to customers'SIP signaling needs that we already supply for their SS7 networks.

"Finally, regarding global expansion, approximately 35% 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. In a significant validationof our global expansion initiative, we recently announced thatFiberHome Technologies Group, one of the largest providers of telecomequipment and services in China, has agreed to integrate the T9000distributed switching solution into FiberHome's next-gen networkportfolio and to exclusively deploy Tekelec's media gateway in any midor large size carrier opportunities. This agreement expands Tekelec'spresence in China, one of the fastest growing telecom markets in theworld."
COMPARATIVE TEKELEC GROUP REVENUES


Revenue ($ in Millions)

Q2 2005 Q2 2004
Switching Solutions Group $33.3 $12.9
Network Signaling Group $81.5 $68.0
Communications Software Solutions Group(1) $7.1 $4.3
IEX Contact Center Group $11.1 $10.4

(1) As a result of the Steleus acquisition, a new operating group, the
Communications Software Solutions Group, was created in Q4 2004. This
Group's products consist of the Steleus solutions and Tekelec's
business intelligence applications and other network element
independent solutions that were previously reported as part of the
Network Signaling Group. The revenue related to these Network
Signaling Group solutions was reclassified from the Network Signaling
Group to the Communications Software Solutions Group for 2004. The
Communications Software Solutions Group revenue for Q2 2004 does not
include any Steleus revenue.


Q3 FINANCIAL GUIDANCE

Q3 2005 Guidance Q3 2004 Actual Results

Total Revenue: $143.0 million - $106.6 million
$147.0 million

GAAP Net Income: $0.10 - $0.13 per diluted $0.27 per diluted
share(1) share(2)


(1) For the 3rd quarter of 2005, Tekelec expects expenses to include
amortization of acquired intangibles, amortization of non-cash
stock-based deferred compensation, and restructuring and other
charges related to our Hyannis and Corporate relocations in the
aggregate amount of approximately $5.0 million, pre-tax. This
guidance excludes any potential one-time, non-cash charge for the
write-off of acquired in-process research and development related
to the iptelorg acquisition.

(2) Third quarter 2004 net income includes a $2.4 million one-time,
non-cash charge for the write-off of acquired in-process research
and development related to the VocalData acquisition, a $9.9
million pre-tax gain on Tekelec's investment in Telica and a $2.2
million pre-tax gain on the settlement of the Catapult
convertible notes.

Lax concluded, "The strong revenue growth and book-to-bill ratio,coupled with the record quarter for our signaling business and successof our next-gen switching initiative, highlight the significantprogress we are making executing on our strategy focused on next-genswitching, signaling, value-added applications, and global expansion.I believe that as IMS architected networks are rolled-out, Tekelec'sunique portfolio of solutions will help distinguish us from ourcompetitors. Finally, we will continue to work on improving ouroperating margins by focusing on gross margin improvement initiativesand by closely managing operating expenses."

Employment Inducement Stock Options

On August 2, 2005, 67 new Tekelec employees hired during thesecond quarter of 2005 and through the date of this earnings releasewere granted options to purchase a total of 719,850 shares of Tekeleccommon stock, of which options to purchase 200,000 shares were grantedto Ron De Lange, president and general manager of Tekelec's NetworkSignaling Group. In addition, in connection with the iptelorgacquisition, 12 iptelorg employees were granted options to purchase atotal of 346,535 shares of Tekelec common stock. The total number ofshares subject to such options amounts to less than 2% of theoutstanding shares of Tekelec common stock. The option grants weremade under Tekelec's 2004 Equity Incentive Plan for New Employees andmet the "employment inducement" exception to the Nasdaq rulesrequiring shareholder approval of equity-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 August3 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, 4307795.
TEKELEC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
----------------------------------------------------------------------
(thousands)
Revenues $133,044 $95,618 $252,419 $174,488
Costs and expenses:
Cost of goods sold 39,692 23,953 71,294 43,338
Amortization of purchased
technology 1,997 2,392 3,752 5,456
Research and development 30,966 24,169 60,972 44,788
Selling, general and
administrative 50,942 38,165 98,330 70,436
Acquired in-process research
and development -- 8,000 -- 8,000
Amortization of intangibles 702 409 1,581 941
Restructuring and other
charges(1) 2,503 110 2,760 1,052
----------------------------------------------------------------------
Income (Loss) from operations 6,242 (1,580) 13,730 477
Interest and other income
(expense), net 426 (353) (1,092) 115

----------------------------------------------------------------------
Income (Loss) before provision
for income taxes 6,668 (1,933) 12,638 592
Provision for income taxes
(2) 3,942 6,952 9,631 13,205
----------------------------------------------------------------------
Income (Loss) before minority
interest 2,726 (8,885) 3,007 (12,613)
Minority interest 2,850 8,581 9,225 18,158
----------------------------------------------------------------------
Net income (loss) $5,576 $(304) $12,232 $5,545

----------------------------------------------------------------------
Earnings per share
Basic $0.08 $0.00 $0.19 $0.09
Diluted 0.08 0.00 0.18 0.09

======================================================================
Weighted average number
of shares outstanding:
Basic 65,723 62,458 65,660 62,246
Diluted 67,258 62,458 67,652 65,174


Notes to Condensed Consolidated Statements of Operations (000's):

(1) This amount represents restructuring and other costs (e.g., costs
associated with duplicate staff during the transition, recruiting
fees, etc.) related to the relocation of our corporate
headquarters.

(2) For the three and six months ended June 30, 2004 and 2005,
Santera, a majority-owned company, is included in the
consolidated results of operations of Tekelec. The consolidated
provision for income taxes does not include any benefit from the
losses generated by Santera due to the following:

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

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


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

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
----------------------------------------------------------------------
(thousands)
Revenues $133,044 $95,618 $252,419 $174,488
Costs and expenses:
Cost of goods sold 39,638 24,143 70,904 43,759
Research and development 30,983 24,073 60,826 44,692
Selling, general and
administrative 50,015 37,932 96,649 70,203

----------------------------------------------------------------------
Income from operations 12,408 9,470 24,040 15,834
Interest and other income
(expense), net 426 (353) 252 115

----------------------------------------------------------------------
Income before provision for
income taxes 12,834 9,117 24,292 15,949
Provision for income taxes
(2) 5,836 7,666 12,820 14,806
----------------------------------------------------------------------
Income before minority interest 6,998 1,451 11,472 1,143
Minority interest 2,383 7,925 7,649 16,337
----------------------------------------------------------------------
Non-GAAP net income $9,381 $9,376 $19,121 $17,480

----------------------------------------------------------------------
Non-GAAP earnings per share
Basic $0.14 $0.15 $0.29 $0.28
Diluted 0.14 0.14 0.27 0.26
----------------------------------------------------------------------
Non-GAAP earnings per share weighted
average number of shares
outstanding:
Basic 65,723 62,458 65,660 62,246
Diluted (3) 73,619 71,516 74,013 71,535


Notes to Condensed Consolidated Statements of Operations (000's):

(1) The above Non-GAAP Statements of Operations exclude the effects of
the following:

For the three and six months ended June 30, 2005, restructuring
and other costs related to the relocation of our corporate
headquarters amounting to $2,503 and $2,760, respectively.
Included in restructuring and other costs for the three and six
months ended June 30, 2005 are $184 of transition costs,
consisting primarily of recruiting costs of new personnel, the
duplicative salary for the period in which the Company had two
personnel performing the same function, travel and other
miscellaneous transition costs.

For the three and six months ended June 30, 2005, amortization of
deferred stock-based compensation related to stock options and
restricted stock units granted amounting to $975 and $1,895,
respectively.

For the three and six months ended June 30, 2005 the amortization
of purchased technology and other intangibles related to the
acquisition of Taqua, VocalData, Steleus and the majority
interest in Santera amounting to $2,688 and $5,655, respectively.
The related income tax benefits for the three and six months
ended June 30, 2005 were $1,894 and $3,189 respectively.

For the six months ended June 30, 2005, the loss on sale of
investments amounting to $1,344 relates to the sale of Santera's
holdings of Alcatel shares received in conjunction with warrants
exercised in December 2004.

For the three and six months ended June 30, 2004, restructuring
costs related to the relocation of our manufacturing operations
amounted to $110 and $1,052, respectively.

For both the three and six months ended June 30, 2004,
amortization of deferred stock compensation related to stock
options granted amounting to $331.

For the three and six months ended June 30, 2004 the amortization
of purchased technology and other intangibles related to the
acquisition of IEX, Taqua and majority interest in Santera
amounting to $2,609 and $5,974, respectively. The related income
tax benefits for the three and six months ended June 30, 2004
were $714 and $1,601, respectively.

For the three and six months ended June 30, 2004, the write-off
of in-process research and development related to the acquisition
of Taqua amounting to $8,000.

(2) The above Non-GAAP Statements of Operations assume an effective
income tax rate of 35% for the Tekelec business excluding Santera
for the three and six months ended June 30, 2005 and 2004. There
were no income tax benefits associated with the losses generated
by Santera.

(3) For the three and six months ended June 30, 2005 and June 30,
2004, the calculation of earnings per share includes the add-back
to net income of $581 and $1,162, respectively for assumed
after-tax interest cost related to the convertible debt using the
"if-converted" method of accounting for diluted earnings per
share. The weighted average number of shares outstanding for both
the three and six months ended June 30, 2005 and June 30, 2004
includes 6,361 shares related to the convertible debt using the
"if-converted" method.


TEKELEC
CONDENSED CONSOLIDATED BALANCE SHEETS

June December
30, 31,
2005 2004
----------------------------------------------------------------------
(unaudited) (unaudited)
(thousands)
ASSETS
Current assets:
Cash and cash equivalents $34,549 $48,925
Short-term investments, at fair value 173,478 134,435
Accounts receivable, net 99,817 107,850
Inventories 51,372 33,654
Deferred income taxes, net 13,703 15,804
Prepaid expenses and other current assets 51,482 44,639
----------------------------------------------------------------------
Total current assets 424,401 385,307
Long-term investments, at fair value 93,293 93,622
Property and equipment, net 38,083 30,617
Investments in privately-held companies 7,322 7,322
Deferred income taxes 46,829 45,748
Other assets 5,616 6,757
Goodwill, net 128,851 128,732
Intangible assets, net 80,529 83,538
----------------------------------------------------------------------
Total assets $824,924 $781,643

======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of deferred revenues $127,328 $92,182
Other current liabilities 94,081 93,123
----------------------------------------------------------------------
Total current liabilities 221,409 185,305
Long-term convertible debt 125,000 125,000
Long-term portion of notes payable 45 78
Long-term portion of deferred revenues 3,852 2,187
Deferred income taxes 18,026 19,586
----------------------------------------------------------------------
Total liabilities 368,332 332,156
----------------------------------------------------------------------
Minority interest 11,264 20,489
----------------------------------------------------------------------
Total shareholders' equity 445,328 428,998

----------------------------------------------------------------------
Total liabilities and shareholders' equity $824,924 $781,643
======================================================================


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

Three Months Ended June 30, 2005
----------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $133,044 $-- $ 133,044
Costs and expenses:
Cost of goods sold 39,692 (257)(1)(2) 39,435
Amortization of
purchased technology 1,997 (1,794)(2) 203
----------------------------------------------------------------------
Total cost of sales 41,689 (2,051) 39,638
----------------------------------------------------------------------
Gross profit 91,355 68.7% 2,051 93,406 70.2%
----------------------------------------------------------------------

Research and
development 30,966 17(1) 30,983
Selling, general and
administrative 50,942 (927)(1) 50,015
Amortization of
intangibles 702 (702)(2) --
Restructuring and
other charges 2,503 (2,503)(3) --
----------------------------------------------------------------------
Total operating
expenses 85,113 (4,115) 80,998
----------------------------------------------------------------------

----------------------------------------------------------------------
Income (Loss) from
operations 6,242 6,166 12,408
Interest and other
income (expense), net 426 -- 426

----------------------------------------------------------------------
Income before provision
for income taxes 6,668 6,166 12,834
Provision for income
taxes 3,942 1,894(4) 5,836
----------------------------------------------------------------------
Income before minority
interest 2,726 4,272 6,998
Minority interest 2,850 (467)(5) 2,383
----------------------------------------------------------------------
Net income $5,576 $3,805 $9,381

----------------------------------------------------------------------
Earnings per share
Basic $0.08 $0.14
Diluted 0.08 0.14
Earnings per share
weighted average number
of shares outstanding:
Basic 65,723 65,723
Diluted 67,258 73,619(6)
===================================--=================================

(1) The adjustments represent the amortization of deferred
stock-based compensation related to stock options and restricted
stock units assumed or granted.

(2) The adjustments represent the amortization of purchased
technology and other intangibles related to the acquisition
Taqua, VocalData, Steleus and the majority interest in Santera.

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

(4) The adjustments represents the income tax effect of footnotes
(1), (2) and (3) in order to reflect our non-GAAP
effective tax rate at 35% for the Tekelec business, excluding
Santera.

(5) The adjustment represents the minority interest impact of
footnote (2).

(6) For the three months ended June 30, 2005, the non-GAAP
calculation of earnings per share includes the add-back to net
income of $581 for assumed after-tax interest cost related to the
convertible debt using the "if-converted" method of accounting
for diluted earnings per share. The weighted average number of
shares outstanding for the three months ended June 30, 2005
includes 6,361 shares related to the convertible debt using the
"if-converted" method.


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

Three Months Ended June 30,
2004
----------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $95,618 $-- $95,618
Costs and expenses:
Cost of goods sold 23,953 (2)(1) 23,951
Amortization of purchased
technology 2,392 (2,200)(2) 192
----------------------------------------------------------------------
Total cost of sales 26,345 (2,202) 24,143
----------------------------------------------------------------------
Gross profit 69,273 72.4% 2,202 71,475 74.8%
----------------------------------------------------------------------

Research and development 24,169 (96)(1) 24,073
Selling, general and
administrative 38,165 (233)(1) 37,932
Acquired in-process
research and
development 8,000 (8,000)(2) --
Amortization of intangibles 409 (409)(2) --
Restructuring 110 (110)(3) --
----------------------------------------------------------------------
Total operating expenses 70,853 (8,848) 62,005
----------------------------------------------------------------------

----------------------------------------------------------------------
Income (Loss) from operations (1,580) 11,050 9,470
Interest and other income
(expense), net (353) -- (353)

----------------------------------------------------------------------
Income (Loss) before provision
for income taxes (1,933) 11,050 9,117
Provision for income taxes 6,952 714(4) 7,666
----------------------------------------------------------------------
Income (Loss) before minority
interest (8,885) 10,336 1,451
Minority interest 8,581 (656)(5) 7,925
----------------------------------------------------------------------
Net income (loss) $(304) $9,680 $9,376

----------------------------------------------------------------------
Earnings (loss) per share
Basic $0.00 $0.15
Diluted 0.00 0.14
Earnings per share weighted
average number
of shares outstanding:
Basic 62,458 62,458
Diluted 62,458 71,516(6)
======================================================================

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

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

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

(4) The adjustments represents the income tax effect of footnotes
(1), (2) and (3) in order to reflect our non-GAAP
effective tax rate at 35% for the Tekelec business, excluding
Santera.

(5) The adjustment represents the minority interest impact of
footnote (2).

(6) For the three months ended June 30, 2004, the non-GAAP
calculation of earnings per share includes the add-back to net
income of $581 for assumed after-tax interest cost related to the
convertible debt using the "if-converted" method of accounting
for diluted earnings per share. The weighted average number of
shares outstanding for the three months ended June 30, 2004
includes 6,361 shares related to the convertible debt using the
"if-converted" method.


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

Six Months Ended June 30, 2005
----------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $252,419 $-- $252,419
Costs and expenses:
Cost of goods sold 71,294 (863)(1)(2) 70,431
Amortization of
purchased technology 3,752 (3,279)(2) 473
----------------------------------------------------------------------
Total cost of
sales 75,046 (4,142) 70,904
----------------------------------------------------------------------
Gross profit 177,373 70.3% 4,142 181,515 71.9%
----------------------------------------------------------------------

Research and
development 60,972 (146)(1) 60,826
Selling, general and
administrative 98,330 (1,681)(1) 96,649
Amortization of
intangibles 1,581 (1,581)(2) --
Restructuring 2,760 (2,760)(3) --
----------------------------------------------------------------------
Total operating
expenses 163,643 (6,168) 157,475
----------------------------------------------------------------------

----------------------------------------------------------------------
Income from operations 13,730 10,310 24,040
Interest and other
income (expense), net (1,092) 1,344(4) 252

----------------------------------------------------------------------
Income before provision
for income taxes 12,638 11,654 24,292
Provision for income
taxes 9,631 3,189(5) 12,820
----------------------------------------------------------------------
Income before minority
interest 3,007 8,465 11,472
Minority interest 9,225 (1,576)(6) 7,649
----------------------------------------------------------------------
Net income $12,232 $6,889 $19,121

----------------------------------------------------------------------
Earnings per share
Basic $0.19 $0.29
Diluted 0.18 0.27
Earnings per share
weighted average number
of shares outstanding:
Basic 65,660 65,660
Diluted 67,652 74,013(7)
======================================================================

(1) The adjustments represent the amortization of deferred stock
compensation related to stock options and restricted stock units
assumed or granted.

(2) The adjustments represent the amortization of purchased technology
and other intangibles related to the acquisition Taqua, VocalData,
Steleus and majority interest in Santera.

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

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

(5) The adjustments represents the income tax effect of footnotes (1),
(2) (3) and (4) in order to reflect our non-GAAP
effective tax rate at 35% for the Tekelec business, excluding
Santera.

(6) The adjustment represents the minority interest impact of footnote
(2) and (4).

(7) For the six months ended June 30, 2005, the non-GAAP calculation
of earnings per share includes the add-back to net income of
$1,162 for assumed after-tax interest cost related to the
convertible debt using the "if-converted" method of accounting for
diluted earnings per share. The weighted average number of shares
outstanding for the six months ended June 30, 2005 includes 6,361
shares related to the convertible debt using the "if-converted"
method.


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

Six Months Ended June 30, 2004
----------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------
GAAP Adjustments Non-GAAP
----------------------------------------------------------------------

Revenues $174,488 $-- $174,488
Costs and expenses:
Cost of goods sold 43,338 (2)(1) 43,336
Amortization of
purchased technology 5,456 (5,033)(2) 423
----------------------------------------------------------------------
Total cost of sales 48,794 (5,035) 43,759
----------------------------------------------------------------------
Gross profit 125,694 72.0% 5,035 130,729 74.9%
----------------------------------------------------------------------

Research and
development 44,788 (96)(1) 44,692
Selling, general and
administrative 70,436 (233)(1) 70,203
Acquired in-
process research
and development 8,000 (8,000)(2) --
Amortization of
intangibles 941 (941)(2) --
Restructuring 1,052 (1,052)(3) --
----------------------------------------------------------------------
Total operating
expenses 125,217 (10,322) 114,895
----------------------------------------------------------------------

----------------------------------------------------------------------
Income from operations 477 15,357 15,834
Interest and other
income (expense), net 115 -- 115

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Income from continuing
operations before
provision
for income taxes 592 15,357 15,949
Provision for income
taxes 13,205 1,601(4) 14,806
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Income (Loss) from
continuing operations
before minority interest (12,613) 13,756 1,143
Minority Interest 18,158 (1,821)(5) 16,337
----------------------------------------------------------------------
Net income $5,545 $11,935 $17,480

----------------------------------------------------------------------
Earnings per share
Basic $0.09 $0.28
Diluted 0.09 0.26
Earnings per share
weighted average number
of shares outstanding:
Basic 62,246 62,246
Diluted 65,174 71,535(6)
======================================================================

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

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

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

(4) The adjustments represents the income tax effects of footnotes
(1), (2) and (3) in order to reflect our non-GAAP effective tax
rate at 35% for the Tekelec business, excluding Santera.

(5) The adjustment represents the minority interest impact of footnote
(2).

(6) For the six months ended June 30, 2004, the non-GAAP calculation
of earnings per share includes the add-back to net income of
$1,162 for assumed after-tax interest cost related to the
convertible debt using the "if-converted" method of accounting for
diluted earnings per share. The weighted average number of shares
outstanding for the six months ended June 30, 2004 includes 6,361
shares related to the convertible debt using the "if-converted"
method.