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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15135
(TEKELEC LOGO)
(Exact name of registrant as specified in its charter)
     
California   95-2746131
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
5200 Paramount Parkway
Morrisville, North Carolina 27560

(Address and zip code of principal executive offices)
(919) 460-5500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of October 28, 2010, there were 68,585,311 shares of the registrant’s common stock, without par value, outstanding.
 
 

 


 

TEKELEC
TABLE OF CONTENTS
FORM 10-Q
         
    Page  
Part I — Financial Information
    2  
 
       
    2  
    3  
    4  
    5  
    6  
    27  
    44  
    44  
 
       
Part II — Other Information
    45  
    45  
    45  
    46  
    47  
       
 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT

 


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TEKELEC
Unaudited Condensed Consolidated Balance Sheets
                 
    September 30,     December 31,  
    2010     2009  
    (Thousands, except share data)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 222,715     $ 277,259  
Trading securities, at fair value
          81,788  
Put right, at fair value
          11,069  
Accounts receivable, net
    141,940       157,369  
Inventories
    26,454       23,353  
Income taxes receivable
          1,617  
Deferred income taxes, current
    25,678       66,758  
Deferred costs and prepaid commissions
    42,573       56,645  
Prepaid expenses
    6,916       7,007  
Other current assets
    4,064       1,943  
 
           
Total current assets
    470,340       684,808  
Property and equipment, net
    37,842       35,267  
Deferred income tax assets, net, noncurrent
    59,342       39,153  
Other assets
    1,480       1,661  
Goodwill
    136,143       42,102  
Intangible assets, net
    100,306       31,017  
 
           
Total assets
  $ 805,453     $ 834,008  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 18,102     $ 28,114  
Accrued expenses
    14,554       25,372  
Accrued compensation and related expenses
    22,072       40,980  
Current portion of deferred revenues
    117,403       149,065  
Income taxes payable, current
    1,116        
 
           
Total current liabilities
    173,247       243,531  
 
               
Deferred income tax liabilities, noncurrent
    6,114       5,477  
Long-term portion of deferred revenues
    6,058       5,590  
Other long-term liabilities
    5,517       4,863  
 
           
Total liabilities
    190,936       259,461  
 
           
 
               
Commitments and Contingencies (Note 10)
               
 
               
Shareholders’ equity:
               
Common stock, without par value, 200,000,000 shares authorized; 68,583,068 and 67,382,600 shares issued and outstanding, respectively
    348,801       330,909  
Retained earnings
    264,826       241,820  
Accumulated other comprehensive income
    890       1,818  
 
           
Total shareholders’ equity
    614,517       574,547  
 
           
Total liabilities and shareholders’ equity
  $ 805,453     $ 834,008  
 
           
See notes to unaudited condensed consolidated financial statements.

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TEKELEC
Unaudited Condensed Consolidated Statements of Operations
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (Thousands, except per share data)  
Revenues
  $ 108,305     $ 114,914     $ 333,803     $ 345,755  
Cost of sales:
                               
Cost of goods sold
    40,773       37,064       115,963       113,777  
Amortization of intangible assets
    7,594       1,567       13,094       4,599  
 
                       
Total cost of sales
    48,367       38,631       129,057       118,376  
 
                       
Gross profit
    59,938       76,283       204,746       227,379  
 
                       
Operating expenses:
                               
Research and development
    24,094       24,200       68,666       75,603  
Sales and marketing
    20,192       17,168       55,858       51,574  
General and administrative
    13,219       13,148       39,176       40,288  
Amortization of intangible assets
    1,613       327       2,864       960  
Acquisition-related expenses
    407             2,891        
 
                       
Total operating expenses
    59,525       54,843       169,455       168,425  
 
                       
Income from operations
    413       21,440       35,291       58,954  
Other expense, net
    (1,073 )     (10,666 )     (2,932 )     (13,287 )
 
                       
Income (loss) from operations before provision for (benefit from) income taxes
    (660 )     10,774       32,359       45,667  
Provision for (benefit from) income taxes
    (526 )     1,373       9,353       14,148  
 
                       
Net income (loss)
  $ (134 )   $ 9,401     $ 23,006     $ 31,519  
 
                       
 
                               
Earnings (loss) per share:
                               
Basic
  $     $ 0.14     $ 0.34     $ 0.47  
Diluted
          0.14       0.33       0.47  
 
                               
Weighted average number of shares outstanding:
                               
Basic
    68,526       67,215       68,179       66,748  
Diluted
    68,526       68,022       68,856       67,465  
See notes to unaudited condensed consolidated financial statements.

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TEKELEC
Unaudited Condensed Consolidated Statements of Comprehensive Income
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
    (Thousands)  
Net income (loss)
  $ (134 )   $ 9,401     $ 23,006     $ 31,519  
Other comprehensive income (loss):
                               
Foreign currency translation adjustments
    9,501       1,951       (928 )     2,382  
 
                       
Comprehensive income
  $ 9,367     $ 11,352     $ 22,078     $ 33,901  
 
                       
See notes to unaudited condensed consolidated financial statements.

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TEKELEC
Unaudited Condensed Consolidated Statements of Cash Flows
                 
    Nine Months Ended  
    September 30,  
    2010     2009  
    (Thousands)  
Cash flows from operating activities:
               
Net income
  $ 23,006     $ 31,519  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Impairment of investment in privately-held company
          13,587  
Gain on investments carried at fair value, net
    (118 )     (1,723 )
Provision for doubtful accounts and sales returns
    1,934       1,494  
Provision for warranty
    (1,305 )     5,000  
Inventory write downs
    3,164       4,738  
Loss on disposal of fixed assets
    51       64  
Depreciation
    12,383       13,966  
Amortization of intangible assets
    15,958       5,559  
Amortization, other
    612       562  
Deferred income taxes
    6,925       4,559  
Stock-based compensation
    9,914       10,275  
Excess tax benefits from stock-based compensation
    (872 )     (778 )
Changes in operating assets and liabilities, net of effect of acquisitions:
               
Accounts receivable
    20,112       60,322  
Inventories
    (5,660 )     (10,593 )
Deferred costs
    15,889       7,272  
Prepaid expenses
    56       1,017  
Other current assets
    545       (284 )
Accounts payable
    (16,461 )     (2,859 )
Accrued expenses
    (10,118 )     (11,963 )
Accrued compensation and related expenses
    (20,062 )     (7,503 )
Deferred revenues
    (39,079 )     (69,498 )
Income taxes receivable
    1,617       (1,725 )
Income taxes payable
    1,711       (6,080 )
 
           
Total adjustments
    (2,804 )     15,409  
 
           
Net cash provided by operating activities — continuing operations
    20,202       46,928  
Net cash used in operating activities — discontinued operations
          (184 )
 
           
Net cash provided by operating activities
    20,202       46,744  
 
           
 
Cash flows from investing activities:
               
Proceeds from sales and maturities of investments
    92,975       16,622  
Acquisition of Camiant and Blueslice, net of cash acquired
    (161,953 )      
Purchases of property and equipment
    (14,060 )     (14,563 )
 
           
Net cash provided by (used in) investing activities
    (83,038 )     2,059  
 
           
 
Cash flows from financing activities:
               
Proceeds from issuances of common stock
    10,892       9,707  
Payments of net share-settled payroll taxes related to equity awards
    (2,914 )     (2,121 )
Excess tax benefits from stock-based compensation
    872       778  
 
           
Net cash provided by financing activities
    8,850       8,364  
 
           
Effect of exchange rate changes on cash
    (558 )     (58 )
 
           
Net change in cash and cash equivalents
    (54,544 )     57,109  
Cash and cash equivalents, beginning of period
    277,259       209,441  
 
           
Cash and cash equivalents, end of period
  $ 222,715     $ 266,550  
 
           
See notes to unaudited condensed consolidated financial statements.

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TEKELEC
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation and Changes in Significant Accounting Policies
Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements include the accounts of Tekelec and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X.
     In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our consolidated financial condition and consolidated results of operations. The results of operations for the current interim period are not necessarily indicative of results for the current year. Certain prior period amounts have been reclassified in order to conform to the current period’s presentation.
     We operate under a thirteen-week calendar quarter. For financial statement presentation purposes, the reporting periods are referred to as ended on the last calendar day of the quarter. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2010 and 2009 are for the thirteen and thirty-nine weeks ended October 1, 2010 and October 2, 2009, respectively.
     The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2009 and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2009.
Revenue Recognition for Arrangements with Multiple Deliverables
     In September 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. As a result, these arrangements are accounted for in accordance with the new, “non-software” guidance for arrangements with multiple deliverables.
     The FASB also amended the accounting standards for revenue recognition for arrangements with multiple deliverables. The new authoritative guidance for arrangements with multiple deliverables requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. It also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (i) vendor-specific objective evidence (“VSOE”) if available; (ii) third-party evidence (“TPE”) if vendor-specific objective evidence is not available; and (iii) best estimated selling price (“BESP”) if neither vendor-specific nor third-party evidence is available. The new guidance eliminates the residual method of allocation for multiple-deliverable revenue arrangements which we used historically when we applied the software revenue recognition guidance to our multiple element arrangements.
     We elected to early adopt, as permitted, the new authoritative guidance on January 1, 2010, on a prospective basis for applicable transactions originating or materially modified after January 1, 2010. As substantially all of our telecommunications products include both tangible products and software elements that function together to deliver the tangible product’s essential functionality, the existing software revenue recognition guidance no longer applies to the majority of our transactions. The adoption of the new non-software revenue recognition guidance did not have a material impact on the timing, pattern, or amount of revenue recognized in the third quarter and first nine months of 2010, primarily due to (i) a portion of the revenue for the third quarter and first nine months of 2010 being derived from the backlog of orders which were received prior to January 1, 2010 and therefore did not fall under the new non-software revenue recognition guidance, and (ii) the new non-software revenue recognition guidance not differing significantly from the software revenue recognition guidance when applied to acceptance based arrangements and arrangements that are received and fulfilled within the same quarter. Based on currently available information, we anticipate that the impact of adopting this guidance on revenue recognition will not be

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material for our 2010 results. However, this assessment may change because such impacts depend in part on terms and conditions of arrangements in effect in those future periods.
     The new guidance does not generally change the units of accounting for our revenue transactions as most of our products and services qualify as separate units of accounting. Substantially all of our revenues are derived from sales or licensing of our (i) telecommunications products, (ii) professional services including installation, training, and consulting services, and (iii) warranty-related support, comprised of telephone support, repair and return of defective products, and product updates. Our customers generally purchase a combination of our products and services as part of a multiple deliverable arrangement, and many of our arrangements have both software and non-software components that function together to deliver the product’s essential functionality. Our arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.
     For substantially all of our arrangements, we defer warranty and professional services revenue, and recognize revenue for all products in an arrangement when persuasive evidence of an arrangement exists and delivery of the product has occurred, provided the fee is fixed or determinable, and collection is deemed probable as discussed in more detail below. In instances where final acceptance of the product is based on customer specific criteria, revenue is deferred until the earlier of the receipt of customer acceptance or the expiration of the acceptance period. Warranty revenue is recognized ratably over the term of the standard warranty based on the number of days of warranty coverage during each period. Professional services revenue is typically recognized upon completion of the services for fixed-fee service arrangements, as these services are relatively short-term in nature (typically several weeks, or in limited cases, several months). For service arrangements that are billed on a time and materials basis, we recognize revenue as the services are performed.
     For transactions entered into prior to January 1, 2010 and not materially modified after that date, we recognize revenue based on the existing software revenue recognition guidance, historically referred to as SOP 97-2 “Software Revenue Recognition” (“SOP 97-2”). Under this guidance, the entire fee from the arrangement is required to be allocated to each respective element based on its relative selling price using VSOE. Sales of our products generally include at least a year of warranty coverage. Since we do not sell our products separately from this warranty coverage, and we rarely sell our products on a standalone basis, we are unable to establish VSOE for our telecommunications products. Accordingly, we utilize the residual method to allocate revenue to each of the elements of an arrangement. Under the residual method, we allocate the total fee in an arrangement first to the undelivered elements (typically professional services and warranty services) based on VSOE of those elements, and the remaining, or “residual,” portion of the fee to the delivered elements (typically the product or products).
     For transactions entered into after January 1, 2010, we recognize revenue based on the new non-software revenue recognition guidance. We allocate consideration to each deliverable in an arrangement based on its relative selling price. We follow a hierarchy to allocate the selling price based on VSOE, then TPE and finally BESP. Because we rarely sell our products on a stand-alone basis or without warranty coverage as discussed above, we are not able to establish VSOE for our telecommunications products. Additionally, we generally expect that we will not be able to establish TPE due to the nature of our products and the markets in which we compete. Accordingly, we expect the selling price of our proprietary hardware and software products to be based on our BESP. For third party off the shelf hardware products, we utilize TPE, as there is a well established market price for these products. We have established VSOE for our services and maintenance offerings and, therefore, we utilize VSOE for these elements.
     We recognize revenue from our extended maintenance contracts under the existing revenue recognition guidance as these arrangements are considered post contract support or “PCS” as defined by that guidance. There would be no difference in the timing or amount of our maintenance revenues if they were recognized under other authoritative revenue guidance.
     Since the adoption of the new guidance, we have primarily used the same information used to set pricing strategy to determine BESP. We have corroborated the BESP with our historical sales prices, the anticipated margin on the deliverable, the selling price and profit margin for similar deliverables and the characteristics of the varying geographical markets in which the deliverables are sold. We plan to analyze the selling prices used in our allocation of arrangement consideration at least semi-annually. Selling prices will be analyzed more frequently if a significant change in our business necessitates a more timely analysis.
     Each deliverable within our multiple deliverable revenue arrangements is accounted for as a separate unit of accounting under the new guidance if both of the following criteria are met: (i) the delivered item or items have

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value to the customer on a standalone basis; and (ii) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We consider a deliverable to have standalone value if the item is sold separately by us or another vendor or if the item could be resold by the customer. Further, our revenue arrangements generally do not include a general right of return relative to delivered products. Deliverables not meeting these criteria are combined with a deliverable that does meet that criterion. The appropriate allocation of arrangement consideration and recognition of revenue is then determined for the combined unit of accounting.
     The following table shows the total revenue for the three and nine months ended September 30, 2010 recognized according to the software and the new non-software revenue recognition guidance (in thousands):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30, 2010     September 30, 2010  
New non-software revenue recognition rules(1)
  $ 36,376     $ 111,904  
Existing software revenue recognition rules
    71,929       221,899  
 
           
Total
  $ 108,305     $ 333,803  
 
           
 
(1)   For the reasons discussed above, the timing of the revenue recognized for the three and nine months ending September 30, 2010 would not have been materially different if we had recorded it under the existing software revenue guidance.
     The following table shows the total deferred revenue as of September 30, 2010 accounted for according to the software and the new non-software revenue recognition guidance (in thousands):
         
    September 30,  
    2010  
New non-software revenue recognition rules
  $ 20,736  
Existing software revenue recognition rules
    102,725  
 
     
Total
  $ 123,461  
 
     
Recent Accounting Pronouncements
     Fair Value Measurements and Disclosures. In January 2010, the FASB issued Accounting Standards Update 2010-06 “Improving Disclosures about Fair Value Measurements.” This Update amends the authoritative guidance for fair value measurements and disclosures by adding new disclosure requirements with respect to transfers in and out of Levels 1 and 2 fair value measurements, as well as by requiring gross basis disclosures for purchases, sales, issuances, and settlements included in the reconciliation of Level 3 fair value measurements. This Update also amends the authoritative guidance by providing clarifications to existing disclosure requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Early adoption is permitted.
     We adopted this new guidance, including the guidance related to the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, on January 1, 2010. The adoption of this guidance did not have a material impact on our financial position or results of operations.
     Disclosure Requirements related to Financing Receivables and Allowance for Credit Losses. In July 2010, the FASB issued Accounting Standard Update No. 2010-10 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which updates the authoritative guidance for receivables. The new disclosures will require disaggregated information related to financing receivables and will include for each class of financing receivables, among other things: a roll forward for the allowance for credit losses, credit quality information, impaired loan information, modification information, and non-accrual and past-due information. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Accordingly, we will implement the guidance for period-end disclosures effective as of the end of our fourth quarter of 2010, with the guidance for

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period activity disclosures to be implemented during our first quarter of 2011. We believe the adoption of this update will primarily result in increased disclosures, but will not have a material impact on our financial position or results of operations.
Note 2 — Acquisitions
     In the second quarter of 2010 we completed the acquisition of Camiant, Inc. (“Camiant”) and Blueslice Networks, Inc. (“Blueslice”) for cash consideration of $127.0 million and $35.0 million, respectively, for an aggregate of $162.0 million. We have included the results of operation of these acquisitions in our consolidated results from the date of acquisition. Expenses associated with these acquisitions consist primarily of legal, employee related and other professional fees and totaled $0.4 million and $2.9 million during the three and nine months ended September 30, 2010, respectively. These costs were expensed as incurred and are recorded separately in the accompanying unaudited consolidated statement of operations under the heading “Acquisition-related expenses.”
Acquisition of Camiant
     On May 7, 2010, we completed the acquisition of Camiant, a provider of real time policy control solutions, through a merger with our newly formed wholly-owned subsidiary after which Camiant was the surviving entity. Camiant’s multimedia policy solutions allow service providers to leverage and monetize their network investments by enabling them to allocate network resources and create services for subscriber preferences in such areas as quality of service and bandwidth utilization. The products are designed to enable service providers to dynamically manage their networks, prioritize traffic, and prevent network disruptions.
     Under the terms of the merger, we acquired 100% of Camiant’s stock, vested stock options and warrants for total cash consideration of $128.9 million, of which $12.5 million was placed into escrow with a third party escrow agent for fifteen months for the satisfaction of potential indemnification claims we have the right to make under the merger agreement. Total cash consideration, net of $2.0 million of cash acquired from Camiant, was $127.0 million.
     The fair values of the assets acquired and liabilities assumed were determined primarily using the income approach, which determines the fair value for the asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money. Projected cash flows for each asset considered multiple factors, including current revenue from existing customers; analysis of expected revenue and attrition trends; reasonable contract renewal assumptions from the perspective of a marketplace participant; expected profit margins giving consideration to marketplace synergies; and required returns to contributory assets.
     The transaction resulted in recording identifiable intangible assets and goodwill at a fair value of $144.2 million as follows (in thousands):
         
Total consideration
  $ 128,933  
Less: Camiant tangible net assets acquired
    (11,882 )
Add: Deferred tax liability
    27,121  
 
     
Total fair value of Camiant intangible assets and goodwill
  $ 144,172  
 
     
     The acquisition resulted in the recognition of a deferred tax liability of approximately $27.1 million related to accounting and tax basis differences in the acquired intangible assets. Additionally, in determining the purchase price allocation, liabilities were recorded for existing uncertain tax positions in the aggregate amount of $2.5 million and will be added to our annual tabular reconciliation.

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     The tangible assets and liabilities acquired were as follows (in thousands):
         
Cash and investments
  $ 1,959  
Accounts receivable(1)
    1,862  
Inventories
    350  
Prepaid expenses
    330  
Deferred tax asset
    16,651  
Deferred costs
    655  
Property and equipment, net
    979  
Other long term assets
    22  
 
     
Total tangible assets
    22,808  
Accounts payable and accrued expenses
    (6,682 )
Deferred revenue
    (4,244 )
 
     
Total liabilities
    (10,926 )
 
     
Net tangible assets
  $ 11,882  
 
     
 
(1)   The gross contractual amount of accounts receivable was $2.3 million with the estimated fair value being $1.9 million.
     The remaining purchase price was allocated among the Camiant intangible assets and goodwill acquired based on their estimated fair values determined as discussed above and was as follows (in thousands):
         
Amortizable intangible assets
  $ 69,190  
In-process research and development
    2,180  
Goodwill
    72,802  
 
     
Total fair value of Camiant intangible assets and goodwill
  $ 144,172  
 
     
     This purchase price allocation is preliminary as we are in the process of gathering certain information that may affect the value of the acquired tax attributes of Camiant, which would require an adjustment with the offset recorded in goodwill. We expect to finalize these matters in 2010.
     Based on the purchase price allocation, $2.2 million of the purchase price represented research and development activities (“IPR&D”) that had not yet reached technological feasibility. IPR&D is considered an indefinite lived intangible asset until the completion or abandonment of the associated research and development efforts. Prior to completion or abandonment, we will not record amortization but will test for impairment in accordance with the authoritative guidance for intangibles and goodwill. Upon completion or abandonment, we will determine the useful life of the assets and record amortization expense over this useful life. During the third quarter of 2010, the completion of the underlying development was achieved with respect to certain projects previously categorized as IPR&D with indefinite lives. This resulted in a transfer of $1.7 million from IPR&D with indefinite lives acquired in this transaction to purchased technology.
     The identifiable amortizable intangible assets created as a result of the acquisition will be amortized over the greater of the straight line method or a manner that better reflects the utilization of their economic benefit (e.g., the estimated customer attrition rates).
                 
            Estimated
    Asset     Weighted
    Amount     Average Life
    (in thousands)     in Years
Existing technology
  $ 44,000       5  
Customer relationships
    13,000       5  
Contract backlog
    6,900       1.5  
Non-compete agreements
    4,090       2  
Trademarks and trade names
    1,200       3  
 
             
 
  $ 69,190       4.4  
 
             

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     As noted above, the primary asset acquired from Camiant was the core technology used in the policy management solution. In addition, we obtained the significant expertise of Camiant’s management and technical employees. These factors contributed to a purchase price in excess of fair market value of Camiant’s net tangible and intangible assets acquired, and, as a result, we have recorded goodwill in the amount of $72.8 million in connection with this transaction. The goodwill and the identifiable amortizable intangible assets are not deductible for income tax purposes.
Acquisition of Blueslice
     On May 5, 2010 we completed the acquisition of all issued and outstanding shares of capital stock of Blueslice, a provider of next generation subscriber data management solutions, through a share purchase agreement with Tekelec Canada Inc., our wholly-owned subsidiary, and the various owners of all of the issued and outstanding shares of capital stock of Blueslice. The aggregate purchase price of $35.0 million consisted of (i) aggregate cash of approximately $33.5 million paid to Blueslice stockholders and/or their designees, and (ii) the payment of indebtedness of Blueslice in the amount of $1.5 million. Upon the closing of the transaction, $5.0 million of this consideration was placed in escrow with a third party escrow agent for fifteen months for the satisfaction of potential indemnification claims we have the right to make under the share purchase agreement. Blueslice’s solution centralizes cross-domain subscriber information in a back-end database, supporting multiple front-end applications, including our next-generation Home Location Register, Home Subscriber Server, SIP Application Server, and AAA Server.
     The fair values of the assets acquired and liabilities assumed were determined primarily using the income approach, which determines the fair value for the asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return that reflects the relative risk of achieving the cash flow and the time value of money. Projected cash flows for each asset considered multiple factors, including current revenue from existing customers; analysis of expected revenue and attrition trends; reasonable contract renewal assumptions from the perspective of a marketplace participant; expected profit margins giving consideration to marketplace synergies; and required returns to contributory assets.
     The transaction resulted in recording intangible assets and goodwill at a fair value of $36.8 million as follows (in thousands):
         
Total consideration
  $ 34,979  
Less: Blueslice tangible net assets acquired
    (2,331 )
Add: Deferred tax liability
    4,105  
 
     
Total fair value of Blueslice intangible assets and goodwill
  $ 36,753  
 
     
     The acquisition resulted in the recognition of a deferred tax liability of approximately $4.1 million related to accounting and tax basis differences in the acquired intangible assets. Additionally, in determining the purchase price allocation, liabilities were recorded for existing uncertain tax positions in the amount of $4.0 million and will be added to our annual tabular reconciliation.
     The tangible assets and liabilities acquired were as follows (in thousands):
         
Accounts receivable(1)
  $ 1,425  
Inventories
    14  
Prepaid expenses and other current assets
    2,525  
Deferred tax asset
    194  
Deferred costs
    276  
Other current assets
    52  
Property and equipment, net
    86  
Other long term assets
    9  
 
     
Total tangible assets
    4,581  
Accounts payable and accrued expenses
    (845 )
Deferred revenue
    (1,405 )
 
     
Total liabilities
    (2,250 )
 
     
Net tangible assets
  $ 2,331  
 
     

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(1)   The gross contractual amount of accounts receivable was $1.5 million with the estimated fair value being $1.4 million.
     The remaining purchase price was allocated among the Blueslice identifiable intangible assets and goodwill acquired based on their estimated fair values determined as discussed above and was as follows (in thousands):
         
Amortizable intangible assets
  $ 13,930  
In-process research and development
    730  
Goodwill
    22,093  
 
     
Total fair value of Blueslice intangible assets and goodwill
  $ 36,753  
 
     
     Based on the purchase price allocation, $0.7 million of the purchase price represented research and development activities (“IPR&D”) that had not yet reached technological feasibility at the date of acquisition and, therefore was considered an indefinite lived intangible asset accounted for as discussed above. During the third quarter of 2010, the completion of the underlying development was achieved with respect to certain IPR&D projects previously categorized as IPR&D with indefinite lives. This resulted in a transfer of $0.3 million from IPR&D with indefinite lives acquired in this transaction to purchased technology.
     The identifiable amortizable intangible assets created as a result of the acquisition will be amortized over the greater of the straight line method or a manner that better reflects the utilization of their economic benefit (e.g., the estimated customer attrition rates).
                 
            Estimated  
    Asset     Weighted  
    Amount     Average Life  
    (in thousands)     in Years  
Existing technology
  $ 11,900       5  
Customer relationships
    1,100       5  
Contract backlog
    600       1  
Non-compete agreements
    290       2  
Trademarks and trade names
    40       3  
 
             
 
  $ 13,930       4.8  
 
             
     As noted above, the primary asset acquired from Blueslice was the core technology used in the subscriber data management solution. In addition, we obtained the significant expertise of Blueslice’s technical employees, which we believe we will be able to leverage in maximizing the benefit of the acquired technology and in assisting us with the development of new technologies. These factors contributed to a purchase price in excess of the fair market value of Blueslice’s net tangible and intangible assets acquired, and, as a result, we have recorded goodwill in the amount of $22.1 million in connection with this transaction. The goodwill and the identifiable amortizable intangible assets are not deductible for income tax purposes.
Select Pro-Forma Financial Information
     The following represents our unaudited condensed pro-forma financial results as if the acquisitions of Camiant and Blueslice had occurred as of the beginning of the earliest period presented. Unaudited condensed pro-forma results are based upon accounting estimates and judgments that we believe are reasonable. The condensed pro-forma results are not necessarily indicative of the actual results of our operations had the acquisitions occurred at the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. For example, included in these pro-forma results is the estimated impact of intangible asset amortization and other acquisition-related expenses on the three and nine months ended September 30, 2009 periods. Based on the estimated useful lives of certain intangible assets and how the acquisition-related

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expenses are estimated to be incurred, pro-forma amounts presented in the table below for the three and nine months ended September 30, 2010 include less expense related to these items than our actual results for the same periods.
                                 
    Three Months   Nine Months
    Ended   Ended
    September 30,   September 30,
    2010   2009   2010   2009
    (in thousands, except per share amounts)
Revenues
  $ 108,305     $ 119,159     $ 342,269     $ 358,971  
Net Income
  $ 2,456     $ 3,589     $ 22,415     $ 17,743  
Basic earnings per share
  $ 0.04     $ 0.05     $ 0.33     $ 0.27  
Diluted earnings per share
  $ 0.04     $ 0.05     $ 0.33     $ 0.26  
     Our actual operating results for the three and nine months ended September 30, 2010 included revenues and net loss from the acquired businesses as follows (in thousands):
                         
    Three Months Ended September 30, 2010
    Camiant   Blueslice   Total
Revenues
  $ 5,794     $ 374     $ 6,168  
Net loss
  $ (6,102 )   $ (2,698 )   $ (8,799 )
                         
    Nine Months Ended September 30, 2010
    Camiant   Blueslice   Total
Revenues
  $ 6,689     $ 762     $ 7,451  
Net loss
  $ (9,596 )   $ (4,320 )   $ (13,916 )
     Included in our actual operating results for the three and nine months ended September 30, 2010 is $5.1 million and $8.3 million, respectively, of after tax amortization related to acquired intangible assets.
Cash and Stock-Based Compensation Expense Related to Acquisitions
     In connection with the acquisition of Camiant, we assumed unvested options to purchase Camiant’s stock, which were converted into the right to receive an aggregate cash amount of $5.2 million. These rights will vest quarterly according to the original terms and vesting schedules of the options, and contingent upon individual employees’ continued employment with us. Payments will be made quarterly in arrears until such time as the rights are fully vested. The majority of the rights will vest by the end of 2014.
     In connection with the acquisition of Blueslice, we (i) entered into agreements with certain Blueslice employees under which we agreed to pay an aggregate cash amount of $1.5 million based on each employee’s completion of individual integration milestones, and (ii) granted, performance-based restricted stock units, with an estimated fair value at the date of the grant of approximately $2.0 million, to certain Blueslice employees. The performance-based restricted stock units will be earned based on an individual employee’s achievement of individual integration milestones, and thereafter will vest in four equal annual installments based on an individual employee’s continued employment with us.
     The liability related to the above cash compensation arrangements is recorded under the “Accrued compensation and related expenses” heading in the accompanying unaudited condensed consolidated balance sheet.

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     The following table shows the cash and equity compensation expense recognized in the three and nine months ended September 30, 2010 related to the agreements discussed above (in thousands):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30, 2010     September 30, 2010  
Camiant cash compensation expense in lieu of unvested options
  $ 1,045     $ 1,650  
Blueslice cash compensation expense
    954       1,445  
Blueslice stock-based compensation expense
    348       482  
 
           
 
  $ 2,347     $ 3,577  
 
           
     We may be required to recognize future compensation expense pursuant to the above agreements of up to $5.1 million.
Note 3 — Restructuring and Other Costs
     The following table provides a summary of our restructuring activities and the remaining obligations as of September 30, 2010 (in thousands):
         
    Severance  
    Costs and  
    Related  
    Benefits  
Restructuring obligations, December 31, 2009
  $ 3,107  
Cash payments
    (1,536 )
Effect of exchange rate changes
    (92 )
 
     
Restructuring obligations, September 30, 2010
  $ 1,479  
 
     
     Restructuring obligations are included in “Accrued expenses” in the accompanying unaudited condensed consolidated balance sheets. We anticipate settling our remaining severance obligations during 2010. This is based on our current best estimate, which could change if actual activity differs from what is currently expected.
Note 4 — Other Income and Expense
     The components of “Other expense, net” were as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Interest income
  $ 28     $ 282     $ 297     $ 916  
Interest expense
    (64 )     (67 )     (185 )     (179 )
Impairment of investment in privately held company
          (10,829 )           (13,587 )
Gain on investments carried at fair value, net
          288       118       1,723  
Foreign currency loss, net
    (790 )     (628 )     (2,230 )     (1,332 )
Other, net
    (247 )     288       (932 )     (828 )
 
                       
Total other expense, net
  $ (1,073 )   $ (10,666 )   $ (2,932 )   $ (13,287 )
 
                       
Note 5 — Fair Value of Financial Instruments
Recurring Measurements
     We measure certain financial assets and liabilities at fair value on a recurring basis. The fair value of our cash, cash equivalents, accounts receivable and accounts payable approximate their respective carrying amounts

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based on the liquidity and short-term nature of these instruments. The following table sets forth our financial instruments carried at fair value as of September 30, 2010 and December 31, 2009 (in thousands):
                 
    Financial Instruments  
    Carried at Fair Value  
    September 30,     December 31,  
    2010     2009  
Assets:
               
Cash and cash equivalents
  $ 222,715     $ 277,259  
Trading securities
          81,788  
Put right
          11,069  
 
           
Total assets
  $ 222,715     $ 370,116  
 
           
     The fair value of our financial instruments as of September 30, 2010 is based on quoted prices in active markets for identical items and falls under Level 1 of the fair value hierarchy as defined in the authoritative guidance.
     During the three months ended September 30, 2010, none of our financial assets fell into the Level 3 category of the fair value hierarchy. The following tables set forth a summary of changes in the fair value of our Level 3 financial assets for the nine months ended September 30, 2010 (in thousands):
                 
    Level 3  
    Financial Assets  
    Auction Rate     Put  
    Securities     Right  
Balance, December 31, 2009
  $ 81,788     $ 11,069  
Transfers to Level 3
           
Purchases and receipts
           
Redemptions
    (92,975 )      
Realized gain on sales
           
Gains (losses) on securities held at period end or redeemed (1)
    11,187       (11,069 )
 
           
Balance, September 30, 2010
  $     $  
 
           
 
(1)   Included in Other expense, net in the accompanying unaudited consolidated condensed statements of operations.
Trading Securities and Put Right
     As of December 31, 2009, we held $81.8 million of Auction Rate Securities (“ARS”) recorded at fair value, which represented a decline of $11.2 million below our cost basis, and an associated UBS Put right (the “Put right”), recorded at an estimated fair value of $11.1 million. Prior to and throughout the second quarter of 2010, issuers called certain securities which reduced the investment in our ARS portfolio. On June 30, 2010, we exercised our Put right requiring UBS to purchase the remaining balance of our ARS portfolio at par value plus accrued interest. As a result of the issuer calls and our exercise of the Put right, we received cash proceeds of $79.6 million during the second quarter of 2010, resulting in the liquidation of our ARS portfolio.
     Derivative Instruments
     Our derivative instruments, which consist primarily of foreign currency forward contracts, are recognized as assets or liabilities at fair value. These forward contracts are not formally designated as hedges. The fair value of these contracts is based on market prices for comparable contracts. Our foreign currency forward contracts are structured to expire on the last day of each quarter, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends. Because of the short duration of these contracts, their fair value was not significant as of September 30, 2010 and December 31, 2009.

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Nonrecurring Measurements
     We measure certain assets, accounted for under the cost method (such as our former investments in privately held companies), at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other than temporarily impaired.
     During the second and third quarters of 2009, we recorded impairment charges of $2.8 million and $10.8 million, respectively, related to our investment in a privately held company. These charges, which are included in “Other expense, net,” represented the difference between our $15.0 million cost basis in this investment and its then estimated fair value of $1.4 million as of September 30, 2009, as we deemed the decline in the value of this asset to be other-than-temporary. In the fourth quarter of 2009, we sold our investment for its adjusted carrying value of $1.4 million.
     We measure the fair value of our nonfinancial assets and liabilities, including but not limited to, intangible assets, goodwill and restructuring obligations accounted for under the authoritative guidance for exit or disposal cost obligations. We perform our annual impairment test for goodwill on October 1st of each fiscal year and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangible assets and goodwill. As of the end of the third quarter of 2010, the results of our annual impairment test did not indicate the goodwill was impaired, nor were there any other known triggering events that would indicate a potential impairment of the goodwill. Nothing has come to our attention that would require us to perform an impairment test of our intangible assets during the first nine months of 2010. Accordingly, as of September 30, 2010, we do not have any required non-recurring measurement disclosures for these nonfinancial assets.
Note 6 — Derivative Instruments and Hedging Activities
     We operate internationally and thus are exposed to potential adverse changes in currency exchange rates. We use derivative instruments (principally forward contracts to exchange foreign currency) as a means of reducing our exposure to foreign currency rate changes on receivables and other net monetary assets denominated in foreign currencies. The foreign currency forward contracts require us to exchange currencies at rates agreed upon at the contract’s inception. In addition to these foreign exchange contracts, certain of our customer contracts contain provisions that require our customers to assume the foreign currency exchange risk related to the applicable transactions. The objective of these contracts is to reduce or eliminate, and efficiently manage, the economic impact of currency exchange rate movements on our operating results as effectively as possible. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses on the related contracts.
     Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. We do not designate our foreign currency exchange contracts as accounting hedges as defined by authoritative guidance for derivatives and hedging, and, accordingly, we adjust these contracts to fair value through operations (i.e., included in “Other income (expense), net”). We do not hold or issue financial instruments for speculative or trading purposes.
     We continually monitor our exposure to fluctuations in foreign currency exchange rates. As we have expanded internationally, an increasing proportion of our revenues, costs and operating expenses are denominated in foreign currencies, resulting in an increase in our foreign currency exchange rate exposure. We enter into multiple forward contracts throughout a given month to mitigate our changing exposure to foreign currency exchange rate fluctuations principally related to receivables generated from sales denominated in foreign currencies and our remeasurements of international subsidiaries. Our exposure fluctuates as we generate new sales in foreign currencies and as existing receivables related to sales in foreign currencies are collected. Additionally, our exposure related to remeasurements of our subsidiaries’ financial statements fluctuates with the underlying activity in those entities. Our foreign currency forward contracts generally will have terms of one month or less and typically mature on the last day of any given period. We then immediately enter into new foreign currency forward contracts, if necessary.

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     The following table shows the notional contract values in local currency and U.S. Dollars of the foreign exchange forward contracts outstanding as of September 30, 2010, grouped by the underlying foreign currency:
                         
    Contracts Outstanding as of September 30, 2010  
    In Local Currency     In US Dollars  
Euros (“EUR”) (contracts to buy EUR/sell US$)
  (EUR)     (35,125,000 )   $ (48,440,888 )
Indian rupees (“INR”) (contracts to sell INR/buy US$)
  (INR)     312,419,000       6,971,556  
Canadian dollars (“CAD”) (contracts to sell CAD/buy US$)
  (CAD)     423,000       414,421  
Singapore dollars (“SGD”) (contracts to buy SGD/sell US$)
  (SGD)     (505,000 )     (385,202 )
Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$)
  (MYR)     5,763,000       1,858,912  
Australian dollars (“AUD”) (contracts to sell AUD/buy US$)
  (AUD)     106,000       102,990  
British pound (“GBP”) (contracts to sell GBP/buy US$)
  (GBP)     116,000       184,127  
Brazilian reais (“BRL”) (contracts to sell BRL/buy US$)
  (BRL)     9,634,000       5,459,942  
Taiwan dollars (“TWD”) (contracts to sell TWD/buy US$)
  (TWD)     287,000       9,199  
 
                     
Total
                  $ (33,824,943 )
 
                     
     The following tables show the average notional contract value in the underlying currency and U.S. Dollars of foreign exchange forward contracts outstanding during the three and nine months ended September 30, 2010, grouped by the underlying foreign currency:
                         
    Average Contracts Outstanding  
    during the three months ended September 30, 2010  
    In Local Currency     In US Dollars  
Euros (“EUR”) (contracts to buy EUR/sell US$)
  (EUR)     (30,069,319 )   $ (38,376,450 )
Indian rupees (“INR”) (contracts to sell INR/buy US$)
  (INR)     423,764,066       9,011,228  
British pound (“GBP”) (contracts to sell GBP/buy US$)
  (GBP)     36,626       56,917  
Singapore dollars (“SGD”) (contracts to sell SGD/buy US$)
  (SGD)     323,000       236,251  
Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$)
  (MYR)     5,751,769       1,800,710  
Australian dollars (“AUD”) (contracts to sell AUD/buy US$)
  (AUD)     436,462       380,953  
Canadian dollars (“CAD”) (contracts to sell CAD/buy US$)
  (CAD)     1,503,604       1,431,100  
Brazilian reais (“BRL”) (contracts to sell BRL/buy US$)
  (BRL)     6,245,297       3,516,861  
 
                     
Total
                  $ (21,942,430 )
 
                     
                         
    Average Contracts Outstanding  
    during the nine months ended September 30, 2010  
    In Local Currency     In US Dollars  
Euros (“EUR”) (contracts to buy EUR/sell US$)
  (EUR)     (27,098,719 )   $ (35,824,317 )
Indian rupees (“INR”) (contracts to sell INR/buy US$)
  (INR)     417,429,416       8,991,454  
British pound (“GBP”) (contracts to sell GBP/buy US$)
  (GBP)     136,248       207,895  
Singapore dollars (“SGD”) (contracts to sell SGD/buy US$)
  (SGD)     330,788       238,217  
Malaysian ringgits (“MYR”) (contracts to sell MYR/buy US$)
  (MYR)     5,831,828       1,772,470  
Australian dollars (“AUD”) (contracts to sell AUD/buy US$)
  (AUD)     457,135       406,943  
Canadian dollars (“CAD”) (contracts to sell CAD/buy US$)
  (CAD)     1,050,901       996,429  
Brazilian reais (“BRL”) (contracts to sell BRL/buy US$)
  (BRL)     8,343,518       4,602,243  
 
                     
Total
                  $ (18,608,666 )
 
                     
     As of September 30, 2010, all of our derivative instruments are maintained with Wells Fargo Bank and potentially subject us to a concentration of credit risk, which may result in credit related losses in the event of the bank’s nonperformance. We mitigate this risk by monitoring Wells Fargo’s credit ratings published by major rating firms (Fitch, Standard & Poor’s, and Moody’s). In addition, we monitor Wells Fargo’s Credit Default Swap spread on a quarterly basis to assess the bank’s default risk relative to its peers.
     As discussed above, our foreign currency forward contracts are structured to expire on the last day of the accounting period, and we immediately enter into new contracts if necessary. Therefore, our derivative

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instruments outstanding at period end are outstanding less than one full day when the reporting period ends, and, accordingly, their fair value was not significant as of September 30, 2010 and December 31, 2009.
     The tables below provide a summary of the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009 (in thousands):
                         
            Amount of Gain or (Loss)  
            Recognized in Results  
    Location of Gain or (Loss)     of Operations  
Derivatives Not Designated   Recognized in Results     Three months ended September 30,  
as Hedging Instruments   of Operations     2010     2009  
Foreign currency forward contracts
  Other expense, net   $ 2,568     $ (986 )
                         
            Amount of Loss  
            Recognized in Results  
    Location of Loss     of Operations  
Derivatives Not Designated   Recognized in Results     Nine months ended September 30,  
as Hedging Instruments   of Operations     2010     2009  
Foreign currency forward contracts
  Other expense, net   $ (2,498 )   $ (814 )
     The above gains or losses on the derivative instruments include the cost of entering into the contracts (i.e. forward points), and are generally offset or partially offset by a corresponding foreign currency gain or loss on the underlying hedged transaction (e.g., customer accounts receivable). The gain or loss on both the derivative instrument and the corresponding hedged transaction are reflected in “Other expense, net” in the accompanying unaudited condensed consolidated statements of operations.
Note 7 — Financial Statement Details
Accounts Receivable, net
     Accounts receivable, net consists of the following (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Accounts receivable
  $ 151,584     $ 165,572  
Less: Allowance for doubtful accounts and sales returns
    9,644       8,203  
 
           
 
  $ 141,940     $ 157,369  
 
           
Inventories
     Inventories consist of the following (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Raw materials
  $ 22,253     $ 16,367  
Work in process
    2       132  
Finished goods
    4,199       6,854  
 
           
Total inventories
  $ 26,454     $ 23,353  
 
           

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Warranty liability reserve
     An analysis of changes in the liability for product warranty costs for the three and nine months ended September 30, 2010 is as follows (in thousands):
         
Balance at June 30, 2010
  $ 2,862  
Provision, net
    (958 )
Expenditures
    (140 )
 
     
Balance at September 30, 2010
  $ 1,764  
 
     
 
       
Balance at December 31, 2009
  $ 3,592  
Provision, net
    (1,305 )
Expenditures
    (523 )
 
     
Balance at September 30, 2010
  $ 1,764  
 
     
     During the first nine months of 2009, we incurred a $5.0 million warranty charge related to a specific product issue. Based on actual results in resolving the issue, we have subsequently updated our estimates and have reduced the warranty accrual in 2010 by approximately $1.3 million, with the majority of this reduction occurring in the third quarter of 2010.
Note 8 —Intangible Assets and Goodwill
Intangible Assets
     The following table represents the details of intangible assets (in thousands):
                         
            Accumulated        
September 30, 2010   Gross     Amortization     Net  
Intangible assets with finite lives:
                       
Purchased technology
  $ 100,630     $ (25,130 )   $ 75,500  
Customer relationships
    18,800       (2,812 )     15,988  
Contract backlog
    7,500       (3,916 )     3,584  
Non-compete agreements
    4,380       (868 )     3,512  
Trademarks and trade names
    1,240       (164 )     1,076  
 
                 
Gross intangible assets with finite lives
    132,550       (32,890 )     99,660  
Effect of exchange rate changes
    (20 )     (234 )     (254 )
 
                 
Total intangible assets with finite lives
    132,530       (33,124 )     99,406  
 
                       
IPR&D, with indefinite lives
    900             900  
 
                 
Total intangible assets
  $ 133,430     $ (33,124 )   $ 100,306  
 
                 
                         
            Accumulated        
December 31, 2009   Gross     Amortization     Net  
Intangible assets with finite lives:
                       
Purchased technology
  $ 42,490     $ (15,933 )   $ 26,557  
Customer relationships
    5,730       (2,009 )     3,721  
 
                 
Gross intangible assets with finite lives
    48,220       (17,942 )     30,278  
Effect of exchange rate changes
    1,079       (340 )     739  
 
                 
Total intangible assets with finite lives
    49,299       (18,282 )     31,017  
 
                 
Total intangible assets
  $ 49,299     $ (18,282 )   $ 31,017  
 
                 
     Under recently revised accounting guidance for business combinations, IPR&D is capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment until completion of the underlying development. Upon the completion of the underlying development, the capitalized IPR&D asset will be amortized

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over its estimated useful life. Prior to the adoption of the revised accounting guidance, IPR&D was expensed upon acquisition.
     During the third quarter of 2010, the completion of the underlying development was achieved with respect to certain IPR&D projects previously categorized as IPR&D with indefinite lives, and $2.0 million was transferred from IPR&D with indefinite lives to purchased technology with an estimated useful life of five years.
     The estimated future amortization expense of purchased intangible assets with finite lives as of September 30, 2010 is as follows:
         
For the Years Ending December 31,        
2010 (remaining three months)
  $ 7,731  
2011
    30,111  
2012
    22,140  
2013
    16,784  
2014
    16,335  
Thereafter
    6,305  
 
     
Total
  $ 99,406  
 
     
Goodwill
     As required by the authoritative guidance for intangibles and goodwill, we do not amortize our goodwill balances, but instead test our goodwill for impairment annually on October 1st and more frequently upon the occurrence of certain events in accordance with the provisions of the authoritative guidance for intangibles and goodwill. As of the end of the third quarter of 2010, the results of our annual impairment test did not indicate the goodwill was impaired, nor were there any other known triggering events that would indicate a potential impairment of the goodwill.
     The changes in the carrying amount of goodwill for the nine months ended September 30, 2010 are as follows (in thousands):
         
Balance at December 31, 2009
  $ 42,102  
Addition due to the acquisition of Camiant
    72,802  
Addition due to the acquisition of Blueslice
    22,093  
Effect of exchange rate changes
    (854 )
 
     
Balance at September 30, 2010
  $ 136,143  
 
     
Note 9 — Income Taxes
     As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pretax income can impact our effective tax rate or income taxes as a percentage of pretax income (the “Effective Rate”). This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets.
     Tax liabilities can involve complex issues and may require an extended period to resolve. To the extent that the recovery of deferred tax assets does not reach the threshold of “more likely than not” based on our estimate of future taxable income in each jurisdiction, a valuation allowance is established. While we have considered future taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, we would charge to income tax expense an adjustment resulting from the establishment of a valuation allowance in the period in which such a determination was made.
     We conduct business globally, and as a result, one or more of our subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. During 2008, the Internal Revenue Service (“IRS”) completed an

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examination of tax years 2004 through 2006; therefore, our U.S. federal income tax returns for tax years prior to 2007 are generally no longer subject to adjustment. For our U.S. state tax returns, we are generally no longer subject to examination of tax years prior to 2007 in our primary state tax jurisdictions. Our foreign income tax returns are generally no longer subject to examination for tax periods 2003 and prior.
     With respect to tax years that remain open to federal, state and foreign examination, we believe that we have made adequate provision in the accompanying unaudited condensed consolidated financial statements for any potential adjustments the IRS or other taxing authority may propose with respect to income tax returns filed. We may, however, receive an assessment related to an audit of our U.S. federal, state or foreign income tax returns that exceeds amounts provided for by us. In the event of such an assessment, there exists the possibility of a material adverse impact on our results of operations for the period in which the matter is ultimately resolved or an unfavorable outcome is determined to be more likely than not to occur.
     For the three and nine months ended September 30, 2010 our effective tax rate was 80% and 29%, respectively. The effective rate for the three months ended September 30, 2010 differs from the statutory rate of 35% primarily due to (i) a higher percentage of our projected income for the full year being derived from international locations with lower tax rates than the U.S., (ii) the cumulative effect of reducing our full year estimated effective tax rate as a result of the shift of income to lower tax jurisdictions discussed in item (i), offset by (iii) $0.3 million related to accounting for stock-based compensation under the authoritative guidance. While the impact in terms of absolute dollars of shifting additional income to jurisdictions with lower tax rates was insignificant, due to the low amount of taxable income this shift had a disproportional impact on our overall effective tax rate, resulting in the unusually high effective tax rate of 80% during the third quarter of 2010.
     For the nine months ended September 30, 2010, the effective rate differs from the statutory rate of 35% primarily due to the international impact and discrete items discussed above as well as a discrete tax benefit of $1.0 million recognized as the result of certain amended state tax filings, offset by tax expense resulting from nondeductible expenses related to our acquisitions of Camiant and Blueslice and incurred during the second quarter of 2010.
     For the three and nine months ended September 30, 2009, our effective tax rates were 13% and 31% respectively. The effective tax rate for the three months ended September 30, 2009 of 13% differs from the statutory tax rate of 35% primarily due to (i) recognition of a discrete tax benefit of $0.9 million resulting from the filing of our 2008 federal income tax return and (ii) the discrete reversal of a valuation allowance of $1.0 million as a result of a previously unrealized capital loss resulting from the impairment of our investment in a privately held company in the second quarter of 2009.
     The effective tax rate for the nine months ended September 30, 2009 of 31% differs from the statutory tax rate of 35% primarily due to the items discussed above with respect to the three months ended September 30, 2009, as well as the recognition of certain previously unrecognized tax benefits of approximately $0.9 million associated with the settlement of two state examinations for tax years 2004 through 2006 during the first quarter of 2009.
     As a result of the acquisitions of Camiant and Blueslice, during the second quarter, liabilities were established in the amount of $6.5 million related to existing uncertain tax positions. These liabilities were recorded through purchase accounting and therefore impacted the level of goodwill recorded as a result of the transactions. These liabilities will be reflected in our annual tabular reconciliation for fiscal year 2010.
     We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs.

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Note 10 — Commitments and Contingencies
Indemnities, Commitments and Guarantees
     In the normal course of our business, we provide certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include, among others, intellectual property indemnities to our customers in connection with the sale of our products and licensing of our technology, indemnities for liabilities associated with the infringement of other parties’ technology based upon our products and technology, guarantees of timely performance of our obligations, indemnities related to the reliability of our equipment, and indemnities to our directors and officers to the maximum extent permitted by law. The duration of these indemnities, commitments and guarantees varies, and, in certain cases, is indefinite. Many of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that we could be obligated to make. We have not recorded a liability for these indemnities, commitments or guarantees in the accompanying balance sheets because future payment is not probable.
     From time to time, various claims and litigation are asserted or commenced against us arising from or related to contractual matters, intellectual property matters, product warranties and personnel and employment disputes. As to such claims and litigation, we can give no assurance that we will prevail. However, we currently do not believe that the ultimate outcome of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 11 Stock-Based Compensation
Stock-Based Compensation Expense
     Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009 is as follows (in thousands):
                         
    Option and              
    SAR Grants              
    and Stock              
    Purchase              
Income Statement Classifications   Rights     RSUs     Total  
Three months ended September 30, 2010
                       
Cost of goods sold
  $ 70     $ 313     $ 383  
Research and development
    55       429       484  
Sales and marketing
    110       993       1,103  
General and administrative
    218       783       1,001  
 
                 
Total
  $ 453     $ 2,518     $ 2,971  
 
                 
 
                       
Three months ended September 30, 2009
                       
Cost of goods sold
  $ 88     $ 199     $ 287  
Research and development
    89       262       351  
Sales and marketing
    193       660       853  
General and administrative
    536       1,275       1,811  
 
                 
Total
  $ 906     $ 2,396     $ 3,302  
 
                 

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    Option and              
    SAR Grants              
    and Stock              
    Purchase              
Income Statement Classifications   Rights     RSUs     Total  
Nine months ended September 30, 2010
                       
Cost of goods sold
  $ 226     $ 822     $ 1,048  
Research and development
    199       1,025       1,224  
Sales and marketing
    329       2,453       2,782  
General and administrative
    891       3,969       4,860  
 
                 
Total
  $ 1,645     $ 8,269     $ 9,914  
 
                 
 
                       
Nine months ended September 30, 2009
                       
Cost of goods sold
  $ 312     $ 473     $ 785  
Research and development
    611       787       1,398  
Sales and marketing
    599       1,790       2,389  
General and administrative
    1,788       3,915       5,703  
 
                 
Total
  $ 3,310     $ 6,965     $ 10,275  
 
                 
     Stock-based compensation expense was recorded net of estimated forfeitures for the three and nine months ended September 30, 2010 and 2009 such that expense was recorded only for those stock-based awards that are expected to vest.

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Note 12 — Operating Segment Information
     We consider ourselves to be in a single reportable segment under the authoritative guidance for segment reporting, specifically the development and sale of signaling and session management telecommunications and related value added applications and services.
Enterprise-Wide Disclosures
     The following table sets forth, for the periods indicated, revenues from external customers by our principal product lines (in thousands):
                 
    For the Three Months Ended  
    September 30,  
    2010     2009  
Product revenues:
               
Eagle, number portability, and other session management products
  $ 62,496     $ 64,687  
Performance management products
    5,213       15,729  
 
           
Total product revenues
    67,709       80,416  
Warranty revenues
    23,020       21,424  
Professional and other services revenues
    17,576       13,074  
 
           
Total revenues
  $ 108,305     $ 114,914  
 
           
                 
    For the Nine Months Ended  
    September 30,  
    2010     2009  
Product revenues:
               
Eagle, number portability, and other session management products
  $ 196,929     $ 207,811  
Performance management products
    22,208       30,793  
 
           
Total product revenues
    219,137       238,604  
Warranty revenues
    63,713       63,505  
Professional and other services revenues
    50,953       43,646  
 
           
Total revenues
  $ 333,803     $ 345,755  
 
           
                                 
    Revenues from External Customers  
    By Geographic Region  
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
United States
  $ 44,638     $ 46,596     $ 125,261     $ 133,999  
International
    63,667       68,318       208,542       211,756  
 
                       
Total revenues from external customers
  $ 108,305     $ 114,914     $ 333,803     $ 345,755  
 
                       
     For the three months ended September 30, 2010, sales to AT&T and Verizon represented 22% and 10% of our revenues, respectively. For the nine months ended September 30, 2010, sales to AT&T represented 17% of our revenues.
     For the three months ended September 30, 2009, sales to the Orange Group accounted for 21% of our revenues, sales to AT&T accounted for 19% of our revenues, and sales to Verizon accounted for 11% of our revenues. For the nine months ended September 30, 2009, sales to AT&T, Orange Group and Carso Global Telecom accounted for 15%, 12%, and 11% of our revenues, respectively.
     For the three and nine months ended September 30, 2010, revenues from India accounted for 14% and 12%, respectively, of our revenues. For the three and nine months ended September 30, 2009, revenues from India accounted for 5% and 6%, respectively, of our revenues.

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     The following table sets forth, for the periods indicated, our long-lived assets including net property and equipment, and other assets by geographic region (in thousands):
                 
    Long-Lived Assets  
    By Geographic Region  
    September 30,     December 31,  
    2010     2009  
United States
  $ 31,370     $ 29,587  
Other
    7,952       7,341  
 
           
Total long-lived assets
  $ 39,322     $ 36,928  
 
           
Note 13 — Earnings (Loss) Per Share
     The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations for the three and nine months ended September 30, 2010 and 2009 (in thousands, except per share amounts):
                         
    Income from              
    Operations     Shares     Per-Share  
    (Numerator)     (Denominator)     Amount  
For the Three Months Ended September 30, 2010:
                       
Basic loss from operations per share
  $ (134 )     68,526     $  
Effect of dilutive securities
                   
 
                   
Diluted loss from operations per share
  $ (134 )     68,526     $  
 
                   
 
                       
For the Three Months Ended September 30, 2009:
                       
Basic income from operations per share
  $ 9,401       67,215     $ 0.14  
Effect of dilutive securities
          807          
 
                   
Diluted income from operations per share
  $ 9,401       68,022     $ 0.14  
 
                   
 
                       
For the Nine Months Ended September 30, 2010:
                       
Basic income from operations per share
  $ 23,006       68,179     $ 0.34  
Effect of dilutive securities
          677          
 
                   
Diluted income from operations per share
  $ 23,006       68,856     $ 0.33  
 
                   
 
                       
For the Nine Months Ended September 30, 2009:
                       
Basic income from operations per share
  $ 31,519       66,748     $ 0.47  
Effect of dilutive securities
          717          
 
                   
Diluted income from operations per share
  $ 31,519       67,465     $ 0.47  
 
                   

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     The computation of diluted earnings (loss) per share excludes unexercised stock options and share appreciation rights (“SARs”), and unvested restricted stock units that are anti-dilutive. The following common stock equivalents were excluded from the earnings (loss) per share computation, as their inclusion would have been anti-dilutive (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Weighted average number of stock options, SARs and RSUs, calculated using the treasury stock method, that were excluded due to the exercise/threshold price exceeding the average market price of our common stock during the period
    4,305       4,572       3,972       5,391  
Weighted average number of stock options, SARs and RSUs excluded due to the reporting of a net loss for the period
    334                    
 
                       
Total common stock equivalents excluded from diluted net income (loss) per share computation
    4,639       4,572       3,972       5,391  
 
                       
     There were no transactions subsequent to September 30, 2010, which, had they occurred prior to the end of our third quarter, would have changed materially the number of shares in the basic or diluted earnings per share computations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2009. Historical results and percentage relationships among any amounts in the unaudited condensed consolidated financial statements are not necessarily indicative of trends in operating results for any future periods.
Overview of Our Business and Products
     We are a leading global provider of communication network software and solutions that enable our customers to effectively and efficiently deliver an array of communications services including voice, text messaging, and broadband data services. Our customers predominantly include mobile (wireless) and fixed (wireline) service providers (collectively, “service providers”), including many of the largest service providers in the world. Our software and solutions are designed to enable our customers to optimize their network efficiency, ensure quality of service and quality of experience, establish network, service and subscriber policies, create unified subscriber identities, and capture additional revenue opportunities. Our solutions generally provide high performance capabilities such as high transaction rates, reliability and routing intelligence, and are designed to enable our customers to address the scalability and complexity issues inherent in the implementation of all-IP networks. Our solutions are comprised of software elements from our portfolio of proprietary software that is increasingly integrated with commercially available hardware, operating systems and database technologies. By taking advantage of advances in technology, such as multi-core processors, virtualization software and browser-based cloud computing, our software and solutions deliver significant processing power, flexibility, and in-memory storage. We believe that our solutions are cost effective for our customers and enable them to provide value to their subscribers.
     We derive our revenues primarily from the sale or license of these network solutions and software applications and related professional services (for example, installation and training services) and customer support services, including customer post-warranty services. Payment terms for contracts with our customers are negotiated with each customer and are based on a variety of factors, including the customer’s credit standing and our history with the customer. As we continue to expand internationally, we expect that our billing and payment terms may lengthen, as a higher percentage of our billing and/or payment terms may be tied to the achievement of milestones, such as shipment, installation and customer acceptance.
     Our corporate headquarters are located in Morrisville, North Carolina, and we have research and development facilities, sales offices and customer support facilities located throughout the world.
Internal Control and Corporate Governance
     We consider our internal control over financial reporting a high priority and continually review all aspects of and make improvements in our internal control. Our executive management is committed to ensuring that our internal control over financial reporting is complete, effective and appropriately documented. In the course of our evaluation of our internal control, we seek to identify material errors or control problems and to confirm that the appropriate corrective actions, including process improvements, are being undertaken. We also seek to deal with any control matters in this evaluation, and in each case if a problem is identified, we consider what revision, improvement or correction to make in accordance with our ongoing procedures. Our continued objective is to maintain our internal control as a set of dynamic systems that change (including improvements and corrections) as conditions warrant.
     In addition to striving to maintain an effective system of internal control over financial reporting, we also strive to follow the highest ethical and professional standards in measuring and reporting our financial performance. Specifically, we have adopted a code of conduct for all of our employees and directors that requires a high level of professionalism and ethical behavior. We believe that our accounting policies are prudent and provide a clear view of our financial performance. We utilize our internal audit function to help ensure that we follow these accounting policies and to independently test our internal control. Further, our Disclosure Committee, composed primarily of senior financial and legal personnel, helps ensure the completeness and accuracy of the

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reporting of our financial results and our other disclosures. In performing its duties, the Disclosure Committee consults with and obtains relevant information from key functional areas such as operations, finance, customer service and sales, including the utilization of an internal certification process that solicits responses from these functional areas. Prior to the release of our financial results, key members of our management review our operating results and significant accounting policies and estimates with our Audit Committee, which consists solely of independent members of our Board of Directors.
Operating Environment and Key Factors Impacting our Results
     Although economic conditions are generally improving around the world, we believe telecommunication service providers have been and will continue to be cautious in their spending for the foreseeable future. This is particularly the case in certain emerging markets, as these markets continue to be disproportionately affected by the current economic conditions.
     Despite these weak economic conditions, we continue to see progress with our next-generation product portfolio, which we define as our performance management, session management applications on Eagle XG, mobile messaging, policy control, and subscriber data management products. As of September 30, 2010, year-to-date orders for these products, including orders associated with products acquired from Camiant and Blueslice, have grown by nearly 50% compared to the same period in 2009. These next generation products now represent nearly 60% of our sales pipeline. We recognize that these products have a longer sales cycle and may have a lower opportunity to order conversion rate than our Eagle 5 products, and our expectations are tempered as a result.
     Despite this progress with our next generation product portfolio, the growth in these products did not offset the decline in our Eagle 5 related products, as orders for this product line continued to experience year-over-year declines on a quarterly, year-to-date, and trailing twelve months basis. Accordingly, the weakness in Eagle 5 related product orders more than offset the growth in our next generation products, resulting in a year-over-year decline in total orders of 14% during the third quarter and 22% on a year-to-date basis. Specifically, our Eagle 5 and other established products orders are down 34% on a year to date basis, a decline that is at a faster rate than we expected and have historically experienced. This decline is observed across all regions, with the majority of the decline occurring within emerging markets, particularly in India, where orders are down 50% on a year-to-date basis.
     In order to understand the trends within our Eagle 5 business, we believe it is important to understand the varying dynamics across geographical regions, particularly between developed and emerging markets. Within developed markets, we are also seeing double digit declines in Eagle 5 related orders due to our customers shifting their attention from investments in their 2G and 3G networks to investments in their next generation networks, such as LTE, along with reduced demand from the slowing growth of voice and text messaging traffic. While the shift in our customers’ focus has accelerated the decline in orders for our Eagle 5 and other established products, it has resulted in a significant increase in demand for our next generation products as evidenced by the growth in orders and our pipeline associated with these products. With respect to our Eagle 5 products, we believe customers have and will continue to limit their investments to only meet their current needs.
     With respect to certain emerging markets, such as the Middle East and Africa, we believe the year-over-year decline in third quarter orders is due in part to the continued cautiousness in spending resulting from the current economic conditions. In addition, orders in Brazil and India are down substantially year-over-year through the first nine months of 2010. With respect to Brazil, we believe the decline is primarily due to timing, as approximately $25.0 million of 2009 orders were accelerated from 2010 into 2009 and we do not expect another similar event to benefit future orders. With respect to India, our largest emerging market, we continue to be impacted both directly and indirectly by India’s security regulations. While the Indian government has put a temporary moratorium on the most restrictive of these regulations, we have only experienced modest order flow during the third quarter. One of the primary drivers for the continued slower order flow in India is related to the impact that these regulations are having on the rollout of 3G and number portability. Specifically, these regulations, among other factors, have resulted in delays in the implementation dates of 3G and number portability. Once deployed, both 3G and number portability typically result in a significant increase in signaling within our customers’ networks. Given the delayed implementation dates, orders that we had previously expected in 2010 are now expected to shift to 2011.
     We are also continuing to experience a shift in the timing of customer orders, such that a substantial majority of orders are obtained in the last weeks of the quarter. We anticipate this trend to continue and, accordingly, we may continue to experience volatility in our quarterly orders, revenues and earnings going forward.

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     In the third quarter of 2010, our revenues declined by 6% from $114.9 million to $108.3 million as compared to the third quarter of 2009, and on a year-to-date basis, our revenues declined by 3%, from $345.8 million in the first nine months of 2009 to $333.8 million in the first nine months of 2010. Historically, a substantial portion of our revenues were derived from existing backlog, and trends in our orders had not been reflected in our revenues in the same period. However, given the recent declines in our orders and resulting backlog, our revenues are beginning to be negatively impacted by the recent trend in orders. Our revenues and operating results may become more sensitive to and more closely follow recent order trends in the future, if our existing backlog continues to decline as a result of several sequential periods with lower than anticipated orders.
     Foreign currency fluctuations had a negative year-over-year impact on third quarter and year-to-date 2010 revenues of approximately $3.0 million and $5.0 million, respectively. Including this impact, our operating results during the third quarter and year-to-date 2010 were negatively impacted by approximately $1.0 million and $4.0 million, respectively, due to year-over-year foreign currency fluctuations.
Summary of Operating Results and Key Financial Metrics
     The following is a summary of our performance relative to certain key financial metrics for our operations as of and for the three and nine months ended September 30, 2010 compared to the three and nine months ended September 30, 2009 (in thousands, except earnings (loss) per share):
                                 
    Three Months Ended September 30,   Year-Over-Year Change
    2010   2009                
Orders
  $ 81,103     $ 94,741     $ (13,638 )     (14 )%
Revenues
  $ 108,305     $ 114,914     $ (6,609 )     (6 )%
Operating income
  $ 413     $ 21,440     $ (21,027 )     (98 )%
Diluted earnings (loss) per share
  $     $ 0.14     $ (0.14 )     (100 )%
                                 
    Nine Months Ended September 30,                
    2010   2009                
Orders
  $ 209,895     $ 267,396     $ (57,501 )     (22 )%
Backlog
  $ 253,623     $ 336,654     $ (83,031 )     (25 )%
Revenues
  $ 333,803     $ 345,755     $ (11,952 )     (3 )%
Operating income
  $ 35,291     $ 58,954     $ (23,663 )     (40 )%
Diluted earnings per share
  $ 0.33     $ 0.47     $ (0.14 )     (30 )%
     Orders decreased by 14% to $81.1 million in the third quarter of 2010 from $94.7 million in the third quarter of 2009, and decreased by 22% to $209.9 million for the nine months ended September 30, 2010 from $267.4 million for the same period in 2009. These declines are all within our Eagle 5 and other established products for the reasons discussed above under “Operating Environment and Key Factors Impacting our Results.”
     Revenues decreased on a quarter-over-quarter and year-over-year basis, to $108.3 million and $333.8 million in the third quarter and first nine months of 2010, respectively, from $114.9 million and $345.8 million in the third quarter and first nine months of 2009, respectively. As mentioned above, our revenues have been negatively impacted by the trend in orders for our Eagle 5 products. Also contributing to lower revenues in 2010 relative to those in 2009 is a reduction in performance management revenues, primarily due to the completion of an $8.7 million performance management project in Europe in the third quarter of 2009. This resulted in the third quarter results in 2009 being higher than typical trends associated with this product and led to the resulting year-over-year decline in revenues for this product in 2010. Partially offsetting these decreases are increases in our policy management and subscriber data management products revenues following the second quarter 2010 acquisitions of Camiant and Blueslice.
     Operating Income decreased by $21.0 million from $21.4 million in the third quarter of 2009 to $0.4 million in the third quarter of 2010, primarily due to a reduction in gross margins of $16.3 million, and an increase in expense of $8.9 million as a result of acquiring Camiant and Blueslice in the second quarter of 2010. Partially offsetting these items was a decrease in incentive compensation as a result of lower orders and operating performance as compared to our incentive targets for the 2010 period.

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     For the nine months ended September 30, 2010, operating income decreased by $23.7 million from $59.0 million for the nine months ended September 30, 2009 to $35.3 million for the nine months ended September 30, 2010. The year-over-year net decrease was primarily due to the reasons discussed above.
     Diluted Earnings (Loss) per Share declined from $0.14 per share in the third quarter of 2009 to $0.00 in the third quarter of 2010, and from $0.47 per share in the nine months ending September 30, 2009 to $0.33 per share in the first nine months of 2010, primarily due to the decreases in operating income during the three and nine months ended September 30, 2010 for the reasons discussed above.
     Backlog decreased by $120.0 million, or 32%, from December 31, 2009 to September 30, 2010, and by $83.0 million, or 25%, from September 30, 2009 to September 30, 2010, primarily due to lower orders during the first nine months of 2010. Additionally, during the third quarter of 2010, the negative impact of foreign exchange fluctuations, primarily related to the Euro, resulted in a $4.1 million decrease in backlog.
Results of Operations
Revenues
     As discussed further in Note 1 to the accompanying unaudited condensed consolidated financial statements and in “Recent Accounting Pronouncements” below, in the first quarter of 2010 we adopted new accounting guidance with respect to revenue recognition for arrangements with multiple deliverables. These new revenue recognition rules only apply to transactions entered into and pre-existing arrangements materially modified subsequent to adoption. As substantially all of our telecommunications products include both tangible products and software elements that function together to deliver the tangible product’s essential functionality, the existing software revenue recognition guidance will no longer apply to the majority of our arrangements.
     The adoption of the new non-software revenue recognition guidance did not have a material impact on the timing, pattern, or amount of revenue recognized in the third quarter and first nine months of 2010, primarily due to (i) a portion of third quarter and nine months 2010 revenue being derived from the backlog of orders which were received prior to January 1, 2010 and therefore did not fall under the new non-software revenue recognition guidance, and (ii) the new non-software revenue recognition guidance not differing significantly from the software revenue recognition guidance when applied to acceptance based arrangements and arrangements that are received and fulfilled within the same quarter. In the three and nine months ended September 30, 2010, we recognized $36.4 million and $111.9 million, respectively, of revenue, under the new non-software revenue recognition guidance, and we had $20.7 million of deferred revenue under such rules at September 30, 2010. Our September 30, 2010 backlog included an additional $33.3 million of unbilled orders recorded under the new guidance. Based on the currently available information, we anticipate that the effect of adopting this guidance on future periods will not be material. However, this assessment may change as the impact depends on the substance of arrangements entered into or materially modified in future periods.
     Revenues decreased by 6% to $108.3 million in the third quarter of 2010 from $114.9 million in the third quarter of 2009. On a year-to-date basis, revenue decreased by 3% to $333.8 million for the nine months ended September 30, 2010 as compared to $345.8 million for the nine months ended September 30, 2009. Foreign currency fluctuations had a negative year-over-year impact on third quarter and year-to-date 2010 revenues of approximately $3.0 million and $5.0 million, respectively. The following discussion provides a more detailed analysis of changes in revenues by product line.

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Revenues by Product Line
     In order to provide a better understanding of the year-over-year changes and the underlying trends in our revenues, we have provided a discussion of revenues from each of our product lines. Revenues from each of our product lines for the three and nine months ended September, 30 2010 and 2009 are as follows (in thousands, except percentages):
                                 
    For the Three Months Ended        
    September 30,     Change  
    2010     2009     2009 to 2010  
Product revenues:
                               
Eagle, number portability, and other session management products
  $ 62,496     $ 64,687     $ (2,191 )     (3 )%
Performance management products
    5,213       15,729       (10,516 )     (67 )%
 
                         
Total product revenues
    67,709       80,416       (12,707 )     (16 )%
Warranty revenues
    23,020       21,424       1,596       7 %
Professional and other services revenues
    17,576       13,074       4,502       34 %
 
                         
Total revenues
  $ 108,305     $ 114,914     $ (6,609 )     (6 )%
 
                         
                                 
    For the Nine Months Ended        
    September 30,     Change  
    2010     2009     2009 to 2010  
Product revenues:
                               
Eagle, number portability, and other session management products
  $ 196,929     $ 207,811     $ (10,882 )     (5 )%
Performance management products
    22,208       30,793       (8,585 )     (28 )%
 
                         
Total product revenues
    219,137       238,604       (19,467 )     (8 )%
Warranty revenues
    63,713       63,505       208       0 %
Professional and other services revenues
    50,953       43,646       7,307       17 %
 
                         
Total revenues
  $ 333,803     $ 345,755     $ (11,952 )     (3 )%
 
                         
     Product Revenues
     Our product revenues decreased by $12.7 million, or 16%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to the decrease of $10.5 million in our performance management product revenues. In the third quarter of 2009 we completed one large performance management project in Europe that resulted in $8.7 million of revenues. This resulted in the third quarter results in 2009 being higher than typical trends associated with this product and led to the resulting year-over-year decline in revenues for this product in 2010. In addition, the decline in Eagle 5 related session management revenues outpaced the increase of our next generation session and policy management revenues.
     Product revenues for the first nine months of 2010 decreased by $19.5 million, or 8%, as compared to the same period in 2009, primarily due to the decrease in performance management and Eagle 5 revenues discussed above. The decline in Eagle 5 revenues was related to the declining orders and backlog as discussed above under “Summary of Operating Results and Key Financial Metrics”. From a product mix perspective, we continue to expect year-over-year growth in orders and revenues from our next generation products. Also, with the addition of policy management and subscriber data management products to our portfolio in the second quarter of 2010, we expect our next generation products to represent an increasing percentage of our overall orders and revenues. While we continue to gain traction with our next generation portfolio, we continue to expect a decline in orders and revenues from our Eagle 5 product line.
     Worldwide, our product revenues have been impacted by a variety of factors in addition to those discussed above, including: (i) industry consolidation resulting in a delay and/or decline in our customer orders; (ii) competitive pricing pressure, particularly with respect to our Eagle 5 product line; (iii) the pricing of our SIGTRAN-based products, which are typically priced at a significantly lower price per equivalent link or unit of throughput than our traditional SS7-based products, resulting in reductions in our order value and revenues; (iv) the ability to sell our next generation products, such as performance management, Eagle XG, policy management, subscriber data management, and mobile messaging, to our existing customer base and (v) the amount of signaling traffic generated on our customers’ networks, impacting our volume of orders. We derive the majority of our product revenues from wireless operators, and wireless networks generate

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significantly more signaling traffic than wireline networks. As a result, these networks require significantly more signaling infrastructure than wireline networks. Signaling traffic on our wireless customers’ networks may be impacted by several factors, including growth in the number of subscribers, the number of calls made per subscriber, roaming and the use of additional features, such as text messaging.
     Warranty Revenues
     Warranty revenues include revenues from (i) our standard warranty coverage, which is typically provided at no charge for the first year but is allocated a portion of the arrangement fee in accordance with the authoritative guidance for revenue recognition and (ii) our extended warranty offerings. After the first year warranty, our customers typically purchase warranty services for periods of up to a year in advance, which we reflect in deferred revenues. We recognize the revenue associated with our warranty services ratably over the term of the warranty arrangement based on the number of days the contract is outstanding during the period.
     Warranty revenues increased by 7% in the third quarter of 2010 as compared to the third quarter of 2009. This increase was primarily due to the increase in our extended warranty revenues resulting primarily from (i) the timing of order renewals, and (ii) the expansion of the maintenance base as a result of our recent acquisitions of Camiant and Blueslice. Partially offsetting the above increase was a decrease in our standard warranty revenues, principally due to the timing of revenue recognition related to the initial warranty term that accompanied the product sale.
     On a year-to-date basis, warranty revenues were effectively flat in the first nine months of 2010 as compared to the same period of 2009 as increases in our extended warranty revenues resulting from our increased customer base were offset by decreases attributable to pricing pressure of our Eagle 5 related warranty revenues.
     The timing of recognition of our warranty revenues may be impacted by, among other factors: (i) delays in receiving purchase orders from our customers; (ii) the inability to recognize any revenue, including revenue associated with first year warranty, until the delivery of all product deliverables associated with an order is complete; and (iii) the receipt of cash payments from the customer in cases where the customer is deemed a credit risk.
     Professional and Other Services Revenues
     Professional and other services revenues primarily consist of installation services, database migration and training services. Substantially all of our professional service arrangements are billed on a fixed-fee basis. We typically recognize the revenue related to our fixed-fee service arrangements upon completion of the services, as these services are relatively short-term in nature (typically several weeks, or in limited cases, several months). Our professional and other services are typically initiated and provided to the customer within a three to nine month period after the shipment of the product, with the timing depending on, among other factors, the customer’s schedule and site availability.
     Professional and other services revenues for the third quarter of 2010 increased by $4.5 million, or 34%, as compared to the third quarter of 2009, primarily due to an increase in service revenues associated with recently completed product implementations in India. The majority of these ongoing services were related to previous deployments of our Eagle 5 and number portability products.
     On a year-to-date basis, professional and other services revenues increased by $7.3 million, or 17%, in 2010 as compared to the same period of 2009. The increase is primarily attributable to the recognition of revenue for a number of initial system projects in the U.S. and India across our product portfolio.
     Regardless of the mix of products purchased, new customers require a greater amount of installation, training and other professional services at the initial stages of deployment of our products. As our customers gain more knowledge of our products, the follow-on orders generally do not require the same levels of services and training, as our customers tend to either: (i) perform the services themselves; (ii) require limited services, such as installation only; or (iii) require no services, and, in particular, no database migration or training services.

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Cost of Sales
     In order to better understand our cost structure, we analyze and present our costs and expenses in the categories discussed below:
     Cost of goods sold
     Cost of goods sold includes: (i) materials, labor, and overhead costs incurred internally and paid to contract manufacturers to produce our products; (ii) personnel and other costs incurred to install our products; and (iii) customer service costs to provide continuing support to our customers under our warranty offerings. Cost of goods sold in dollars and as a percentage of revenues for the three and nine months ended September 30, 2010 and 2009 were as follows (in thousands, except percentages):
                                 
    For the Three Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Cost of good sold
  $ 40,773     $ 37,064     $ 3,709       10 %
Revenues
    108,305       114,914       (6,609 )     (6 )%
Cost of good sold as a percentage of revenues
    38 %     32 %                
                                 
    For the Nine Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Cost of good sold
  $ 115,963     $ 113,777     $ 2,186       2 %
Revenues
    333,803       345,755       (11,952 )     (3 )%
Cost of good sold as a percentage of revenues
    35 %     33 %                
     Cost of goods sold increased in both absolute dollars and as a percentage of revenues in the three months ended September 30, 2010 as compared to the same period in 2009 primarily due to (i) a shift in revenue mix to a higher percentage of services revenues which have a lower gross margin than product related revenues, and (ii) a shift to a higher percentage of initial systems. Further, during 2010, a higher percentage of our total revenues was derived from emerging markets, particularly India, which is typically at lower gross margins than our corporate average. Partially offsetting these increases was lower incentive compensation resulting from lower orders and operating performance as compared to our incentive targets during the 2010 period, and a reduction in our warranty accrual of $1.0 million due to updated estimates of our warranty liability.
     For the nine months ended September 30, 2010 our cost of goods sold increased by $2.2 million in terms of absolute dollars and increased by 2% as a percentage of revenues as compared to the same period in 2009. As mentioned earlier, a higher percentage of our revenues in 2010 are from services, which have a lower gross margin than product related revenues. In addition, our revenue mix has shifted from the U.S. to regions that have lower margins such as India. Offsetting these increases in cost is a net year-over-year reduction in cost of goods sold of $6.3 million related to warranty related charges. Specifically, our cost of goods sold during the first nine months of 2009 included a $5.0 million warranty charge related to our performance management solution. During 2010, we have continued to update our estimates and have reduced the warranty accrual by approximately $1.3 million, with the majority of this reduction occurring in the third quarter of 2010 as discussed above.
     As we continue to expand our international presence, our cost of goods sold as a percentage of revenues may be negatively impacted as the result of our decision to develop new sales channels and customer relationships in new markets, and also due to price competition. Further, many of our next generation products are initial system sales, which are typically at lower gross margins than our corporate average. However, as we seed these products in our installed base, the follow-on orders in many cases are expected to be software only and therefore at margins above our corporate average. In addition, changes in the following factors may also affect margins: product mix; competition; customer discounts; supply and demand conditions in the electronic components industry; internal and outsourced manufacturing capabilities and efficiencies; foreign currency fluctuations; pricing pressure as we expand internationally; government regulations and policy such as security considerations, tariffs, and local content; and general economic conditions.

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Amortization of Intangible Assets
     Amortization of intangible assets for the three and nine months ended September 30, 2010 and 2009 was as follows (in thousands):
                                 
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Amortization of intangible assets related to:
                               
Camiant
  $ 5,233     $     $ 7,187     $  
mBalance
    1,103       962       2,893       2,806  
Steleus
    483       483       1,447       1,447  
Blueslice
    653             1,209        
iptelorg
    111       122       339       346  
Other
    11             19        
 
                       
Total
  $ 7,594     $ 1,567     $ 13,094     $ 4,599  
 
                       
     The increase in amortization for the three and nine months ended September 30, 2010 is primarily due to the amortization associated with Camiant and Blueslice intangibles acquired in May, 2010.
Research and Development Expenses
     Research and development expenses include costs associated with the development of new products, enhancements of existing products and quality assurance activities. These costs consist primarily of employee salaries and benefits, occupancy costs, consulting costs and the cost of development equipment and supplies. The following sets forth our research and development expenses in dollars and as a percentage of revenues for the three and nine months ended September 30, 2010 and 2009 (in thousands, except percentages):
                                 
    For the Three Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Research and development
  $ 24,094     $ 24,200     $ (106 )     (0) %
Percentage of revenues
    22 %     21 %                
                                 
    For the Nine Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Research and development
  $ 68,666     $ 75,603     $ (6,937 )     (9) %
Percentage of revenues
    21 %     22 %                

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     The following is a summary of the year-over-year fluctuations in our research and development expenses during the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009 (in thousands):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2009 to 2010     2009 to 2010  
Increase (decrease) in:
               
Salaries, benefits and incentive compensation
  $ (607 )   $ (4,249 )
Stock-based compensation
    134       (174 )
Integration-related compensation
    232       53  
Consulting and professional services
    (45 )     (2,019 )
Facilities and depreciation
    (123 )     (1,000 )
Other
    303       452  
 
           
Total
  $ (106 )   $ (6,937 )
 
           
     Research and development expenses remained comparable on a year-over-year basis during the third quarter of 2010, with a slight reduction in employee related expenses mostly offset by increases in integration related compensation and other expenses. The reduction in the employee related expenses is primarily due to lower incentive compensation resulting from lower orders and operating performance as compared to our incentive targets for the 2010 period, partially offset by an increase in costs driven by the addition of the employees of Camiant and Blueslice to our research and development team. The increase in other expenses is primarily due to the increase in travel expenses due to increased activity related to our next generation products.
     The decrease in research and development expenses for the first nine months on a year-over-year basis was principally due to decreased expenses related to our employees, consulting services, facilities and depreciation. In particular, salaries, benefits and incentive compensation decreased as a result of lower incentive compensation recorded in the first nine months of 2010 resulting from lower orders and operating performance as compared to our incentive targets for the 2010 period, partially offset by an increase in employee related expenses associated with our 2010 acquisitions. Also affecting our research and development expenses across all categories was a reduction in our spending as a result of (i) completing many of the International Telecommunication Union and local feature development projects necessary to win new Eagle 5 customers in international markets, and (ii) our continued efforts to obtain better efficiencies across our research and development activities. In particular, we are beginning to see reductions in personnel and consulting costs associated with our Eagle 5 development efforts, as we shift resources to our next generation products. Further, we have been able to reduce our depreciation expense as a result of (i) our focus on deploying newer technologies that allowed us to centralize and share our development equipment, and (ii) lower capital expenditures required to support the development efforts of our next generation products as they are compatible with off the shelf hardware, as compared to our Eagle 5 platform, which is based on proprietary hardware.

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Sales and Marketing Expenses
     Sales and marketing expenses consist primarily of costs associated with our sales force and marketing personnel, including: (i) salaries, commissions and related costs; (ii) outside contract personnel; (iii) facilities costs; (iv) advertising and other marketing costs, such as tradeshows; and (v) travel and other costs. The following table sets forth our sales and marketing expenses in dollars and as a percentage of revenues for the three and nine months ended September 30, 2010 and 2009 (in thousands, except percentages):
                                 
    For the Three Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Sales and marketing expenses
  $ 20,192     $ 17,168     $ 3,024       18 %
Percentage of revenues
    19 %     15 %                
                                 
    For the Nine Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
Sales and marketing expenses
  $ 55,858     $ 51,574     $ 4,284       8 %
Percentage of revenues
    17 %     15 %                
     The following is a summary of the year-over-year fluctuation in our sales and marketing expenses during the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009 (in thousands):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2009 to 2010     2009 to 2010  
Increase (decrease) in:
               
Salaries, benefits and incentive compensation
  $ 1,015     $ 1,425  
Stock-based compensation
    250       393  
Integration-related compensation
    1,232       1,725  
Sales commissions
    (601 )     (1,457 )
Marketing and advertising
    85       (18 )
Travel
    668       1,689  
Other
    375       527  
 
           
Total
  $ 3,024     $ 4,284  
 
           
     The increase in sales and marketing expenses in the third quarter and first nine months of 2010 as compared to the same periods of 2009 was primarily attributable to additional sales and marketing related personnel costs associated with the recent acquisitions of Camiant and Blueslice. Additionally, in the three and nine months ended September 30, 2010, we incurred integration-related compensation of $1.2 million and $1.7 million, respectively, associated with cash compensation in lieu of stock options that were not assumed as part of the Camiant acquisition and integration related bonuses for certain employees of both acquired companies. Also, impacting our sales and marketing expenses were increases in our travel and employee related expenses as a result of increased activities associated with our next generation products. Partially offsetting these increases were (i) lower incentive compensation recorded in the first nine months of 2010 resulting from lower orders and operating performance as compared to our incentive targets for the 2010 period, and (ii) decreased sales commissions, primarily due to lower revenues.
General and Administrative Expenses
     General and administrative expenses are composed primarily of costs associated with our executive and administrative personnel (e.g., legal, business development, finance, information technology and human resources personnel) and consist of: (i) salaries and related compensation costs; (ii) consulting and other professional services (e.g., litigation and other outside counsel fees, and audit fees); (iii) facilities and insurance costs; and (iv) travel and other costs. The following table sets forth our general and administrative expenses in dollars and as

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a percentage of revenues for the three and nine months ended September 30, 2010 and 2009 (in thousands, except percentages):
                                 
    For the Three Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
General and administrative expenses
  $ 13,219     $ 13,148     $ 71       1 %
Percentage of revenues
    12 %     11 %                
                                 
    For the Nine Months Ended    
    September 30,   Change
    2010   2009   2009 to 2010
General and administrative expenses
  $ 39,176     $ 40,288     $ (1,112 )     (3 )%
Percentage of revenues
    12 %     12 %                
     The following is a summary of the year-over-year fluctuation in our general and administrative expenses during the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009 (in thousands):
                 
    Three Months     Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2009 to 2010     2009 to 2010  
Increase (decrease) in:
               
Salaries, benefits and incentive compensation
  $ (575 )   $ (1,725 )
Stock-based compensation
    (810 )     (843 )
Integration-related compensation
    203       552  
Consulting and professional services
    315       478  
Facilities and depreciation
    109       32  
Bad debt expense
    633       158  
Other
    196       236  
 
           
Total
  $ 71     $ (1,112 )
 
           
     General and administrative expenses in the third quarter of 2010 remained comparable to the third quarter of 2009, and decreased on a year-to-date basis, with reductions in employee related costs offsetting increases in the remaining expense categories. For both the three and nine months periods, our employee related costs decreased as a result of (i) reduced incentive compensation resulting from lower orders and operating performance as compared to our incentive targets for the 2010 period, and (ii) realizing the benefits of our cost control initiatives, partially offset by an increase in employee-related costs as a result of the addition of Camiant and Blueslice employees to our management team. The decreases in stock-based compensation expense were primarily due to the lower orders and operating performance which affected the expected outcome of our grants with performance conditions.
     Offsetting these decreases were increases across the remaining expense categories for both the three and nine month periods. In particular, bad debt expense increased in 2010 due to our increased activities in emerging markets where credit conditions have deteriorated. Our integration related compensation increased due to cash compensation in lieu of stock options that were not assumed as part of the Camiant acquisition and integration related bonuses for certain employees of both Camiant and Blueslice. Other expenses increased due to increased travel activity related to our new acquisitions.

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Amortization of Intangible Assets
     As a result of our acquisitions, we have recorded various intangible assets including trademarks, customer relationships and non-compete agreements. Amortization of intangible assets related to our acquisitions is as follows (in thousands):
                                 
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Camiant
  $ 1,261     $     $ 1,997     $  
mBalance
    273       238       715       694  
Blueslice
    79             152        
Steleus
          89             266  
 
                       
Total
  $ 1,613     $ 327     $ 2,864     $ 960  
 
                       
     Amortization of intangible assets increased primarily due to the increase in our intangible assets as a result of acquiring Camiant and Blueslice in the second quarter of 2010.
Other Income and Expense
     For the three and nine months ended September 30, 2010 and 2009, other income and expenses were as follows (in thousands, except percentages):
                                 
    For the Three Months Ended        
    September 30,     Change  
    2010     2009     2009 to 2010  
Interest income
  $ 28     $ 282     $ (254 )     (90 )%
Interest expense
    (64 )     (67 )     3       (4 )%
Impairment of investment in privately held company
          (10,829 )     10,829       (100 )%
Gain on investments carried at fair value, net
          288       (288 )     (100 )%
Foreign currency loss, net
    (790 )     (628 )     (162 )     26 %
Other, net
    (247 )     288       (535 )     (186 )%
 
                       
Other expense, net
  $ (1,073 )   $ (10,666 )   $ 9,593       (90 )%
 
                       
                                 
    For the Nine Months Ended        
    September 30,     Change  
    2010     2009     2009 to 2010  
Interest income
  $ 297     $ 916     $ (619 )     (68 )%
Interest expense
    (185 )     (179 )     (6 )     3 %
Impairment of investment in privately held company
          (13,587 )     13,587       (100 )%
Gain on investments carried at fair value, net
    118       1,723       (1,605 )     (93 )%
Foreign currency loss, net
    (2,230 )     (1,332 )     (898 )     67 %
Other, net
    (932 )     (828 )     (104 )     13 %
 
                       
Other expense, net
  $ (2,932 )   $ (13,287 )   $ 10,355       (78 )%
 
                       
     Interest Income and Expense. Interest income decreased during the three and nine months ended September 30, 2010 due to (i) a shift during 2009 from higher yielding investments into lower yielding cash and cash equivalents as we sought to reduce our exposure to the credit and liquidity crisis in the financial markets, and (ii) our purchase of Camiant and Blueslice in May 2010 for approximately $162.0 million and the resulting reduction of our interest bearing cash balances.
     Impairment of investment in privately held company. During the second and third quarters of 2009, we recorded impairment charges of $2.8 million and $10.8 million, respectively, related to our investment in a privately held company. These charges represented the difference between our $15.0 million cost basis in this investment and its estimated fair value of $1.4 million as of September 30, 2009 as we deemed the decline in the value of this asset to be other-than-temporary.

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     Gain on investments carried at fair value, net. Gain on investments carried at fair value, net represents the net gain resulting from changes in the fair value of our formerly held ARS portfolio and the related Put right. Our ARS portfolio was classified as trading securities and, accordingly, changes in its fair value were recorded in the corresponding period earnings (i.e., “marked to market”). The UBS Put right was recorded at fair value in accordance with the provisions of the authoritative guidance for investments, and changes in the fair value were also recorded in the corresponding period earnings. We exercised the Put right on June 30, 2010, requiring UBS to purchase our remaining ARS portfolio at par value plus accrued interest.
     Foreign currency loss, net. Foreign currency loss, net for the three and nine months ended September 30, 2010 and 2009 consists primarily of (i) the net cost of our hedging program related to foreign currency risk, including the gains and losses on forward contracts on foreign currency exchange rates used to hedge our exposure to foreign currency risks, (ii) foreign currency gains and losses associated with the underlying hedged item (principally accounts receivable), and (iii) remeasurement adjustments resulting from consolidating our international subsidiaries. As we expand our international business further, we will continue to enter into a greater number of transactions denominated in currencies other than the U.S. Dollar and will be exposed to greater risk related to exchange rate foreign currency fluctuations and translation adjustments.
Provision for Income Taxes
     The income tax provisions for the three months ended September 30, 2010 and 2009 were approximately ($0.5) million and $1.4 million, respectively, resulting in income tax expense (benefit) as a percentage of pre-tax income, or an effective tax rate, of 80% and 13%, respectively. The income tax provisions for the nine months ended September 30, 2010 and 2009 were approximately $9.4 million and $14.1 million, respectively, resulting in income tax expense as a percentage of pre-tax income, or an effective tax rate, of 29% and 31%, respectively.
     The differences in the effective rates for the three and nine months ended September 30, 2010, as compared to the same periods in 2009, are primarily due to (i) a higher percentage of our projected income for the full year 2010 being derived from international locations with lower tax rates than the U.S., and (ii) the cumulative effect of reducing our full year estimated effective tax rate as a result of the shift of income to such jurisdictions, offset by tax expense resulting from employee stock option cancellations and the required tax treatment under the authoritative guidance for stock-based compensation as discussed in detail below. While the impact in terms of absolute dollars of shifting additional income to jurisdictions with lower tax rates was insignificant, due to the low amount of taxable income this shift had a disproportional impact on our overall effective tax rate, resulting in the unusually high effective tax rate of 80% during the third quarter of 2010.
     Additionally, we did not reflect a benefit for the U.S. federal research and development tax credit as part of our anticipated annual effective rate for the third quarter of 2010 because the U.S. Congress had not extended this tax credit as of September 30, 2010. A benefit for this credit was reflected in the projected annual effective rate as of the end of the third quarter of 2009. A cumulative benefit resulting from this credit will be recognized in the quarter, if any, in which the U.S. Congress enacts the related legislation. Please refer to Note 9 of the accompanying unaudited condensed consolidated financial statements for a discussion of the reconciliations of our effective tax rates for the three and nine months ended September 30, 2010 and 2009 to the statutory rate of 35%.
     We no longer have a “pool of windfall tax benefits” as defined by the authoritative guidance for stock-based compensation. As a result, future cancellations or exercises that result in a tax deduction that is less than the related deferred tax asset recognized under the authoritative guidance will negatively impact our effective tax rate and increase its volatility, resulting in a reduction of our earnings. The authoritative guidance for stock compensation requires that the impact of such events be recorded as discrete items in the quarter in which the event occurs.

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Liquidity and Capital Resources
     Key measures of our liquidity are as follows (in thousands):
                                 
    September 30,   December 31,                
    2010   2009                
Cash and cash equivalents
  $ 222,715     $ 277,259     $ (54,544 )     (20 )%
Short-term investments
  $     $ 92,857     $ (92,857 )     (100 )%
Working capital
  $ 297,093     $ 441,277     $ (144,184 )     (33 )%
                                 
    Nine Months Ended September 30,                
    2010   2009                
Cash provided by operating activities — continuing operations
  $ 20,202     $ 46,928     $ (26,726 )     (57 )%
Cash provided by (used in) investing activities
  $ (83,038 )   $ 2,059     $ (85,097 )     (4,133 )%
Cash provided by financing activities
  $ 8,850     $ 8,364     $ 486       6 %
Liquidity
     We derive our liquidity and capital resources primarily from our cash flows from operations and from our working capital. The significant components of our working capital are liquid assets such as cash and cash equivalents and accounts receivable, and deferred costs and commissions, reduced by trade accounts payable, accrued expenses, accrued compensation and related expenses, and the current portion of deferred revenues. Our working capital decreased by $144.2 million, from $441.3 million as of December 31, 2009 to $297.1 million as of September 30, 2010, primarily due to a reduction in cash as a result of acquiring Camiant and Blueslice in the second quarter of 2010 for $162.0 million in total net cash consideration. This decrease in cash balances was partially offset by cash inflow from operating activities of $20.2 million.
     We have a line of credit facility of $50.0 million and a letter of credit facility of $10.0 million with Wells Fargo Bank, National Association that was originally with Wachovia Bank, National Association. The line of credit is unsecured except for our pledge of 65% of the outstanding stock of certain subsidiaries, while the letter of credit facility requires certain levels of cash collateral for outstanding letters of credit. There were no outstanding borrowings under the line of credit facility at September 30, 2010. As of September 30, 2010, there were approximately $0.8 million of borrowings outstanding under the letter of credit facility, all of which were fully collateralized by us.
     We also had a letter of credit facility in the maximum amount of $5.0 million with Wells Fargo which also required cash collateral. This letter of credit facility expired on December 31, 2009 and can no longer be used to issue new letters of credit. As of September 30, 2010, there were letters of credit of approximately $1.4 million outstanding under this facility, all of which were fully collateralized by us.
     As of December 31, 2009, we held $81.8 million of ARS recorded at fair value, which represented a decline of $11.2 million below our cost basis, and an associated UBS Put right, recorded at an estimated fair value of $11.1 million. Prior to and throughout the second quarter of 2010, issuers called certain ARS securities which reduced the investment in our ARS portfolio. On June 30, 2010, we exercised our UBS Put right requiring UBS to purchase the remaining balance of our ARS portfolio at par value plus accrued interest. As a result of the issuer calls and our exercising the UBS Put right, we received cash proceeds of $79.6 million during the second quarter of 2010 and thus liquidated our ARS portfolio.
     We believe that our current working capital position, available line of credit and anticipated cash flow from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months. Additionally, we believe these resources allow us to continue to invest in further development of our technology and, when necessary or appropriate, make selective acquisitions to continue to strengthen our product portfolio. Our liquidity could be negatively impacted by a decrease in revenues resulting from a decline in demand for our products or a reduction of capital expenditures by our customers.

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Operating Activities
     Net cash provided by operating activities from continuing operations was $20.2 million and $46.9 million for the nine months ended September 30, 2010 and 2009, respectively. The decrease in our cash flows from continuing operations was primarily the result of (i) lower net income for the period, and (ii) lower cash collections of accounts receivable in the first nine months of 2010 as compared to the first nine months of 2009. Our cash collections were negatively affected by the deterioration of credit conditions in the emerging markets, as well as a year-over-year decline in orders and associated billing activity.
     We currently anticipate that we will continue to operate our business with positive cash flows from operations. Our ability to meet these expectations depends on our ability to achieve positive earnings. Our ability to generate future cash flows from operations could be negatively impacted by, among other factors, a decrease in demand for our products, which are subject to technological changes and increasing competition, or a reduction of capital expenditures by our customers should they continue to remain cautious with their spending.
Investing Activities
     Net cash provided by (used in) investing activities was ($83.0) million and $2.1 million for the nine months ended September 30, 2010 and 2009, respectively. Our cash flows from investing activities primarily relate to (i) purchases and sales of investments, (ii) strategic acquisitions, and (iii) purchases of property and equipment.
     In the first nine months of 2010, acquisition related net cash outflows were $162.0 million for the purchase of Camiant and Blueslice. Our investment in property and equipment was $14.1 million during the first nine months of 2010. Offsetting these investing cash outflows was $93.0 million in proceeds from issuer calls of ARS and the exercise of our UBS Put right discussed previously. For the nine months ended September 30, 2009, our investing activities consisted of property and equipment purchases of $14.6 million, offset by the call of $16.6 million of ARS by the issuers.
     We continue to closely monitor our capital expenditures, while making strategic investments in the development of our existing products and the replacement of certain older computer and information technology infrastructure to meet the needs of our workforce. Accordingly, we expect our total capital expenditures to be between $18.0 million and $20.0 million for 2010.
Financing Activities
     Net cash provided by financing activities was $8.9 million and $8.4 million for the nine months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010, our financing activities primarily consisted of proceeds of $11.8 million from net issuances of common stock pursuant to the exercise of employee stock options and purchase under our employee stock purchase plan, including the excess tax benefit on those exercises and purchases, partially offset by $2.9 million of employee withholding tax payments made as a result of net share settlements of equity awards.
     For the nine months ended September 30, 2009, our financing activities consisted primarily of the proceeds of $10.5 million from the issuance of common stock pursuant to the exercise of employee stock options and purchases under our employee stock purchase plan, including the excess tax benefit on those exercises and purchases, partially offset by $2.1 million of employee withholding tax payments made as a result of net share settlements of equity awards.
Critical Accounting Policies and Estimates
     For information about our critical accounting policies and estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2009 Form 10-K. In addition, please refer to Note 1 of the accompanying unaudited condensed consolidated financial statements and to “Recent Accounting Pronouncements” below for information regarding our adoption of new revenue recognition guidance.

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Recent Accounting Pronouncements
Revenue Recognition for Arrangements with Multiple Deliverables
     In September 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. As a result, these arrangements are accounted for in accordance with the new “non-software” guidance for arrangements with multiple deliverables.
     The FASB also amended the accounting standards for revenue recognition for arrangements with multiple deliverables. The new authoritative guidance for arrangements with multiple deliverables requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. It also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (i) vendor-specific objective evidence (“VSOE”) if available; (ii) third-party evidence (“TPE”) if vendor-specific objective evidence is not available; and (iii) best estimated selling price (“BESP”) if neither vendor-specific nor third-party evidence is available. The new guidance eliminates the residual method of allocation for multiple-deliverable revenue arrangements which we used historically when we applied the software revenue recognition guidance to our multiple element arrangements.
     We elected to early adopt, as permitted, the new authoritative guidance on January 1, 2010, on a prospective basis for applicable transactions originating or materially modified after January 1, 2010. As substantially all of our telecommunications products include both tangible products and software elements that function together to deliver the tangible product’s essential functionality, the existing software revenue recognition guidance no longer applies to the majority of our transactions. The adoption of the new non-software revenue recognition guidance did not have a material impact on the timing, pattern, or amount of revenue recognized in the third quarter and nine months of 2010, primarily due to (i) a portion of third quarter and first nine months 2010 revenue being derived from the backlog of orders which were received prior to January 1, 2010 and therefore did not fall under the new non-software revenue recognition guidance, and (ii) the new non-software revenue recognition guidance not differing significantly from the software revenue recognition guidance when applied to acceptance based arrangements and arrangements that are received and fulfilled within the same quarter. Based on currently available information, we anticipate that the impact of adopting this guidance on revenue recognition will not be material for our 2010 results. However, this assessment may change because such impacts depend on terms and conditions of arrangements in effect in those future periods.
     Please refer to Note 1 to the accompanying unaudited condensed consolidated financial statements for additional information about this new revenue recognition guidance.
Fair Value Measurements and Disclosures
     In January 2010, the FASB issued Accounting Standards Update 2010-06 “Improving Disclosures about Fair Value Measurements.” This Update amends the authoritative guidance for fair value measurements and disclosures by adding new disclosure requirements with respect to transfers in and out of Levels 1 and 2 fair value measurements, as well as by requiring gross basis disclosures for purchases, sales, issuances, and settlements included in the reconciliation of Level 3 fair value measurements. This Update also amends the authoritative guidance by providing clarifications to existing disclosure requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Early adoption is permitted.
     We adopted this new guidance, including the guidance related to the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, on January 1, 2010. The adoption of this guidance did not have a material impact on our financial position or results of operations.
Disclosure Requirements related to Financing Receivables and Allowance for Credit Losses
     In July 2010, the FASB issued Accounting Standard Update No. 2010-10 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which updates the authoritative guidance for receivables. The new disclosures will require disaggregated information related to financing receivables and

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will include for each class of financing receivables, among other things: a roll forward for the allowance for credit losses, credit quality information, impaired loan information, modification information, and non-accrual and past-due information. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Accordingly, we will implement the guidance for period-end disclosures effective as of the end of our fourth quarter of 2010, with the guidance for period activity disclosures to be implemented during our first quarter of 2011. We believe the adoption of this update will primarily result in increased disclosures, but will not have any other impact on our financial statements.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
     The statements that are not historical facts contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “intend,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and variations of these words and similar expressions are sometimes used to identify forward-looking statements. These statements reflect the current belief, expectations, estimates, forecasts or intent of our management and are subject to and involve certain risks and uncertainties. There can be no assurance that our actual future performance will meet management’s expectations. As discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 and our other filings with the Securities and Exchange Commission, our future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from management’s current expectations include, among others:
    the effect of the recent economic crisis on overall spending by our customers, including increasing pressure from our customers for us to lower prices for our products and warranty services, access to credit markets by our customers and the impact of tightening credit on capital spending, and further changes in general economic, social, or political conditions in the countries in which we operate;
 
    the continued decline in sales of our Eagle 5 related products, including the ability of carriers to utilize excess capacity of signaling infrastructure and related products in their networks;
 
    our ability to compete, particularly on price, with other manufacturers that have lower cost bases than ours and/or are partially supported by foreign government subsidies or employ unfair trade practices;
 
    risks related to our international sales, markets and operations, including among others, import regulations, limited intellectual property protection, including limited protection of our software source code, withholding taxes and their effect on cash flow timing, and increased costs and potential liabilities related to compliance with current and future security provisions in customer contracts and government regulations, including in particular those imposed by the government of India;
 
    exposure to increased bad debt expense and product and service disputes as a result of general economic conditions and the uncertain credit markets worldwide;
 
    the timely development and acceptance of our new products and services, including the timing of demand for integrated next generation signaling solutions, the training of our employees on new products, our product mix and the geographic mix of our revenues and the associated impact on gross margins and operating expenses, and the effect of any product that fails to meet one customer’s expectations on the sale of that or any other products to that or other customers;
 
    uncertainties related to the timing of revenue recognition due to the increasing percentage of next generation solutions in our backlog, as we have a limited history of the order to revenue conversion cycle;
 
    the onerous terms and conditions, including liability provisions, imposed by our customers in connection with new product deployments;
 
    our ability to gain the benefits we anticipate from our acquisitions, including our acquisitions of Camiant and Blueslice and including expected sales of new products and synergies between the companies’ products and operations;
 
    continuing financial weakness in the telecommunications equipment sector, resulting in pricing pressure on our products and services, as certain of our competitors consolidate, reduce their prices, lengthen their payment terms and enter into terms and/or conditions that are generally less favorable to them;
 
    the risk that continued service provider consolidation or outsourcing of network maintenance and operations functions will insert a potential competitor between us and our customers and/or erode our level of service to such service providers and/or negatively affect our margins;
 
    the risk that our financial results for the full year 2010 will not meet our expectations;
 
    the timing of significant orders and shipments, the timing of revenue recognition under the residual

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      method of accounting, and the effect of the new non-software revenue recognition guidance adopted in the first quarter of 2010;
 
    the lengthy sales cycles for our products, particularly for our new or acquired products;
 
    the availability and success or failure of advantageous strategic and vendor relationships;
 
    litigation, including patent-related litigation, and regulatory matters and the costs and expenses associated therewith; and
 
    other risks described in this Form 10-Q and in our Form 10-K for 2009 and in our other Securities and Exchange Commission filings.
     Many of these risks and uncertainties are outside of our control and are difficult for us to forecast or mitigate. Actual results may differ materially from those expressed or implied in such forward-looking statements. We do not assume any responsibility for updating or revising these forward-looking statements. Undue emphasis or reliance should not be placed on any forward-looking statements contained herein or made elsewhere by or on behalf of us.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
     For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 2009 Form 10-K. Our exposures to market risk have not changed materially since December 31, 2009 other than as discussed in Note 4 “Fair Value of Financial Instruments” to the accompanying unaudited condensed consolidated financial statements and under the caption “Critical Accounting Policies and Estimates” in Part I, Item 2 of this Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
     Based on our management’s evaluation (with the participation of our Chief Executive Officer and Chief Financial Officer), as of the end of the quarter covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective in that they provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
     There was no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
     Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
     There have been no material developments in the description of material legal proceedings as reported in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 1A. Risk Factors
     There have been no material changes from the risk factors as previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 5. Other Information
     Our policy governing transactions in our securities by our directors, executive officers and certain other employees permits such persons from time to time to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Exchange Act. As of September 30, 2010, each of the following persons had adopted a Rule 10b5-1 stock trading plan that was then in effect: Hubert de Pesquidoux, director, Carol Mills, director, Krish Prabhu, director, Michael Ressner, director, Franco Plastina, President, Chief Executive Officer and a director, and Ronald J. de Lange, Executive Vice President, Global Product Solutions. The Company does not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically does not undertake to disclose the adoption, amendment, termination or expiration of any such plans.
     On August 13, 2010, our Board of Directors adopted advance notice bylaws, which require that proposals and director nominations (other than proposals and director nominations submitted pursuant to Exchange Act Rule 14a-8) for our 2011 Annual Meeting of Shareholders (along with all required information and representations) be in writing and be received by our Secretary no earlier than January 14, 2011 and no later than February 14, 2011. The February 14, 2011 deadline supersedes the February 21, 2011 deadline disclosed in our proxy statement for our 2010 Annual Meeting of Shareholders, which we filed with the Securities and Exchange Commission on April 7, 2010.

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Item 6. Exhibits
         
Exhibit   Description
       
 
  3.1    
Amended and Restated Bylaws of the Company(1)
       
 
  10.1    
Seventh Amendment, dated as of October 1, 2010, to Credit Agreement dated as of October 2, 2008 by and among Tekelec, Tekelec International, SPRL, the lenders from time to time parties thereto, and Wells Fargo Bank, N.A. (as successor to Wachovia Bank, National Association), as Administrative Agent, Swingline Lender, Issuing Lender and Lender(2)
       
 
  31.1    
Certification of Chief Executive Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
       
 
  31.2    
Certification of Chief Financial Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
       
 
  32.1    
Certifications of Chief Executive Officer and Chief Financial Officer of Tekelec pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(2)
       
 
  101    
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (filed with the Securities and Exchange Commission on November 4, 2010), is formatted in Extensible Business Reporting Language (XBRL) and electronically submitted herewith: (i) unaudited condensed consolidated balance sheets as of September 30, 2010 and December 31, 2009, (ii) unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009, (iii) unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2010 and 2009, (iv) unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009, and (v) notes to unaudited condensed consolidated financial statements(3)
 
(1)   Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 0-15135) dated August 13, 2010, as filed with the Securities and Exchange Commission on August 18, 2010.
 
(2)   Filed herewith.
 
(3)   The XBRL information in Exhibit 101 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 




TEKELEC
 
 
Date: November 4, 2010  /s/ FRANCO PLASTINA    
  Franco Plastina   
  President and Chief Executive Officer   
 
     
Date: November 4, 2010   /s/ GREGORY S. RUSH    
  Gregory S. Rush   
  Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 
 
 
     
Date: November 4, 2010  /s/ PAUL J. ARMSTRONG    
  Paul J. Armstrong   
  Vice President and Corporate Controller   

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EXHIBIT INDEX
         
Exhibit   Description
  10.1    
Seventh Amendment, dated as of October 1, 2010, to Credit Agreement dated as of October 2, 2008 by and among Tekelec, Tekelec International, SPRL, the lenders from time to time parties thereto, and Wells Fargo Bank, N.A. (as successor to Wachovia Bank, National Association), as Administrative Agent, Swingline Lender, Issuing Lender and Lender
       
 
  31.1    
Certification of Chief Executive Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
 
  31.2    
Certification of Chief Financial Officer of Tekelec pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
 
  32.1    
Certifications of Chief Executive Officer and Chief Financial Officer of Tekelec pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       
 
  101    
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (filed with the Securities and Exchange Commission on November 4, 2010), is formatted in Extensible Business Reporting Language (XBRL) and electronically submitted herewith: (i) unaudited condensed consolidated balance sheets as of September 30, 2010 and December 31, 2009, (ii) unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009, (iii) unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2010 and 2009, (iv) unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009, and (v) notes to unaudited condensed consolidated financial statements(1)
 
(1)   The XBRL information in Exhibit 101 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.