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<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Business</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We are a leading global provider of core network solutions. Our solutions enable mobile
connectivity through such services as voice, text, video, and access to the Web. These solutions
are engineered to provide an effective and robust intelligence layer designed to enable our
customers to offer their subscribers improved customer experiences through optimization,
personalization, mobility and security. Our customers predominantly include mobile (or
“wireless”), fixed (or “wireline”), and cable service providers (collectively, “service
providers”), including many of the largest service providers in the world. We derive our revenues
primarily from the sale or licensing of these core network solutions and the related professional
services, such as installation, training, and customer support, including customer extended
warranty service and customer post-warranty service contracts.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Principles of Consolidation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Consolidated Financial Statements include the accounts and operating results of Tekelec
and our wholly owned subsidiaries. All significant intercompany balances and transactions have
been eliminated. Certain prior period amounts have been reclassified in order to conform to the
current year’s presentation. The company has evaluated subsequent events through the date that the
financial statements were issued.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Use of Estimates</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our Consolidated Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States. These accounting principles require that we make
estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. We believe
that the estimates, judgments and assumptions upon which we rely are reasonable based upon
information available to us at the time these estimates, judgments and assumptions are made.
Actual results could differ significantly from the estimates, and to the extent that there are
material differences between these estimates, judgments or assumptions and actual results, our
financial statements and related disclosures will be affected.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Foreign Currency Translation and Transactions</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We account for our international entities in accordance with the authoritative guidance for
foreign currency matters. For our international operations in which we consider the functional
currency to be the local currency, the foreign currency is translated into our reporting currency,
the U.S. dollar, using exchange rates in effect at period end for assets and liabilities and
average exchange rates during each reporting period for the results of operations. Adjustments
resulting from the translation of these foreign subsidiaries financial statements are reported in
accumulated other comprehensive income (loss). The foreign currency translation adjustment is not
adjusted for income taxes since it relates to our indefinite term investment in non-U.S.
subsidiaries.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our international subsidiaries that have the U.S. dollar as their functional currency
remeasure monetary assets and liabilities using current rates of exchange at the balance sheet date
and translate non-monetary assets and liabilities using historical rates of exchange. Gains and
losses from remeasurement for such subsidiaries are included in other income, net. Gains or losses
on foreign currency transactions are also included in other income, net.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Fair Value Measurement</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Under the authoritative guidance for fair value measurements, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (i.e. “the exit
price”) in an orderly transaction between market participants at the measurement date. In
determining fair value, we use various valuation approaches, including quoted market prices and
discounted cash flows. The guidance also establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs are inputs
that market participants would use in pricing the asset or liability developed based on market data
obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment
concerning the assumptions that market participants would use in pricing the asset or liability
developed based on the best information available under the circumstances. The fair value hierarchy
is broken down into three levels based on the reliability of inputs as follows:
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<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 1 — Valuations based on quoted prices in active markets for identical instruments
that the Company is
able to access. Since valuations are based on quoted prices that are readily and regularly
available in an active market, valuation of these products does not entail a significant
degree of judgment.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
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<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 2 — Valuations based on quoted prices in active markets for instruments that are
similar, or quoted prices in markets that are not active for identical or similar
instruments, and model-derived valuations in which all significant inputs and significant
value drivers are observable in active markets.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
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<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 3 — Valuations based on inputs that are unobservable and significant to the
overall fair value measurement.</td>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     The financial assets for which we perform recurring remeasurements are cash and cash
equivalents, short-term investments and long-term investments. The financial liabilities for which
we perform recurring remeasurements are foreign currency forward contracts. The financial assets
for which we were required to perform non-recurring remeasurements (e.g., an impairment of assets)
were our previously held investments in privately-held companies. The nonfinancial assets and
liabilities for which we may be required to perform non-recurring remeasurements include, but are
not limited to, goodwill, intangible assets, and restructuring obligations accounted for under
authoritative guidance for exit and disposal cost obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     As of December 31, 2010, financial assets and liabilities utilizing Level 1 inputs included
cash equivalents and foreign currency forward contracts. We did not have any financial assets
utilizing Level 2 or 3 inputs as of December 31, 2010. As of December 31, 2009, financial assets
utilizing Level 3 inputs included short-term trading securities comprised of investments in auction
rate securities collateralized by student loans and the associated Put right. During the year
ended December 31, 2009, we recorded an impairment charge related to our investments in
privately-held companies, and subsequently sold both of these investments at their carrying value.
Please see Note 5 “Fair Value of Financial Instruments” for detailed information about these
transactions. We performed our annual impairment test for goodwill on October 1<sup style="font-size: 85%; vertical-align: text-top">st</sup>,
which provided no indication of impairment.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The fair values of our cash, cash equivalents, accounts receivable and accounts payable
approximate their respective carrying amounts. The fair value of our trading securities was $81.8
million as of December 31, 2009, representing an $11.2 million decline below their cost basis.
Prior to and throughout the second quarter of 2010, issuers called certain securities which reduced
the investment in our auction rate securities (“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 $93.0 million during 2010, resulting in the liquidation of our ARS
portfolio.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The fair value of our derivative financial instruments, principally foreign currency contracts
utilized to offset foreign currency transaction gains and losses, was not significantly different
from cost as of December 31, 2010, as we entered into these contracts on the last day of our fiscal
year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Cash and Cash Equivalents</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We consider all highly liquid investments with an original maturity of three months or less at
the date of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which
approximates fair value. We hold cash and cash equivalents at several major financial
institutions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Accounts Receivable</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We typically invoice our customers for the order (or contract) value of the related products
delivered at various milestones, including order receipt, shipment, installation and acceptance and
for the related services when rendered. Accounts receivable are recorded at the invoiced amount
and do not bear interest. We do not have any off-balance sheet credit exposure related to our
customers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Provision for Doubtful Accounts</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We initially record our provision for doubtful accounts based on our historical experience and
then adjust this provision at the end of each reporting period based on a detailed assessment of
our accounts receivable and allowance for doubtful accounts. In estimating the allowance for
doubtful accounts, management considers, among other factors: (i) the aging of the accounts
receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the
customer mix in each of the aging categories and the nature of the receivable (e.g., product,
professional services,
maintenance, etc.); (iv) our historical write-offs and recoveries; (v) the
credit-worthiness of each customer; (vi) the economic conditions within the telecommunications
industry; (vii) potential impact of political instability and (viii)
general economic conditions. In cases where we are aware of circumstances that may impair a
specific customer’s ability to meet their financial obligations to us, we record a specific
allowance against amounts due from the customer, and thereby reduce the net recognized receivable
to the amount we reasonably believe will be collected. Once all collection efforts have been
exhausted and the receivable is deemed uncollectable, we write off the receivable against the
reserve.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Investments</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Marketable securities are generally classified as available-for-sale securities and are
accounted for at their fair value, and unrealized gains and losses on these securities are reported
as a separate component of shareholders’ equity, net of tax. When the fair value of an investment
declines below its original cost, we consider all available evidence to evaluate whether the
decline is other-than-temporary. Among other things, we consider the duration and extent of the
decline and economic factors influencing the markets. To date, we have had no such
other-than-temporary declines below cost basis. We utilize specific identification in computing
realized gains and losses on the sale of investments. Investments in marketable securities with
maturities beyond one year may be classified as short-term based on their highly liquid nature and
because such marketable securities represent the investment of cash that is made available for
current operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     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 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 $93.0 million during 2010, resulting in the
liquidation of our ARS portfolio.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In 2009, we sold our investments in privately-held companies for total cash consideration of
$8.7 million, which approximated their then current carrying value. These investments were
classified as long-term assets and were accounted for under the cost method since we did not have
the ability to exercise significant influence over their operations. During 2009, we recorded an
impairment charge of $13.6 million related to one of these investments, which is included in “Other
income (expense), net” in the accompanying Consolidated Financial Statements. Realized gains and
losses on our investments are reported in “Other income (expense), net.”
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Concentrations of Credit Risk</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our cash and cash equivalents are maintained at several financial institutions. Our domestic
cash deposits with these financial institutions often exceed the amount of insurance provided on
such deposits by the Federal Deposit Insurance Corporation, and the majority of our international
cash deposits are not insured or guaranteed by any government or governmental agency. Generally,
such deposits may be redeemed on demand and are maintained with large, multinational financial
institutions with reputable credit. Historically, we have not experienced any losses due to such
concentration of credit risk.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Financial instruments that potentially subject us to a concentration of credit risk consist
principally of trade accounts receivable and financial instruments used in foreign currency hedging
activities. We primarily invest our excess cash in money market instruments and, historically, in
marketable securities as discussed more fully in Note 7.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We perform ongoing credit evaluations of our customers and generally do not require collateral
on accounts receivable, as the majority of our customers are large, well-established companies.
Under certain circumstances we may require the customer to provide a letter of credit. We maintain
reserves for potential credit losses. We rely on sole suppliers for certain components of our
products and rely on a limited number of contract manufacturers and suppliers to provide
manufacturing services for our products. The inability of a contract manufacturer or supplier to
fulfill our supply requirements could materially impact future operating results.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In 2010, sales to AT&T represented 18% of our revenues. In 2009, sales to AT&T represented
14% of our revenues, and sales to Verizon represented 10% of our revenues. Additionally, combined
sales to the Orange Group and an affiliate represented 10% of our revenues in each of 2009 and
2008. Because our customers are primarily in the telecommunications industry, our accounts
receivable are concentrated within one industry and therefore are exposed to concentrations of
credit risk within that industry.
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<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Inventories</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Inventories are stated at the lower of cost or market. Cost is computed using standard cost,
which approximates
actual cost, on a first-in, first-out basis. We provide inventory allowances primarily based
on excess and obsolete inventories determined primarily by future demand forecasts. The allowance
is measured as the difference between the cost of the inventory and market value based upon
assumptions about future demand and charged to the provision for inventory, which is a component of
cost of sales. At the point of the loss recognition, a new, lower-cost basis for that inventory is
established, and any subsequent improvements in facts and circumstances do not result in the
restoration or increase in that newly established cost basis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Deferred Costs and Prepaid Commissions</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     For all customer sales arrangements in which we defer the recognition of revenue, we also
defer the associated costs, such as the cost of the hardware, installation costs, and other direct
costs associated with the revenue, including sales commissions. The commission payments, which are
paid upon order, are a direct and incremental cost of the revenue arrangements. The deferred
commission amounts are recoverable through the future revenue streams under our sales arrangements.
We believe this is the preferable method of accounting as the commission charges are so closely
related to the revenue generated that they should be recorded as an asset and charged to expense
over the same period that the revenue is recognized. Changes associated with deferred commissions
are included in sales and marketing expenses in the accompanying Consolidated Statements of
Operations. Costs are only deferred up to the fair value of the products or services being sold
and are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Property and Equipment</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Property and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated using the straight-line method over the shorter of the
estimated useful lives of the respective assets or any applicable lease term. The useful lives of
the assets are generally as follows:
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<div style="margin-left:0px; text-indent:-0px">Manufacturing and development equipment
</div></td>
<td> </td>
<td align="left" valign="top">3 to 5 years</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Furniture and office equipment
</div></td>
<td> </td>
<td align="left" valign="top">3 to 5 years</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Demonstration equipment
</div></td>
<td> </td>
<td align="left" valign="top">3 years</td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Leasehold improvements
</div></td>
<td> </td>
<td align="left" valign="top">Shorter of the estimated useful
life or lease term, generally 5
years</td>
</tr>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     Expenditures for maintenance and repairs are charged to expense as incurred. Cost and
accumulated depreciation of assets sold or retired are removed from the respective property
accounts, and the gain or loss is reflected in “Other income (expense), net” in the Consolidated
Statements of Operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Software Developed for Internal Use</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We capitalize costs of software, consulting services, hardware and other related costs
incurred to purchase or develop internal-use software. We expense costs incurred during preliminary
project assessment, research and development, re-engineering, training and application maintenance.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Software Development Costs</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Software development costs associated with new software products and enhancements to existing
software products are expensed as incurred until technological feasibility in the form of a working
model has been established. To date, the time period between the establishment of technological
feasibility and completion of software development has been short, and no significant development
costs have been incurred during that period. Accordingly, we have not capitalized any software
development costs to date.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Intangible Assets and Goodwill</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We account for our business combinations in accordance with the authoritative guidance for
business combinations, and the related acquired intangible assets and goodwill in accordance with
the authoritative guidance for intangibles — goodwill and other. The authoritative guidance for
business combinations specifies the accounting for business combinations and the criteria for
recognizing and reporting intangible assets apart from goodwill.
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<div align="left" style="font-size: 10pt; margin-top: 6pt">     We record the assets acquired and liabilities assumed in business combinations at their
respective fair values at the date of acquisition, with any excess purchase price recorded as
goodwill. Valuation of intangible assets and in-process research and development entails
significant estimates and assumptions including, but not limited to, determining the timing and
expected costs to complete development projects, estimating future cash flows from product sales,
developing appropriate discount rates, estimating probability rates for the successful completion
of development
projects, continuation of customer relationships and renewal of customer contracts, and
approximating the useful lives of the intangible assets acquired.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The authoritative guidance for intangibles and goodwill requires that intangible assets with
an indefinite life should not be amortized until their life is determined to be finite, and all
other intangible assets must be amortized over their useful lives. Intangible assets are being
amortized over a period of up to five years using the greater of the straight-line method or a
manner that better reflects the utilization of their economic benefit as prescribed by the
authoritative guidance for intangibles and goodwill.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The authoritative guidance for intangibles and goodwill also requires that goodwill not be
amortized but instead be tested for impairment in accordance with the provisions of the guidance at
least annually and more frequently upon the occurrence of certain events (see “Impairment of
Long-Lived Assets” below). Please refer to Note 8 for a further discussion of our intangible assets
and goodwill.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Impairment of Long-Lived Assets</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We test goodwill for impairment in accordance with the authoritative guidance for intangibles
and goodwill. This guidance requires that goodwill be tested for impairment at the reporting unit
level at least annually and more frequently upon the occurrence of certain events, as defined by
the guidance. We have determined that we have one reporting unit to which all goodwill is
allocated. Goodwill is tested for impairment annually on October 1<sup style="font-size: 85%; vertical-align: text-top">st</sup> using a two-step
process. First, we determine if the carrying amount of our reporting unit exceeds its fair value
(determined using the market capitalization method based on quoted market prices), which would
indicate a potential impairment of goodwill associated with the reporting unit. If we determine
that a potential impairment of goodwill exists, we then compare the implied fair value of the
goodwill to its carrying amount to determine if there is an impairment loss.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In accordance with the authoritative guidance for property, plant and equipment, we evaluate
long-lived assets, including intangible assets other than goodwill, for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
An impairment is considered to exist if the total estimated future cash flows on an undiscounted
basis are less than the carrying amount of the assets. If impairment exists, the impairment loss
is measured and recorded based on discounted estimated future cash flows. In estimating future
cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows
that are largely independent of cash flows from other asset groups. Our estimate of future cash
flows is based upon, among other things, certain assumptions about expected future operating
performance, growth rates and other factors. The actual cash flows realized from these assets may
vary significantly from our estimates due to increased competition, changes in technology,
fluctuations in demand, consolidation of our customers and reductions in average selling prices.
Assumptions underlying future cash flow estimates are therefore subject to significant risks and
uncertainties.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Contingent Liabilities</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We have a number of unresolved regulatory, legal and tax matters, as discussed further in Note
9, Note 10, and Note 12. We provide for contingent liabilities in accordance with the
authoritative guidance for contingencies. In accordance with the authoritative guidance for
contingencies, a loss contingency is charged to income when (i) it is probable that an asset has
been impaired or a liability has been incurred at the date of the financial statements, and (ii)
the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial
statements is required for loss contingencies that do not meet both those conditions if there is a
reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded
until realized. We expense all legal costs incurred to resolve regulatory, legal and tax matters
as incurred. In cases where our insurance carrier has agreed to reimburse us for legal costs,
including any accrued losses, we record a receivable in our Consolidated Financial Statements for
any such amounts.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Periodically, we review the status of each significant matter to assess the potential
financial exposure. If a potential loss is considered probable and the amount can be reasonably
estimated as defined by the authoritative guidance for contingencies, we reflect the estimated loss
in our results of operations. Significant judgment is required to determine the probability that a
liability has been incurred or an asset impaired and whether such loss is reasonably estimable.
Further, estimates of this nature are highly subjective, and the final outcome of these matters
could vary significantly from the amounts that have been included in the Consolidated Financial
Statements. As additional information becomes
available, we reassess the potential liability
related to our pending claims and litigation and may revise estimates accordingly. Such revisions
in the estimates of the potential liabilities could have a material impact on our results of
operations and financial position.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Product Warranty Costs</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our sales arrangements with our customers typically provide for approximately 12 months of
warranty coverage (the “Standard Warranty”) from shipment. Our customers can extend their warranty
coverage outside the term of the Standard Warranty through our extended warranty programs. As
discussed further below under revenue recognition, we account for our Standard Warranty and
extended warranty offerings as separate elements of an arrangement, with the fair value of these
elements recognized as revenue ratably over the service period. We expense all costs associated
with these elements as incurred.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     For purposes of determining when the cost of our warranty offerings has been “incurred,” we
follow the authoritative guidance for extended warranty related services revenue recognition.
Under the guidance, costs must be recognized as “incurred” when a warranty event occurs, which may
precede the expenditures to satisfy the warranty claim. While we generally expense all costs as
the expenditure is made, we accrue the costs expected to be incurred with a specific product
defect, which is generally a defect that is classified as a Class A defect. A Class A defect is a
designation that obligates us to correct a pervasive defect in one of our products. In the case of
a Class A defect or specific known product defect that we have committed to remedy, we accrue the
expected costs to be incurred at the time we determine that it is probable that we have an
obligation to repair a product defect and the expected expenditures are estimable. All warranty
related expenses are reflected within cost of sales in the accompanying Consolidated Statements of
Operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In 2008, we incurred $2.1 million of warranty charges, consisting of (i) a $2.8 million
provision for Class A warranty event related to our performance management product line, and (ii)
revisions of estimates relating to previous Class A warranty events resulting in a reduction in
expense of approximately $0.7 million. In 2009, we recorded an additional $3.9 million net charge
related to item (i) above as a result of a revision of cost estimates required to address the
warranty related issues. Based on the actual results in resolving the issue, we have subsequently
updated our estimates and have reduced the warranty accrual in 2010 by approximately $1.6 million.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our warranty reserve is based on our estimates of the associated material costs, technical
support labor costs, and associated overhead. Our warranty obligation is affected by product
failure rates, material usage and service delivery costs incurred in correcting product failures.
Should actual product failure rates, material usage or service delivery costs differ from our
estimates, revisions to the estimated warranty liability would be required. Further, if we
experience an increase in warranty claims compared with our historical experience, or if the cost
of servicing warranty claims is greater than the expectations on which the accrual has been based,
our gross margin could be adversely affected.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Certain of our extended warranty agreements include provisions indemnifying customers against
liabilities in the event we fail to perform to specific service level requirements. Arrangements
that include these indemnification provisions typically provide for a limit on the amount of
damages that we may be obligated to pay our customers. In addition to these indemnification
provisions, our agreements typically include warranties that our products will substantially
operate as described in the applicable product documentation and that the services we perform will
be provided in a manner consistent with industry standards. We do not believe that these warranty
or indemnity obligations represent a separate element in the arrangement because fulfillment of
these obligations is consistent with our obligations under our standard warranty. To date, we have
not incurred any material costs associated with these warranty and indemnification provisions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     An analysis of changes in the liability for product warranty costs is as follows (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>For the Years Ended December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at beginning of year
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,592</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,602</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,665</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Current year provision, net
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,640</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">3,875</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,082</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expenditures
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(767</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,885</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,145</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at end of year
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,185</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,592</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,602</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Derivative Instruments and Hedging Activities</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We operate internationally and thus are exposed to potential adverse changes in foreign
currency exchange rates. We use derivative instruments (principally forward contracts to exchange
foreign currency) to reduce our exposure to foreign currency rate changes on receivables and other
net monetary assets denominated in a foreign currency. The foreign currency exchange 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 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 of the contracts.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     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
derivative instruments as accounting hedges as defined by the authoritative guidance for
derivatives and hedging, and, accordingly, we adjust these instruments 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. Please refer to Note 6 for a further discussion
of our derivative instruments and hedging activities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Revenue Recognition</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Substantially all of our revenues are derived from sales or licensing of our (i)
telecommunications products, (ii) professional services including installation, training, and
general support, and (iii) warranty-related support, comprised of telephone support, repair and
return of defective products, and product updates (commonly referred to as maintenance,
post-contract customer support or PCS). Our customers generally purchase a combination of our
products and services as part of a multiple deliverable arrangement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">          <u>Determining Separate Elements and Allocating Value to Those Elements</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update 2009-14: Software (Topic 985) — Certain Revenue Arrangements That Include
Software Elements — a consensus of the EITF (ASU 2009-14) which 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 the industry-specific software revenue recognition guidance in ASC 985-605
Software (historically referred to as SOP 97-2.)
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     The FASB also amended the accounting standards for revenue recognition for arrangements
with multiple deliverables by issuing Accounting Standards Update 2009-13: Revenue Recognition
(Topic 605) — Multiple-Deliverable Revenue Arrangements — a consensus of the EITF (ASU
2009-13). This 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     We elected to early adopt, as permitted, the new authoritative guidance included in ASU
2009-14 and ASU 2009-13 (collectively “the ASUs”) 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
guidance found in ASC 985-605 no longer applies to the majority of our product revenue
transactions. 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. Additionally, as our customers generally purchase a combination of our products and
services as part of a multiple deliverable arrangement, we follow the guidance in ASU 2009-13.
Our arrangements generally do not include any provisions for cancellation, termination, or
refunds that would significantly impact recognized revenue. The adoption of these new
accounting standards did not have a material impact on the timing, pattern, or amount of revenue
recognized in 2010, primarily due to (i) a
portion of the revenue for the year ended December
31, 2010 being derived from the backlog of orders which were
received prior to January 1, 2010 and therefore were not accounted for under the new
non-software revenue recognition guidance, and (ii) the revenue recognition guidance in the ASUs
not differing significantly from the software revenue recognition guidance in ASC 985-605 when
applied to acceptance based arrangements and arrangements that are received and fulfilled within
the same quarter.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     For transactions entered into prior to January 1, 2010 and not materially modified after
that date, we follow the separation and allocation guidance in ASC 985-605. Additionally,
arrangements entered into after January 1, 2010 where the tangible products and software
elements do not function together to deliver the tangible product’s essential functionality and
extended maintenance arrangements are also accounted for under this guidance. For these
transactions, 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 one 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 accounted for under this guidance.
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).
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     For transactions entered into after January 1, 2010 that are accounted for under the ASUs,
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. As discussed above, we rarely sell our products on a stand-alone basis or without
warranty coverage and thus, 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     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 analyze the selling prices used in our allocation of arrangement
consideration at least semi-annually. Selling prices are analyzed more frequently if a
significant change in our business necessitates a more timely analysis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     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 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">           <u>Product Revenue</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     All arrangements, regardless of how we determine separate elements or allocate
consideration to the underlying units of account, are evaluated for the following four criteria:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="6%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td><u>Persuasive evidence of an arrangement exists.</u> We consider a
non-cancelable agreement (such as a customer purchase order, contract, etc.) to be
evidence of an arrangement.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="6%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td><u>Delivery has occurred.</u> Delivery is considered to occur when title to
and the risk of loss of our products has passed to the customer, which typically
occurs at physical delivery of the products to a common carrier. For arrangements
with systems integrators and OEM customers, we recognize revenue when title to the
last product in a multiple-element arrangement has passed. For arrangements with
resellers, we generally recognize revenue upon evidence of sell-through to the end
customer.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div style="margin-top: 6pt">
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="6%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td><u>The fee is fixed and determinable.</u> We assess whether fees are fixed and
determinable at the time of
sale. Our standard payment terms may vary based on the country in which the
arrangement is executed and the credit standing of the individual customer, among
other factors. We generally consider payments that are due within nine months of
shipment or acceptance to be fixed or determinable based upon our successful
collection history on such arrangements. We evaluate payment terms in excess of nine
months but less than one year on a case-by-case basis as to whether the fee is fixed
or determinable. In addition, we only consider the fee to be fixed or determinable
if the fee is not subject to refund or adjustment. If the arrangement fee is not
fixed or determinable, we recognize the revenue as amounts become due and payable.</td>
</tr>
<tr>
<td style="font-size: 6pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="6%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td><u>Collection is probable.</u> We conduct a credit review for all significant
transactions at the time of the arrangement to determine the credit-worthiness of
the customer. Collection is deemed probable if we expect that the customer will be
able to pay amounts under the arrangement as payments become due. If we determine
collection is not probable, we defer the revenue and recognize the revenue upon
cash collection.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     Additionally, for arrangements that include acceptance provisions based on our published
specifications, revenue is recognized upon shipment, assuming all other revenue recognition
criteria are met, provided that we have previously demonstrated that the product meets the
specified criteria and we have an established history with similar transactions. If the
acceptance provisions are long-term in nature or the acceptance is based upon customer specified
criteria for which we cannot reliably demonstrate that the delivered product meets all the
specified criteria, revenue is deferred until the earlier of the receipt of written customer
acceptance or the expiration of the acceptance period. If an arrangement includes acceptance
provisions that are short-term in nature, we provide for a sales return allowance in accordance
with the authoritative guidance for revenue recognition. In the event we cannot reasonably
estimate the incidence of returns, we defer revenue until the earlier that such estimate can
reasonably be made or receipt of written customer acceptance or expiration of the acceptance
period.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     Our arrangements may include penalty provisions. If an arrangement includes penalty
provisions (e.g., for late delivery or installation of the product), we defer the portion of the
arrangement subject to forfeiture under the penalty provision of the arrangement until the
earlier of: (i) a determination that the penalty was not incurred; (ii) the customer waives its
rights to the penalty; or (iii) the customer’s right to assess the penalty lapses.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     <u>Warranty/Maintenance Revenue</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     Our arrangements typically provide for standard warranty coverage at no additional charge
to our customer. We allocate a portion of the arrangement fee to the standard warranty based on
the VSOE of its fair value. The related revenue is deferred and recognized ratably over the
term of the standard warranty based on the number of days of warranty coverage during each
period.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     Our customers can extend their warranty coverage outside the term of the standard warranty
through our extended warranty programs. Renewal rates for extended warranties are typically
established based upon a specified percentage of net product fees as set forth in the
arrangement. We recognize revenue for our extended maintenance contracts in accordance with ASC
985-605 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     <u>Professional and Other Services Revenue</u>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     Professional and other services revenue primarily consists of implementation services
related to the installation of our products and training revenues. Our products are ready to
use by the customer upon receipt and, accordingly, our implementation services do not involve
significant customization to or development of the product or any underlying software code
embedded in the product. Substantially all of our professional service arrangements are related
to installation and training services and 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 (i.e., typically several weeks,
or in limited cases, several months). For arrangements that are billed on a time and materials
basis, we recognize revenue as the services are performed. If there exists a significant
uncertainty about the project completion or receipt of payment for the professional services,
revenue is deferred until the uncertainty is sufficiently resolved.
</div>
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     When total cost estimates exceed revenues, we accrue for the estimated losses immediately
using the estimated cost of the remaining equipment to be delivered and an average fully
burdened daily rate applicable to the consulting personnel delivering the services.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     The following table shows the total revenue for the year ended December 31, 2010 recognized
according to the new non-software revenue recognition and the software guidance (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Year</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">New non-software revenue recognition
guidance<sup style="font-size: 85%; vertical-align: text-top">(1)</sup>
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">163,883</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Software revenue recognition guidance
</div></td>
<td> </td>
<td> </td>
<td align="right">260,080</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">423,963</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>For the reasons discussed above, the timing of the revenue recognized for the
year ended December 31, 2010 would not have been materially different if we had recorded it
under the existing software revenue guidance.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table shows the total deferred revenue as of December 31, 2010 accounted for
according to the software and the new non-software revenue recognition guidance (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">New non-software revenue recognition guidance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">39,326</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Software revenue recognition guidance
</div></td>
<td> </td>
<td> </td>
<td align="right">112,777</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">152,103</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     While the timing of the revenue recognized for the year ended December 31, 2010 would not
have been materially different if we had recorded it under the existing software revenue guidance,
we expect that this new accounting guidance will facilitate our efforts to optimize our offerings
due to better alignment between the economics of an arrangement and the accounting. This may lead
to our engaging in new go-to-market practices in the future. As these go-to-market strategies
evolve, we may modify our pricing practices in the future, which could result in changes in selling
prices, including both VSOE and BESP. As a result, our future revenue recognition for
multiple-element arrangements could differ materially from the results in the current period.
Also, as our solution offerings evolve to include software only components, these solutions will
remain subject to the software revenue recognition guidance in ASC 985-605. Should such new
business strategies impact our ability to maintain our established VSOE on maintenance and
services, the revenue for these software solutions will be accounted on a straight line basis
disproportionally impacting our margins.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Cost of Sales</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Cost of sales consists primarily of materials, labor and overhead costs incurred internally or
paid to contract manufacturers to produce our products, personnel and other implementation costs
incurred to install our products and train customer personnel, and customer service and third party
original equipment manufacturer costs to provide continuing support to our customers under our
warranty offerings. Also included in cost of sales is the amortization of certain intangible
assets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Shipping and Handling Costs</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Shipping and handling costs are included as a component of costs of sales in the accompanying
Consolidated Statements of Operations because we include in revenues the related costs that we bill
our customers.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Advertising</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We expense the costs of producing advertisements at the time production occurs and expense the
cost of communicating the advertising in the period in which the advertising is used. Advertising
costs are included in sales and marketing expenses and amounted to approximately $0.5 million, $0.5
million, and $0.7 million in 2010, 2009 and 2008, respectively.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Lease Obligations</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We recognize lease obligations with fixed escalations of rental payments on a straight-line
basis in accordance with the authoritative guidance for leases. Accordingly, the total amount of
base rentals over the term of our leases is
charged to expense on a straight-line method, with the amount of rental expense in excess of
lease payments recorded as a deferred rent liability.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Income Taxes</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We use the asset and liability method of accounting for income taxes provided under the
authoritative guidance for income taxes. Under this method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the
Consolidated Financial Statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are recognized for deductible temporary differences,
along with net operating loss carryforwards and credit carryforwards, if it is more likely than not
that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized
under the preceding criteria, allowances are established. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Accounting for Uncertain Tax Positions</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We account for uncertain tax positions in accordance with the authoritative guidance for
income taxes. We recognize interest and penalties related to income tax exposures as incurred as a
component of the provision for income taxes in the Consolidated Statements of Operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Presentation of Taxes Collected from Customers and Remitted to Governmental Authorities</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We present taxes (e.g., sales tax) collected from customers and remitted to governmental
authorities on a net basis (i.e., excluded from revenues).
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">      <b><i>Stock-Based Compensation</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We account for our employee stock-based compensation plans using the fair value method, as
prescribed by the authoritative guidance for stock compensation. The authoritative guidance for
stock compensation requires that we estimate the fair value of share-based payment awards on the
date of the grant using an option-pricing model. To estimate the fair value of our stock option
awards, stock appreciation rights (“SARs”), and employee stock purchase plan shares we currently
use the Black-Scholes option-pricing model. The determination of the fair value of stock-based
payment awards on the date of grant using an option-pricing model is affected by our stock price as
well as assumptions regarding a number of complex and subjective variables. These variables
include our expected stock price volatility over the term of the awards, actual and projected
employee stock option exercise behaviors, risk-free interest rate and expected dividends. Due to
the inherent limitations of option-valuation models available today, including future events that
are unpredictable and the estimation process utilized in determining the valuation of the
stock-based awards, the ultimate value realized by our employees may vary significantly from the
amounts expensed in our financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     For restricted stock or restricted stock unit awards, we measure the grant date fair value
based upon the market price of our common stock on the date of the grant and amortize this fair
value to compensation expense over the requisite service period or vesting term. The expense with
respect to performance-based grants is accrued based on our assessment of the probability that the
performance conditions will be achieved. To the extent that we believe it is probable that the
performance goals will be achieved, the expense associated with performance-based grants is accrued
according to the vesting schedule of the award beginning in the period when achievement is
considered probable. We reassess the probability of the performance conditions being achieved at
each reporting period, and adjust the accrual for subsequent changes in the estimated or actual
outcome.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The authoritative guidance for stock compensation also requires the benefit of tax deductions
in excess of recognized compensation expense to be reported as a financing cash flow, rather than
as an operating cash flow as prescribed under previous accounting rules. This requirement reduces
net operating cash flows and increases net financing cash flows in periods subsequent to adoption.
Stock-based compensation expense for the years ended December 31, 2010, 2009, and 2008 was
approximately $12.5 million, $13.5 million, and $13.3 million, respectively. See Note 13 for
additional information regarding the stock-based compensation expense.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Earnings Per Share</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We determine earnings per share in accordance with the authoritative guidance for “earnings
per share.” Basic earnings per share are computed by dividing net income by the weighted average
number of shares of common stock outstanding for the applicable period. Diluted earnings per share
are determined in the same manner as basic earnings per share except that the number of shares is
increased to assume exercise of potentially dilutive stock options and SARs, unvested restricted
stock and contingently issuable shares using the treasury stock method, unless the effect of such
increase would be anti-dilutive. Under the treasury stock method, the amount the employee must pay
for exercising stock options and SARs, the amount of compensation cost for future service that we
have not yet recognized, and the amount of tax benefits that would be recorded in additional
paid-in capital when the award becomes deductible are assumed to be used to repurchase shares.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Restructuring and Related Expenses</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our severance policies include all officers and employees and the pre-defined severance
benefits are communicated to all employees. We account for costs incurred under these severance
plans, including obligations created under labor laws such as the Workers’ Adjustment and
Retraining Notification Act (the “WARN Act”), in accordance with the authoritative guidance for
compensation — nonretirement postemployment benefits. Under this guidance, we record these
obligations when the obligations are estimable and probable.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We account for one-time termination benefits, contract termination costs and other related
exit costs in accordance with the authoritative guidance for exit or disposal cost obligations.
This guidance requires that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, as opposed to when management commits to an exit plan.
Additionally, this guidance requires that (i) liabilities associated with exit and disposal
activities be measured at fair value, (ii) one-time termination benefits be expensed at the date
the entity notifies the employee, unless the employee must provide future service, in which case
the benefits are expensed ratably over the future service period, (iii) liabilities related to an
operating lease/contract be recorded at fair value and measured when the contract does not have any
future economic benefit to the entity (i.e., the entity ceases to utilize the rights conveyed by
the contract), and (iv) all other costs related to an exit disposal activity be expensed as
incurred. Restructuring liabilities are included in “Accrued expenses” in the accompanying
Consolidated Financial Statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Research and Development Costs</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Research and development costs associated with new product development, improvement of
existing products, process improvement, and product use technologies are charged to operations in
the period in which they are incurred. These costs consist primarily of employee salaries and
benefits, occupancy costs, consulting costs, and the cost of development equipment and supplies.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     According to the revised accounting guidance for business combinations, the purchase price
allocated to research and development projects that have not yet reached technological feasibility
and for which no alternative future use exists (“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 is amortized over its estimated useful life. Prior to the adoption of the revised accounting
guidance, IPR&D was expensed upon acquisition.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">     <b><i>Segment Information</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We disclose information concerning our operating segments in accordance with the authoritative
guidance for segment reporting which requires segmentation based on our internal organization and
reporting of revenues and operating income based upon internal accounting methods commonly referred
to as the “management approach.” Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated regularly by the Chief
Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources
and in assessing performance. Our CODM is our Interim Chief Executive Officer. We consider
ourselves to be in a single reportable segment, specifically the development and sale of signaling
telecommunications and related value-added applications and services. We provide enterprise wide
disclosures as required by the authoritative guidance for segment reporting in our interim
unaudited condensed Consolidated Financial Statements and our annual Consolidated Financial
Statements.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Recent Accounting Pronouncements</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <b><i>Disclosure of Supplementary Pro Forma Information for Business Combinations. </i></b>In December
2010, the FASB issued Accounting Standard Update 2010-29 “Business Combinations: Disclosure of
Supplementary Pro Forma Information for Business Combinations.” The amendments in this Update
affect any public entity that enters into business combinations that are material on an individual
or aggregate basis. The amendments in this Update specify that if a public entity presents
comparative financial statements, the entity should disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred during the current year had occurred as
of the beginning of the comparable prior annual reporting period only. The Update also expands the
supplemental pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination included in
the reported pro forma revenue and earnings. The Update is effective prospectively for business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. Early adoption is permitted. We believe
the adoption of this update will primarily result in increased disclosures, but will not have a
material impact on our financial position of results of operations.
</div>
</div>
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