** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

** **

**For the quarterly periodended March 31, 2006**

** **

**OR**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

** **

**For the transition periodfrom                to              **

** **

**Commission file Number: 0-09692**

** **

**TELLABS, INC.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                                 | **36-3831568**                        |
|------------------------------------------------------------------------------|---------------------------------------|
| (State of  Incorporation)                                                    | (I.R.S. Employer  Identification No.) |
|                                                                         |                                  |
| **One  Tellabs Center, 1415 W. Diehl Road,  Naperville, Illinois**           | **60563**                             |
| (Address of  Principal Executive Offices)                                    | (Zip Code)                            |
|                                                                         |                                  |
| Registrant’s  telephone number, including area code: **(630) 798-8800** |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   YES x   NOo

Indicate by check mark whether the Registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):
| Large Accelerated Filer   x | Accelerated  Filer   o | Non-Accelerated Filer   o |
|---------------------------------------|----------------------------------|-------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).   YES o   NOx

Common Shares, $0.01 Par Value — 448.1 million sharesoutstanding on March 31, 2006.

 

 

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**TELLABS,INC.INDEX**
|                   | ** ** | ** **                                                                                      | ** ** | **PAGE**   | ** ** |
|-------------------|------------|-------------------------------------------------------------------------------------------------|------------|------------|------------|
| **PART I.**  | ** ** | **FINANCIAL INFORMATION**                                                                       |       |       |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item 1.**       | ** ** | **Financial Statements:**                                                                       |       |       |       |
|              |       | Consolidated  Statements of Income                                                              |       | 3          |       |
|              |       |                                                                                            |       |       |       |
|              |       | Consolidated Balance  Sheets                                                                    |       | 4          |       |
|              |       |                                                                                            |       |       |       |
|              |       | Consolidated  Statements of Cash Flow                                                           |       | 5          |       |
|              |       |                                                                                            |       |       |       |
|              |       | Notes to  Consolidated Financial Statements                                                     |       | 6          |       |
|              |       |                                                                                            |       |       |       |
| **Item 2.**       | ** ** | **Management’s  Discussion and Analysis of Results of Operations and Financial Condition** |       | 13         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item 3.**       | ** ** | **Quantitative  and Qualitative Disclosures about Market Risk**                                 |       | 17         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item 4.**       | ** ** | **Controls and  Procedures**                                                                    |       | 17         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                           | ** ** | 17         |       |
| ** **        | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **Item 1.**       | ** ** | **Legal Proceedings**                                                                           |       | 17         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item  1A.**     | ** ** | **Risk Factors**                                                                                |       | 18         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item 2.**       | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                |       | 18         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item 4.**       | ** ** | **Submission of  Matters to a Vote of Security Holders**                                        |       | 18         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **Item  6.**      | ** ** | **Exhibits**                                                                                    |       | 19         |       |
| ** **        | ** ** | ** **                                                                                      |       |       |       |
| **SIGNATURE**     |       | 20                                                                                              |       |

 

2

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**PART I. FINANCIAL INFORMATION**

**Item 1. FinancialStatements**

**TELLABS,INC.CONSOLIDATED STATEMENTS OF INCOME(Unaudited)**
| ** **                                                 | ** ** | **First Quarter** | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|
| **In millions, except per-share data** | ** ** | **3/31/06**            | ** ** | **4/1/05** | ** ** |
| **Revenue**                                                | ** ** | ** **             | ** ** | ** ** | ** ** |
| Products                                                   | ** ** | **$**                  | **474.1**  |   | $ | 401.3 |   |
| Services                                                   | ** ** | **40.6**               |       | 34.3 |   |
|                                                       | ** ** | **514.7**              |       | 435.6 |   |
|                                                       | ** ** | ** **             |       |   |   |
| **Cost of Revenue**                                        | ** ** | ** **             |       |   |   |
| Products                                                   | ** ** | **242.2**              |       | 226.6 |   |
| Services                                                   | ** ** | **30.2**               |       | 27.1 |   |
|                                                       | ** ** | **272.4**              |       | 253.7 |   |
|                                                       | ** ** | ** **             |       |   |   |
| **Gross Profit**                                           | ** ** | **242.3**              |       | 181.9 |   |
| Gross profit as a  percentage of revenue                   |       | 47.1                   | %          | 41.8 | % |
|                                                       |       |                   |       |   |   |
| Gross profit as a  percentage of revenue - products        |       | 48.9                   | %          | 43.5 | % |
| Gross profit as a  percentage of revenue - services        |       | 25.6                   | %          | 21.0 | % |
|                                                       |       |                   |       |   |   |
| **Operating Expenses**                                     | ** ** | ** **             |       |   |   |
| Research and  development                                  | ** ** | **92.9**               |       | 88.8 |   |
| Sales and  marketing                                       | ** ** | **45.0**               |       | 46.2 |   |
| General and  administrative                                | ** ** | **28.1**               |       | 22.3 |   |
| Intangible asset  amortization                             | ** ** | **7.0**                |       | 11.0 |   |
| Restructuring  and other charges                           | ** ** | **—**             |       | 13.2 |   |
|                                                       | ** ** | **173.0**              |       | 181.5 |   |
| **Operating Earnings**                                     | ** ** | **69.3**               |       | 0.4 |   |
| ** **                                                 | ** ** | ** **             |       |   |   |
| **Other Income**                                           | ** ** | ** **             |       |   |   |
| Interest income,  net                                      | ** ** | **10.5**               |       | 5.7 |   |
| Other income  (expense), net                               | ** ** | **1.4**                |       | (2.7 | ) |
|                                                       | ** ** | **11.9**               |       | 3.0 |   |
| **Earnings Before Income Tax**                             | ** ** | **81.2**               |       | 3.4 |   |
| Income tax expense                                         | ** ** | **(28.8**              | **)**      | (2.7 | ) |
| **Net Earnings**                                           | ** ** | **$**                  | **52.4**   |   | $ | 0.7 |   |
| ** **                                                 | ** ** | ** **             |       |   |   |
| **Net Earnings Per Share**                                 | ** ** | ** **             |       |   |   |
| Basic                                                      | ** ** | **$**                  | **0.12**   |   | $ | 0.00 |   |
| Diluted                                                    | ** ** | **$**                  | **0.11**   |   | $ | 0.00 |   |
|                                                       | ** ** | ** **             |       |   |   |
| **Weighted Average Shares  Outstanding**                   | ** ** | ** **             |       |   |   |
| Basic                                                      | ** ** | **449.6**              |       | 455.8 |   |
| Diluted                                                    | ** ** | **460.0**              |       | 458.8 |   |

 

**Amortization of stock option expensein 2006 and deferred stock compensation in 2006 and 2005 related toacquisitions is included in the following cost and expense categories byperiod:**

 
| Cost of revenue             | ** ** | **$**   | **1.4**  |   | $      | 0.1 |   |
|-----------------------------|------------|---------|----------|--------|--------|-----|--------|
| Research and  development   | ** ** | **4.7** |     | 2.6    |   |
| Sales and marketing         | ** ** | **2.1** |     | 0.1    |   |
| General and  administrative | ** ** | **4.6** |     | 0.1    |   |
| ** **                  | ** ** | **$**   | **12.8** |   | $      | 2.9 |   |

 

The accompanying notesare an integral part of these statements.

3

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**TELLABS,INC.CONSOLIDATED BALANCE SHEETS**
| **In millions, except share data**                                                        | ** ** | **3/31/06**     | ** **  | **12/30/05** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------|-------------|--------------|------------|
| ** **                                                                                                    | ** ** | **(Unaudited)** | ** **  | ** **   | ** ** |
| **Assets**                                                                                                    |       |            |        |         |       |
| **Current Assets**                                                                                            |       |            |        |         |       |
| Cash and cash  equivalents                                                                                    | ** ** | **$**           | **493.6**   |         | $          | 880.8 |   |
| Investments in  marketable securities                                                                         | ** ** | **651.0**       |        | 308.9        |       |
|                                                                                                          | ** ** | **1,144.6**     |        | 1,189.7      |       |
| Other marketable  securities - Cisco stock                                                                    | ** ** | **228.8**       |        | 180.8        |       |
| Accounts  receivable, net of returns and allowances of $6.8 and $8.4                                          | ** ** | **360.8**       |        | 319.4        |       |
| Inventories                                                                                                   | ** ** | ** **      |        |         |       |
| Raw materials                                                                                                 | ** ** | **32.1**        |        | 28.3         |       |
| Work in process                                                                                               | ** ** | **11.2**        |        | 11.7         |       |
| Finished goods                                                                                                | ** ** | **80.7**        |        | 69.1         |       |
|                                                                                                          | ** ** | **124.0**       |        | 109.1        |       |
| Income taxes                                                                                                  | ** ** | **7.4**         |        | 15.9         |       |
| Miscellaneous  receivables and other current assets                                                           | ** ** | **51.9**        |        | 58.1         |       |
| **Total Current Assets**                                                                                      | ** ** | **1,917.5**     |        | 1,873.0      |       |
| ** **                                                                                                    | ** ** | ** **      |        |         |       |
| **Property, Plant and Equipment**                                                                             | ** ** | ** **      |        |         |       |
| Land                                                                                                          | ** ** | **20.3**        |        | 20.3         |       |
| Buildings and  improvements                                                                                   | ** ** | **191.4**       |        | 190.5        |       |
| Equipment                                                                                                     | ** ** | **413.5**       |        | 403.2        |       |
|                                                                                                          | ** ** | **625.2**       |        | 614.0        |       |
| Accumulated  depreciation                                                                                     | ** ** | **(329.7**      | **)**       | (313.9       | )          |
|                                                                                                          | ** ** | **295.5**       |        | 300.1        |       |
| **Goodwill**                                                                                                  | ** ** | **1,112.3**     |        | 1,111.9      |       |
| **Intangible Assets, Net of  Amortization**                                                                   | ** ** | **110.5**       |        | 117.2        |       |
| **Other Assets**                                                                                              | ** ** | **123.1**       |        | 112.7        |       |
| **Total Assets**                                                                                              | ** ** | **$**           | **3,558.9** |         | $          | 3,514.9 |   |
| ** **                                                                                                    | ** ** | ** **      |        |         |       |
| **Liabilities and Stockholders’  Equity**                                                                | ** ** | ** **      |        |         |       |
| **Current Liabilities**                                                                                       | ** ** | ** **      |        |         |       |
| Accounts payable                                                                                              | ** ** | **$**           | **94.2**    |         | $          | 97.1 |   |
| Accrued  compensation                                                                                         | ** ** | **49.1**        |        | 83.8         |       |
| Restructuring  and other charges                                                                              | ** ** | **6.0**         |        | 7.2          |       |
| Income taxes                                                                                                  | ** ** | **34.0**        |        | 28.9         |       |
| Cisco stock loan                                                                                              | ** ** | **228.8**       |        | 180.8        |       |
| Other accrued  liabilities                                                                                    | ** ** | **130.8**       |        | 127.4        |       |
| **Total Current Liabilities**                                                                                 | ** ** | **542.9**       |        | 525.2        |       |
| ** **                                                                                                    | ** ** | ** **      |        |         |       |
| **Long-Term Restructuring  Liabilities**                                                                      | ** ** | **22.5**        |        | 24.0         |       |
| **Income Taxes**                                                                                              | ** ** | **99.6**        |        | 95.9         |       |
| **Other Long-Term Liabilities**                                                                               | ** ** | **55.9**        |        | 55.1         |       |
| ** **                                                                                                    | ** ** | ** **      |        |         |       |
| **Stockholders’ Equity**                                                                                 | ** ** | ** **      |        |         |       |
| Preferred stock:  authorized 5,000,000 shares of $0.01 par value; no shares issued and  outstanding           | ** ** | **—**      | ** **  | **—**   | ** ** |
| Common stock:  authorized 1,000,000,000 shares of $0.01 par value; 484,056,903 and  477,045,901 shares issued | ** ** | **4.8**         |        | 4.8          |       |
| Additional  paid-in capital                                                                                   | ** ** | **1,306.6**     |        | 1,238.7      |       |
| Deferred  compensation expense                                                                                | ** ** | **—**      |        | (10.9        | )          |
| Treasury stock,  at cost: 35,969,513 and 27,661,859 shares                                                    | ** ** | **(441.2**      | **)**       | (322.8       | )          |
| Retained  earnings                                                                                            | ** ** | **1,900.3**     |        | 1,847.9      |       |
| Accumulated  other comprehensive income                                                                       | ** ** | **67.5**        |        | 57.0         |       |
| **Total Stockholders’ Equity**                                                                           | ** ** | **2,838.0**     |        | 2,814.7      |       |
| **Total Liabilities and Stockholders’ Equity**                                                           | ** ** | **$**           | **3,558.9** |         | $          | 3,514.9 |   |

 

The accompanying notesare an integral part of these statements.

4

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**TELLABS,INC.CONSOLIDATED STATEMENTS OF CASH FLOW(Unaudited)**
| ** **                                                                           | ** ** | **First Quarter** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| **In millions**                                                                 | ** ** | **3/31/06**            | ** ** | **4/1/05** | ** ** |
| **Operating  Activities**                                                            | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net earnings                                                                         | ** ** | **$**                  | **52.4**   |   | $ | 0.7 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities: | ** ** | ** **             |       |   |   |
| Depreciation and amortization                                                        | ** ** | **25.6**               |       | 32.1 |   |
| Stock-based compensation                                                             | ** ** | **15.3**               |       | 3.5 |   |
| Deferred income taxes                                                                | ** ** | **21.6**               |       | (5.2 | ) |
| Restructuring and other charges                                                      | ** ** | **—**             |       | 13.2 |   |
| Net changes in assets and liabilities, net of effects  from acquisitions:            | ** ** | ** **             |       |   |   |
| Accounts receivable                                                                  | ** ** | **(41.6**              | **)**      | 37.1 |   |
| Inventories                                                                          | ** ** | **(15.2**              | **)**      | (40.7 | ) |
| Miscellaneous receivables and other current assets                                   | ** ** | **11.5**               |       | (1.6 | ) |
| Other assets                                                                         | ** ** | **(2.4**               | **)**      | (3.7 | ) |
| Accounts payable                                                                     | ** ** | **(2.7**               | **)**      | 11.7 |   |
| Restructuring and other charges                                                      | ** ** | **(2.7**               | **)**      | (7.4 | ) |
| Other accrued liabilities                                                            | ** ** | **(34.6**              | **)**      | (36.4 | ) |
| Income taxes                                                                         | ** ** | **(17.7**              | **)**      | 3.5 |   |
| Other long-term liabilities                                                          | ** ** | **0.6**                |       | 0.2 |   |
| **Net  Cash Provided by Operating Activities**                                       | ** ** | **10.1**               |       | 7.0 |   |
| ** **                                                                           |       |                   |       |   |   |
| **Investing  Activities**                                                            |       |                   |       |   |   |
| Capital expenditures                                                                 | ** ** | **(12.9**              | **)**      | (8.9 | ) |
| Disposals of property, plant and equipment                                           | ** ** | **0.2**                |       | — |   |
| Payments for purchases of investments                                                | ** ** | **(495.3**             | **)**      | (249.4 | ) |
| Proceeds from sales and maturities of investments                                    | ** ** | **163.2**              |       | 269.6 |   |
| **Net  Cash Provided by (Used for) Investing Activities**                            | ** ** | **(344.8**             | **)**      | 11.3 |   |
| ** **                                                                           |       |                   |       |   |   |
| **Financing  Activities**                                                            |       |                   |       |   |   |
| Proceeds from issuance of common stock under option  plans                           | ** ** | **63.8**               |       | 1.4 |   |
| Repurchase of common stock                                                           | ** ** | **(118.4**             | **)**      | (118.7 | ) |
| **Net  Cash Used for Financing Activities**                                          | ** ** | **(54.6**              | **)**      | (117.3 | ) |
| **Effect  of Exchange Rate Changes on Cash**                                         | ** ** | **2.1**                |       | (9.0 | ) |
| **Net Decrease  in Cash and Cash Equivalents**                                       | ** ** | **(387.2**             | **)**      | (108.0 | ) |
| **Cash  and Cash Equivalents - Beginning of Year**                                   | ** ** | **880.8**              |       | 292.9 |   |
| **Cash and Cash Equivalents - End  of Period**                                       | ** ** | **$**                  | **493.6**  |   | $ | 184.9 |   |

 

The accompanying notesare an integral part of these statements.

5

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**TELLABS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**IN MILLIONS EXCEPTSHARE AND PER-SHARE DATA

**1. Basisof Presentation**

Ouraccompanying unaudited consolidated financial statements were prepared inaccordance with generally accepted accounting principles for interim financialstatements, the requirements of Form 10-Q and applicablerules of Regulation S-X, so they do not include all disclosures normallyrequired by generally accepted accounting principles for complete financialstatements. Accordingly, the financial statements and notes herein are to beread in conjunction with our Annual Report on Form 10-K for the yearended December 30, 2005.

In ouropinion, the accompanying unaudited consolidated financial statements includeall adjustments (consisting of normal recurring accruals) that are necessaryfor a fair presentation. We reclassified certain prior period amounts toconform to the current period presentation. Operating results for interimperiods are not necessarily indicative of operating results for the full year.

**2. Restructuring and OtherCharges**

We did not initiate anyrestructuring plans in the first quarter of 2006 nor were there any adjustmentsto previous restructuring plans during that period. Our most recentrestructuring plans, initiated in the fourth quarter of 2004 and the first halfof 2005, were designed to improve profitability by reducing the combined annualexpenditures of Tellabs and Advanced Fibre Communications, Inc. (AFC) (thecompany that we acquired on November 30, 2004) by $30 million in 2005 andbeyond, and by reducing annual expenses from other sources (primarily operatingexpenses) by an additional $15 million. To reach these goals, we reorganizedour operations in Denmark and Finland, outsourced our North American prototypelab and reduced headcount on a smaller scale in other locations that resultedin the charges below, which primarily relate to our Broadband products segment.Implementation of these plans, which is now complete, resulted in workforcereductions, facility closures and asset disposals. We recorded charges in 2004and 2005 totaling $16.7 million related to these plans. Excluding restructuringcharges, we achieved cost savings from these plans beginning in the firstquarter of 2005. By the end of 2005, we achieved the goals of these plans. Ifwe incur any additional charges or credits for our previous restructuringplans, we do not expect them to be material.

The followingtable summarizes restructuring and other charges from plans initiated prior to2006:

|                                           | ** ** | **First Quarter** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| Severance and  other termination benefits |       | $                      | —     |   | $ | 11.0 |   |
| Facility and  other exit costs            |       | —                 |       | 2.2 |   |
| Total restructuring and  other charges    |       | $                      | —     |   | $ | 13.2 |   |

 

The followingtable summarizes our restructuring and other charges activity during the firstquarter of 2006 and the status of the reserves at March 31, 2006:

|                                           | ** ** | **Balance at  12/30/05** | ** ** | **Cash  Payments** | ** ** | **Balance at  3/31/06** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|--------------------|------------|------------------------------|------------|
| Facility and  other exit costs            |       | $                        | 29.7       |               | $          | 2.1                          |       | $ | 27.6 |   |
|                                      |       |                     |       |               |       |                         |       |
| Severance and  other termination benefits |       | 1.5                      |       | 0.6                |       | 0.9                          |       |
|                                      |       |                     |       |               |       |                         |       |
| Total                                     |       | $                        | 31.2       |               | $          | 2.7                          |       | $ | 28.5 |   |

 

As of December 30,2005, in addition to the aforementioned restructuring plans and relatedaccruals, we had a $10.0 million accrual remaining for exit costs related toour 2004 acquisition of AFC. During the first quarter of 2006, this accrual wascharged $1.1 million, leaving a balance of $8.9 million at March 31, 2006.These restructuring plans are expected to be completed by the end of 2006, withthe exception of lease liabilities that are expected to be fully utilized bythe end of 2009.

6

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**3. Employee Stock Plans**

In 2004our stockholders approved our current stock-based compensation plan, theTellabs, Inc. 2004 Incentive Compensation Plan. The plan provides for thegrant of short-term and long-term incentives, including stock-basedcompensation awards. A total of 39,139,977 shares was approved for grant underthe plan, of which 27,313,911 remain available for grant at March 31, 2006.Under the 2004 plan and predecessor plans, we typically granted awards atmarket value on the date of grant. Under the 2005 Tellabs, Inc. EmployeeStock Purchase Plan (which was approved by our stockholders in 2005), employeescan elect to withhold a portion of their compensation to purchase Tellabs’common stock at 85% of the stock’s closing price on the date of purchase.Shares are purchased under this 2005 plan in April and October. Sharesissued under all plans were new shares, not treasury stock.

At thebeginning of our first quarter of 2006, we adopted the provisions of SFAS123(R) requiring us to recognize expense related to the fair value of ourstock-based compensation awards. We elected to use the modified prospectivetransition method, and therefore have not restated prior periods. In addition,we eliminated the balance of deferred compensation expense in Stockholders’Equity against Additional Paid-in-Capital as of December 31, 2005, asrequired by this statement.

***StockOptions and Stock Appreciation Rights***

Optionsgranted during the first quarter of 2006 and those granted in the first quarterof 2005 generally vest ratably over 36 months from the date of the grant.Options granted in 2004 and 2003 generally become exercisable at a rate of 20%on each of the first two annual anniversaries and 60% on the third anniversaryof the grant date. AFC options that converted to Tellabs options on theacquisition date of November 30, 2004, vest over 3 to 4 years. Optionsgranted but unexercised expire 10 years from the date of grant.

Weestimated the fair value of stock options using the Black-Scholesoption-pricing model. This model requires the use of assumptions that will havea significant impact on the fair value estimate. The following table summarizesthe assumptions used to compute the weighted-average fair value of currentperiod stock option grants:

|                           | ** ** | **First Quarter** | ** ** |
|---------------------------|------------|------------------------|------------|
| ** **                | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| Expected  volatility      |       | 43.0                   | %          | 67.0 | % |
| Risk-free  interest rate  |       | 4.4                    | %          | 3.6 | % |
| Expected term  (in years) |       | 4.5                    |       | 4.5 |   |
| Expected dividend yield   |       | 0.0                    | %          | 0.0 | % |

We basedour calculation of expected volatility on a combination of historical andimplied volatility for options granted in the first quarter of 2006 and onhistorical volatility for options granted in the first quarter of 2005. If wehad determined the expected volatility for the first quarter of 2005 using acombination of historical and implied volatility, the expected volatility wouldhave been 42.7%. We based the risk-free interest rate on the U.S. Treasuryyield curve in effect at the time of option grant, and we estimated theexpected term of the options using their vesting period, post-vestingemployment termination behavior and historical exercise patterns.

The following is asummary of the activity in our stock options during the quarter and status atthe end of the quarter ended March 31, 2006:
| ** **                                                        | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual Term  (in years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|-----------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding -  beginning of year                                  |       | 55,320,265 |       | $                                       | 15.90      |                                                                      |       |                            |       |   |
| Granted                                                           |       | 473,450    |       | 12.68                                   |       |                                                                      |       |                            |       |
| Exercised                                                         |       | (7,008,445 | )          | 9.11                                    |       |                                                                      |       |                            |       |
| Forfeited/expired                                                 |       | (2,580,442 | )          | 19.47                                   |       |                                                                      |       |                            |       |
| Outstanding -  end of period                                      |       | 46,204,828 |       | 16.69                                   |       | 6.3                                                                       |       | 237,674,584                     |       |
|                                                              |       |       |       |                                    |       |                                                                      |       |                            |       |
| Exercisable -  end of period                                      |       | 29,231,881 |       | 21.51                                   |       | 5.2                                                                       |       | 110,274,647                     |       |
| Shares expected  to vest                                          |       | 45,407,986 |       | 16.83                                   |       | 6.3                                                                       |       | 232,246,864                     |       |
|                                                              |       |       |       |                                    |       |                                                                      |       |                            |       |
| Weighted-average fair  value of options granted during the period |       |       |       | 5.28                                    |       |                                                                      |       |                            |       |
|                                                                   |            |            |            |                                         |            |                                                                           |            |                                 |            |  |

Theaggregate intrinsic value in the preceding table represents the total pretaxintrinsic value, based on Tellabs’ closing stock price as of March 31,2006, which would have been received by the options holders had all optionsholders exercised their options as of that

7

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date. Theaggregate intrinsic value of exercised stock options during the first quarterof 2006 was $30,982,162 based on the exercise stock price.

Tellabs’plans also provide for the granting of stock appreciation rights (SARs) inconjunction with, or independent of, the stock options under the plans. OurSARs allow the holder to receive in cash the difference between the SAR’s grantprice (market value of Tellabs’ stock on the date of grant) and the marketvalue of Tellabs stock on the date the holder exercises the SAR. The SARs aregenerally assigned 10-year terms. SARs generally vest ratably over 36 months from the date of thegrant.  At March 31, 2006, therewere 59,590 SARs outstanding with exercise prices that ranged from $4.07 to$70.06. The weighted-average price of the 900 SARs granted in the first quarterof 2006 was $13.27 and the weighted average price of the 3,000 SARs granted inthe first quarter of 2005 was $7.07.

As ofMarch 31, 2006, we had $47.2 million of unrecognized compensation costrelated to stock options and SARs that we expect to recognize over aweighted-average period of 0.8 years.

***RestrictedStock***

We granted 116,606 restricted shares in the firstquarter of 2006 and 2,000 restricted shares in the first quarter of 2005. Ofthe 116,606 shares granted in the first quarter of 2006, 62,000 vest over atwo-year period and 54,606 vest over a one-year period. All of the restrictedshares granted in the first quarter of 2005 vest over a one-year period. Wegenerally recognize compensation cost on a straight-line basis over the vestingperiod, which ranges from 1 to 3 years, based on the market price of Tellabs’stock on the date of grant. Compensation expense for restricted stock was $2.1million in 2006 and $0.6 million in the first quarter of 2005. Theweighted-average issuance price of restricted stock granted in 2006 was $13.26per share and the weighted-average issuance price of restricted stock grantedin 2005 was $7.12 per share. Our non-vested stock award activity for the firstquarter of 2006 follows:

|                                 | ** ** | **First Quarter** | ** ** |
|---------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **3/31/06**            | ** ** |
| ** **                      | ** ** | **Shares**             | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
| Non-vested -  beginning of year |       | 1,287,677              |       | $ | 8.67 |   |
| Granted                         |       | 116,606                |       | 13.26 |   |
| Vested                          |       | (42,567                | )          | 7.88 |   |
| Forfeited                       |       | (23,230                | )          | 8.72 |   |
| Non-vested - end of  period     |       | 1,338,486              |       | 9.09 |   |
|                                 |            |                        |            |  |  |  |

 

As ofMarch 31, 2006, we had $4.0 million of unrecognized compensation costrelated to restricted stock expected to be recognized over a weighted-averageperiod of 0.9 years.

***EmployeeStock Purchase Plan***

No sharesof common stock were purchased under the plan during the first quarter of 2006or 2005. There were 222,478 shares of common stock purchased under the plan in2005 at an average price of $8.13. As of March 31, 2006, we had 9,777,522shares available for purchase.

*Stock-BasedCompensation Expense*

The following table sets forth the total stock-basedcompensation expense resulting from stock options, stock appreciation rights,restricted stock and our employee stock purchase plan during the first quarterof 2006:

|                                                            | ** ** | **First Quarter** | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **3/31/06**            | ** ** |
| Cost of revenue  — products                           |       | $                      | 0.6        |   |
| Cost of revenue  — services                           |       | 1.1                    |       |
| Research and  development                                  |       | 5.5                    |       |
| Sales and  marketing                                       |       | 2.6                    |       |
| General and  administrative                                |       | 5.5                    |       |
| Stock-based  compensation expense before income taxes      |       | 15.3                   |       |
| Income tax  benefit                                        |       | 4.2                    |       |
| Total stock-based  compensation expense after income taxes |       | $                      | 11.1       |   |

 

8

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Our net earnings in the first quarter of 2006 was $7.1million lower ($0.01 per basic and $0.02 per diluted share) due to the adoptionof SFAS 123(R). Prior to the adoption of SFAS 123(R), we accounted forstock-based compensation plans under Accounting Principles Board OpinionNo. 25. If compensation cost for our stock-based compensation plans hadbeen determined using the fair value at the grant dates for awards under thoseplans consistent with the method required by SFAS No. 123(R) for ourfirst quarter of 2005, our net earnings and net earnings per share would havebeen as follows:

|                                                                                                                                             | ** ** | **First Quarter** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                  | ** ** | **4/1/05**             | ** ** |
|                                                                                                                                        |       |                   |       |
| Net earnings as  reported                                                                                                                   |       | $                      | 0.7        |   |
|                                                                                                                                        |       |                   |       |
| Add: stock-based  employee compensation expense included in reported net earnings, net of  related tax effects                              |       | 3.5                    |       |
|                                                                                                                                        |       |                   |       |
| Less: total  stock-based employee compensation expense determined under fair value based  method for all grants, net of related tax effects |       | (30.5                  | )          |
|                                                                                                                                        |       |                   |       |
| Pro forma net  loss                                                                                                                         |       | $                      | (26.3      | ) |
|                                                                                                                                        |       |                   |       |
| Net loss per share:                                                                                                                         |       |                   |       |
| As reported                                                                                                                                 |       | $                      | 0.00       |   |
| Pro forma basic  and diluted                                                                                                                |       | $                      | (0.06      | ) |

 

**4. Retiree Medical Plan**

The followingtable sets forth the components of the net periodic benefit costs for ourretiree medical plan:

|                                 | ** ** | **First Quarter** | ** ** |
|---------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| Service cost                    |       | $                      | 0.3        |   | $ | 0.3 |   |
| Interest cost                   |       | 0.1                    |       | 0.2 |   |
| Expected return  on plan assets |       | (0.1                   | )          | (0.1 | ) |
| Net periodic benefit  cost      |       | $                      | 0.3        |   | $ | 0.4 |   |

 

We expect to contributeto the plan in 2006, but the amount and timing have not yet been determined.

**5. Product Warranties**

We provide warranties forall of our products. The specific terms and conditions of those warranties varydepending upon the product sold. We provide a basic limited warranty, includingparts and labor, for all products except access products, for periods generallyranging from 90 days to 5 years. The basic limited warranty for access productscovers parts and labor for periods generally ranging from 2 to 6 years.

Our estimate ofwarranty liability involved many factors, including the number of unitsshipped, historical and anticipated rates of warranty claims, and cost perclaim. We periodically assess the adequacy of our recorded warranty liabilityand adjust the amounts as necessary. We classify the portion of our warrantyliability that we expect to incur in the next 12 months as a current liability.We classify the portion of our warranty liability that we expect to incur morethan 12 months in the future as a long-term liability. Our product warrantyliabilities are as follows:

|                                         | ** ** | **First Quarter** | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| Balance -  beginning of year            |       | $                      | 49.2       |   | $ | 41.1 |   |
| Accruals for  product warranties issued |       | 9.3                    |       | 7.7 |   |
| Settlements                             |       | (6.4                   | )          | (6.6 | ) |
| Balance - end of  period                |       | $                      | 52.1       |   | $ | 42.2 |   |

 

9

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| Balance sheet  classification - end of period |   |   |   |   |   |
|-----------------------------------------------|--------|--------|--------|--------|--------|
| Other accrued  liabilities                    |   | $      | 29.9   |   | $      | 21.9 |   |
| Other long-term  liabilities                  |   | 22.2   |   | 20.3   |   |
| Total product warranty  liabilities           |   | $      | 52.1   |   | $      | 42.2 |   |

 

**6.Repurchases of Common Stock**

InJanuary 2006, our Board of Directors authorized the purchase of up to$100.0 million in shares of our outstanding common stock in compliance withRule 10b5-1 of the Securities Exchange Act of 1934. We intend to usecash generated by employee stock option exercises (other than those of companyofficers and board members) to purchase stock under this plan. We recordedthese purchases as treasury stock. As of March 31, 2006, we have purchased$29.5 million (2.1 million shares) of our common stock under this plan.

InFebruary 2005, our Board of Directors authorized the purchase of up to$300.0 million in shares of our outstanding common stock. We may purchaseshares of our common stock from time to time on the open market or in privatetransactions and record purchases as treasury stock. As of  March 31, 2006, we have purchased $281.4million (30.6 million shares) of our common stock under this plan, including$88.9 million (6.2 million shares) in the first quarter of 2006.

**7. Comprehensive Income (Loss)**

Comprehensiveincome (loss) is an expression of our net earnings (loss) in the consolidatedstatements of operations, adjusted for foreign-currency translationadjustments, net unrealized gains or losses on available-for-sale securitiesand fair value adjustments of cash flow hedges. Our comprehensive income (loss)for the first quarter of 2006 was as follows:

|                                                              | ** ** | **First Quarter** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| Net earnings                                                 |       | $                      | 52.4       |   | $ | 0.7 |   |
| Other comprehensive  income (loss):                          |       |                   |       |   |   |
| Cumulative translation adjustment                            |       | 4.3                    |       | (27.9 | ) |
| Unrealized net gain (loss) on  available-for-sale-securities |       | 6.2                    |       | (2.5 | ) |
| Comprehensive income  (loss)                                 |       | $                      | 62.9       |   | $ | (29.7 | ) |

 

**8.Derivative Financial Instruments**

We enter intoforeign-exchange forward and option contracts with maturities of less than 12months to mitigate the impact of currency fluctuations on existing foreigncurrency asset and liability balances. In addition, beginning in 2005, we areusing foreign-exchange forward and option contracts of less than 12 months toreduce the risk to earnings and cash flows associated with anticipated foreigncurrency net expenditures. We record all derivatives on the balance sheet atfair value in accordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*.

In regard to the cashflow hedges, we calculate each hedge’s effectiveness monthly, excluding timevalue. We determine a forward contract’s effectiveness by comparing thecumulative change in the fair value on a spot-to-spot rate basis with thespot-to-spot rate cumulative change in the anticipated transaction. We recordthe effective portion of the hedge in other comprehensive income. Similarly, wecalculate an option contract’s effectiveness by comparing cumulative changes inthe contract’s intrinsic value on a spot-rate basis with cumulative losses invalue of the anticipated transaction measured on a spot-rate basis. When werecognize the hedged revenue transaction to income, the total change in thehedges effective value, which we accumulate in other comprehensive income, wereclassify to operating margin. We record any ineffectiveness, along with theexcluded time value of the forward and option contracts, in *Other Income (Expense), Net*. We reclassify the gains orlosses on the related cash flow hedges from *Other Comprehensive  Income* (*OCI*)to *Other Income (Expense), Net* at the timeit becomes probable that a hedged anticipated transaction will not occur*.*No cash flow hedges had an impact on OCI in the firstquarter of 2006 or the first quarter of 2005.

Wealso manage the foreign currency risk associated with foreign currencydenominated assets and liabilities using foreign-exchange forward contracts. Werecognize changes in the fair value of these derivatives in the*Other Income (Expense), Net*caption in our ConsolidatedStatements of Operations to substantially offset the remeasurement gains andlosses associated with the foreign currency denominated assets and liabilities.

10

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**9. IncomeTaxes**

For the first quarter of 2006, we recorded a taxexpense of $28.8 million, compared to a tax expense of $2.7 million for thefirst quarter of 2005. Our tax expense increased due to higher income earnedfrom both domestic and foreign operations.

On November 10, 2005, the FASB issued FASB StaffPosition No. FAS 123(R)-3 *TransitionElection Related to Accounting for Tax Effects of Share-Based Payment Awards*.The Company has elected to adopt the alternative transition method provided inthe FASB Staff Position for calculating the tax effects of stock-basedcompensation pursuant to SFAS 123(R). The alternative transition methodincludes simplified methods to establish the beginning balance of theadditional paid-in capital pool (APIC pool) related to the tax effects ofemployee stock-based compensation, and to determine the subsequent impact onthe APIC pool and Statements of Cash Flows of the tax effects of employeestock-based compensation awards that are outstanding upon adoption of SFAS123(R).

**10. OperatingSegments**

Prior to 2006, wereported our results of operations based on the Company operating in a singlesegment. Beginning with the first quarter of 2006, we are reporting operatingresults for three segments:  Broadband products, Transport products andServices. Under applicable accounting rules, the number of segments in which acompany reports is determined by the way the company’s chief operating decisionmaker (in Tellabs’ case, our CEO) assesses performance and allocates resources.During the first quarter of this year, we began assessing performance on lessof a consolidated basis than in previous reporting periods. Specifically, weare focusing on revenue and profitability measures for product and servicecategories that make up the three segments mentioned above.

The Broadband productssegment includes products that enable the delivery of bundled voice, video andhigh-speed Internet/data services over fiber-based networks and enable serviceproviders to leverage existing infrastructure to integrate Frame Relay, ATM,Ethernet and IP data networks onto a converged MPLS infrastructure. Productofferings include the Tellabs® 1000 multiserviceaccess series, the Tellabs® 1100 multiservice access series and theTellabs® 1600 optical network terminal series (accessproducts); the Tellabs® 2300 cable telephony distribution system, theTellabs® 6300 managed transport system and the Tellabs® 8100 managed access system (managed accessproducts); and the Tellabs® 8600 managed edge system and the Tellabs® 8800 multiservice router series (broadbanddata products).

The Transport productssegment includes products that enable service providers to manage bandwidth.Product offerings include the Tellabs® 3000 voice-quality enhancement products, theTellabs® 5000 series of digital cross-connect systems,the Tellabs® 5500NGX transport switch, the Tellabs® 6500 transport switch and the Tellabs® 7100 optical transport system.

The Services segmentdelivers installation, support services and professional consulting to customersof the Transport and Broadband product segments.

We define segment profitas gross profit less research and development expense. Segment profit excludesthe impact of stock option expense, amortization of purchased deferred stockcompensation and intangibles, sales and marketing expenses, general andadministrative expenses, and restructuring and other charges.

Financial information foreach operating segment is as follows:

**Revenue**
| ** **              | ** ** | **First Quarter** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| **Broadband  products** | ** ** | **$**                  | **259.7**  | ** ** | **$** | **228.3** | ** ** |
| **Transport  products** | ** ** | **214.4**              | ** ** | **173.0** | ** ** |
| **Services**            | ** ** | **40.6**               | ** ** | **34.3** | ** ** |
| **Total revenue**       | ** ** | **$**                  | **514.7**  | ** ** | **$** | **435.6** | ** ** |

 

**Segment Profit and Reconciliationto Operating Earnings**
| ** **                        | ** ** | **First Quarter** | ** ** |
|-----------------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **3/31/06**            | ** ** | **4/01/05** | ** ** |
| **Broadband  products**           | ** ** | **$**                  | **21.4**   | ** ** | **$** | **8.5** | ** ** |
| **Transport  products**           | ** ** | **122.8**              | ** ** | **80.1** | ** ** |
| **Services**                      | ** ** | **11.3**               | ** ** | **7.2** | ** ** |
| **Total  segment profit**         | ** ** | **155.5**              | ** ** | **95.8** | ** ** |
| **Sales  and marketing expenses** | ** ** | **(45.0**              | **)**      | **(46.2** | **)** |
|                                   |            |                        |            |  |  |  |  |

 

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| **General  and administrative expenses**                                                 | ** ** | **(28.1** | **)**      | **(22.3**  | **)**      |
|------------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|
| **Stock  option expense and deferred stock compensation not included in segment profit** | ** ** | **(6.1)** | ** ** | **(2.7)**  | ** ** |
| **Intangible  asset amortization**                                                       | ** ** | **(7.0**  | **)**      | **(11.0**  | **)**      |
| **Restructuring  and other charges**                                                     | ** ** | **-**     | ** ** | **(13.2**  | **)**      |
| **Operating earnings**                                                                   | ** ** | **$**     | **69.3**   | ** ** | **$**      | **0.4** | ** ** |
|                                                                                          |            |           |            |            |            |  |  |

 

Our segments use many ofthe same assets. We do not allocate assets by segment and therefore no asset,depreciation and amortization, or capital expenditure by segment information isprovided to our chief operating decision maker.

Because Tellabs did notreport in segments until the beginning of 2006, we are providing forcomparative purposes the following supplemental segment data for the second,third and fourth quarters of 2005:

**Revenue**
| ** **              | ** ** | **2005**             | ** ** |
|-------------------------|------------|----------------------|------------|
| ** **              | ** ** | **2**nd Quarter | ** ** | **3**rd Quarter | ** ** | **4**th Quarter | ** ** |
| **Broadband  products** | ** ** | **$**                | **247.6**  | ** ** | **$** | **264.1** | ** ** | **$** | **302.1** | ** ** |
| **Transport  products** | ** ** | **169.7**            | ** ** | **156.1** | ** ** | **175.4** | ** ** |
| **Services**            | ** ** | **45.2**             | ** ** | **43.7** | ** ** | **43.9** | ** ** |
| **Total revenue**       | ** ** | **$**                | **462.5**  | ** ** | **$** | **463.9** | ** ** | **$** | **521.4** | ** ** |

 

**Segment Profit**
| ** **               | ** ** | **2005**             | ** ** |
|--------------------------|------------|----------------------|------------|
| ** **               | ** ** | **2**nd Quarter | ** ** | **3**rd Quarter | ** ** | **4**th Quarter | ** ** |
| **Broadband  products**  | ** ** | **$**                | **37.4**   | ** ** | **$** | **48.8** | ** ** | **$** | **61.5** | ** ** |
| **Transport  products**  | ** ** | **74.1**             | ** ** | **76.1** | ** ** | **87.2** | ** ** |
| **Services**             | ** ** | **15.4**             | ** ** | **10.5** | ** ** | **14.4** | ** ** |
| **Total segment profit** | ** ** | **$**                | **126.9**  | ** ** | **$** | **135.4** | ** ** | **$** | **163.1** | ** ** |

 

**11.Subsequent Event**

On April 27, 2006,Tellabs’ Board of Directors authorized the removal of the $100 million cap fromthe share repurchase program it authorized in January 2006 underRule 10b5-1 of the Securities Exchange Act of 1934. See a furtherdiscussion of this program           inNote 6.

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**Item 2. Management’s Discussion and Analysis ofResults of Operations and Financial Condition**

**Introduction and Overview ofBusiness**

Tellabs designs,develops, deploys and supports telecommunication networking products around theworld. We generate revenue principally through the sale of telecommunicationproducts, both as stand-alone products and as elements of integrated systems,to many of the world’s largest telecommunications service providers. Inaddition, we generate revenue by providing installation and professionalservices related primarily to our own products and systems.

Prior to 2006, wereported our results of operations based on the Company operating in a singlesegment. Beginning with the first quarter of 2006, we are reporting operatingresults for three segments:  Broadbandproducts, Transport products and Services. Under applicable accounting rules,the number of segments in which a company reports is determined by the way thecompany’s chief operating decision maker (in Tellabs’ case, our CEO) assessesperformance and allocates resources. During the first quarter of this year, webegan assessing performance on less of a consolidated basis than in previousreporting periods. Specifically, we are focusing on revenue and profitabilitymeasures for product and service categories that make up the three segmentsmentioned above. See a further discussion of our operating segments in Note 10.

The Broadband products segment includes products thatenable the delivery of bundled voice, video and high-speed Internet/dataservices over fiber-based networks and enable service providers to leverageexisting infrastructure to integrate Frame Relay, ATM, Ethernet and IP datanetworks onto a converged MPLS infrastructure. Product offerings include theTellabs® 1000 multiservice access series, the Tellabs® 1100 multiservice access series and theTellabs® 1600 optical network terminal series (accessproducts); the Tellabs® 2300 cable telephony distribution system, theTellabs® 6300 managed transport system and the Tellabs® 8100 managed access system (managed accessproducts); and the Tellabs® 8600 managed edge system and the Tellabs® 8800 multiservice router series (broadbanddata products). Demand for Broadband products, which are sold globally, isdriven primarily by consumer demand for voice, data and video services(referred to as the “triple play”) and for business services for voice andhigh-speed data.

The Transport productssegment includes products that enable service providers to manage bandwidth.Product offerings include the Tellabs® 3000 voice-quality enhancement products, theTellabs® 5000 series of digital cross-connect systems,the Tellabs® 5500NGX transport switch, the Tellabs® 6500 transport switch and the Tellabs® 7100 optical transport system. Demand forthese products is driven primarily by end-user demand for wireline and wirelessservices. Revenue from these products comes primarily from North America.

The Services segmentdelivers installation, support services and professional consulting to customersof the Transport and Broadband products segments.

**RESULTS OF OPERATIONS**

Weadopted SFAS 123(R) at the beginning of our first quarter of 2006 usingthe modified prospective method; therefore we did not restate prior periods.Our net earnings in the first quarter of 2006 was $7.1 million lower ($0.01 perbasic and $0.02 per diluted share) due to the adoption of this statement. As ofMarch 31, 2006, we had $51.2 million of unrecognized compensation costrelated to stock-based compensation awards that we expect to recognize over aweighted-average period of 0.8 years. See a further discussion of our stock-based compensation awards in Note3 to our consolidated financial statements.

**Revenue**
| ** **              | ** ** | **First Quarter** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **2006**               | ** ** | **2005** | *** *** | ***Change*** | *** *** |
| **Broadband  products** | ** ** | **$**                  | **259.7**  | ** ** | **$** | **228.3** | *** *** | ***13.8*** | ***%*** |
| **Transport  products** | ** ** | **214.4**              | ** ** | **173.0** | *** *** | ***23.9*** | ***%*** |
| **Services**            | ** ** | **40.6**               | ** ** | **34.3** | *** *** | ***18.4*** | ***%*** |
| **Total revenue**       | ** ** | **$**                  | **514.7**  | ** ** | **$** | **435.6** | *** *** | ***18.2*** | ***%*** |

 

For the first quarter of2006, our revenue grew 18% to $514.7 million compared with the first quarter of2005 due to an increase in revenue in all three operating segments. On ageographic basis, North America revenue was 80.0% in the first quarter comparedwith 74.4% in the comparable period in 2005, with international revenue at20.0% in the quarter compared with 25.6% in the comparable period in 2005.Margins increased to 47.1% in the first quarter compared with 41.8% in thecomparable period of 2005. Overall operating expenses in the first quarterdeclined by $8.5 million compared with the same quarter in 2005 due to reducedcharges for intangible amortization and restructuring and other charges. Netearnings were $52.4 million or $0.11 per share in the first quarter comparedwith $0.7 million or less than one cent per share in the same period of 2005.

13

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***Revenue***

**Products**

Revenue fromproducts increased $72.8 million to $474.1 million in the first quarter of2006, up from $401.3 million in the first quarter of 2005. The increase inrevenue came from both product segments.

Revenue fromTransport products increased $41.4 million to $214.4 million in the firstquarter of 2006, up from $173.0 million in the comparable quarter of 2005. Theincrease in Transport products revenue reflects demand from wireless carriersas they continue to build out their networks.

Revenue from Broadbandproducts increased $31.4 million to $259.7 million in the first quarter of 2006from $228.3 million in the first quarter of 2005. Within the Broadband segment,revenue from fiber access platforms increased due principally to higher volumesof Tellabs® 1600optical networking terminal (Tellabs® 1600ONT) and revenue from broadband data products improved due to a larger customerbase which reflects the continuing successful rollout of these products.Partially offsetting this increase in the Broadband segment was a decrease inrevenue from our managed access systems.

**Services**

Revenue from Servicesincreased $6.3 million to $40.6 million in the first quarter of 2006, up from$34.3 million in the first quarter of 2005. This increase reflects growth in systeminstallations in the deployment services business as a result of the increasedproduct sales as well as a focused effort on increasing support agreementrenewals in the first quarter of 2006.

***GrossMargin***
| ** **       | ** ** | **First Quarter** | ** **   |
|------------------|------------|------------------------|--------------|
| ** **       | ** ** | **2006**               | *** *** | **2005** | *** *** | ***% Point  Change*** | *** *** |
| **Consolidated** | ** ** | **47.1**               | **%**        | **41.8** | **%** | ***5.3*** | ***%*** |
| **Products**     | ** ** | **48.9**               | **%**        | **43.5** | **%** | ***5.4*** | ***%*** |
| **Services**     | ** ** | **25.6**               | **%**        | **21.0** | **%** | ***4.6*** | ***%*** |

 

The 5.3percentage point increase in consolidated margin is due primarily to a lowercost version of Tellabs® 1600ONT that was introduced in the second half of 2005 and higher services margins.The higher services margin was due primarily to a more favorable services mixand cost control.

***Operating Expenses***
| ** **                           | ** ** | **First Quarter** | ** ** | **Percent of  Revenue** | ** **   |
|--------------------------------------|------------|------------------------|------------|------------------------------|--------------|
| ** **                           | ** ** | **2006**               | ** ** | **2005**                     | *** *** | ***Change*** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Research  and development**        | ** ** | **$**                  | **92.9**   | ** **                   | **$**        | **88.8** | *** *** | ***$*** | ***4.1*** | ** ** | **18.0** | **%** | **20.4** | **%** |
| **Sales  and marketing**             | ** ** | **45.0**               | ** ** | **46.2**                     | *** *** | ***(1.2*** | ***)*** | **8.7** | **%** | **10.6** | **%** |
| **General  and administrative**      | ** ** | **28.1**               | ** ** | **22.3**                     | *** *** | ***5.8*** | ** ** | **5.5** | **%** | **5.1** | **%** |
| ** **                           | ** ** | ** **             | ** ** | ** **                   | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Subtotal**                         | ** ** | **166.0**              | ** ** | **157.3**                    | *** *** | ***8.7*** | ** ** | **32.3** | **%** | **36.1** | **%** |
| ** **                           | ** ** | ** **             | ** ** | ** **                   | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Intangible  asset amortization**   | ** ** | **7.0**                | ** ** | **11.0**                     | *** *** | ***(4.0*** | ***)*** | *** *** | *** *** | *** *** | *** *** |
| **Restructuring  and other charges** | ** ** | **-**                  | ** ** | **13.2**                     | *** *** | ***(13.2*** | ***)*** | *** *** | *** *** | *** *** | *** *** |
| **Total Operating Expenses**         | ** ** | **$**                  | **173.0**  | ** **                   | **$**        | **181.5** | *** *** | ***$*** | ***(8.5*** | ***)*** | *** *** | *** *** | *** *** | *** *** |

 

Total operating expensesdeclined by $8.5 million from the first quarter of 2005 due to reduced chargesfor intangible amortization and restructuring and other charges. Totaloperating expenses in the first quarter of 2006 include $9.3 million in stockoption expense.

***Other Income***
| ** **                       | ** ** | **First Quarter** | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2006**               | ** ** | **2005** | *** *** | ***Change*** | *** *** |
| **Interest  income, net**        | ** ** | **$**                  | **10.5**   | ** ** | **$** | **5.7** | *** *** | ***$*** | ***4.8*** | *** *** |
| **Other  income (expense), net** | ** ** | **1.4**                | ** ** | **(2.7** | **)** | ***4.1*** | *** *** |
| **Total**                        | ** ** | **$**                  | **11.9**   | ** ** | **$** | **3.0** | *** *** | ***$*** | ***8.9*** | *** *** |

 

Interest income, net,increased by $4.8 million in the first quarter of 2006 compared with the firstquarter of 2005 due to larger invested balances and higher interest rates. Otherincome (expense), net, in the first quarter of 2005 includes a $2.0 millionloss on marketable securities.

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***Income Taxes***

For the first quarter of 2006, we recorded a taxexpense of $28.8 million, compared to a tax expense of $2.7 million for thefirst quarter of 2005. Our tax expense increased due to higher income earnedfrom both domestic and foreign operations.

***Segments***

See a further discussionof our operating segments in Note 10.

**Revenue**
| ** **              | ** ** | **First Quarter** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **2006**               | ** ** | **2005** | *** *** | ***Change*** | *** *** |
| **Broadband  products** | ** ** | **$**                  | **259.7**  | ** ** | **$** | **228.3** | *** *** | ***13.8*** | ***%*** |
| **Transport  products** | ** ** | **214.4**              | ** ** | **173.0** | *** *** | ***23.9*** | ***%*** |
| **Services**            | ** ** | **40.6**               | ** ** | **34.3** | *** *** | ***18.4*** | ***%*** |
| **Total revenue**       | ** ** | **$**                  | **514.7**  | ** ** | **$** | **435.6** | *** *** | ***18.2*** | ***%*** |

 

**SegmentProfit***
| ** **               | ** ** | **First Quarter** | ** ** |
|--------------------------|------------|------------------------|------------|
| ** **               | ** ** | **2006**               | ** ** | **2005** | *** *** | ***Change*** | *** *** |
| **Broadband  products**  | ** ** | **$**                  | **21.4**   | ** ** | **$** | **8.5** | *** *** | ***151.8*** | ***%*** |
| **Transport  products**  | ** ** | **122.8**              | ** ** | **80.1** | *** *** | ***53.3*** | ***%*** |
| **Services**             | ** ** | **11.3**               | ** ** | **7.2** | *** *** | ***56.9*** | ***%*** |
| **Total segment profit** | ** ** | **$**                  | **155.5**  | ** ** | **$** | **95.8** | *** *** | ***62.3*** | ***%*** |

 

*We define segment profitas gross profit less research and development expense. Segment profit excludesthe impact of stock option expense, amortization of purchased deferred stockcompensation and intangibles, sales and marketing expenses, general andadministrative expenses, and restructuring and other charges.

**Broadband Products**

***Revenue***

Revenue from theBroadband segment increased $31.4 million to $259.7 million in the firstquarter of 2006, up from $228.3 million in the first quarter of 2005.Continuing customer rollout of their fiber-access programs helped increaserevenue from access products to $164.2 million in the first quarter of 2006 from$127.8 million in the first quarter of 2005. Excluding $5 million ofpass-through revenue associated with video builds, in the first quarter of 2006revenue from fiber platforms was approximately 56% of access product revenue,with the balance consisting of copper access platforms. Revenue from managedaccess products declined to $73.7 million in the first quarter of 2006 from$93.9 million in the first quarter of 2005 due to reduced demand for ourTellabs® 8100 managed access system. Revenue frombroadband data products grew to $21.9 million in the first quarter of 2006 from$6.6 million in the first quarter of 2005 on the strength of a larger customerbase.

***SegmentProfit***

For the first quarter of2006, our Broadband segment profit increased to $21.4 million from $8.5 millionin the first quarter of 2005 driven by a 13.8% increase in revenue and highergross margin.

**Transport Products**

***Revenue***

Revenue from Transportproducts increased $41.4 million to $214.4 million in 2006 from $173.0 millionin 2005. We saw improvement in our Tellabs® 5500 wide-band cross-connect products drivenby demand from wireless customers as they continued to build out theirnetworks. Approximately 30% of first quarter revenue from Tellabs® 5500 wideband cross-connect products came fromnew systems, system expansions and upgrades, which we believe indicates thatour customers continue to invest in this platform. The remaining 70% consistedof port-card equipment growth on installed base and compares with approximately62% in the first quarter of 2005. We shipped approximately 2.8 million T-1equivalents during the first quarter of 2006 compared with 1.8 million T-1equivalents in the first quarter of 2005.

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***Segment Profit***

Forthe first quarter of 2006, our Transport segment profit increased by 53.3% to$122.8 million, up from $80.1 million in the comparable period of 2005. Theincrease is primarily due to higher revenue from Tellabs® 5500 systems and tight control over researchand development expenses.

**Services**

***Revenue***

Revenue from Servicesincreased $6.3 million to $40.6 million in the first quarter of 2006, up from$34.3 million in the first quarter of 2005. The improvement reflects higherrevenue from installation services and an increase in revenue from supportagreements.

***SegmentProfit***

Services segment profitincreased by $4.1 million to $11.3 million in the first quarter of 2006, upfrom $7.2 million in the first quarter of 2005. The increase in segment profitwas largely driven by the increase in Services revenue and higher grossmargins.

**FinancialCondition, Liquidity & Capital Resources**

Our principal source ofliquidity remained our cash, cash equivalents and marketable securities of$1,144.6 million, which decreased by $45.1 million during the quarter. Thedecrease was driven by a use of cash from financing activities of $54.6million, which includes $118.4 million for the repurchase of 8.3 million sharesof our common stock under our stock repurchase plans, partially offset by $63.8million in proceeds from the issuance of common stock under option plans. The$54.6 million use of funds was partially offset by $10.1 million in cashgenerated by our operations.

We believe that thecurrent level of working capital, particularly cash and marketable securities,is sufficient to meet our normal operating requirements for the foreseeablefuture. Further, we believe that sufficient resources exist to support ourfuture growth and strategic needs. Future sources of working capital may befrom cash-on-hand, cash generated from future operations, short-term orlong-term financing, equity offerings or any combination of these sources.

Our current policy is toretain our earnings to provide funds to enhance stockholder value by expandingour business, repurchasing our common stock, for operating activities and otherpurposes. We do not anticipate paying a cash dividend in the foreseeablefuture.

***Off-BalanceSheet Arrangements***

None.

***CriticalAccounting Policies***

Weaccount for stock-based compensation in accordance with SFAS No. 123(R), *Share-Based Payment*. Under the fair valuerecognition provisions of this statement, we measure share-based compensationcost at the grant date based on the value of the award which is recognized asexpense over the vesting period. Determining the fair value of share-basedawards at the grant date requires several assumptions, the change in any ofwhich could materially impact our stock-based compensation expense and ourresults of operations. These assumptions include our stock’s expectedvolatility, the risk-free interest rate, expected option term and expecteddividend yield, in addition to the amount of share-based awards that areexpected to be forfeited.

***Outlook***

Factoring in theseasonality we have historically seen in the second quarter, we are looking forsecond quarter 2006 revenue to show an increase of 16% to 18% over the secondquarter of 2005. We look for second-quarter margins to be around 46% to 47%depending on product and customer mix, including the volume of Tellabs® 1600 ONTs. We look foroperating expenses to be flat to down and our tax rate to be approximately thesame as it was in the first quarter.

**Forward-Looking Statements**

This Management’sDiscussion and Analysis and other sections of this Form 10-Q containforward-looking statements made pursuant to the safe harbor provisions ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. Thesestatements reflect management’s expectations, estimates and assumptions, basedon the information available at the time the document was prepared. Theseforward-looking statements include, but are not limited to, statementsregarding future events, plans, goals, objectives and expectations. The words“anticipate,” “believe,” “estimate,” “target,” “expect,” “predict,” “plan,”“possible,” “intend,” “likely,” “will,” “should,” “could,” and similarexpressions are intended to identify forward-looking statements.Forward-looking statements are not guarantees of future performance and involverisks, uncertainties and other factors that may cause our actual performance orachievements to be materially different from any future results, performance orachievements expressed or implied by those statements. Important factors thatcould cause our actual results to differ materially from those inforward-looking statements include, but are not limited to: economic changesimpacting the telecommunications industry; financial condition oftelecommunication service providers and equipment vendors, including any impactof bankruptcies; the impact of customer and vendor consolidation; new productacceptance; product demand and industry capacity; competitive products andpricing; competitive pressures from new entrants to the telecommunicationsindustry; manufacturing efficiencies; research and new product development;protection and access to intellectual property, patents and technology; abilityto attract and retain highly qualified personnel; availability of componentsand critical manufacturing equipment and capacity; foreign economic conditions,

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including currency ratefluctuations; the regulatory and trade environment; the impact of new orrevised accounting rules or interpretations, including revenue recognitionrequirements; availability and terms of future acquisitions; divestitures andinvestments; uncertainties relating to synergies, charges, and expensesassociated with business combinations and other transactions; and other risksand future factors that may be detailed from time to time in the Company’sfilings with the SEC. For a further description of such risks and futurefactors, see Item 1A of our Form 10-K for the fiscalyear ended December 30, 2005, filed with the SEC on March 14,2006. Our actual future results could differ materially from those predictedin such forward-looking statements. In light of the foregoing risks,uncertainties and other factors, investors should not place undue reliance onthe forward-looking statements in determining whether to buy, sell or hold anyof our securities. These factors are not intended to be an all-encompassinglist of risks and uncertainties that may affect the operations, performance,development and results of our business. We undertake no obligation to publiclyupdate or revise any forward-looking statements to reflect changed assumptions,the occurrence of anticipated or unanticipated events or changes to futureresults over time.

**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

As of March 31,2006, there were no material changes to our market risks disclosure in ourAnnual Report on Form 10-K for the year ended December 30,2005.

**Item 4.Controls and Procedures**

Our management, under thesupervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer, has evaluated the effectiveness of our disclosure controlsand procedures as of March 31, 2006. Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures are effective. There were no changes duringthe period covered by this Form 10-Q in our internal control overfinancial reporting that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II.OTHER INFORMATION**

**Item 1.Legal Proceedings**

On June 18, 2002, aclass action complaint was filed in the United States District Court of theNorthern District of Illinois against Tellabs, Michael Birck, and RichardNotebaert (former CEO, President and Director of Tellabs). Thereafter, eightsimilar complaints were also filed in the United States District Court of theNorthern District of Illinois. All nine of these actions were subsequentlyconsolidated, and on December 3, 2002, a consolidated amended class actioncomplaint was filed against Tellabs, Mr. Birck, Mr. Notebaert, andcertain other of our current or former officers and/or directors. Theconsolidated amended complaint alleged that during the class period(December 11, 2000-June 19, 2001) the defendants violated thefederal securities laws by making materially false and misleading statements,including, among other things, allegedly providing revenue forecasts that werefalse and misleading, misrepresenting demand for our products, and reportingoverstated revenues for the fourth quarter 2000 in our financial statements.Further, certain of the individual defendants were alleged to have violated thefederal securities laws by trading our securities while allegedly in possessionof material, non-public information about us pertaining to these matters.

On January 17, 2003,Tellabs and the other named defendants filed a motion to dismiss theconsolidated amended class action complaint in its entirety. On May 19,2003, the Court granted our motion and dismissed all counts of the consolidatedamended complaint, while affording plaintiffs an opportunity to replead. OnJuly 11, 2003, plaintiffs filed a second consolidated amended class actioncomplaint against Tellabs, Messrs. Birck and Notebaert, and many (althoughnot all) of the other previously named individual defendants, realleging claimssimilar to those contained in the previously dismissed consolidated amendedclass action complaint. We filed a second motion to dismiss on August 22,2003, seeking the dismissal with prejudice of all claims alleged in the secondconsolidated amended class action complaint. On February 19, 2004, theCourt issued an order granting that motion and dismissed the action withprejudice. On March 18, 2004, the plaintiffs filed a Notice of Appeal tothe United States Federal Court of Appeal for the Seventh Circuit, appealingthe dismissal. The appeal was fully briefed and oral argument was heard onJanuary 21, 2005. On January 25, 2006, the Seventh Circuit issued anopinion affirming in part and reversing in part the judgment of the districtcourt, and remanding for further proceedings. On February 8, 2006,defendants filed with the Seventh Circuit a petition for rehearing withsuggestion for rehearing en banc. On April 19, 2006, the Seventh Circuitordered plaintiffs to file an answer to the petition for rehearing, which wasfiled by the plaintiffs on May 3, 2006.

On April 5, 2006, aclass action complaint was filed in the United State District Court of theNorthern District of Illinois against Tellabs, Michael Birck, Richard Notebaert(former CEO, President and Director of Tellabs) and current or former Tellabsemployees who, during the alleged class period of December 11, 2000 toJuly 1, 2003, participated on the Tellabs Plan Committee of theTellabs, Inc. Profit Sharing and Savings Plan (“Plan”). Thereafter, twosimilar complaints were filed in the United States District Court of theNorthern District of Illinois.

The complaints allegethat during the alleged class period, the defendants allegedly breached theirfiduciary duties under the Employee Retirement Income Security Act by, amongother things, continuing to offer Tellabs common stock as a Plan investmentoption when it was imprudent to do so and allegedly misrepresenting and failingto disclose material information necessary for Plan participants to makeinformed decisions concerning the Plan. Further, certain of the defendantsallegedly failed to monitor the

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fiduciary activities ofthe fiduciaries they appointed and certain of the defendants allegedly breachedtheir duty of loyalty by trading Tellabs stock, while taking no protectiveaction on behalf of Plan participants. The defendants are preparing a responseto the complaints.

**Item 1A.Risk Factors**

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 30, 2005. Those riskfactors described in that Annual Report could materially adversely affect ourbusiness, financial condition or future results. The risks described in thatAnnual Report are not the only risks facing our company. Additional risks anduncertainties not currently known to us or that we currently consider immaterialalso may materially adversely affect our business, financial condition and/oroperating results.

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds**

***Repurchasesof Common Stock:***
| **Period of Purchases** | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Purchase Price  of Shares** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Remaining Dollar  Value of Shares  Available to be  Purchased Under  the Plans  (In Millions)** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                              |       |                                         |       |                                             |       |                                                                                                                             |       |                                                                                                                                      |       |
| 1/1/06 through  2/3/06            |       | 781,974                                      |       | $                                                | 12.65      |                                                                                                                             | 781,974    |                                                                                                                                      | $          | 197.5 |   |
| 2/4/06 through  3/3/06            |       | 6,713,710                                    |       | 14.45                                            |       | 6,713,710                                                                                                                        |       | 100.5                                                                                                                                     |       |
| 3/4/06 through  3/31/06           |       | 811,600                                      |       | 14.22                                            |       | 811,600                                                                                                                          |       | 89.0                                                                                                                                      |       |
| Total                             |       | 8,307,284                                    |       | 14.26                                            |       | 8,307,284                                                                                                                        |       |                                                                                                                                      |       |
|                                   |            |                                              |            |                                                  |            |                                                                                                                                  |            |                                                                                                                                           |            |  |  |

 

In January 2006, ourBoard of Directors authorized the purchase of up to $100.0 million in shares ofour outstanding common stock in compliance with Rule 10b5-1 of theSecurities Exchange Act of 1934. We intend to use cash generated by employeestock option exercises (other than those of company officers and board members)to purchase stock under this plan. We will record these repurchased shares astreasury stock. As of March 31, 2006, we have purchased $29.5 million (2.1million shares) of our common stock under this plan. On April 27, 2006,Tellabs’ Board of Directors authorized the removal of the $100 million cap fromthis share repurchase program.

InFebruary 2005, our Board of Directors authorized the purchase of up to$300.0 million in shares of our outstanding common stock. We may purchaseshares of our common stock from time to time on the open market or in privatetransactions and record purchases as treasury stock. As of March 31, 2006,we have purchased $281.5 million (30.6 million shares) of our common stockunder this plan, including $88.9 million (6.2 million shares) during the firstquarter of 2006.

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

We heldour annual meeting of stockholders on April 27, 2006. The followingdirectors were re-elected to serve until the annual meeting of stockholders in2009:

| Director         | ** ** | **For**     | ** ** | **Withheld** | ** ** |
|------------------|------------|-------------|------------|--------------|------------|
| Bo Hedfors       |       | 397,752,364 |       | 6,623,062    |       |
| Michael E. Lavin |       | 397,622,055 |       | 6,753,371    |       |
| Jan H. Suwinski  |       | 397,773,097 |       | 6,602,329    |       |

Thefollowing directors continued to hold office after the annual meeting:  Linda Beck, Michael J. Birck, Frank Ianna,Frederick A. Krehbiel, Stephanie Pace Marshall, Krish A. Prabhu and William F.Souders.

Inaddition, our stockholders voted to approve the proposal to ratify theappointment of Ernst & Young LLP, independent auditors, as ourindependent auditors for 2006 in accordance with the following vote:

| For         | ** ** | **Against** | ** ** | **Abstain** |
|-------------|------------|-------------|------------|-------------|
| 395,769,593 |       | 6,336,093   |       | 2,269,740   |

** **

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**Item 6. Exhibits**

**(A) Exhibits**

| 11   |   | Computation of Per Share Earnings                                            |
|------|--------|------------------------------------------------------------------------------|
| 31.1 |   | CEO Certification pursuant to Section 302 of the  Sarbanes Oxley Act of 2002 |
| 31.2 |   | CFO Certification pursuant to Section 302 of the  Sarbanes Oxley Act of 2002 |
| 32.1 |   | CEO  Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
| 32.2 |   | CFO Certification pursuant to Section 906 of the  Sarbanes Oxley Act of 2002 |

** **

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        | ** ** | **TELLABS, INC.**              |
|--------|------------|--------------------------------|
|   |       |    (Registrant) |
|   |       |                           |
|   |       |                           |
|   |       | /s/ JAMES A. DITE              |
|   |       | James A. Dite                  |
|   |       | Vice President and Controller  |
|   |       | (Principal Accounting Officer  |
|   |       | and duly authorized officer)   |
|   |       |                           |
|   |       | May 9, 2006                    |
|   |       | (Date)                         |

 

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