UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington,D.C.20549

FORM 10-Q
(Mark
One)
[ X ]
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the quarterly period ended March 28,
2003
OR
[  ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
the transition period from
 to

Commission file Number: 0-9692
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) 378-8800
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.             
YES X        NO___
Indicate by check
mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).    
YES X        NO___
Common Shares, $.01
Par Value -  412,270,669 shares
outstanding on March 28,
2003




TELLABS,
INC.INDEX
PART
      I.
    FINANCIAL
      INFORMATIONItem
      1.


 Financial
      Statements:Condensed Consolidated
      Statements of OperationsCondensed Consolidated
      Balance SheetsCondensed Consolidated
      Statements of Cash FlowNotes to Condensed
      Consolidated Financial StatementsItem
      2.
    Management's
      Discussion and Analysis of Financial Condition and Results of
      OperationsItem
      3.
    Quantitative and
      Qualitative Disclosures about Market RiskItem
      4.
    Disclosure Controls
      and ProceduresPART
      II.
    OTHER
      INFORMATIONItem
      1.
    Legal
      ProceedingsItem
      6.
    Exhibits and Reports
      on Form 8-KSIGNATURE
  CERTIFICATIONSPARTI.FINANCIAL
INFORMATION

Item 1. Financial
Statements

TELLABS,
      INC.CONDENSED CONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)ThreeMonths
      Ended(In millions, except
      per-share data)
    3/28/03
    3/29/02Net
      SalesProduct
    $186.7
    $319.8Services
    35.8
    51.7222.5
    371.5Cost of
      SalesProduct
    98.7
    163.1Services
    30.3
    33.4129.0
    196.5Gross
      Profit
    93.5
    175.0Operating
      expensesSelling, general and
      administrative
    64.7
    77.2Research and
      development
    76.9
    90.6Purchased in-process research and
      development
    -
    5.4Intangible asset
      amortization
    2.4
    1.7144.0
    174.9Operating Profit
      (Loss)
    (50.5)
    0.1Other Income
      (Expense)Interest
      income
    8.7
    7.5Interest
      expense
    -
    (0.5)Other
    (1.6)
    1.37.1
    8.3Earnings (Loss) Before
      Income Taxes
    (43.4)
    8.4Income
      taxes
    (0.5)
    3.1Net Earnings
      (Loss)
    $(42.9)
    $5.3Earnings (Loss) per
      ShareBasic
    $(0.10)
    $0.01Diluted
    $(0.10)
    $0.01Average number of
      common shares outstanding
    412.3
    410.5Average number of
      common shares outstanding, assuming dilution
    412.3
    414.8The
accompanying notes are an integral part of these
statements.


TELLABS,
      INC.CONDENSED CONSOLIDATED
      BALANCE SHEETS3/28/03
    
    12/27/02(In millions, except
      share amounts)
    (Unaudited)AssetsCurrent
      AssetsCash and cash
      equivalents
    $ 257.4
    
    $ 453.6Investments in marketable
      securities
    749.2
    
    565.6Accounts receivable,
      net
    154.4
    
    216.8InventoriesRaw
      materials
    85.3
    
    92.4Work in
      process
    15.8
    
    15.5Finished
      goods
    76.1
    
    66.6177.2
    
    174.5Income
    taxes
    98.1
    
    91.9Miscellaneous receivables and
      other current assets
    44.3
    
    31.2Total Current
      Assets
    1,480.6
    
    1,533.6Property, plant and
      equipment
    739.4
    
    770.2Less: accumulated
      depreciation
    332.3
    
    349.3407.1
    
    420.9Goodwill
    456.4
    
    455.7Intangible assets,
      net
    69.8
    
    70.1Other
      Assets
    142.9
    
    142.5Total
      Assets
    $ 2,556.8
    
    $ 2,622.8LiabilitiesCurrent
      LiabilitiesAccounts
      payable
    $ 60.1
    
    $ 77.4Accrued
      liabilities
    85.8
    
    94.5Accrued restructuring and other
      charges
    64.4
    
    85.4Total Current
      Liabilities
    210.3
    
    257.3Accrued long-term
      restructuring charges
    43.8
    
    45.5Other long-term
      liabilities
    28.6
    
    29.7Stockholders'
      EquityPreferred stock: authorized
      5,000,000 shares of $.01 par value;no shares issued and
      outstanding
    -
    
    -Common stock: 1,000,000,000 shares
      of $.01 par value;415,599,600 and 415,440,414 shares
      issued and outstanding
    4.2
    
    4.1Additional paid-in
      capital
    543.8
    
    543.6Treasury stock, at cost: 3,250,000
      shares
    (129.6)
    
    (129.6)Deferred compensation
      expense
    (16.6)
    
    (19.3)Accumulated other comprehensive
      income (loss)Cumulative translation adjustment
    (32.2)
    
    (57.4)Unrealized net gains on available-for-sale
      securities
    3.9
    
    5.4Total accumulated other
      comprehensive income (loss)
    (28.3)
    
    (52.0)Retained
      earnings
    1,900.6
    
    1,943.5Total Stockholders'
      Equity
    2,274.1
    
    2,290.3Total Liabilities and
      Stockholders' Equity
    $ 2,556.8
    
    $ 2,622.8The
accompanying notes are an integral part of these
statements.


TELLABS
INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW(Unaudited)

Three Months
      Ended(In
      millions)
    03/28/03
    
    03/29/02Operating ActivitiesNet Earnings/(Loss)
    $(42.9)
    
    $5.3Adjustments to reconcile net loss
      to net cashprovided by operating activities:Depreciation and
      amortization
    31.4
    
    35.8Other
    1.2
    
    3.7Net change in assets and
      liabilities, net of effectsfrom
      acquisitions:Accounts receivable
    62.9
    
    96.6Inventories
    0.1
    
    36.7Long-term assets
    (5.5)
    
    (16.0)Accounts payable
    (18.1)
    
    (11.4)Accrued liabilities
    4.9
    
    (0.9)Restructuring liabilities
    (24.8)
    
    (42.3)Income taxes
    (6.4)
    
    6.3Other, net
    (14.0)
    
    1.0Net Cash Provided by/(Used for)
      Operating Activities
    (11.2)
    
    114.8Investing ActivitiesAcquisition of property, plant and
      equipment, net
    2.8
    
    (9.5)Proceeds from sales and maturities
      of investments
    650.7
    
    99.5Payments for purchases of
      investments
    (839.0)
    
    (86.3)Payments for acquisitions, net of
      cash acquired
    (13.2)
    
    (283.2)Net Cash Used for Investing
      Activities
    (198.7)
    
    (279.5)Financing ActivitiesPayments of notes payable and
      capital leases
    -
    
    (8.2)Proceeds from issuance of common
      stock
    0.1
    
    1.1Net Cash Provided by (Used for)
      Financing Activities
    0.1
    
    (7.1)Effect of Exchange Rate Changes on
      Cash
    13.7
    
    (1.6)Net Decrease in Cash and Cash
      Equivalents
    (196.1)
    
    (173.4)Cash and Cash Equivalents at
      Beginning of Year
    453.5
    
    701.9Cash and Cash Equivalents at End of
      Quarter
    $257.4
    
    $528.5Other InformationInterest paid
    -
    
    $0.5Income taxes paid
    $9.7
    
    $9.7
The
accompanying notes are an integral part of this statement.
TELLABS,
INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

1. Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements of Tellabs,
Inc. ("Tellabs" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
the requirements of Form 10-Q and applicable rules of Regulation S-X and
accordingly do not include all disclosures normally required by generally
accepted accounting principles for complete financial statements. Accordingly,
the financial statements and notes herein should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 27,
2002.
In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments (consisting of normal recurring accruals)
that are necessary for a fair presentation. Operating results for interim
periods are not necessarily indicative of operating results for the full year.

Certain amounts
from prior periods have been reclassified to conform to the current period
presentation.   These
reclassifications had no impact on net earnings or stockholders' equity as
previously reported.
2. New Accounting
Pronouncements

In November 2002, the FASB
issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.   This Interpretation
requires companies to recognize an initial liability for the fair value of an
obligation assumed when issuing a guarantee.
  The provision for initial recognition
and measurement of the liability will be applied on a prospective basis to
guarantees issued or modified after December 31,
2002.  The adoption of FIN 45 did not
materially affect the Company's consolidated financial statements.
  For more information, please refer to
Note 7, Product
Warranties.

In January 2003, the FASB
issued FIN 46, Consolidation of Variable
Interest Entities.   FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities, is entitled to receive a majority of the entity's residual
returns, or both.   FIN 46 is
effective for all new variable interest entities created or acquired after

January 31, 2003
..   For
variable interest entities created or acquired prior to  February 1,
2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after
June 15, 2003
..   The
Company will adopt FIN 46 in the third quarter of 2003 and is currently
evaluating the effect, if any, that the adoption of FIN 46 will have on its
consolidated financial statements.

3. Restructuring and Other
Charges

The
Company underwent a series of restructuring activities during 2001and 2002. The
major components of the restructuring efforts included the write-off of excess
inventories and the accrual for excess inventory purchase commitments, workforce
reductions, the closure and consolidation of excess facilities, and the
write-off of related fixed assets. Total charges associated with these plans in
2001 and 2002 were $448.6 million and $287.1 million, respectively.
  For further discussion of the Company's
2001 and 2002 restructuring activities, refer to the Company's Annual Report on
Form 10-K for the year ended December 27, 2002.  The remaining balance of these
restructuring reserves as of December 27, 2002, amounted to $130.9
million.

The
following table displays the Company's restructuring activity during the first
quarter of 2003 and the status of the reserves at March 28,
2003:

Description of reserve
      (in millions)
    Balance12/27/02
    Non-CashActivity
    CashActivity
    Balance3/28/03Consolidation of
      excess leased facilities
    $81.8
    $0.3
    $(10.7)
    $71.4Excess purchase
      commitments
    30.0
    0.8
    (0.2)
    30.6Severance and related
      expenses
    9.5
    0.7
    (6.4)
    3.8Other
      obligations
    9.6
    0.3
    (7.5)
    2.4$130.9
    $2.1
    $(24.8)
    $108.2
Non-cash activity included
foreign currency impact of $1.0 million and other minor
adjustments.

Of
the remaining $108.2 million reserves as of March 28, 2003, it is anticipated
that approximately $64.4 million will be paid in the next 12 months.
  The long-term balance of $43.8 million
will be paid over the remaining terms of the facility leases which expire at
various times through 2011. Please refer to Footnote 8, Subsequent Event, for disclosure about
recently announced restructuring actions.


4. Stock
Options

Under the
provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation –
Transition and Disclosure – an amendment of SFAS No. 123, the Company has
elected to continue to apply Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to
Employees, and its related interpretations in accounting for its stock-based
compensation plans.   Accordingly, no
compensation cost has been recognized for its fixed stock option plan
grants.   Had compensation cost for
the Company's stock-based compensation plans been determined using the fair
value at the grant dates for awards under those plans consistent with the method
required by SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated in the following
chart:


Three Months
      Ended(In
      millions, except per-share amounts)
    3/28/03
    3/29/02Net earnings
      (loss), as reported
    $(42.9)
    $5.3Plus:
      stock-based employee compensation expense included in reported net
      earnings, net of related tax effects
    2.7
    1.8Deduct: total
      stock-based employee compensation expense determined under fair value
      based method for all awards, net of related tax
      effects
    (16.7)
    (18.4)Pro forma net
      loss
    $(56.9)
    $(11.3)Earnings
      (loss) per common share:As
      reported
    $(0.10)
    $0.01Pro
      forma
    $(0.14)
    $(0.03)Earnings
      (loss) per common share, assuming dilution:As
      reported
    $(0.10)
    $0.01Pro
      forma
    $(0.14)
    $(0.03)
The fair value of
each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for grants in 2003
and 2002:

2003
    2002Expected
      volatility
    72.2%
    69.1%Risk-free
      interest rate
    2.9%
    4.9%Expected
      life
    5.7
      years
    5.3
      yearsExpected
      dividend yield
    0.0%
    0.0%

The Black-Scholes
option pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully
transferable.   It requires the use
of assumptions that are subjective, such as the expected volatility of the
exercise price and the expected remaining life of the option.
  Since the Company's options have
significantly different characteristics than traded options, and since the
changes in the subjective input assumptions can result in materially different
fair value estimates, in management's opinion, the existing option pricing
models do not necessarily provide a reliable single measure of the fair value of
the options and do not give a meaningful comparison of companies in a given
industry.

5. Comprehensive Income
(Loss)
Comprehensive
income (loss) is an expression of the Company's net income (loss) adjusted for
foreign currency translation adjustments and net unrealized gains or losses on
available-for-sale securities.   The
comprehensive loss for the quarter ended March 28, 2003, was $19.2 million,
while the comprehensive income for the quarter ended March 29, 2002, was $0.5
million.

(In
      millions)
    Three Months
      Ended3/28/03
    3/29/02Net earnings
      (loss)
    $(42.9)
    $5.3Other
      comprehensive income (loss):Net unrealized
      loss
    (1.5)
    (1.4)Cumulative
      translation adjustments
    25.2
    (3.4)Comprehensive
      income (loss)
    $(19.2)
    $0.5

6. Earnings (Loss) Per
Share

The following table
sets forth the computation of earnings per share:

Three Months
      Ended(In millions, except
      per-share amounts)
    3/28/03
    3/29/02Numerator:Net earnings
      (loss)
    $(42.9)
    $5.3Denominator:Denominator for basic
      earnings per share-   weighted-average shares
      outstanding
    412.3
    410.5Effect of dilutive
      securities:Employee stock options
      and awards
    -
    4.3Denominator for
      diluted earnings (loss) per share-  adjusted
      weighted-average shares outstanding  and assumed
      conversions
    412.3
    414.8Earnings (loss) per
      share
    $(0.10)
    $
      0.01Earnings (loss) per
      share, assuming dilution
    $(0.10)
    $
      0.01

7. Product
Warranties

The Company offers
warranties for all of its products.  
The specific terms and conditions of those warranties vary depending upon
the product sold.   The Company
provides a basic limited warranty, including parts and labor, for all products
for a period up to 5 years.  
Factors that enter into the Company's estimate of its warranty reserve include the number of units shipped, historical and anticipated rates of
warranty claims, and cost per claim. The following table presents the changes in
the Company's product warranty reserve:



(In
      millions)Total product
      warranty reserve at December 27, 2002
    $
      13.9Accruals for
      product warranties issued
    3.2Settlements
      made during the period
    (3.1)Total product
      warranty reserve at March
      28, 2003
    $14.0
8. Subsequent
Event

On April 16, 2003, the Company announced plans to reduce
operating expenses.   As an initial
step, the Company will reduce its U.S and international work force by 665
employees and record a related charge in the second quarter.
  Potential additional charges may be
incurred relating to excess and obsolete inventory, asset impairment charges,
and lease terminations, among others.  
In total, the Company anticipates the second quarter charge could be in the
range of $70 to $100 million with an estimated cash impact of $15 to $30
million. This action is the first step in a program intended to reduce operating
expenses to $125 million by the fourth quarter of 2003 and to return Tellabs to
profitability.



Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations

Overview
Tellabs designs, manufactures, and markets
communications equipment to telecommunications service providers worldwide. The
Company's customers include incumbent local exchange carriers, independent
telephone companies, interexchange carriers, other local exchange carriers,
original equipment manufacturers, cellular and other wireless service companies,
cable operators, alternate service providers, competitive local exchange
carriers, Internet service providers and system integrators. The Company also
provides installation and professional services that support its product
offerings.

In March 2003, the Company announced a reorganization of
its North American business to strengthen Tellabs' relationships with customers,
speed the development of new products, and improve profitability. The Company
named Edward Kennedy, formerly senior vice president of its Metro Networking
Group, to the position of President, Tellabs North America Operations. In this
position Kennedy has overall responsibility for all aspects of Tellabs'
operations for North America including sales, marketing, engineering, strategic
planning, products planning and manufacturing. The reorganization of Tellabs
North America emulates the August 2002 reorganization of the Company's
International operations under Anders Gustafsson, President of Tellabs
International. With this structure, the Company now has two focused
organizations capable of addressing the divergent technology and market
requirements between customers in North America and the rest of the world.

Tellabs' optical networking systems are the primary
strategic products the Company offers to service providers in North America.
These systems manage network bandwidth to help service providers deliver voice,
data and video services while reducing operating costs. Product offerings
include the Tellabs® 5000 series of digital-cross connect systems, the Tellabs®
6400 and Tellabs® 6500 transport switches and the Tellabs® 7100 series of
optical transport systems.

The Company's primary strategic offerings for service
providers outside North America are the next-generation SDH (synchronous digital
hierarchy) transport products and managed access systems. The Company's
customers use these systems to deliver voice and data services for businesses
and consumer wireless services. Products include the Tellabs® 6300 and the
Tellabs 8000 series of managed access and transport systems and the Tellabs®
7200 optical transport system.

Included under the heading Other Products are the
Tellabs® 2000 family cable telephony distribution systems, the Tellabs® 3000
family of broadband and narrowband echo cancellers and Tellabs voice-quality
enhancement (VQE) solutions, and a small amount of other miscellaneous product
revenue. Although these products are sold to customers around the world,
organizationally they are managed as part of the North
America business.

The Company also generates revenue globally from
professional services such as product and system installation, network
deployment, traffic management and others. Revenue trends from professional
services have generally followed the revenue trend for product
sales.

Beginning in the first half of 2001, telecommunications
service providers, particularly in the United States, began to significantly
reduce their capital spending.   This
began a period of significant change in the market conditions within the
telecommunications industry.

Throughout this period the Company has responded by
undertaking actions to realign its business in line with the changes taking
place in the industry and its expectations for the future.
  Those actions have included: reducing
headcount from a peak of 9,200 in the first quarter of 2001 to 4,700 at the end
of the first quarter of 2003; closing four out of six manufacturing facilities;
and reducing overall operating expenses by 40.7% compared with first quarter
2001 levels.   Over the coming year,
the Company will continue to identify and implement actions to cut fixed costs
through facility consolidation, increase returns from manufacturing operations
and implement further cost reductions across the business including work force
reductions as needed.  These
efforts may result in additional restructuring
charges (refer to Footnote 8, Subsequent
Event).


Results of
Operations
Quarter Ended
March 28, 2003, as Compared with Quarter Ended March 29,
2002
Current market conditions can be characterized by a
combination of decreased end-user demand, excess
capacity in both network bandwidth and the number of service providers,
burdensome debt obligations for some providers, extended macroeconomic and
geopolitical concerns, and certain regulatory uncertainties. This trend
continued throughout 2002 and into 2003. All of these market conditions have impacted the Company's revenue
performance in the periods of this report.

Total revenue for the quarter ended March 28, 2003, was
$222.5 million compared with $371.5 million in the first quarter of 2002.
Declines occurred across all product families and in both the international and
North American businesses. In addition to the expected
impact of lower customer spending levels on first quarter revenue, the Company
also experienced a larger than expected slowdown in spending by its largest
customer for the Tellabs 2000 products.

The overall decline in revenue was the primary driver of
our net loss of $42.9 million, or $(0.10) per share, for the first quarter of
2003 compared to a net profit of $5.3 million, or $0.01 per share, for the first
quarter
of 2002.

Revenue
within North America for the first quarter of 2003 amounted to $141.4 million or
63.6% of total revenue, compared with $259.1 million or 69.7% in the first
quarter of 2002.   International
revenue for the first quarter of 2003 amounted to $81.1 million or 36.4% of
total revenue, compared with $112.4 million or 30.3% in the first quarter of
2002.
Optical
Networking Products
Revenues from
optical networking products were $104.5 million in the first quarter of 2003,
compared with $180.5 million in the first quarter of
2002.
The Company's
new optical networking products (the Tellabs 6400, the Tellabs 6500, and the
Tellabs 7100 systems) accounted for $14.7 million of revenue in the first
quarter of 2002 compared with $13.9 million in the first quarter of 2002.
Next-Gen SDH
and Managed Access Systems
Next-gen SDH
transport products and managed access systems, the primary products the Company
offers to its international customers, accounted for $62.4 million in sales
during the first quarter of 2003, compared with $80.5 million in the first
quarter of 2002.   The decline was
the result of lower revenue from the Tellabs 7200 optical transport system and
the Tellabs 8000 managed access systems.
Our new
international products (Tellabs 6340, Tellabs 6350, and Tellabs 7200 systems)
accounted for $14.2 million of revenue in the first
quarter of 2003 compared with $21.6 million in the first quarter of 2002.
Other
Products
Revenue from
Other Products was $19.9 million for the first quarter of 2003 compared with
$58.8 million for the same period last year. The decline in revenue is primarily
the result of lower sales of our Tellabs 2000 cable telephony product as
mentioned previously.
Professional
Services
Professional
services revenue for the quarter ended March 28, 2003, was $35.7 million,
compared with $51.7 million in the first quarter of 2002.
  The decline in service revenue is
directly attributable to the lower level of overall product revenue.
Gross
Profit
For the
quarter ended March 28, 2003, total gross profit was $93.5 million or 42.0% of
sales, compared with $175.0 million or 47.1% of sales for the first quarter of
2002 reflecting lower absorption of fixed manufacturing expenditures due to
lower volume, unfavorable product mix shifts, and lower gross margins on
professional services revenue.
We are
continuing to examine all avenues for achieving further product cost
efficiencies to maintain and improve margins. As a result the Company is
targeting gross margins in the mid 40-percent range by the fourth quarter of
2003, with variability up or down based on product and service revenue mix, the
level of fixed cost absorption, and other factors.
Operating
Expenses
Operating
expenses for the three months ended March 28, 2003, declined to $144.0 million
from $174.9 million for the first quarter of 2002. The improvement in operating
expenses reflects the results of the restructuring actions mentioned previously
as well as the Company's continuing commitment to bring operating expenses in
line with lower revenue while continuing to invest for future growth. As a
result of previously announced plans and continuing commitment to reduce costs,
the Company plans quarterly operating expenses to be in the $140 million range
for the second quarter and in the $125 million range by the end of 2003.
Effective Tax
Rate
The effective
tax rate for the quarter ended March 28, 2003, was a benefit of 1.2% compared
with an expense of 36.9% in the first quarter of 2002. The tax rate for the
first quarter of 2003 reflects the absence of a tax benefit for operating losses
incurred primarily in the United States and a small tax benefit from our
International operations.
SFAS No. 109,
Accounting for Income Taxes, requires that a valuation allowance be established
when it is more likely than not that all or a portion of a deferred tax asset
will not be realized.   This
valuation allowance will offset assets associated with future tax deductions as
well as carryforward items.  
Although the Company does expect to realize these benefits, it expects to
continue to record a full valuation allowance on future U.S. and certain
non-U.S. tax benefits until an appropriate level of profitability is
attained.
Financial Condition, Liquidity and Capital Resources

The Company's principal source of liquidity remained its cash and equivalents and short-term investments, which decreased, in total, $12.6 million during the first three months of 2003 to $1,006.6 million.  The decrease during the quarter was mainly the result of cash payments related to prior years' restructuring liabilities.

Approximately one-half of the $1,006.6 million was generated by offshore operations and remains invested offshore. The Company currently considers these funds to be permanently re-invested. In the event the funds are needed for investment purposes in the United States some additional foreign withholding taxes and U.S. federal income taxes might be payable. The amount of the taxes will depend on foreign withholding tax rates and the Company's tax position in the United States at the time the funds are repatriated. We believe that any such taxes would not have a significant impact on the Company's liquidity.

During the first quarter of 2003, the Company's cash and equivalents balance decreased $196.2 million while its short-term investment balance increased $183.6 million.  These changes primarily reflect management's decision to modify the investment portfolio mix for funds held offshore by reducing its position in highly liquid cash equivalents in favor of higher yielding short-term investments.

Management believes that the current level of working capital, particularly cash and short-term investments, is sufficient to meet the Company's normal operating requirements and strategic growth needs, both now and in the foreseeable future.  Management believes sufficient resources exist to support the Company's operations, including funding the remaining short-term obligations under the restructuring programs, either through currently available cash, cash generated from future operations, short-term or long-term financing or equity offerings.

The current assets portion of the Company's balance sheet for the quarter ended March 28, 2003, included an anticipated federal income tax refund relating to the federal income tax effect of the Company's 2002 tax loss carryback. After the close of the quarter, the Company received a $157.0 million federal income tax refund arising from the filing of its 2002 federal income tax return. The cash impact of the refund will be reflected in the Company's financial statements for the second quarter of 2003.



Critical Accounting Policies

There were no changes in critical
accounting policies during the quarter.  
Additionally, the initial adoption of new accounting policies during the
quarter ended March 28, 2003, did not have a material impact on the Company's
consolidated financial statements.

Outlook



The Company believes that it is unlikely that the telecommunications equipment industry will emerge from the downturn during 2003. Therefore, the Company will continue to pursue a course aimed at improving near-term financial performance while channeling investment into the most promising future growth opportunities. The Company will continue to explore ways to maximize profitability by enhancing returns from our supply chain, including expanded use of third-party manufacturers where appropriate; continuing to identify and implement plans to cut fixed costs, including additional consolidations of facilities where possible; maintaining spending controls across the business; and reducing headcount as necessary. The restructuring action that the Company announced on April 16, 2003 (see Footnote 8, Subsequent Event) was the first step along this path that we believe can allow the Company to achieve a breakeven profile at somewhere in the vicinity of $275 million in revenue.



The Company also believes that it is important to focus its development efforts on having the right products when the industry recovers. Therefore, the Company intends to reduce spending on existing products and re-allocate more of its spending to new products and areas that it believes represent the primary avenues to growth. These investments in new products may include acquisitions or the formation of strategic partnerships in addition to internal development efforts. The Company believes that it has the financial flexibility to make any such investments using either cash (available or borrowed) or company stock while maintaining adequate liquidity to run its business.



Forward-Looking
Statements

This Management's Discussion and Analysis
and other sections of this Form 10-Q contain forward-looking statements made
pursuant to the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements reflect management's expectations, estimates and
assumptions, based on the information available at the time the document was
prepared. These forward-looking statements include, but are not limited to,
statements regarding future events, plans, goals, objectives and expectations.
The words "anticipate," "believe," "estimate," "target," "expect," "plan,"
"intend," "likely," "unlikely," "will," "should" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements are not
guarantees of future performance and involve risks, uncertainties and other
factors that may cause our actual performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by those statements. Important factors that could cause our actual
results to differ materially from those in forward-looking statements include,
but are not limited to: economic changes impacting the telecommunications
industry; financial condition of telecommunication service providers and
equipment vendors, including any impact of bankruptcies; the impact of customer
and vendor consolidation; new product acceptance; product demand and industry
capacity; competitive products and pricing; competitive pressures from new
entrants to the telecommunications industry; manufacturing efficiencies;
research and new product development; protection and access to intellectual
property, patents and technology; ability to attract and retain highly qualified
personnel; availability of components and critical manufacturing equipment;
facility construction and start-ups; the regulatory and trade environment;
availability and terms of future acquisitions; uncertainties relating to
synergies, charges, and expenses associated with business combinations and other
transactions; and other risks and future factors that may be detailed from time
to time in the Company's filings with the SEC. For a further description of such
risks and future factors, see Exhibit 99.3.
  The Company's actual future results
could differ materially from those predicted in such forward-looking statements.
In light of the foregoing risks, uncertainties and other factors, investors
should not place undue reliance on the forward-looking statements in determining
whether to buy, sell or hold any of the Company's securities. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements to reflect changed assumptions, the occurrence of anticipated or
unanticipated events or changes to future results over
time.

Item
3. Quantitative and
Qualitative Disclosures About Market Risk
There were no material
changes to the disclosures on this matter made in the Company's Annual Report on
Form 10-K for the year ended December 27, 2002.

Item
4. Disclosure Controls and
Procedures
Within the 90-day period
prior to the filing of this report, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of disclosure controls and procedures.
  Based on that evaluation, the CEO and
CFO have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
  Subsequent to the date of their
evaluation, there were no significant changes in the Company's internal controls
or in other factors that could significantly affect the disclosure
controls.

PART
II. OTHER
INFORMATION

Item 1.
  Legal
Proceedings
There were no
material changes to the disclosures on this matter made in the Company's Annual
Report on Form 10-K for the year ended December 27, 2002.

Item 6.Exhibits and Reports on
Form 8-K
(A)
Exhibits
99.1 – Certification Pursuant to
Section 1350 of Chapter 63 of Title 18 of the United States
Code
99.2 – Certification Pursuant to
Section 1350 of Chapter 63 of Title 18 of the United States
Code
99.3 – Forward-Looking Statements and
Risks and Future Factors Impacting Tellabs

(B) Reports on Form
8-K:

The Registrant
filed a press release on January 23, 2003, announcing its earnings for the
quarter ended December 27, 2002.

The Registrant
filed a press release on February 4, 2003, announcing the resignation of
Tellabs' executive vice president and chief financial officer, Joan Ryan,
effective February 7, 2003.

The Registrant
filed a press release on March 10, 2003, announcing the reorganization of its
North America business and naming Edward Kennedy president of Tellabs
Operations, Inc.

The Registrant
filed a press release on March 25, 2003, naming Timothy J. Wiggins as executive
vice president and chief financial officer effective March 31,
2003.

The Registrant
filed a press release on April 16, 2003, announcing earnings for the
quarter-ended March 28, 2003, and restructuring actions.

SIGNATURE

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

TELLABS,
INC.
      (Registrant)


/s James A. Dite
               
    
         James A.
DiteVice President and Controller(Principal Accounting
Officer)

May 9, 2003(Date)