Tellabs, Inc., an Illinois corporation, began operations in 1975 and became publicly owned in 1980. During 1992, the Illinois corporation merged with and into Tellabs Operations, Inc., a wholly-owned subsidiary. As a result of the merger, Tellabs Operations, Inc., became a subsidiary of Tellabs, Inc., a Delaware corporation (with its subsidiaries, unless the context indicates otherwise, Tellabs or the Company). The Company designs, manufactures, markets and services optical networking, next-generation switching and broadband access solutions. The company also provides professional services that support its solutions. Tellabs' products and services are used worldwide by the providers of communications services.

In August 1998, the Company acquired Coherent Communication Systems, Inc. (Coherent), a developer, manufacturer, and marketer of voice-quality enhancement products for wireless, satellite-based, cable communication, and wireline telecommunications systems, in a transaction accounted for as a pooling of interests. Tellabs issued approximately 22,424,000 shares of its stock in exchange for all the outstanding common shares of Coherent.

In July 1999, the Company acquired Alcatel's DSC Communications businesses in Europe (now known as Tellabs Denmark) for $106.4 million in cash, in a transaction accounted for as a purchase. The acquisition covered DSC Communication's European headquarters in Denmark, along with its business operations in Drogheda, Ireland; sales and support offices in England, India and Poland; and an interest in FIBCOM India Ltd., a joint venture with Indian Telephone Industries. Tellabs Denmark is a provider of managed, high-speed transport solutions which operate in Synchronous Digital Hierarchy (SDH) and dense wavelength-division multiplexing (DWDM) environments.

In August 1999, the Company acquired NetCore Systems, Inc. (NetCore), a developer of carrier-class IP routing and ATM switching solutions, in a transaction accounted for as a pooling of interests. Tellabs issued approximately 8,868,000 shares of its common stock in exchange for all the outstanding common and preferred shares of NetCore.

In February 2000, the Company acquired SALIX Technologies, Inc. (SALIX), a developer of next-generation switching solutions, in a transaction accounted for as a pooling of interests. Tellabs issued approximately 3,784,000 shares of its common stock in exchange for all the outstanding common and preferred shares of SALIX.

In February 2001, the Company completed its acquisition of Future Networks, Inc., a leader in standards-based voice and data cable modem technology, for approximately $133 million in cash, along with the assumption of outstanding stock options. The transaction was accounted for as a purchase.

Products provided by Tellabs include optical networking systems, broadband access systems and next-generation switching systems. Optical networking products include the Company's TITAN® family of digital cross-connect and optical transport systems. Broadband access products include the CABLESPAN® universal telephony distribution system; the FOCUS™ international-standard optical products obtained in the Tellabs Denmark acquisition and the Company's MartisDXX® integrated access and transport system (the MartisDXX system). Next-generation switching products include the SALIX® 7000 family of next-generation switching systems; voice quality enhancement products such as echo cancellers and special service products (SSP) such as voice frequency products.

Products recently introduced or to be introduced include the TITAN 6500 Multiservice Transport Switch (MTS), TITAN 6100 Optical Transport System (OTS), TITAN 6700 optical switch, FOCUS 6200 DWDM, VERITY™ 3000 voice-quality enhancement series, SALIX 7750 next-generation switch, FOCUS LX multiplexer and the 2700 Cable Modem Termination System (CMTS).

The Company's products are sold in the domestic and international marketplaces (under the Tellabs name and trademarks and under private labels) through the Company's field sales force and selected distributors to a major customer base. This base includes Regional Bell Operating Companies (RBOCs), independent telephone companies (ITCs), interexchange carriers (IXCs), local telephone administrations (PTTs), local exchange carriers (LECs), competitive local exchange carriers (CLECs), original equipment manufacturers (OEMs), cellular and other wireless service companies, cable operators, alternate service providers, internet service providers, system integrators, government agencies, and business end-users ranging from small businesses to Fortune 500 companies.

The availability of digital technology along with the use of microprocessors and other custom and standard very large-scale integrated (VLSI) circuitry continues to make it economically possible for the Company to expand its product lines to meet the changing customer demands and industry trends inherent in today's dynamic telecommunications environment. This expansion primarily involves the development of broad lines of service-provider-oriented networking systems that meet the increasing demands for efficient, multipurpose data, video, and voice communications services.

This same availability of technology in capital equipment makes it possible for the Company to efficiently and competitively continue to produce its own products in its world class manufacturing facilities located throughout the world.

Each of the Company's manufacturing operations is registered under the ISO 9000 standard. ISO 9000 is an international set of standards developed to provide quality assurance for companies seeking to improve their quality standards and customer service.

Optical Networking Systems
The TITAN product family consists of technologically sophisticated digital cross-connect and optical transport systems. These complex transmission systems are designed to meet or exceed domestic and international industry standards.

The digital cross-connect systems operate under software control and are typically used to build and control the narrowband, wideband and broadband transmission infrastructure of telecommunication service providers. These products augment the ability of users to provide current, emerging, and future service to business and residential customers. Advanced survivable business services also utilize the TITAN products for interconnecting fiber transmission.

Telecommunication managers utilize the digital cross-connect systems to generate revenue or to reduce cycle time while minimizing capital and operating expense. Key applications include centralized and remote testing of transmission facilities, grooming of voice, data, and video signals, automated provisioning of new services, and restoration of failed facilities. All of the TITAN systems include a feature for monitoring facility performance, which reduces troubleshooting time in a complex network. The user can determine the early warnings of facility degradation rather than reacting to a network outage. The digital cross-connect systems also convert international to domestic transmission and signaling standards.

The TITAN systems vary in switching rate and facility interface speed. Tellabs offers the TITAN 5300 series of cross-connect systems that can interface facilities at STS-1, DS3, DS1, E1, DS0, and subrate levels, and can switch them at DS0 levels and below. The systems in this series allow modular non-service affecting growth with capacities ranging from 8 to 7,168 T1 equivalent ports.

Tellabs also offers the Company's flagship TITAN 5500 system which interfaces facilities at the DS1, DS3, STS-1 and fiber optic OC-N levels, and cross-connects them at levels of DS1/VT1.5 and above. The TITAN 5500 system is the first digital cross-connect system in the world to integrate optical (155 and 622 mb/s) equipment. A single TITAN 5500 system can carry the equivalent of 1,400,000 simultaneous Internet calls.

Optical networking system products accounted for approximately 64%, 59% and 56% of sales for 2000, 1999, and 1998, respectively.

Broadband Access
Since Tellabs' entry into the data communications marketplace in 1983, the Company has developed a comprehensive family of networking products to address the requirements and flexibility demanded by the users of communications services. Products within this group include the MartisDXX system, the FOCUS family of SDH transport and access networks and the CABLESPAN 2300 universal telephony distribution system.

The MartisDXX system is a complete managed access and transport network system designed for global telecommunications operators. The two main applications are business services and mobile transport network. In both cases, the powerful MartisDXX Manager Network Management System (NMS) provides end-to-end network and service management, including customer control of business services, to insure that multiple services, transmission protocols and network media are managed for optimum performance, service quality and cost efficiency.

The MartisDXX system is currently deployed in more than 200 networks and 80 countries worldwide, providing intelligent transport for mobile services and multi-service platforms for a broad range of business services, including LAN interconnect, digital leased line, frame relay and PBX interconnection. Tellabs has partnered with Nokia and Ericsson in this area, which puts the Company in a unique position to participate in the next generation of this business.

Tellabs' FOCUS family of SDH and DWDM optical transport and access solutions helps carriers build high-capacity backbone and access networks using fiber optics to offer new and differentiated services. The FOCUS product family includes synchronous digital cross-connect systems, primary, terminal and add/drop multiplexers, together with element management systems and network management systems. Together, these form complete managed network solutions for voice and data access, metropolitan area networks and regional transport networks.

A new addition to the FOCUS family in 2000 was the FOCUS 6200 system, a new dense wave division multiplexing (DWDM) platform, which enables operators to reduce the operational costs and simplify network planning. It provides multi-wavelength optical add/drop, integrated SDH interfaces and open transponder interfaces that support multiple bit rates and IP applications for distances in excess of 600 kilometers.

Also in 2000, the Company introduced the MartisDXX/FOCUS Connector, which provides an integrated management solution that enables service providers to operate the full set of MartisDXX managed access and FOCUS SDH and DWDM transport and access network elements from a single network management workstation. This approach enables operators to reduce operational costs by optimizing network resources and simplifying network planning.

Another key product within the FOCUS product family is the FOCUS LX, a flexible and scalable platform for add/drop multiplexing and 4/1 connection designed for growth. The integration of the FOCUS LX with Tellabs' mobile telephony products, such as the MartisDXX, makes it possible to design full mobile networks featuring FOCUS LX as the SDH transport layer.

For the end customer, direct SDH access means highly flexible, high-capacity connections for a range of services that can be managed end-to-end by the operator. For the operator, the benefits are improved bandwidth utilization with unified management of multiple services over a single platform, using a range of transmission media.

The Company's CABLESPAN 2300 system is a local access product developed by the Company and Advanced Fibre Communications, Inc. to address the emerging cable and alternate service provider markets. The CABLESPAN 2300 System is a next-generation, multiple services delivery system that allows cable television providers, alternate access carriers, and competitive access providers to build flexible communication networks that support the integrated delivery of video, voice, data and information services. The product provides maximum application flexibility through its ability to support a wide variety of network topologies, interface with various forms of transmission media and provide the modularity required to support both residential and business customers. The CABLESPAN system can be managed either directly from an integral interface that provides local and remote management or from a PC-based stand-alone element management system that allows the management of multiple CABLESPAN systems and supports multiple network operators while interfacing with other operational support systems.

Broadband Access products accounted for approximately 23% of sales in 2000 and 1999, and 25% of sales 1998.

Next-Generation Switching
Next-generation switching products are primarily modular in design and can be used either individually or in complex systems and assemblies. The two areas making up next generation switching are the SALIX switching solutions products and the VERITY voice-quality enhancement products. The products are designed to meet telephone industry standards, and, in many applications, they directly interface with customer premises equipment. These products enhance the ability of Tellabs' customers to provide current, emerging, and future services to their business customers through innovative products and systems that provide more cost-effective provisioning of existing basic services. In order to continue to grow this product area, state-of-the-art technology will be deployed and value-added content will be provided.

In February 2000 the Company acquired SALIX Technologies, Inc., strengthening the Company's ability to deliver next-generation converged network solutions. The SALIX 7000 family of next-generation switches features cost-effective voice to data network migration by integrating circuit switching into ATM and IP broadband infrastructures. The portfolio includes the SALIX 7720 next-generation virtual tandem switch for fixed and mobile networks. It provides PSTN-quality voice services over TDM and ATM networks and supports fax and modem traffic. The SALIX 7750 next-generation switch, designed to deliver packet and circuit-switched telephony services, serves long-haul and broadband local access applications. The SALIX 7620 softswitch is a media gateway control protocol (MGCP) device that provides seamless interconnection to the PSTN via SS7 interfaces. It works with the 7620/7720/7750 switches to map connection requests between destination endpoints in voice over packet IP cell networks and establish end-to-end connections. The SALIX 7420 integrated management system (IMS) is a SNMP-based network management system that performs consolidated alarm, event correlation and task-based workflow management for commonly-performed work functions. Tellabs has formed the SALIX SoftLink partners program, a comprehensive partnership of solutions providers focused on delivering next-generation converged services.

In 1998, the Company created the Network Enhancing Technologies Solutions Group (NETS). NETS was formed by the combination of Coherent, which was acquired in 1998, with the Network Access Systems Division of the Company. This group is focused on developing leading-edge voice quality enhancement and echo cancellation solutions.

The VERITY voice-quality enhancement products primarily address the needs of cellular companies, LECs, and IXCs, both domestically and internationally. In the case of wireline customers, the ability to control the clarity of speech quality is becoming more and more difficult, due to the deregulation of networks and the move from circuit-based to cell and packet-based networks. These networks introduce delays and other issues that are not present in circuit-based calls, including the level of speech signals during calls. In the case of wireless operators, to compete with wireline operators for call revenues, the clarity of a mobile call must be as good as a wireline call. These changes have resulted in a move away from pure echo cancellation, to providing echo cancellation as a platform for voice-quality enhancing software, such as level control and noise reduction. This development in the market has opened up opportunities, not just to provide solutions to the wireline and wireless operators worldwide, but also to the manufacturers of telecommunications products worldwide, who integrate these voice-quality enhancing solutions into their products. Competition is driving many wireline and wireless customers to re-evaluate and upgrade their existing infrastructure, based on the voice enhancing technology solutions now available. The Verity 3100 system is a high-density echo control and voice-quality enhancement (VQE) solution for digital wireless and long-distance service providers that improves voice quality and enhances network performance.

Next-generation switching products accounted for approximately 6% of sales in 2000, 12% of sales in 1999 and 14% of sales in 1998.

Emerging Products
In the optical networking system product area, the Company released the TITAN 6500 MTS and TITAN 6100 OTS and announced the development of the TITAN 6700 optical switch. The TITAN 6500 MTS enables service providers to quickly provide broadband circuits, reduce capital expenditures and minimize operations expense. This system has bigger capacity and switches broadband signals at lower cost than predecessor equipment. The TITAN 6500 MTS interfaces electrical facilities at DS3, STS-1 and optical facilities, OC-3, 12, 48 and 192, and switches lower speed signals at broadband payloads (52 MS/S - STS-1 through OC-48C (2.5 GB/S)). The first release of the TITAN 6500 MTS can carry the equivalent of 4,128,768 simultaneous Internet calls.

The TITAN 6100 OTS enables service providers to increase fiber capacity by 32 times (and beyond) with lower costs. The system also allows service providers to deliver high-speed broadband services to Internet service providers and Fortune 500 companies, thus helping to alleviate the bandwidth bottleneck of the Internet "on ramps". The TITAN 6100, in conjunction with other Tellabs solutions, allows end-to-end fiber and lightpath management.

The TITAN 6700 optical switch is the industry's largest, scalable, carrier-class, wavelength management system that forms the foundation for next-generation, dynamic optical networks. The switch allows service providers to cost-effectively manage the exponential wavelength growth realized in their backbone networks. In its initial release, the TITAN 6700 optical switch has the capacity to manage over 10 terabits of traffic. Along with wavelength management, the TITAN 6700 optical switch allows carriers to connect, aggregate, protect/restore, and switch traffic through their core transport backbone with efficiencies required by next-generation networks.

In the broadband access product area, the Company is developing next-generation data access products and service management system products. The MartisDXX system is constantly updated with new services such as integrated router modem equipment and voice services like V5.2. The long term view is to migrate towards managed IP based platforms both in the business service networks and mobile 3G (UMTS) networks.

In the fourth quarter of 2000, Tellabs, Inc. and Riverstone Networks announced a worldwide strategic alliance that expands Tellabs' broadband access portfolio to further enable cable system operators to deliver new, revenue-generating services. These new services include high-speed data, lifeline voice-over Internet protocol (VoIP), service level agreements, streaming media and virtual private networks. The first product Tellabs released, in relation to this alliance, was the CABLESPAN 2700 system, a next-generation, carrier-class cable modem termination system (CMTS).

In addition, Tellabs acquired Future Networks, a leader in standards-based voice and data cable modem technology in February 2001. This acquisition enables Tellabs to provide cable operators with an end-to-end multi-services solution based on internet protocol. Future Networks brings a complete line of cable data modems based on Data Over Cable Service Interface Specification (DOCSIS), EuroDOCSIS and PacketCable specifications to Tellabs' end-to-end solution.

The SALIX next-generation switches enable service providers to seamlessly move voice traffic onto data networks while supporting voice services. This family of switches places the Company in a high-growth market and new category, offering companies a way to rapidly create new services and increase efficiency in communications networks. A major product that was introduced in the year 2000 was the SALIX 7750 next-generation switch.

In the area of voice-quality enhancement products, the Verity 3000 series was introduced to the market in 2000. These products extend existing capabilities by improving call quality, ensuring connections are clear, free of echo and other distortions. In addition, the EC Duo® 8000 echo canceller provides wireline call quality to wireless customers in the global markets.

Competition
The Company's products are sold in global markets and compete on the following key factors: responsiveness to customer needs, product features, customer-oriented planning, price, performance, reliability, breadth of product line, technical documentation, and prompt delivery.

The optical networking product systems compete principally with Lucent Technologies, Alcatel, Nortel Networks and Ciena.

The major competitors of the broadband access products are Alcatel, Ciena, Cisco, Lucent Technologies and Nortel Networks.

The next-generation switching products currently compete in two product areas: SALIX switching solutions and voice-quality enhancements. The leading competitors for the SALIX switching solutions are Lucent Technologies, Nortel Networks and Sonus. Leading competitors for voice-quality enhancements are Ditech, Ericsson and Lucent Technologies.

The Company maintains a worldwide service organization whose purpose is to provide customers with a consistent suite of high-quality service offerings and technical product support focused on meeting the expanding needs of the global customer base. The Company supports its customers with a wide range of services that include network engineering and installation, service support and maintenance, classroom and on-site training, consultation and professional services, logistics management and 24-hour technical support.

The Company's application engineering, support and installation group emphasizes meeting the customer's needs for installation and integration of the Company's products and third party equipment into the customer's network. The group uses a combined workforce of Company and subcontracted personnel to provide teams of trained professionals that manage the job from the engineering stage through to the successful system integration and commissioning.

The Company's technical support group consists of highly-trained teams that focus on customer support of the TITAN 5500/5500S and 5300 series systems, CABLESPAN system, NETS, FOCUS and MartisDXX product lines and will provide support for the Company's emerging product lines. All teams utilize a Customer Management System (CMS) to capture, collect and report on data specific to product performance as well as to track overall customer profiles and the status of customer calls through to resolution.

The Company's customer training group offers an expansive choice of course offerings designed to meet the existing customer needs, as well as newly-designed course offerings that address the rapidly changing industry needs. Courses are offered at the Company's technologically-advanced training facilities and on-site at customer premises.

The Company provides product warranties for periods ranging from one to five years for the repair or replacement of modules and systems found to be faulty due to defective material and additionally for other requirements as described in the customer contract. The Company has an expedited replacement service that is used to provide the customer with needed module replacements in response to a time-critical service outage.

The Company's solutions services group offers a variety of professional and consultative services, including program management, network planning and enhanced product support. These innovative service offerings are designed to augment the Company's basic services and provide value-added benefits to our customers.

Revenues generated from the Company's professional services and solutions area accounted for approximately 8%, 6% and 4% of sales in 2000, 1999 and 1998, respectively.

Sales are generated through the Company's direct sales organization and selected distributors. The North American sales group consists of approximately 120 direct sales personnel and an additional 120 sales support personnel located throughout the United States and Canada. The international sales group consists of approximately 115 direct sales personnel, and an additional 185 sales support personnel located in Latin America, South America, Europe, the Middle East, Africa and Asia.

The North American sales organization conducts its activities from the Company's corporate headquarters and seven regional offices. The international sales organization conducts its activities from the Company's corporate headquarters, 27 regional sales offices, and three regional headquarters. The regional sales offices are generally staffed by a regional sales manager or country manager, direct sales resources, system sales engineers and additional personnel as required.

Direct orders through the Company's field organization accounted for approximately 87% of 2000 sales.

The North American sales organization is structured by market with emphasis on large customers. The international sales organization is structured to support activities on a regional basis, with "solution centers" located strategically throughout the world.

The Company has arrangements with a number of distributors of telecommunications equipment, both in North America and internationally, some of whom maintain inventories of the Company's products to facilitate prompt delivery. These distributors provide information on the Company's products through their catalogs and through trade show demonstrations. The Company's field sales force also assists the distributors with regular calls to them and their customers. Distributors, as a group, accounted for approximately 13% of 2000 sales.

Sales to customers within the United States accounted for approximately 78%, 70% and 67% of overall sales, in 2000, 1999, and 1998, respectively. Sales to international customers accounted for approximately 22%, 30% and 33% of consolidated sales, in 2000, 1999, and 1998, respectively. The largest single group of customers the Company has are Regional Bell Operating Companies (RBOCs). Sales to this customer group accounted for approximately 30% of consolidated net sales in 2000 and 1999 and 31% in 1998, respectively. The Company believes that a loss of, or a significant reduction in purchases by RBOCs as a group, although not anticipated, could have a material adverse effect on the Company's results.

In 2000, sales to Verizon Communications, Inc. (Verizon) accounted for approximately 19.1% of consolidated net sales. In 1999, sales to SBC Communications, Inc. (SBC) and sales to Verizon accounted for approximately 11.5% and 11.0% of consolidated net sales, respectively. In 1998, sales to Verizon and SBC accounted for approximately 13.9% and 12.6% of consolidated net sales, respectively. No other customer in 2000, 1999, or 1998 accounted for more than 10% of consolidated net sales.

At December 29, 2000, and December 31, 1999, backlogs were approximately $439 million and $256 million, respectively. All of the December 29, 2000, backlog is expected to be shipped in 2001. The Company considers backlog to be an indicator, but not the sole predictor, of future sales.

Tellabs believes that the enhancement of existing products and the development of new products are vital to the Company's long-term success. Research and development expenses were $415.2 million in 2000, $312.3 million in 1999 and $224.1 million in 1998. There are currently approximately 2,600 engineers employed at Tellabs, representing 30% of the Company's total workforce. The Company conducts research at its laboratories in Lisle, Bolingbrook and Schaumburg, Illinois; Mishawaka, Indiana; Hawthorne, New York; Burlington, Bedford, Cambridge and Wilmington, Massachusetts; Plymouth, Minnesota; Ashburn, Virginia; Germantown, Maryland; Ontario and Quebec, Canada; Ballerup, Denmark; Espoo, Oulu, Savo and Tampere, Finland; Haryana, India; and Shannon, Ireland. In addition to the Company's internal efforts to develop new technologies, Tellabs also undertakes research and development-oriented acquisitions and product-oriented alliances in order to allow the Company access to technology that is important to the future of its products. The Company plans to spend approximately $500 million to $550 million on research and development in 2001. These expenditures reflect the Company's commitment to the enhancement of existing products and development of new products designed to satisfy the needs of communications service providers worldwide.

The Company assembles its products from standard components and from fabricated parts, which are manufactured by others to the Company's specifications. Such purchased items represented approximately 71% of cost of sales in 2000.

Most purchased items are standard commercial components available from a number of suppliers with only a few items procured from a single-source vendor. Management believes that alternate sources could be developed for those parts and components of proprietary design and those available only from single or limited sources. However, future shortages could result in production delays that could adversely affect the Company's business.

As part of the manufacturing process, hazardous waste materials that are present are handled and disposed of in compliance with all Federal, State and local provisions. These waste materials and their disposal have no significant impact on either the Company's production process or its earnings or capital expenditures.

At December 29, 2000, the Company had 8,643 employees, of which 2,352 were employed in the sales, sales support and marketing area, 2,636 in product development, 2,939 in manufacturing, and 716 in administration. The Company considers its employee relations to be good. It is not a party to any collective bargaining agreement.

The Company has various trade and service marks, both registered and unregistered, in the U.S. and in numerous foreign countries (collectively, "Marks"). All of these Marks are important in that they differentiate the Company's products and services within the industry through brand name recognition. The Company is not aware of any factor which would affect its ability to utilize any of its major Marks.

The Company currently holds numerous United States and foreign patents. The Company has also developed certain proprietary hardware designs, software programs, and other works in which the Company owns various intellectual property rights, including rights under copyright and trade secret laws. The Company believes that its patents and other intellectual property rights are important to its business.

Through various licensing arrangements the Company grants certain rights to its intellectual property and receives certain rights to intellectual property of others. The Company expects to maintain current licensing arrangements and in the future secure licensing arrangements, as needed and to the extent available on reasonable terms and conditions, to support continued development and marketing of the Company's products. Some of such licensing arrangements require or may require the payment of royalties, and the amount of such payments may depend upon various factors, including but not limited to: the structure of royalty payments, offsetting considerations, if any, and the degree of use of the licensed technology in any products of the Company or otherwise.

The Company manages its business in one business segment. Information with respect to the Company's net sales by product group, net sales by country, and net long-lived assets by country for the fiscal years ended December 29, 2000, December 31, 1999, and January 1, 1999, is set forth in Note 10 on page 39 of the registrant's Annual Report to Stockholders and is incorporated herein by reference.

The Company's corporate headquarters is located on 19.1 acres of Company-owned land approximately 30 miles west of Chicago in Lisle, Illinois. Located on this property are three buildings, totaling 220,000 square feet. These buildings house the Company's headquarters, a portion of the Company's customer service, research and development and administrative functions and the majority of the optical networking group's engineering operations. In late 1999, the Company purchased approximately 55 acres of land in Naperville, Illinois; where, in April 2000, construction of a new 860,000-square foot headquarters building commenced. Occupancy is slated for the third quarter of 2001.

The Company also owns 50 acres of land in Bolingbrook, Illinois (near Lisle) where a 544,000-square foot manufacturing, engineering and office building is located. In late 2000, the Company purchased a 182,000-square foot building in Bolingbrook, in which it had previously leased 102,000 square feet. This facility will be utilized by the Company's manufacturing operations. In addition, the Company also owns approximately 75 acres of land in Round Rock, Texas, where a 127,000-square foot manufacturing facility is located. In 1999 the Company purchased 5.2 acres of land in Ashburn, Virginia adjoining their existing leased facility.

Internationally, the Company owns a 222,000-square foot facility in Ballerup, Denmark, which houses administrative and research and development functions. In Espoo, Finland, the Company owns a 154,000-square foot production and engineering facility, located on approximately 12 acres of Company-owned land. Also on this land, is a 90,000-square foot building, which is used for manufacturing. The Company also owns three office buildings in Espoo, totaling 127,000 square feet, which contains production, research and development and administrative functions. In Shannon, Ireland, the Company owns a 135,000-square foot manufacturing facility, which is built on land obtained through a long-term lease entered into during 1997.

Significant facilities leased by the Company include: a location in Bolingbrook, Illinois (54,000 square feet, total) containing administrative and research and development functions; a manufacturing facility in Drogheda, Ireland (140,000 square feet); two buildings in Warrenville, Illinois (137,000 square feet, total), which also house administrative and research and development activities; a manufacturing facility in Ronkonkoma, New York (130,000 square feet); a location in Germantown, Maryland (109,000-square feet) which houses administrative, research and development and sales activities for the Company's next-generations switching solutions; one location in Burlington, Massachusetts (60,000 square feet), which contains sales, research, production and administrative activities; three locations (93,000 square feet, total) in Lisle, Illinois used for research and development; two locations in Wilmington, Massachusetts (77,000 square feet, total) also used for research and development; a facility in Ashburn, Virginia (72,000 square feet) for research and development; in Drogheda, Ireland (140,000 square feet, total) for production, research and development, and administrative activities; two locations in Espoo, Finland (60,000 square feet, total) housing administrative and engineering functions; and two locations in Oulu and Tampere, Finland (59,000 square feet, total) for research and development

In addition to these facilities, the Company also leases six sales offices and five research and development facilities in the United States. In Canada, the Company leases one sales office and two research and development facilities. Internationally, the Company also leases five research and development facilities and various small sales offices in twenty-eight countries.

The Company owns substantially all the equipment used in its business. The Company believes that its facilities are adequate for the level of production anticipated in 2001, and that suitable additional space and equipment will be available to accommodate expansion as needed.

The Company is not involved in any material litigation.

Not applicable.

Except for historical information, the matters discussed or incorporated by reference in Part I of this report may include forward-looking statements that involve risks and uncertainties that may affect the Company's actual results and cause actual results to differ materially from those in the forward-looking statements. The foregoing discussion should be read in conjunction with the financial statements and related notes included in the Company's Annual Report and incorporated in this report by reference in Part II, and management's discussion and analysis included in Items 7 and 8 herein.

Tellabs' common stock is listed on the Nasdaq Stock market under the symbol TLAB and appears daily in most newspaper stock tables as Tellabs. As of February 26, 2001, there were approximately 5,367 stockholders of record and 408,911,493 outstanding shares. Tellabs is a component of the Nasdaq-100 Index and the Standard & Poor's 500 Index.

The section entitled "Common Stock Market Data" on page 49 of the Company's Annual Report to Stockholders for the year ended December 29, 2000 (the "Annual Report") is incorporated herein by reference. It is also included in Exhibit 13, as filed with the SEC. See discussion referred to in Item 7 below for dividend information.

* All amounts restated to reflect pooling-of-interests merger with SALIX Technologies, Inc. Per-share amounts also restated for stock splits in 1999 and 1996. In addition, no cash dividends per common share were paid.

The Company conducts business on a global basis in several major international currencies. Foreign currency risk is managed through the use of forward exchange contracts to hedge nonfunctional-currency receivables and payables that are expected to settle in less than one year. The Company does not enter into forward exchange contracts for trading purposes and all foreign exchange contract activity is carried out under a program authorized by the Company's Board of Directors. Under the program, the Company enters into contracts to hedge 90 percent of the aggregate currency exposure for any single currency. The Company assesses its outstanding currency exposure on a monthly basis. Foreign currency transaction gains and losses resulting from changes in the exchange rates are recognized in "Other Income (Expense)".

The foreign currency forward exchange contracts are used to manage exposure to changes in currency exchange rates, principally Euro, Danish Krone, Norwegian Krone and British Pound Sterling. The table that follows presents a summary of the notional value and the fair value of forward exchange rate contracts for each currency in which the Company has hedged exposure at December 29, 2000, and December 31, 1999. The notional amounts shown are the US dollar value of the agreed upon amounts in each foreign currency that will be delivered to a third party on the agreed upon date.

The Consolidated Financial Statements and Notes thereto on pages 26 through 41 of the Annual Report are incorporated herein by reference. They are also included in Exhibit 13, as filed with the SEC.

None.

The information required, except for information relating to the executive officers of the registrant which appears at the end of Part I above, is incorporated herein by reference to the section entitled "Election of Directors" in the registrant's Proxy Statement (the "Proxy Statement") dated March 14, 2001.

The section entitled "Executive Compensation" in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section entitled "Security Ownership of Management and Certain Other Beneficial Owners" in the Proxy Statement is incorporated herein by reference.

The section entitled "Election of Directors" in the Proxy Statement is incorporated herein by reference.

(a) 1. Financial Statements:

The following Consolidated Financial Statements of Tellabs, Inc., and Subsidiaries, included in registrant's Annual Report to Stockholders for the year ended December 29, 2000, were previously incorporated by reference in Item 8:

Consolidated Balance Sheets: December 29, 2000, and December 31, 1999

Consolidated Statements of Earnings: Years ended December 29, 2000, December 31, 1999, and January 1, 1999

Consolidated Statements of Stockholders' Equity: Years ended December 29, 2000, December 31, 1999, and January 1, 1999

Consolidated Statements of Cash Flows: Years ended December 29, 2000, December 31, 1999, and January 1, 1999

Notes to Consolidated Financial Statements

2. Financial Statement Schedules:

The following Consolidated Financial Statement Schedules of Tellabs, Inc., and Subsidiaries are included herein pursuant to Item 14(d):

Report of Independent Auditors

Schedule II. Valuation and Qualifying Accounts and Reserves

Schedules not included have been omitted because they are not applicable or the required information is shown in the consolidated Financial Statements or Notes thereto.

(b) Reports on Form 8-K:

The Registrant filed a press release on January 25, 2001, announcing earnings for the quarter and year ended December 29, 2000.

The Registrant also filed a press release on March 12, 2001, which provided updated guidance on the Company's first quarter and full year 2001 revenue and earnings per share expectations, and also discussed the closing of the Future Networks, Inc. acquisition.

(c) Exhibits:

Exhibits 10.1 through 10.36 are management contracts or compensatory plans or arrangements required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c) hereof.

(d) Schedules: See Item 14(a)2 above.

1/ Incorporated by reference from Tellabs, Inc. Post-effective Amendment No. 1 on Form S-8 to Form S-4 filed on
or about June 29, 1992 (File No. 33-45788).

2/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended April 1, 1988 (File No. 0-9692).

3/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1993 (File No. 0-9692).

4/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1993 (File No. 0-9692).

5/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 1995 (File No. 0-9692).

6/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 29, 1995 and Form 10-Q Quarterly Report for the quarter ended September 26, 1997. The Deferred Income Plan Amendment is incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1999 (File No. 0-9692).

7/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 28, 1996 (File No. 0-9692).

8/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 27, 1997 (File No 0-9692).

9/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 27, 1996 (File No. 0-9692).

10/ Incorporated by reference from Tellabs, Inc. Definitive Proxy Statement filed on or about March 16, 1998 (File No. 0-9692).

11/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1999 (File No. 0-9692).

12/ Incorporated by reference from Tellabs, Inc. Pre-Effective Amendment No. 1 to Form S-4, filed on August 5, 1999 (File No. 33-83509).

13/ Incorporated by reference from Tellabs, Inc. Pre-Effective Amendment No. 1 to Form S-4, filed on February 7, 2000 (File No. 33-95135).

14/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No.1,on Form S-8 to Form S-4, filed on September 17, 1999 (File No. 33-83509).

15/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No. 1 on Form S-8 to Form S-4, filed on March 13, 2000 (File No. 33-95135).

16/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1999 (File No. 0-9692).

17/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 2000 (File No. 0-9692).

18/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended September 29, 2000 (File No. 0-9692).

19/ Incorporated by reference from Tellabs, Inc. Form S-8 filed on March 5, 2001 (File No. 333-56546).

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Tellabs, Inc.

We have audited the consolidated balance sheets of Tellabs, Inc., and Subsidiaries as of December 29, 2000 and December 31, 1999 and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 29, 2000, incorporated by reference herein. Our audit also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tellabs, Inc., and Subsidiaries at December 29, 2000 and December 31, 1999, the consolidated results of its operations and its cash flows for each of the three years in the period ended December 29, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Notes 2 and 3 to the financial statements, in 2000 the Company changed its method of revenue recognition.

/s Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
January 19, 2001

Three Years Ended December 29, 2000, December 31, 1999, and January 1, 1999

NOTE:

(A) - uncollectable accounts charged off, net