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___

Common Shares, $.01 Par Value - 412,001,439 shares outstanding on September 27, 2002.

The accompanying notes are an integral part of these statements.

TELLABS, INC.
NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements 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 Form 10-K of Tellabs, Inc. (“Tellabs” or the “Company”), for the year ended December 28, 2001.

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.

During the first quarter of 2002, the Company adopted SFAS 142, Goodwill and Other Intangible Assets. SFAS 142 eliminates the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. For more information, please refer to Note 4, Goodwill and Intangible Assets.

Also during the first quarter of 2002, the Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 provides a single accounting model for long-lived assets to be disposed of and replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. Adoption of this Statement did not have a material effect on the Company’s results of operations, financial position or cash flows. The Company will follow the guidance in SFAS 144 for impairment reviews of long-lived assets.

In May 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for an exit cost or disposal activity be recognized when the liability is incurred, whereas under EITF No. 94-3, a liability is recognized at the date of an entity’s commitment to an exit plan. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company is not required to implement SFAS 146 until 2003. Accordingly, the most recent restructuring announced in September 2002 (see Note 5, Restructuring and Other Charges) was accounted for using the guidance in EITF Issue No. 94-3.

In January 2002, the Company acquired 100% of the outstanding voting stock of Ocular Networks, Inc. (“Ocular”), a developer of optical solutions for the metropolitan (“metro”) optical networking market, for $323.0 million. As part of the acquisition, the Company obtained Ocular’s Optical Network Xchange^TM (“OSX”) products, the Tellabs® 6400 transport switch (formerly Ocular OSX 6000^TM), the Tellabs® 6410 transport edge node (formerly Ocular OSX 1000^TM) and the Tellabs® 6490 element manager (formerly Ocular Metro Watch^TM).

The acquisition was accounted for as a purchase in accordance with the guidance in SFAS 141, Business Combinations, with the results of operations and cash flows for Ocular included in the Company’s consolidated results from the date of the acquisition. Pro forma combined results of operations prepared assuming the acquisition had occurred at the beginning of the year are not being presented since they would not differ materially from reported results.

Components of the purchase price were as follows:

The Black-Scholes option valuation model was used to determine the fair value of the Ocular stock options assumed. The deferred compensation expense represents the intrinsic value of the unvested Ocular stock options on the acquisition date, which will be recognized over the remaining service period of the options. Also included in the purchase price was a payable of $28.5 million to former holders of restricted Ocular stock awards that were given to certain key employees. On the acquisition date, the restricted stock award holders exchanged these awards for the right to receive $28.5 million in cash, which Tellabs has agreed it will pay out either, immediately, if certain pre-defined conditions are met, or over the original vesting period of the awards. As of September 27, 2002, the Company had paid approximately $13.5 million of this payable.

The preliminary allocation of the purchase price is as follows:

The purchase price allocation is preliminary, awaiting a final determination of deferred taxes related to the acquisition and other minimal expenses.

The developed technology intangible asset of $64.4 million represents the value of the underlying technology for the Tellabs 6400 transport switch and the Tellabs 6490 element manager. This intangible asset is being fully amortized over its estimated useful life of ten years using the straight-line method. The $5.4 million of in-process research and development costs was expensed during the first quarter of 2002. These costs related to the development of the Tellabs 6410 transport edge node.

The Company also recorded goodwill of $265.0 million. The Company believes that by acquiring Ocular it extended the addressable market for its products within the metro optical network. Ocular’s product offerings complement Tellabs’ by focusing on small to mid-size tier 2 and 3 central offices, a market opportunity that has previously not been addressed by Tellabs. Tellabs® 5000 series of digital cross-connect systems are optimized for larger, or tier 1, central offices. The Company estimates that no goodwill will be deductible for tax purposes.

During the first quarter of 2002, the Company adopted SFAS 142, Goodwill and Other Intangible Assets. SFAS 142 eliminates the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

In its initial application of SFAS 142, the Company determined that it operated in one reporting unit for purposes of completing the impairment review of goodwill. The Company utilizes the comparison of its market capitalization and book value as an indicator of potential impairment. Upon adoption of SFAS 142, the Company tested for impairment at the consolidated entity level and determined that a potential impairment did not exist. As a result, no further actions were required.

During a portion of the third quarter, the Company’s market capitalization was below its book value; however, the Company does not believe that goodwill was impaired at the quarter end. The Company plans to perform its annual impairment review in the fourth quarter. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

Below is a comparison of the results of operations for the quarter and nine months ended September 27, 2002, with the pro-forma results of operations for the quarter and nine months ended September 28, 2001, adjusted to exclude goodwill amortization expense.

Goodwill increased $270.4 million during the first nine months of 2002, to $459.0 million, primarily consisting of $265.0 million resulting from the Ocular acquisition.

At September 27, 2002, the Company had finite lived intangible assets with an original carrying value of $87.4 million and accumulated amortization and foreign currency translation adjustments totaling $15.7 million. These assets consisted of developed technology acquired in both the Tellabs Denmark acquisition, totaling $23.0 million, and the Ocular acquisition totaling $64.4 million. At September 27, 2002, the net carrying value of the Tellabs Denmark developed technology was $11.6 million, while the net carrying value of the Ocular developed technology was $60.1 million. These intangible assets are being fully amortized using the straight-line method over periods ranging from 7 to 10 years. The overall weighted-average amortization period is 9.3 years. Total amortization expense for the quarter and nine months ended September 27, 2002 was $2.4 million and $6.5 million, respectively.

The remaining amortization expense for 2002 is $2.4 million. The estimated amortization expense for the next four years is as follows:

In accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets, the Company reviews the remaining useful life for the finite lived intangible assets annually.

In April 2001 and August 2001, the Company’s management and Board of Directors approved a plan to restructure its business operations. The Company’s restructuring efforts included termination of the SALIX and NetCore development efforts, strategic realignment of worldwide manufacturing capacity and related workforce reductions, reduction of excess inventories and related purchase commitments, and a consolidation of the Company’s facilities. These steps were undertaken to both realign the Company’s cost structure with the lower anticipated business and industry outlook and to focus the Company’s resources on the metro optical networking and business service markets. Total charges associated with these plans were $311.9 million.

In April 2002 and September 2002, the Company’s management and Board of Directors approved additional plans to further restructure its operations due to the sustained impact the industry-wide recalibration in capital spending by the major telecommunications carriers was having on the Company. Major components of the restructuring efforts included a realignment of worldwide inventory levels to match customer demand, which resulted in the write-off of excess inventories and the accrual for excess inventory purchase commitments; workforce reductions; the closure and consolidation of excess facilities, including manufacturing facilities in Ronkonkoma, New York, and Shannon, Ireland, along with the write-off of related fixed assets; a write-down of equity investments; and a review of the sufficiency of the reserves for excess leased facilities from the Company’s 2001 restructuring programs in light of current economic conditions. Total charges associated with the April 2002 and September 2002 plans were $219.1 million and $68.0 million, respectively. For further discussion of the Company’s April 2002 accrual, refer to the Form 10-Q of Tellabs, Inc. for the period ended June 28, 2002, filed with the Securities and Exchange Commission on August 6, 2002.

Below is an analysis of the restructuring and other charges recorded during the third quarter of 2002 and 2001 by major income statement classification:

The following table displays the Company’s restructuring activity during the first nine months of 2002 and the status of the reserves at September 27, 2002:

Included in product cost of goods sold during the second quarter of 2002 were charges of $111.2 million related to the write-off of inventories and accruals for non-cancelable inventory purchase commitments deemed to be excess due to the continued slowdown in customer spending levels. These charges related primarily to a buildup in common components and piece parts that were a direct result of the lower forecasted overall product demand. The inventory write-offs were recorded as a reduction to inventory, while the reserve for excess non-cancelable purchase commitments was recorded to accrued restructuring and other charges. The Company continues to work towards negotiating the final settlement of the remaining purchase commitments by the end of 2002.

During the second and third quarters of 2002, the Company recorded charges totaling $51.3 million for severance pay and related fringe benefits for the reduction of approximately 1,200 employees worldwide resulting from its April 2002 restructuring initiative and another 800 employees worldwide resulting from its September 2002 restructuring initiative. It is anticipated that approximately 500 current employees will be affected by the April 2002 and September 2002 restructuring plans during the fourth quarter of 2002 and first quarter of 2003. Currently under the April 2002 and September 2002 plans, approximately $9.2 million and $1.0 million have been charged against the respective reserves, principally for cash payments of severance pay. Tellabs expects to pay the remainder of the April 2002 severance costs by the end of 2002 and the majority of the September 2002 severance costs by the end of the first quarter of 2003.

During the second quarter of 2002, the Company recorded $34.2 million in charges related to the consolidation of excess facilities, of which $20.4 million was for additional reserves for facilities vacated under the 2001 restructuring programs, and $13.6 million for lease cancellation and non-cancelable lease costs associated primarily with the closure of the Ronkonkoma, New York, manufacturing facility and the consolidation of a number of smaller locations under the April 2002 restructuring.

The $20.4 million adjustment of the 2001 restructuring reserves resulted from management revising its estimates and assumptions concerning its overall exposure under certain lease agreements based upon the effects the current state of the real estate market and the economy, as a whole, would have on its ability to sublease the property in certain geographic areas. The Company anticipates utilizing its entire reserve for excess leased facility charges in accordance with the terms of the original leases.

Under the September 2002 restructuring plan, the Company recorded charges of $10.5 million related mainly to the lease cancellation and non-cancelable lease costs associated with the consolidation of Reston, Virginia, operations with Ashburn, Virginia, operations.

The Company recorded a total of $41.9 million related to the disposal of property, plant and equipment as part of its April 2002 restructuring and $25.4 million as part of its September 2002 restructuring. Property, plant and equipment consisted of leasehold improvements, manufacturing equipment, lab and data equipment and furniture associated with the closure of the Ronkonkoma, New York, and Shannon, Ireland, plants, the consolidation of a number of smaller locations and workforce reductions. The total charges were determined by writing down fixed assets to be sold to the lower of their carrying amount or fair value less costs to sell, while writing down fixed assets that were abandoned to salvage value in accordance with SFAS 144.

During the second quarter of 2002, the Company recorded $3.1 million in charges for other obligations that arose as a direct result of its April 2002 restructuring activities.

Under the September 2002 restructuring plan, the Company recorded charges of $4.7 million for the write-down of the Shannon, Ireland, facility, $4.3 million for the expected repayment of Shannon incentive grants and other miscellaneous lease cancellation fees. The Company expects to pay the incentive grants and operating leases in 2003. In 2003, the Company also expects to pay the $2.8 million in Ireland grant charges included in restructuring reserves established in 2001.

6. Long-Term Investments

Long-term investments of $27.7 million and $56.1 million are included in Other Assets as of September 27, 2002, and September 28, 2001, respectively. Management conducts a quarterly impairment review of each investment in its portfolio, including historical and projected financial performance, expected cash needs, and recent funding events. Other-than-temporary impairments for investments are recognized if the market value of the investment is below its cost basis for an extended period or the issuer has experienced significant financial declines or difficulties in raising capital to continue operations. Other-than-temporary impairments were $29.6 million for the quarter and year ended September 27, 2002, and $19.4 million for the quarter and year ended September 28, 2001.

7. Comprehensive Loss

Comprehensive loss is an expression of the Company’s net loss adjusted for foreign currency translation adjustments (CTA) and net unrealized gains or losses on available-for-sale securities. The comprehensive loss for the quarter and nine months ended September 27, 2002, was $87.9 million and $156.4 million, respectively, while the comprehensive loss for the quarter and nine months ended September 27, 2001, was $2.8 million and $101.6 million, respectively.

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

The Registrant filed a press release on August 6, 2002, announcing a reorganization designed to strengthen customer relationships, product development and international business.

The Registrant filed a press release on August 8, 2002, announcing the early certification of SEC reports by Tellabs CEO and CFO.

The Registrant filed a press release on September 5, 2002, announcing third-quarter guidance and a plan to align expenses with revenues.

The Registrant filed a press release on October 11, 2002, announcing the resignation of John J. Goossens from the Tellabs board of directors.

The Registrant filed a press release on October 18, 2002, announcing earnings for the quarter and nine months ended September 27, 2002.

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. Dite
                                                Vice President and Controller
                                                 (Principal Accounting Officer)

November 8, 2002
(Date)

I, Joan E. Ryan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tellabs, Inc.;

 
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 
1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 
2. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 
1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

                          /s Joan E. Ryan
                     Joan E. Ryan
                                     Chief Financial Officer

I, Michael. J. Birck, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tellabs, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 
1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 
2. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 
1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

                              /s Michael J. Birck
                         Michael J. Birck
                                     Chief Executive Officer