10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 1, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file Number: 0-09692

TELLABS, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-3831568
(State of Incorporation)	(I.R.S. Employer Identification No.)

One Tellabs Center, 1415 W. Diehl Road, Naperville, Illinois	60563
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (630) 798-8800

Indicate by check mark whether the registrant (1) 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x	Accelerated Filer  ¨
Non-Accelerated Filer  ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Common Shares, $0.01 Par Value – 364,884,602 shares outstanding on July 29, 2011.

TELLABS, INC.

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34
SIGNATURE		35

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TELLABS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
In millions, except per-share data
Revenue
Products	$	277.0		$	361.9		$	549.4		$	680.4
Services		57.2			60.9			107.2			121.6
Total revenue		334.2			422.8			656.6			802.0
Cost of Revenue
Products		173.0			155.7			332.5			301.3
Services		36.2			40.9			76.8			82.6
Total cost of revenue		209.2			196.6			409.3			383.9
Gross Profit		125.0			226.2			247.3			418.1
Gross profit as a percentage of revenue		37.4	%		53.5	%		37.7	%		52.1	%
Gross profit as a percentage of revenue - products		37.5	%		57.0	%		39.5	%		55.7	%
Gross profit as a percentage of revenue - services		36.7	%		32.8	%		28.4	%		32.1	%
Operating Expenses
Research and development		83.5			71.3			163.8			140.5
Sales and marketing		40.8			43.8			85.5			88.9
General and administrative		21.0			24.9			44.7			49.7
Intangible asset amortization		5.1			7.4			10.3			14.8
Restructuring and other charges		—			(0.5	)		1.0			9.5
Total operating expenses		150.4			146.9			305.3			303.4
Operating (Loss) Earnings		(25.4	)		79.3			(58.0	)		114.7
Operating (loss) earnings as a percentage of revenue		-7.6	%		18.8	%		-8.8	%		14.3	%
Other Income
Interest income, net		3.1			3.0			6.4			6.9
Other (expense) income, net		(1.1	)		2.1			(1.7	)		4.8
Total other income		2.0			5.1			4.7			11.7
(Loss) Earnings Before Income Tax		(23.4	)		84.4			(53.3	)		126.4
Income tax benefit (expense)		3.3			(20.3	)		9.1			(16.7	)
Net (Loss) Earnings	$	(20.1	)	$	64.1		$	(44.2	)	$	109.7
Weighted Average Shares Outstanding
Basic		364.6			385.4			363.8			385.0
Diluted		364.6			389.9			363.8			389.5
Net (Loss) Earnings Per Share
Basic	$	(0.06	)	$	0.17		$	(0.12	)	$	0.28
Diluted	$	(0.06	)	$	0.16		$	(0.12	)	$	0.28
Cash Dividends Per Share	$	0.02		$	0.02		$	0.04		$	0.04

The accompanying notes are an integral part of these statements.

3

TELLABS, INC.

CONSOLIDATED BALANCE SHEETS

	7/1/11			12/31/10
In millions, except share data	Unaudited
Assets
Current Assets
Cash and cash equivalents	$	213.6		$	208.8
Investments in marketable securities		844.4			925.7
Total cash, cash equivalents and marketable securities		1,058.0			1,134.5
Other marketable securities		167.5			213.6
Accounts receivable, net of allowances of $1.4 and $1.3		342.2			342.6
Inventories
Raw materials		36.9			30.3
Finished goods		119.0			132.0
Total inventories		155.9			162.3
Income taxes		19.8			14.8
Miscellaneous receivables and other current assets		45.3			45.0
Total Current Assets		1,788.7			1,912.8
Property, Plant and Equipment
Land		21.3			20.8
Buildings and improvements		209.8			204.2
Equipment		452.0			422.8
Total property, plant and equipment		683.1			647.8
Accumulated depreciation		(404.3	)		(378.5	)
Property, plant and equipment, net		278.8			269.3
Goodwill		205.3			204.9
Intangible Assets, Net of Amortization		86.4			96.7
Other Assets		110.9			119.2
Total Assets	$	2,470.1		$	2,602.9
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	106.4		$	123.4
Accrued compensation		47.7			97.2
Restructuring and other charges		3.8			7.7
Income taxes		70.6			88.4
Loan related to other marketable securities		167.5			213.6
Deferred revenue		65.9			43.0
Other accrued liabilities		80.6			89.8
Total Current Liabilities		542.5			663.1
Long-Term Restructuring Liabilities		2.5			3.1
Income Taxes		21.7			28.1
Other Long-Term Liabilities		51.1			47.1
Stockholders’ Equity
Preferred stock: authorized 5,000,000 shares of $0.01 par value; no shares issued and outstanding		—			—
Common stock: authorized 1,000,000,000 shares of $0.01 par value; 505,010,116 and 501,744,627 shares issued		5.0			5.0
Additional paid-in capital		1,564.1			1,547.9
Treasury stock, at cost: 140,198,952 and 139,243,079 shares		(1,226.9	)		(1,222.1	)
Retained earnings		1,363.4			1,422.1
Accumulated other comprehensive income		146.7			108.6
Total Stockholders’ Equity		1,852.3			1,861.5
Total Liabilities and Stockholders’ Equity	$	2,470.1		$	2,602.9

The accompanying notes are an integral part of these statements.

4

TELLABS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months
	7/1/11			7/2/10
In millions
Operating Activities
Net (loss) earnings	$	(44.2	)	$	109.7
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization		38.6			39.1
Loss on disposal of property, plant and equipment		0.1			0.2
Equity-based compensation		15.6			13.2
Deferred income taxes		(2.8	)		(0.5	)
Restructuring and other charges		1.0			9.5
Net loss (gain) on investments in marketable securities		0.4			(7.5	)
Other-than-temporary impairment charges on investments		1.2			—
Excess tax benefits from equity-based compensation		(0.2	)		0.6
Net changes in assets and liabilities:
Accounts receivable		12.2			(22.9	)
Inventories		9.4			(8.7	)
Miscellaneous receivables and other current assets		(4.7	)		4.8
Other assets		(0.9	)		3.8
Accounts payable		(18.2	)		7.0
Restructuring and other charges		(5.5	)		(6.5	)
Deferred revenue		20.7			33.4
Other accrued liabilities		(67.9	)		(13.2	)
Income taxes		(11.7	)		3.6
Other long-term liabilities		3.6			0.3
Net Cash (Used for) Provided by Operating Activities		(53.3	)		165.9
Investing Activities
Capital expenditures		(32.1	)		(14.1	)
Payments for purchases of investments		(384.9	)		(923.7	)
Proceeds from sales and maturities of investments		485.1			1,010.3
Net Cash Provided by Investing Activities		68.1			72.5
Financing Activities
Proceeds from short-term borrowings		1.3			—
Payments of short-term borrowings		(1.3	)		—
Proceeds from issuance of common stock under stock plans		0.5			6.7
Repurchase of common stock		(4.8	)		(21.3	)
Excess tax benefits from equity-based compensation		0.2			(0.6	)
Dividends paid		(14.5	)		(15.4	)
Net Cash Used for Financing Activities		(18.6	)		(30.6	)
Effect of Exchange Rate Changes on Cash		8.6			(10.9	)
Net Increase in Cash and Cash Equivalents		4.8			196.9
Cash and Cash Equivalents - Beginning of Year		208.8			154.0
Cash and Cash Equivalents - End of Period	$	213.6		$	350.9

The accompanying notes are an integral part of these statements.

5

TELLABS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IN MILLIONS, EXCEPT SHARE AND PER-SHARE DATA

1. Basis of Presentation

We prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial statements, the requirements of Form 10-Q and applicable rules of the U.S. Securities and Exchange Commission’s Regulation S-X. Therefore, they do not include all disclosures normally required by U.S. generally accepted accounting principles for complete financial statements. Accordingly, the financial statements and notes herein are to be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.

In our opinion, the accompanying unaudited 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.

2. Restructuring and Other Charges

On January 25, 2010, management initiated a restructuring plan to enable us to shift investment from TDM (Time Division Multiplexing) to Ethernet and IP (Internet Protocol) products, move our supply chain closer to suppliers, and reduce general and administrative expenses. Restructuring expense for the second quarter of 2011 was $0.1 million for severance-related charges. Restructuring expense for the first six months of 2011 was $0.6 million for severance-related charges. The cumulative pretax restructuring charges for this plan are $9.6 million, which consists of $7.0 million for workforce reductions and $2.6 million for facility- and asset-related charges. By segment, total charges to date under this plan are $6.1 million for Broadband, $3.2 million for Transport, and $0.3 million for Services. Total cash payments under this plan are expected to be $7.0 million, of which $5.9 million has been paid through the second quarter of 2011. Restructuring actions under this plan were completed in the first quarter of 2011.

On July 6, 2009, management initiated a restructuring plan as we aligned costs with customer spending and market conditions at that time. We recorded a $0.1 million reduction to restructuring expense for the second quarter of 2011 for severance-related charges. Restructuring expense for the first six months of 2011 was $0.6 million for severance-related charges. The cumulative pretax restructuring charges for this plan are $7.0 million, which consists of $6.6 million in severance charges for workforce reductions and $0.4 million for facility- and asset-related charges. By segment, total charges to date under this plan are $2.6 million for Broadband, $2.1 million for Transport, and $2.3 million for Services. Total cash payments under this plan are expected to be $6.7 million for workforce reductions, of which $5.9 million has been paid through the second quarter of 2011. Restructuring actions under this plan were completed in the first quarter of 2011.

Reductions of $0.2 million to restructuring expense for previous restructuring plans in the first six months of 2011 are facility-related. These net reductions are due to changes in estimates to previous restructuring plans.

The balance for restructuring plans relates to net lease obligations that expire through 2015 and cash severance that we expect to pay through the third quarter of 2012.

The following table summarizes restructuring and other charges recorded for the plans mentioned above, as well as adjustments to reserves recorded for prior restructurings:

	Second Quarter					Six Months
	7/1/11		7/2/10			7/1/11			7/2/10
Severance and other termination benefits	$	—	$	(0.5	)	$	1.2		$	7.1
Facility- and asset-related charges		—		—			(0.2	)		2.4
Total restructuring and other charges	$	—	$	(0.5	)	$	1.0		$	9.5

6

The following table summarizes restructuring and other charges activity by segment for the second quarter and first six months of 2011 and the status of the reserves at July 1, 2011:

			Second Quarter Activity
	Balance at 4/1/11		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.1		$	(0.9	)	$	0.6
Transport		0.9		—			(0.5	)		0.4
Services		0.2		—			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.5		0.1			(1.5	)		1.1
Previous Restructuring Plans
Broadband		5.1		—			(0.7	)		4.4
Transport		0.5		(0.1	)		—			0.4
Services		0.8		—			(0.4	)		0.4
Subtotal Previous Restructuring Plans		6.4		(0.1	)		(1.1	)		5.2
Total Restructuring Plans	$	8.9	$	—		$	(2.6	)	$	6.3

			Six Months Activity
	Balance at 12/31/10		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.4		$	(1.2	)	$	0.6
Transport		1.0		—			(0.6	)		0.4
Services		—		0.2			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.4		0.6			(1.9	)		1.1
Previous Restructuring Plans
Broadband		6.4		0.1			(2.1	)		4.4
Transport		1.5		(0.2	)		(0.9	)		0.4
Services		0.5		0.5			(0.6	)		0.4
Subtotal Previous Restructuring Plans		8.4		0.4			(3.6	)		5.2
Total Restructuring Plans	$	10.8	$	1.0		$	(5.5	)	$	6.3

3. Goodwill

We review goodwill annually for impairment, unless potential interim indicators exist that could result in an impairment. Given that we have experienced a significant decline in business volumes from a major customer that has had an adverse impact on the results of the Broadband segment which is not expected to reverse in the near-term, and that Tellabs’ overall market capitalization has been below book value, we completed an interim step one review. Based on this review, which compares the segment’s fair value to carrying value, we concluded that Broadband segment goodwill may potentially be impaired. At this time, we cannot estimate the impact, if any, this may have on our financial statements. We will proceed with a step two analysis to determine whether or not an impairment charge is to be recorded. The amount of goodwill associated with the Broadband segment is $82.7 million.

4. Fair Value Measurements

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, marketable securities and derivatives. The carrying value of the cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value because of their short-term nature. We determine the fair value of marketable securities and derivatives based on observable inputs such as quoted prices in active markets, or other than quoted prices in active markets, that are observable either directly or indirectly.

7

Fair value is measured as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – Observable inputs, such as quoted prices in active markets;

• Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining fair value for recurring financial assets and liabilities, we separate our financial instruments into three categories: marketable securities, other marketable securities and loan related to other marketable securities, and derivative financial instruments. These assets and liabilities are all valued based on the market approach that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Marketable Securities

We use a third-party provider to determine fair values of marketable securities. The third-party provider receives market prices for each marketable security from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources with reasonable levels of price transparency. The third-party provider uses these multiple prices as inputs into a pricing model to determine a weighted average price for each security. We classify U.S. Treasury bills and bonds as Level 1 based upon quoted prices in active markets. All other marketable securities are classified as Level 2 based upon the other than quoted prices with observable market data. The type of instruments that are valued based upon the observable market data include U.S. government sponsored enterprise (agency) debt obligations, Federal Deposit Insurance Corporation (FDIC)-backed corporate debt obligations, investment grade corporate bonds, state and municipal debt obligations, mortgage-backed debt obligations guaranteed by the Government National Mortgage Association (GNMA), certain FDIC-backed bank certificates of deposit, foreign government debt obligations and foreign corporate debt obligations guaranteed by foreign governments.

Other Marketable Securities and Loan Related to Other Marketable Securities

We classify holdings in other marketable securities (Cisco common stock) and the related loan as Level 1 in the fair value hierarchy. We classify these as Level 1 since they are actively traded through a governed exchange.

Derivative Financial Instruments

Our foreign currency forward contracts are executed as exchange-traded. Market participants can be described as large money center or regional banks. Exchange-traded derivatives typically fall within Level 1 or Level 2 in the fair value hierarchy depending on whether they are deemed to be actively traded or not.

We have elected to value derivatives as Level 2, using observable market data at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs for currency derivatives are the spot rate, interest rates and credit derivative markets. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date. The following values are calculated from commonly quoted intervals available from a third-party financial information provider. Forward points and LIBOR rates are used to calculate a discount rate to apply to assets and liabilities. One-year credit default swap spreads are used to discount derivative assets, all of which have final maturities of less than 12 months. We calculate the discount to the derivative liabilities to reflect the potential credit risk to lenders and have used the spread over LIBOR based on the credit risk of our counterparties. Each asset is individually discounted to reflect our potential credit risk and we have used the spread over LIBOR based on similar credit risk. We do not adjust the fair value for immaterial credit risk.

We have applied a valuation method for financial assets and liabilities and recurring non-financial assets consistently during this period and prior periods. The following table sets forth by level within the fair value hierarchy “Financial instruments owned at fair value.” Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

8

Assets and liabilities measured at fair value on a recurring basis are:

	Fair Value Measurements at July 1, 2011
	Balance at 7/1/11		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	98.0	$	98.0	$	—	$	—
Corporate debt obligations guaranteed by FDIC		103.0		—		103.0		—
Corporate debt obligations		229.2		—		229.2		—
Mortgage-backed debt obligations guaranteed by GNMA		99.2		—		99.2		—
Certificates of deposit guaranteed by FDIC		2.0		—		2.0		—
Foreign government debt obligations		221.4		—		221.4		—
Foreign corporate debt obligations guaranteed by foreign governments		91.6		—		91.6		—
Subtotal		844.4		98.0		746.4		—
Other marketable securities		167.5		167.5		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,012.1	$	265.5	$	746.6	$	—
Liabilities
Loan related to other marketable securities	$	167.5	$	167.5	$	—	$	—
Derivative financial instruments		0.3		—		0.3		—
Total Liabilities	$	167.8	$	167.5	$	0.3	$	—

	Fair Value Measurements at December 31, 2010
	Balance at 12/31/10		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	258.4	$	258.4	$	—	$	—
Corporate debt obligations guaranteed by FDIC		102.6		—		102.6		—
Corporate debt obligations		95.9		—		95.9		—
Mortgage-backed debt obligations guaranteed by GNMA		175.1		—		175.1		—
Certificates of deposit guaranteed by FDIC		3.3		—		3.3		—
Foreign government debt obligations		202.1		—		202.1		—
Foreign corporate debt obligations guaranteed by foreign governments		88.3		—		88.3		—
Subtotal		925.7		258.4		667.3		—
Other marketable securities		213.6		213.6		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,139.5	$	472.0	$	667.5	$	—
Liabilities
Loan related to other marketable securities	$	213.6	$	213.6	$	—	$	—
Derivative financial instruments		1.0		—		1.0		—
Total Liabilities	$	214.6	$	213.6	$	1.0	$	—

9

5. Investments

We account for investments in marketable securities at fair value, with the unrealized gain or loss, less deferred income taxes, shown as a separate component of stockholders’ equity. We base realized gains and losses on specific identification of the security sold. At July 1, 2011, and December 31, 2010, available-for-sale marketable securities consisted of the following:

July 1, 2011	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. government debt obligations	$	98.0	$	0.1	$	(0.1	)	$	98.0
Corporate debt obligations guaranteed by FDIC		102.7		0.4		(0.1	)		103.0
Corporate debt obligations		229.1		0.7		(0.6	)		229.2
Mortgage-backed debt obligations guaranteed by GNMA		99.0		0.6		(0.4	)		99.2
Certificates of deposit guaranteed by FDIC		2.0		—		—			2.0
Foreign government debt obligations		222.0		0.4		(1.0	)		221.4
Foreign corporate debt obligations guaranteed by foreign governments		91.9		0.1		(0.4	)		91.6
Total	$	844.7	$	2.3	$	(2.6	)	$	844.4
December 31, 2010
U.S. government debt obligations	$	259.0	$	0.1	$	(0.7	)	$	258.4
Corporate debt obligations guaranteed by FDIC		102.3		0.3		—			102.6
Corporate debt obligations		95.6		0.5		(0.2	)		95.9
Mortgage-backed debt obligations guaranteed by GNMA		175.5		0.8		(1.2	)		175.1
Certificates of deposit guaranteed by FDIC		3.3		—		—			3.3
Foreign government debt obligations		201.4		1.6		(0.9	)		202.1
Foreign corporate debt obligations guaranteed by foreign governments		87.8		0.6		(0.1	)		88.3
Total	$	924.9	$	3.9	$	(3.1	)	$	925.7

The following table summarizes the maturities of our available-for-sale marketable securities at July 1, 2011:

	Amortized Cost		Fair Value
Less than 12 months	$	179.8	$	180.3
Due in 1 to 5 years		555.4		554.6
Due after 5 years		109.5		109.5
Total	$	844.7	$	844.4

Actual maturities will likely differ from the contractual maturities because borrowers have the right to call or prepay certain obligations.

Gross unrealized gains and losses related to fixed-income securities were caused by interest rate fluctuations. We review investments held with unrealized losses to determine if the loss is other-than-temporary. We evaluated near-term prospects of the security in relation to the severity and duration of the unrealized loss. We also assessed our intent to sell the security, whether it is more likely than not that the security will be required to be sold before recovery, or the security is not expected to recover its entire amortized cost basis. Based on our review, we recognized an other-than-temporary impairment of $1.2 million in the second quarter and first six months of 2011. No other-than-temporary impairments were recorded in the second quarter and first six months of 2010.

10

Investments in marketable securities with unrealized losses at July 1, 2011, and December 31, 2010, were as follows:

	Unrealized Loss Less than 12 months					Unrealized Loss Greater than 12 months					Total
July 1, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government debt obligations	$	27.1	$	(0.1	)	$	—	$	—		$	27.1	$	(0.1	)
Corporate debt obligations guaranteed by FDIC		11.3		(0.1	)		—		—			11.3		(0.1	)
Corporate debt obligations		110.9		(0.6	)		—		—			110.9		(0.6	)
Mortgage-backed debt obligations guaranteed by GNMA		37.4		(0.3	)		2.4		(0.1	)		39.9		(0.4	)
Foreign government debt obligations		132.3		(1.0	)		—		—			132.3		(1.0	)
Foreign government debt obligations guaranteed by foreign governments		51.2		(0.4	)		—		—			51.2		(0.4	)
Total	$	370.2	$	(2.5	)	$	2.4	$	(0.1	)	$	372.6	$	(2.6	)
December 31, 2010
U.S. government debt obligations	$	218.6	$	(0.7	)	$	—	$	—		$	218.6	$	(0.7	)
Corporate debt obligations		47.5		(0.2	)		—		—			47.5		(0.2	)
Mortgage-backed debt obligations guaranteed by GNMA		115.7		(1.2	)		—		—			115.7		(1.2	)
Foreign government debt obligations		92.9		(0.9	)		—		—			92.9		(0.9	)
Foreign government debt obligations guaranteed by foreign governments		32.6		(0.1	)		—		—			32.6		(0.1	)
Total	$	507.3	$	(3.1	)	$	—	$	—		$	507.3	$	(3.1	)

The following table presents gross realized gains and losses related to fixed income investments for the three months and six months ending July 1, 2011, and July 2, 2010:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Gross realized gains	$	1.0		$	4.5		$	1.4		$	7.9
Gross realized losses		(1.3	)		(0.2	)		(1.8	)		(0.4	)
Total	$	(0.3	)	$	4.3		$	(0.4	)	$	7.5

As a result of the acquisition of Advanced Fibre Communications, Inc. (AFC) in 2004, we acquired 10.6 million shares of Cisco common stock, shown as Other marketable securities in Current Assets. AFC owned this stock as a result of its investment in privately held Cerent Corporation, which was acquired by Cisco in 1999. In 2000, AFC entered into two three-year hedge contracts, pledging all of the Cisco stock to secure the obligations under the contracts. When the hedge contracts matured in 2003, AFC entered into stock loan agreements with a lender, borrowing 10.6 million shares of Cisco stock to settle the hedge contracts on the Cisco stock. The aggregate amount of the fair values of those stock loans is reflected as a current liability on the balance sheets as of July 1, 2011, and December 31, 2010. The values of both the asset and liability move in tandem with each other since each is based on the number of shares we hold at the current stock price. At July 1, 2011, Other marketable securities and Loan related to other marketable securities was $167.5 million at a market price of $15.86 per share and $213.6 million at a market price of $20.23 per share at December 31, 2010. The fees associated with the stock loan agreement were $0.3 million for the second quarter of 2011, $0.4 million for the second quarter of 2010, $0.6 million for the first six months of 2011, and $0.8 million for the first six months of 2010.

In addition to the above investments, we maintain investments in partnerships and start-up technology companies. We record these investments in Other Assets, at cost. These investments totaled $5.7 million at July 1, 2011, and $6.3 million at December 31, 2010. We review each investment quarterly, including historical and projected financial performance, expected cash needs and recent funding events. We recognize other-than-temporary impairments if the market value of the investment is below its cost basis for an extended period of time or if the issuer has experienced significant financial declines or difficulties in raising capital to continue operations. No other-than-temporary impairments were recorded for the second quarter and first six months of 2011 and 2010.

11

6. Derivative Financial Instruments

Financial Contracts and Market Risk

We conduct business on a global basis in U.S. and foreign currencies subjecting us to risks associated with fluctuating foreign exchange rates. To mitigate these risks, we use derivative foreign exchange contracts to address nonfunctional exposures that are expected to be settled in one year or less. The derivative foreign exchange contracts consist of foreign currency forward and option contracts.

Derivative financial contracts involve elements of market and credit risk. The market risk that results from these contracts relates to changes in foreign currency exchange rates, which generally are offset by changes in the value of the underlying assets or liabilities being held. Credit risk relates to the risk of nonperformance by a counterparty to one of the derivative contracts. We do not believe there is a significant credit risk associated with our hedging activities. We monitor the counterparties’ credit ratings and other market data to minimize credit risk. In addition, we also limit the aggregate contract amount entered into with any one financial institution to mitigate credit risk.

Cash Flow Hedges

At July 1, 2011, we did not have any cash flow hedges outstanding. We use foreign currency forward and option contracts, designated as cash flow hedges, to mitigate currency risk related to an imbalance of nonfunctional currency denominated costs and related revenue. We conduct monthly effectiveness tests of these hedging relationships on a spot-to-spot basis, excluding forward points. Effective gains and losses from derivative contracts are recorded in Accumulated other comprehensive income until the underlying transactions occur, at which time they are reclassified to Total cost of revenue. Ineffectiveness is recorded to Other (expense) income, net. If it becomes probable that an anticipated transaction that is hedged will not occur, we immediately reclassify the gains or losses related to that hedge from Accumulated other comprehensive income to Other (expense) income, net. We continue to monitor the Company’s overall currency exposure and may elect to add additional cash flow hedges in the future if deemed necessary.

Balance Sheet Hedges (Non-designated Hedges)

Short-term monetary assets and liabilities denominated in currencies other than the functional currency of the Tellabs entity entering into the transaction are remeasured through income as foreign currency rates fluctuate. Changes in the value of derivative contracts intended to offset these fluctuations are also recorded in income. These derivative contracts are not designated as hedges. At July 1, 2011, we held non-designated foreign currency forward contracts in 11 currencies, with a gross notional equivalent of $159.0 million.

Net Investment Hedges

We entered into three-month foreign currency forward contracts, designated as net investment hedges, to hedge a portion of our net investment in one of our foreign subsidiaries to preserve the U.S. dollar value of our Euro cash. Effective changes in the fair value of these contracts due to exchange rate fluctuations are recorded within Accumulated other comprehensive income. Those amounts will be reflected in income only when we dispose of the investment in the foreign subsidiary. We conduct monthly effectiveness tests of net investment hedges on a spot-to-spot basis, excluding forward points, and any measurement of ineffectiveness is recorded in income. As of July 1, 2011, we had a net unrealized gain of $6.7 million in Accumulated other comprehensive income related to settled contracts. We held net investment hedges with a notional value of 50 million Euros at the end of the quarter.

The fair value of derivative instruments in the Consolidated Balance Sheet as of July 1, 2011, was as follows:

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Net investment hedges	$	—	$	—
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	0.2

12

The fair value of derivative instruments in the Consolidated Balance Sheet as of December 31, 2010, was as follows:

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Cash flow and net investment hedges	$	—	$	0.8
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	1.0

The effect of derivative instruments designated as hedging instruments on the Consolidated Statements of Operations follows:

	Three Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified  from Accumulated OCI into Total Cost of Revenue (Effective Portion)				Loss Recognized in Other Income net: Excluded from Effectiveness  Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	0.9	$	—	$	1.0	$	—		$	—
Net investment hedges	$	(2.7	)	$	5.9		N/A		N/A	$	(0.2	)	$	—

	Six Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified from Accumulated OCI into Total Cost  of Revenue (Effective Portion)				Loss Recognized in Other Income, net: Excluded  from Effectiveness Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	1.8	$	—	$	0.6	$	—		$	—
Net investment hedges	$	(10.0	)	$	10.6		N/A		N/A	$	(0.3	)	$	—

The effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations follows:

	Second Quarter					Six Months
	Gain (Loss) Recognized in Other (Expense) Income, net 1					Gain (Loss) Recognized in Other Income), net 1
	7/1/11		7/2/10			7/1/11		7/2/10
Foreign currency forward and option contracts	$	2.1	$	(8.1	)	$	6.5	$	(13.5	)

¹ The gains or losses from changes in the fair value of the derivative contracts are generally offset by gains or losses of the underlying transactions being hedged.

7. Product Warranties

We provide warranties for all of our products. The specific terms and conditions of those warranties vary depending on the product. We provide a basic limited warranty, including parts and labor, for all products except access products for periods ranging from 90 days to 5 years. The basic limited warranty for access products covers parts and labor for periods ranging from 2 to 6 years.

The estimate of warranty liability involves many factors, including the number of units shipped, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of the recorded warranty liability and adjust the amounts as necessary. Other adjustments to accruals for product warranties represent reductions due to favorable experience to previous estimates.

We classify the portion of warranty liability that we expect to incur in the next 12 months as a current liability. We classify the portion of warranty liability that we expect to incur more than 12 months in the future as a long-term liability. Product warranty liabilities are as follows:

13

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Balance – beginning of period	$	21.2		$	28.9		$	19.4		$	31.4
Accruals for product warranties		2.1			1.5			4.9			3.9
Settlements		(1.9	)		(0.7	)		(2.3	)		(2.9	)
Other adjustments to accruals for product warranties		(1.4	)		(2.3	)		(2.0	)		(5.0	)
Balance – end of period	$	20.0		$	27.4		$	20.0		$	27.4

	Balance at 7/1/11		Balance at 7/2/10
Balance sheet classification - end of period
Other accrued liabilities	$	8.7	$	10.5
Other long-term liabilities		11.3		16.9
Total product warranty liabilities	$	20.0	$	27.4

8. Equity-Based Compensation

The Tellabs, Inc. Amended and Restated 2004 Incentive Compensation Plan (2004 Plan) provides for the grant of short-term and long-term incentives, including stock options, stock appreciation rights (SARs), restricted stock and performance stock units (PSUs). Equity-based grants vest over one to four years, with the majority vesting over a three-year period. We recognize compensation expense for stock options and restricted stock on a straight-line basis over the service period based on the fair value on the grant date. Stock options and SARs granted but unexercised expire 10 years from the grant date. Stockholders previously approved 53,889,977 shares for grant under the 2004 Plan, of which 18,872,031 remain available for grant at July 1, 2011.

Stock Options

We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of assumptions that will have a significant impact on the fair value estimate. The following table summarizes the assumptions used to compute the weighted average fair value of stock option grants:

	7/1/11			7/2/10
Expected volatility		46.4	%		42.0	%
Risk-free interest rate		2.2	%		2.3	%
Expected term (in years)		5.3			5.3
Expected dividend yield		1.5	%		1.0	%

We based our calculation of expected volatility on a combination of historical and implied volatility for options granted. We based the risk-free interest rate on the U.S. Treasury yield curve in effect at the date of grant. We estimated the expected term of the options using their vesting period, post-vesting employment termination behavior and historical exercise patterns. We based the expected dividend yield on the option’s exercise price and annualized dividend rate at the date of grant.

The following is a summary of stock option activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in  millions)
Outstanding – beginning of year		26,851,964		$	11.18
Granted		2,073,278		$	5.37
Exercised		(263,821	)	$	1.80
Forfeited/expired		(2,703,169	)	$	29.32
Outstanding – end of period		25,958,252		$	8.92		4.0	$	1.5
Exercisable – end of period		21,841,803		$	9.46		3.0	$	1.1
Shares expected to vest		25,635,340		$	8.96		3.9	$	1.5

14

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price as of July 1, 2011, that the option holders would have received had all holders exercised their options as of that date. The aggregate intrinsic value of exercised stock options during the second quarter of 2011 was $0.3 million.

The weighted average fair value of stock options granted during the first six months of 2011 was $2.07.

Cash-Settled Stock Appreciation Rights

The 2004 Plan provides for the granting of cash-settled SARs in conjunction with, or independent of, the stock options under the 2004 Plan. These SARs allow the holder to receive in cash the difference between the cash-settled SARs’ grant price (the market value of our stock on the grant date) and the market value of our stock on the date the holder exercises the SAR. These cash payments were negligible in the first half of 2011 and 2010.

The following is a summary of cash-settled SARs activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Exercise Price
Outstanding – beginning of year		445,233		$	7.73
Granted		41,700		$	5.38
Forfeited/expired		(31,036	)	$	7.76
Outstanding – end of period		455,897		$	7.51

Restricted Stock

The fair market value of restricted stock vested was $10.9 million in the first half of 2011. The weighted average grant date fair value of restricted stock was $5.37 per share in the first six months of 2011 and $8.78 per share in the first six months of 2010.

The following is a summary of restricted stock activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		5,372,417		$	7.19
Granted		2,793,050		$	5.37
Vested		(2,279,895	)	$	6.80
Forfeited		(391,299	)	$	6.38
Non-vested – end of period		5,494,273		$	6.48

Performance Stock Units

The 2004 Plan provides for the granting of PSUs. We granted 1,640,832 PSUs in the first six months of 2011 and 1,132,220 PSUs in the first six months of 2010. The PSUs granted in the first six months of 2011 entitle the recipients to receive shares of our common stock commencing in March 2012, contingent on the achievement of strategic goals for the 2011 fiscal year. Following achievement of these measures and subject to continued employment, one-third of such shares will be issued in annual installments in February 2012, February 2013 and February 2014. At maximum target performance, we will issue two shares for each PSU granted. The weighted average price of PSUs granted in the first six months of 2011 was $5.40 per share and the weighted average price of PSUs granted in the first six months of 2010 was $7.73 per share.

The PSUs granted in 2010 entitle the recipients to receive shares of our common stock commencing in March 2011, contingent on the achievement of operating earnings targets for the 2010 fiscal year. Based upon above-target operating earnings of $237.0 million and market share and market penetration gains in some of the identified product areas, 125% of the PSUs were earned and 1.25 shares for each PSU (183,737 additional shares) granted will be paid out, subject to continued employment. We issued one-third (306,155 shares) of the total shares in the first quarter of 2011 and generally, one-third of such shares will be issued in annual installments in March 2012 and March 2013.

15

The following is a summary of PSU activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		2,127,318		$	5.86
Granted 1		1,824,569		$	5.58
Vested		(798,241	)	$	5.07
Forfeited		(525,762	)	$	7.82
Non-vested – end of period		2,627,884		$	5.51

¹  This includes the additional 183,737 shares from the 2010 grant that were earned based on 2010 operating earnings and strategic goals.

Equity-Based Compensation Expense

The following table sets forth the total equity-based compensation expense resulting from stock options, SARs, restricted stock, and PSUs by line item on the statement of operations:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Cost of revenue – products	$	0.5		$	0.6		$	1.0		$	1.0
Cost of revenue – services		0.6			0.6			1.2			1.1
Research and development		3.1			2.4			5.6			4.2
Sales and marketing		1.3			1.3			2.6			2.5
General and administrative		2.5			2.5			5.2			4.4
Equity-based compensation expense before income taxes		8.0			7.4			15.6			13.2
Income tax benefit		(1.2	)		(2.5	)		(2.6	)		(4.3	)
Total equity-based compensation expense after income taxes	$	6.8		$	4.9		$	13.0		$	8.9

The following table sets forth the total equity-based compensation expense by type:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Stock options	$	1.3		$	1.4		$	2.6		$	2.7
Cash-Settled SARs		(0.1	)		(0.1	)		(0.2	)		0.1
Restricted Stock		5.4			4.0			9.8			7.5
Performance stock units		1.4			2.1			3.4			2.9
Total	$	8.0		$	7.4		$	15.6		$	13.2

As of July 1, 2011, we had $43.0 million of unrecognized equity-based compensation cost that we expect to recognize over a weighted average period of 1.9 years.

9. Income Taxes

We recorded a tax benefit of $3.3 million in the second quarter and $9.1 million for the first six months of 2011. Tax expense reflects an effective tax rate below the federal statutory rate of 35% due to limitations on our ability to record a full tax benefit on losses from domestic operations, and the effect of establishing a valuation allowance against domestic deferred tax assets. In addition, our effective tax rate was favorably impacted by a $2.8 million benefit in the second quarter and $6.2 million for the first six months of 2011 from the reversal of tax accruals no longer required due to the settlement of audits or the expiration of a statute of limitations.

16

10. Comprehensive (Loss) Income

Comprehensive (loss) income for the second quarter and the first six months of 2011 and 2010 consists of the following:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Net (loss) earnings	$	(20.1	)	$	64.1		$	(44.2	)	$	109.7
Net change in unrealized gains (losses) related to:
Available-for-sale securities, net of tax		2.4			(0.7	)		(0.6	)		(0.3	)
Cash flow hedges, net of tax		—			(0.1	)		—			1.3
Net investment hedges, net of tax		(2.7	)		5.9			(10.0	)		10.6
Foreign currency translation adjustments		13.1			(43.8	)		48.9			(73.5	)
Comprehensive (loss) income	$	(7.3	)	$	25.4		$	(5.9	)	$	47.8

11. Segment Information

We report operating results for three segments: Broadband, Transport and Services.

The Broadband segment includes data, access and managed access product portfolios that facilitate delivery of next-generation wireline and wireless services and the delivery of bundled voice, video and high-speed Internet/data services over copper-based and/or fiber-based networks. Data products include the Tellabs^® 7300 Metro Ethernet Switching Series, the Tellabs^® 8600 Managed Edge System, the Tellabs^® 8800 Multiservice Router Series and the Tellabs^® SmartCore^® 9100 Platform. Access offerings include the Tellabs^® 1000 Multiservice Access Series, the Tellabs^® 1100 Multiservice Access Series and the Tellabs^® 1600 Optical Network Terminal (ONT) Series. Managed access products include the Tellabs^® 6300 Managed Transport System and the Tellabs^® 8100 Managed Access System.

The Transport segment includes solutions that enable service providers to transport service and manage optical bandwidth by adding capacity when and where it’s needed. Wireline and wireless carriers use these products within the metropolitan portion of their transport networks to support wireless services, business services for enterprise customers, and triple-play voice, video and data services for residential customers. Product offerings include the Tellabs^® 3000 Series of voice-enhancement products, the Tellabs^® 5000 Series of digital cross-connect systems, and the Tellabs^® 7100 Optical Transport System (OTS).

The Services segment includes deployment, support, training and professional services. These services support all phases of the network: planning, building and operating.

We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketing expenses, general and administrative expenses, the amortization of intangibles, restructuring and other charges and the impact of equity-based compensation.

Consolidated revenue by segment follows:

	Second Quarter				Six Months
	7/1/11		7/2/10		7/1/11		7/2/10
Broadband	$	162.7	$	228.7	$	335.7	$	419.8
Transport		114.3		133.2		213.7		260.6
Services		57.2		60.9		107.2		121.6
Total	$	334.2	$	422.8	$	656.6	$	802.0

17

Segment profit and reconciliation to operating (loss) earnings by segment follows:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Broadband	$	(3.0	)	$	86.1		$	16.7		$	146.9
Transport		27.2			51.7			43.2			96.7
Services		21.6			20.7			31.6			40.2
Total segment profit		45.8			158.5			91.5			283.8
Sales and marketing expenses		(40.8	)		(43.8	)		(85.5	)		(88.9	)
General and administrative expenses		(21.0	)		(24.9	)		(44.7	)		(49.7	)
Equity-based compensation		(4.3	)		(3.6	)		(8.0	)		(6.2	)
Intangible asset amortization		(5.1	)		(7.4	)		(10.3	)		(14.8	)
Restructuring and other charges		—			0.5			(1.0	)		(9.5	)
Operating (loss) earnings	$	(25.4	)	$	79.3		$	(58.0	)	$	114.7

The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and therefore asset, depreciation and amortization, or capital expenditure by segment information is not provided to our chief operating decision maker.

12. Contingencies

Legal Proceedings

We are subject to legal claims and litigation arising in the ordinary course of business, such as employment or intellectual property claims, including the matters described below. We are unable to determine the likelihood of an unfavorable outcome against us and are unable to reasonably estimate a range of loss, if any.

Makor Issues & Rights, Ltd. v. Tellabs, Inc. On June 18, 2002, a class action complaint was filed in the United States District Court of the Northern District of Illinois against Tellabs, Michael Birck (Chairman of the Board of Tellabs) and Richard Notebaert (former CEO, President and Director of Tellabs). Thereafter, eight similar complaints were also filed in the United States District Court of the Northern District of Illinois. All nine of these actions were subsequently consolidated, and on December 3, 2002, a consolidated amended class action complaint was filed against Tellabs, Mr. Birck, Mr. Notebaert, and certain other of our current or former officers and/or directors. The consolidated amended complaint alleged that during the class period (December 11, 2000-June 19, 2001) the defendants violated the federal securities laws by making materially false and misleading statements, including, among other things, allegedly providing revenue forecasts that were false and misleading, misrepresenting demand for our products, and reporting overstated revenue for the fourth quarter 2000 in our financial statements. Further, certain of the individual defendants were alleged to have violated the federal securities laws by trading our securities while allegedly in possession of material, non-public information about us pertaining to these matters. The consolidated amended complaint seeks unspecified restitution, damages and other relief.

On January 17, 2003, Tellabs and the other named defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. On May 19, 2003, the Court granted our motion and dismissed all counts of the consolidated amended complaint, while affording plaintiffs an opportunity to replead. On July 11, 2003, plaintiffs filed a second consolidated amended class action complaint against Tellabs, Messrs. Birck and Notebaert, and many (although not all) of the other previously named individual defendants, realleging claims similar to those contained in the previously dismissed consolidated amended class action complaint. We filed a second motion to dismiss on August 22, 2003, seeking the dismissal with prejudice of all claims alleged in the second consolidated amended class action complaint. On February 19, 2004, the Court issued an order granting that motion and dismissed the action with prejudice. On March 18, 2004, the plaintiffs filed a Notice of Appeal to the United States Federal Court of Appeal for the Seventh Circuit, appealing the dismissal. The appeal was fully briefed and oral argument was heard on January 21, 2005. On January 25, 2006, the Seventh Circuit issued an opinion affirming in part and reversing in part the judgment of the district court, and remanding for further proceedings. On February 8, 2006, defendants filed with the Seventh Circuit a petition for rehearing with suggestion for rehearing en banc. On April 19, 2006, the Seventh Circuit ordered plaintiffs to file an answer to the petition for rehearing, which was filed by the plaintiffs on May 3, 2006. On July 10, 2006, the Seventh Circuit denied the petition for rehearing with a minor modification to its opinion, and remanded the case to the district court. On September 22, 2006, defendants filed a motion in the district court to dismiss some (but not all) of the remaining claims. On October 3, 2006, the defendants filed with the United States Supreme Court a petition for a writ of certiorari seeking to appeal the Seventh Circuit’s decision. On January 5, 2007, the defendants’ petition was granted. The United States Supreme Court heard oral arguments on March 28, 2007. On June 21, 2007, the United States Supreme Court vacated the Seventh Circuit’s judgment and remanded the case for further

18

proceedings. On November 1, 2007, the Seventh Circuit heard oral arguments for the remanded case. On January 17, 2008, the Seventh Circuit issued an opinion adhering to its earlier opinion reversing in part the judgment of the district court, and remanded the case to the district court for further proceedings. On February 24, 2009, the district court granted plaintiffs’ motion for class certification. On August 13, 2010, the Court granted in large part Tellabs’ motion for summary judgment. Subsequently, the parties agreed to settle the lawsuit and on July 27, 2011, the Court granted the plaintiffs’ motion for final approval of class action settlement and dismissed the lawsuit without prejudice. All settlement amounts will be paid by Tellabs’ insurers.

Fujitsu Network Communications Inc. v. Tellabs, Inc. On January 28, 2008, Fujitsu Network Communications, Inc. and Fujitsu Limited filed a complaint in the United States District Court for the Eastern District of Texas against Tellabs in a case captioned Fujitsu Network Communications, Inc. and Fujitsu Limited v. Tellabs, Inc. and Tellabs Operations, Inc., Civil Action No. 6:08-cv-00022-LED. The complaint alleges infringement of U.S. Patent Nos. 5,526,163, 5,521,737, 5,386,418 and 6,487,686, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On March 21, 2008, Tellabs filed its answer, defenses and counterclaims in response to the complaint. A trial date had been set for May 10, 2010, in the Eastern District of Texas, however on July 7, 2009, the court granted Tellabs’ motion to transfer and issued an order transferring the action to the United States District Court for the Northern District of Illinois. On September 15, 2009, the Court in the Northern District of Illinois consolidated this action, for discovery purposes only, with the action instituted by Tellabs against Fujitsu in the Northern District of Illinois. On November 4, 2010, the Court dismissed with prejudice Fujitsu’s claim for infringement of Fujitsu’s U.S. Patent No. 6,487,686. In conjunction with the dismissal, Fujitsu signed a covenant not to sue Tellabs for infringement as to any claim of Fujitsu’s U.S. Patent No. 6,487,686, as to any Tellabs products as they currently exist or existed in the past. On March 31, 2011, the Court issued an Order denying a motion by Tellabs for summary judgment of invalidity based on indefiniteness of Fujitsu’s U.S. Patent No. 5,386,418, and granting a motion by Fujitsu for summary judgment for judicial correction of an error in asserted Claim 1 of the same patent as originally issued. The parties currently remain in the discovery phase, and a trial date has been set for January 17, 2012. The parties also await the Court’s issuance of a Markman ruling.

Tellabs Operations, Inc. v. Fujitsu Limited and Fujitsu Network Communications Inc. On June 11, 2008, Tellabs Operations, Inc. filed a complaint in the United States District Court for the Northern District of Illinois against Fujitsu Limited and Fujitsu Network Communications, Inc. in a case captioned Tellabs Operations, Inc. v. Fujitsu Limited and Fujitsu Network Communications, Inc. Civil Action No. 1:08-cv-3379. The complaint alleges infringement of Tellabs Operations, Inc.’s U.S. Patent No. 7,369,772, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On September 5, 2008, each of Fujitsu Limited and Fujitsu Network Communications, Inc. served its answer, defenses and counterclaims in response to the complaint. Fujitsu Limited also brought counterclaims against Tellabs, Inc. and Tellabs Operations, Inc. alleging infringement of two U.S. patents, namely U.S. Patent Nos. 5,533,006 and 7,227,681, seeking unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On September 22, 2008, Tellabs Operations, Inc. filed its answer to the counterclaims of Fujitsu Network Communications, Inc., and also filed its counterclaims and reply to counterclaims of Fujitsu Limited. On that same date, Tellabs, Inc. filed its answer and counterclaims against Fujitsu Limited. On September 15, 2009, the Court in the Northern District of Illinois consolidated this action, for discovery purposes only, with the action filed by Fujitsu transferred to the Northern District of Illinois by the Eastern District of Texas. On March 31, 2011, the Court issued an Order granting Tellabs’ motion for summary judgment of invalidity of all claims of Fujitsu’s U.S. Patent No. 5,533,006. The parties currently remain in the discovery phase, and a trial date has been set for January 17, 2012. The parties also await the Court’s issuance of a Markman ruling.

Telcordia Technologies Inc. v. Tellabs, Inc. On May 4, 2009, Telcordia Technologies, Inc. filed a complaint against Tellabs in the United States District Court for the District of New Jersey in a case captioned Telcordia Technologies Inc. v. Tellabs, Inc., Civil Action No. 2:09-cv-02089. The complaint alleges infringement of U.S. Patent Nos. 4,893,306, 4,835,763 and Re. 36,633, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On July 27, 2009, Telcordia filed a first amended complaint adding Tellabs Operations, Inc. and Tellabs North America, Inc. as additional defendants. On September 1, 2009, Tellabs filed answers, defenses and counterclaims in response to the first amended complaint. On December 15, 2009, the Court granted Tellabs’ motion to transfer, which resulted in a transfer of the action to the United States District Court for the District of Delaware. The parties are in the early phases of discovery. A trial date has not yet been set.

Lambda Optical Solutions, LLC v. Alcatel-Lucent SA, et al. On June 4, 2010, a complaint was filed in the United States District Court for the District of Delaware against Tellabs and several other companies in a case captioned Lambda Optical Solutions, LLC v. Alcatel-Lucent SA, et al., Civil Action No. 1:10-cv-00487-UNA. The complaint alleges infringement of U.S. Patent Nos. 6,973,229, and seeks unspecified damages including enhanced damages, as well as interest, costs, expenses, attorney fees and other remedies including injunctive relief. Tellabs was served with the Complaint on September 13, 2010.

19

Tellabs responded to the Complaint on November 2, 2010, denying Lambda’s allegations. The parties are in the earliest phases of the litigation. No trial date has been set.

Cheetah Omni, LLC v. Tellabs, Inc. On June 3, 2011, a complaint was filed in the United States District Court for the Eastern District of Michigan Southern Division against Tellabs in a case captioned Cheetah Omni, LLC v. Tellabs, Inc. and Tellabs North America, Inc., Civil Action No. 2:11-cv-12429-VAR-MAR. The complaint alleges infringement of U.S. Patent Nos. 6,940,647 and 6,856,459, and seeks unspecified damages, as well as interest, costs, disbursements, attorney fees and other remedies including injunctive relief. Tellabs is reviewing the complaint, but has not yet been served with or responded to the complaint.

Apart from the matters described above, we are and in the future may be subject to various legal proceedings, claims and litigation arising in the ordinary course of business. Any legal proceedings, claims and litigation, whether current or future, and whether with or without merit, potentially can result in: costly litigation; diverting management’s time, attention and resources; delaying or halting product shipments or services delivery; requiring us to pay damages; requiring us to enter into royalty-bearing licensing arrangements or to obtain substitute technology of lower quality or higher costs; or otherwise imposing obligations or restrictions that could adversely affect our business, financial condition and operating results.

13. Stock Repurchase Programs

We repurchase outstanding common stock under two programs authorized by our Board of Directors, the Rule 10b5-1 program and a repurchase program of up to $600 million of outstanding common stock. In addition, we purchase shares to cover withholding taxes on shares issued under employee stock plans.

Under the 10b5-1 program, we intend to continue to use cash generated by employee stock option exercises (other than those of Company officers and board members) to repurchase stock. We purchased $32,038 (6,721 shares) in the second quarter of 2011 and $0.5 million (0.1 million shares) in the first six months of 2011 under this program.

As of July 1, 2011, we purchased 56.6 million shares of our common stock under the $600 million repurchase program at a total cost of $375.4 million, leaving $224.6 million available to be purchased under this program. We did not purchase any shares under this program in the second quarter and first half of 2011. We may change our repurchase activity and we provide no assurance that we will continue our repurchase activity in the future.

In addition, we purchased 0.6 million shares for $2.8 million in the second quarter of 2011 and 0.9 million shares for $4.3 million in the first six months of 2011 to cover withholding taxes on shares issued under employee stock plans.

We record repurchased shares as Treasury stock.

20

14. Net (Loss) Earnings Per Share

The following table sets forth the computation of net (loss) earnings per share:

	Second Quarter					Six Months
	7/1/11			7/2/10		7/1/11			7/2/10
Numerator:
Net (loss) earnings	$	(20.1	)	$	64.1	$	(44.2	)	$	109.7
Denominator:
Denominator for basic net (loss) earnings per share – weighted average shares outstanding		364.6			385.4		363.8			385.0
Effect of dilutive securities:
Employee stock options and restricted and performance stock awards		—			4.5		—			4.5
Denominator for diluted net (loss) earnings per share – adjusted weighted average shares outstanding and assumed conversions		364.6			389.9		363.8			389.5
Net (loss) earnings per share, basic	$	(0.06	)	$	0.17	$	(0.12	)	$	0.28
Net (loss) earnings per share, diluted	$	(0.06	)	$	0.16	$	(0.12	)	$	0.28
Anti-dilutive employee equity-based awards, excluded 1		25.7			18.9		25.2			19.2

¹ We exclude certain employee equity-based awards from the weighted average shares outstanding computation because the exercise price was greater than the average market price of the common shares; therefore, the effect would have been anti-dilutive.

Under U.S. GAAP, dilutive securities are not included in the computation of diluted earnings per share when a company is in a loss position. If we were not in a loss position, diluted weighted average shares outstanding would have been 365.9 million in the second quarter and the first six months of 2011.

15. Subsequent Events

On July 25, 2011, management initiated a restructuring plan that will enable us to align our cost structure to current business conditions. Actions under this plan are expected to be substantially completed by the end of the second quarter of 2012. We expect to record pretax charges in the third quarter of 2011 through the second quarter of 2012 of approximately $22 million. The pretax charges will consist of $13 million for workforce reductions of approximately 330 employees and $9 million for facility- and asset-related charges. Estimated cash payments under this plan are expected to be $18 million beginning in the third quarter of 2011 and continuing through the end of 2012.

As a consequence of our increased focus on growth markets and growth products, we are still hiring people with different skill sets as needed around the world, therefore, we expect our net headcount to decline by about 200 people over the next year.

21

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

Introduction and Overview of Business

Tellabs designs, develops and supports telecommunications networking products. We generate revenue principally through the sale of these products to communications service providers worldwide as both stand-alone network elements and as elements of integrated solutions. We also generate revenue by providing services to our customers. We operate in three business segments: Broadband, Transport and Services.

The Broadband segment includes data, access and managed access product portfolios that facilitate mobile communications, wireline business services and bundled consumer services.

• Revenue from data products is driven by the need for wireless and wireline carriers to deliver next-generation voice, video and Internet services.

• Revenue from access products is primarily driven by the need for wireline carriers to deliver bundled voice, video and Internet services to residential customers.

• Revenue from managed access products is driven by the need for wireless and wireline carriers to deliver mobile voice and Internet services and business-oriented voice, video and Internet services.

The Transport segment includes optical networking systems, digital cross-connect systems and voice-quality enhancement products. Revenue for these products is driven by the needs of wireline and wireless carriers to deliver mobile services, business-oriented services and residential services.

The Services segment includes deployment, support, training and professional services. Revenue from deployment, support and training services arises primarily from the sales of products and continues to represent the majority of Services revenue, while the balance comes from professional services offerings.

Tellabs operates in a dynamic industry. Customer consolidation has resulted in increased pricing pressure. In addition, customer spending is pressured and competition is heightened on a global basis. Some equipment suppliers have also consolidated. Heightened competition by these suppliers has resulted in increased pricing pressure for Tellabs and some of its direct competitors.

Within this backdrop, we continue to transform the company with new products and services. The company is evolving from a core product and services portfolio based primarily on the circuit-switched Time Division Multiplexing (TDM) technology used in our digital cross-connect and managed access products to a growth portfolio based on the packet-switching and Internet Protocol (IP) technology used in our data and optical networking products. Given the level of research and development expenses in early lifecycle products, this growth portfolio is not presently profitable.

Management continues to define and implement initiatives to improve overall performance. On July 25, 2011, management initiated a restructuring plan that will enable us to align our cost structure to current business conditions. This restructuring plan primarily implements workforce reductions of about 330 or 10% of employees. As a consequence of our increased focus on growth markets and growth products, we are still hiring people with different skill sets as needed around the world, therefore, we expect our net headcount to decline by about 200 people over the next year.

RESULTS OF OPERATIONS

Net loss in the second quarter of 2011 was $20.1 million or $0.06 per share (basic and diluted), compared with net earnings of $64.1 million or $0.17 per basic share and $0.16 per diluted share in the second quarter of 2010. For the first six months of 2011, net loss was $44.2 million or $0.12 per share (basic and diluted), compared with net earnings of $109.7 million or $0.28 per share (basic and diluted) in the first six months of 2010. The net loss in both periods was driven by lower revenue and gross profit margin and higher operating expenses.

22

Revenue (in millions)

	Second Quarter							Six Months
	2011		2010		Change			2011		2010		Change
Products	$	277.0	$	361.9		(23.5	)%	$	549.4	$	680.4		(19.3	)%
Services		57.2		60.9		(6.1	)%		107.2		121.6		(11.8	)%
Total revenue	$	334.2	$	422.8		(21.0	)%	$	656.6	$	802.0		(18.1	)%

Second quarter 2011 compared with second quarter 2010

On a geographic basis, revenue from customers outside North America grew to $157.0 million (or 47% of total revenue), up 69.5% from $92.6 million (or 22% of total revenue) as revenue increased in all geographic regions outside North America. Revenue from customers in North America (United States and Canada) was $177.2 million (or 53% of total revenue), compared with $330.2 million (or 78% of total revenue). Revenue concentration from our two major customers was 33% in the second quarter, lower than the prior quarter. The decrease in revenue was driven primarily by lower revenue for data and digital cross-connect systems from a major North American carrier.

Revenue from our growth portfolio (the Tellabs^® 6300 Managed Transport System, the Tellabs^® 7100 Optical Transport System, the Tellabs^® 7300 Metro Ethernet Switching Series, the Tellabs^® 8600 Managed Edge System, the Tellabs^® 8800 Multiservice Router Series, the Tellabs SmartCore^® 9100 Platform, and professional services) was $202.8 million (or 61% of total revenue), compared with $243.9 million (or 58% of total revenue). Given the level of research and development expenses in early lifecycle products, this portfolio is not presently profitable.

Our core portfolio (the Tellabs^® 5000 series of digital cross-connect systems, the Tellabs^® 8100 Managed Access System, the Tellabs^® 8000 Intelligent Network Manager, the Tellabs^® 3000 Series of voice-enhancement products, the Tellabs Access products and deployment, training and support services) accounted for $131.4 million (or 39% of total revenue), compared with $178.9 million (or 42% of total revenue).

Six months 2011 compared with six months 2010

On a geographic basis, revenue from customers outside North America grew to $304.3 million (or 46% of total revenue) up 53.8% from $197.8 million (or 25% of total revenue) as revenue increased in all geographic regions outside North America. Revenue from customers in North America was $352.3 million (or 54% of total revenue), compared with $604.2 million (or 75% of total revenue). Revenue concentration from our two major customers was 34% in the first six months of 2011, lower than the prior year period. The decrease in revenue was driven primarily by lower revenue for data and digital cross-connect systems from a major North American carrier.

Revenue from our growth portfolio was $397.2 million (or 60% of total revenue), compared with $458.5 million (or 57% of total revenue). Our core portfolio accounted for $259.4 million (or 40% of total revenue), compared with $343.5 million (or 43% of total revenue).

Gross Margin

	Second Quarter									Six Months
	2011			2010			% Point Change			2011			2010			% Point Change
Products		37.5	%		57.0	%		(19.5	)		39.5	%		55.7	%		(16.2	)
Services		36.7	%		32.8	%		3.9			28.4	%		32.1	%		(3.7	)
Consolidated		37.4	%		53.5	%		(16.1	)		37.7	%		52.1	%		(14.4	)

Products gross margins decreased in both periods of 2011 compared with the year-ago periods, primarily as a result of lower data product and digital cross-connect system revenue in North America. Services gross margin increased in the second quarter of 2011, compared with the year-ago period, as we recorded more higher-margin support revenue and less lower-margin deployment revenue. Services gross margin decreased in the first six months of 2011, compared with the year-ago period, primarily driven by the lower overall level of Services revenue.

23

Operating Expenses (in millions)

	Second Quarter								Percent of Revenue
	2011		2010			Change			2011			2010
Research and development	$	83.5	$	71.3		$	12.2			25.0	%		16.9	%
Sales and marketing		40.8		43.8			(3.0	)		12.2	%		10.4	%
General and administrative		21.0		24.9			(3.9	)		6.3	%		5.9	%
Subtotal		145.3		140.0			5.3			43.5	%		33.1	%
Intangible asset amortization		5.1		7.4			(2.3	)
Restructuring and other charges		—		(0.5	)		0.5
Total operating expenses	$	150.4	$	146.9		$	3.5
	Six Months								Percent of Revenue
	2011		2010			Change			2011			2010
Research and development	$	163.8	$	140.5		$	23.3			24.9	%		17.5	%
Sales and marketing		85.5		88.9			(3.4	)		13.0	%		11.1	%
General and administrative		44.7		49.7			(5.0	)		6.8	%		6.2	%
Subtotal		294.0		279.1			14.9			44.8	%		34.8	%
Intangible asset amortization		10.3		14.8			(4.5	)
Restructuring and other charges		1.0		9.5			(8.5	)
Total operating expenses	$	305.3	$	303.4		$	1.9

Operating expenses increased in both periods of 2011 compared with the year-ago periods. Higher research and development expenses primarily for products for the mobile Internet were partially offset by lower sales, marketing, general and administrative expenses as well as lower restructuring and other charges. Restructuring and other charges of $1.0 million in the first half of 2011 are primarily due to severance.

Other Income (in millions)

	Second Quarter								Six Months
	2011			2010		Change			2011			2010		Change
Interest income, net	$	3.1		$	3.0	$	0.1		$	6.4		$	6.9	$	(0.5	)
Other (expense) income, net		(1.1	)		2.1		(3.2	)		(1.7	)		4.8		(6.5	)
Total other income	$	2.0		$	5.1	$	(3.1	)	$	4.7		$	11.7	$	(7.0	)

Compared with prior year periods, interest income, net, increased in the three-month period due to higher yields during the second quarter of 2011 and declined in the six-month period due to lower yields and lower cash, cash equivalents and marketable securities balances. Other (expense) income, net, was lower in both periods primarily due to a $1.2 million other-than-temporary impairment from investments in marketable securities in the second quarter and first six months of 2011, compared with realized gains from marketable securities in both comparable periods of 2010.

Income Taxes

For the second quarter of 2011, we reported a tax benefit of $3.3 million, compared with a tax expense of $20.3 million for the second quarter of 2010. In the second quarter we recorded a benefit of $2.8 million related to the resolution of an Internal Revenue Service audit of the 2007 and 2008 tax years. Excluding this benefit, tax expense decreased due to losses from domestic operations and a decline in income from foreign operations, partially offset by a valuation allowance on domestic deferred tax assets.

For the first six months of 2011, we reported a tax benefit of $9.1 million, compared with a tax expense of $16.7 million for the first six months of 2010. In the first six months of 2011, a benefit of $6.2 million was recorded from the reversal of tax accruals no longer required due to settlement of tax audits and the expiration of a statute of limitations, compared with a similar benefit of $13.3 million in the first six months of 2010. Excluding these benefits, tax expense declined due to losses from domestic operations and a decline in income from foreign operations, partially offset by a valuation allowance on domestic deferred tax assets.

24

Segments

We operate in three business segments: Broadband, Transport and Services. The Broadband segment includes three product categories: data, managed access and access products.

Segment Revenue (in millions)

	Second Quarter							Six Months
	2011		2010		Change			2011		2010		Change
Broadband	$	162.7	$	228.7		(28.9	)%	$	335.7	$	419.8		(20.0	)%
Transport		114.3		133.2		(14.2	)%		213.7		260.6		(18.0	)%
Services		57.2		60.9		(6.1	)%		107.2		121.6		(11.8	)%
Total revenue	$	334.2	$	422.8		(21.0	)%	$	656.6	$	802.0		(18.1	)%

Segment (Loss) Profit* (in millions)

	Second Quarter								Six Months
	2011			2010		Change			2011		2010		Change
Broadband	$	(3.0	)	$	86.1		(103.5	)%	$	16.7	$	146.9		(88.6	)%
Transport		27.2			51.7		(47.4	)%		43.2		96.7		(55.3	)%
Services		21.6			20.7		4.3	%		31.6		40.2		(21.4	)%
Total segment profit	$	45.8		$	158.5		(71.1	)%	$	91.5	$	283.8		(67.8	)%

* We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketing expenses, general and administrative expenses, the amortization of intangibles, restructuring and other charges, and the impact of equity-based compensation.

Second quarter 2011 compared with second quarter 2010

Broadband Segment

Revenue from the Broadband segment was $162.7 million, compared with $228.7 million. Within this segment, revenue from all product categories decreased on a year-over-year basis. Data product revenue was $95.1 million, compared with $158.8 million as higher revenue from managed edge systems was offset by lower revenue from our multi-service router series. Access revenue was $39.8 million, compared with $40.4 million. Increased revenue from single-family optical network terminal (ONT) units was essentially offset by lower revenue from access systems. Managed access revenue was $27.8 million, compared with $29.5 million. Most of this decline came from lower revenue from SDH transport systems. Broadband segment loss was $3.0 million, compared with profit of $86.1 million. The decline in segment profit was driven primarily by lower revenue from our multi-service router series and higher research and development expenses.

Transport

Revenue from the Transport segment was $114.3 million, compared with $133.2 million. Within this segment, increased revenue from optical transport systems was offset by lower revenue from digital cross-connect systems. Transport segment profit was $27.2 million, compared with $51.7 million. The decline in segment profit was driven primarily by lower revenue from digital cross-connect systems.

Services

Revenue from the Services segment was $57.2 million, compared with $60.9 million. The decline in segment revenue was driven primarily by lower deployment revenue, which was partially offset by higher support revenue. Services segment profit was $21.6 million, compared with $20.7 million. The slight increase in segment profit was driven primarily by the lower level of deployment revenue and the higher level of support revenue.

Six months 2011 compared with six months 2010

Broadband Segment

Revenue from the Broadband segment was $335.7 million, compared with $419.8 million. Within this segment, reduced revenue from the data and managed access categories was partially offset by increased revenue from access products. Data product revenue was $201.6 million, compared with $289.5 million as increased revenue from managed edge systems was offset by lower revenue from our multi-service router series. Access revenue was $79.9 million, up 13.3% from $70.5 million, driven by increased revenue from access systems and single-family optical network terminal (ONT) units. Managed access revenue was $54.2 million, compared with $59.8 million. Most of this decline came from lower revenue from managed access systems. Broadband segment profit was $16.7 million, compared with $146.9 million. The decline in segment profit was driven primarily by lower revenue from our multi-service router series and higher research and development expenses.

25

Transport Segment

Revenue from the Transport segment was $213.7 million, compared with $260.6 million. Within this segment, increased revenue from optical transport systems was offset by lower revenue from digital cross-connect systems. Transport segment profit was $43.2 million, compared with $96.7 million. The decline in segment profit was driven primarily by lower revenue from digital cross-connect systems.

Services

Revenue from the Services segment was $107.2 million, compared with $121.6 million. The decline in segment revenue was driven primarily by lower deployment revenue, which was partially offset by higher support revenue. Services segment profit was $31.6 million, compared with $40.2 million. The decrease in segment profit was primarily due to the lower level of deployment revenue.

Financial Condition, Liquidity & Capital Resources

Our principal source of liquidity remained cash, cash equivalents and marketable securities of $1,058.0 million as of July 1, 2011, which decreased by $76.5 million since year-end 2010. Of the total cash, cash equivalents and marketable securities, as of July 1, 2011, $391.1 million was held in subsidiaries outside the United States. During the quarter, we generated $28.2 million in cash from operations, slightly increasing cash, cash equivalents and marketable securities. Cash used for operating activities during the first six months of 2011 amounted to $53.3 million.

During the second quarter of 2011, we distributed $7.3 million to our stockholders through a cash dividend. We also repurchased 6,721 shares of common stock at a cost of $32,038 under the 10b5-1 program. During the first half of 2011, we distributed $14.5 million to our stockholders through a cash dividend. We also repurchased 0.1 million shares of common stock at a cost of $0.5 million under the 10b5-1 plan.

We provide no assurance as to a future declaration or payment of a cash dividend nor do we provide future assurance of a repurchase of common stock.

We believe that our investments are highly liquid instruments. We may rebalance the portfolio from time to time, which may affect the duration, credit structure and future income of investments.

Based on historical performance and current forecasts, we believe the company’s cash, cash equivalents and marketable securities will satisfy working capital needs, capital expenditures and other liquidity requirements related to existing operations for the next 12 months. Future available sources of working capital, including cash, cash equivalents, and marketable securities, cash generated from future operations, short-term or long-term financing, equity offerings or any combination of these sources, should allow us to meet our long-term liquidity needs. Current policy is to use cash, cash equivalents and marketable securities to fund business operations, to expand business, potentially through acquisitions, to repurchase common stock and to pay a cash dividend.

Goodwill

We review goodwill annually for impairment, unless potential interim indicators exist that could result in an impairment. Given that we have experienced a significant decline in business volumes from a major customer that has had an adverse impact on the results of the Broadband segment which is not expected to reverse in the near-term, and that Tellabs’ overall market capitalization has been below book value, we completed an interim step one review. Based on this review, which compares the segment’s fair value to carrying value, we concluded that Broadband segment goodwill may potentially be impaired. At this time, we cannot estimate the impact, if any, this may have on our financial statements. We will proceed with a step two analysis to determine whether or not an impairment charge is to be recorded. The amount of goodwill associated with the Broadband segment is $82.7 million.

GAAP Sequential Comparisons

We believe that comparing some quarterly Statement of Operations data on a sequential basis provides important supplemental information to management and investors regarding financial and business trends relating to our financial results. Commonly compared sequential comparisons of GAAP data include total revenue, segment revenue and profit, our geographic revenue split and the split between our growth and core portfolios.

26

Second quarter 2011 compared with first quarter 2011

Total revenue was $334.2 million, compared with $322.4 million. Increased Transport and Services segment revenue offset lower Broadband segment revenue. Revenue concentration from our major customers decreased in the second quarter of 2011, compared with the prior quarter.

Total Broadband segment revenue was $162.7 million, compared with $173.0 million. Within this segment, data revenue was $95.1 million, compared with $106.5 million. Higher revenue for our multi-service edge router series was offset by lower revenue from managed edge systems. Access revenue was $39.8 million, compared with $40.1 million, as increased revenue from single family ONT units was essentially offset by lower revenue from access systems. Managed access revenue was $27.8 million, up 5% from $26.4 million, as increased revenue from managed access systems offset lower revenue from SDH transport systems. Broadband segment loss was $3.0 million, compared with profit of $19.7 million. The decline in segment profit was driven by lower data revenue and higher research and development expenses.

Transport segment revenue was $114.3 million, up 15.0% from $99.4 million, as increased revenue from optical transport systems offset lower revenue from digital cross-connect systems. Transport segment profit, driven by higher segment revenue and improved margins on optical transport systems, was $27.2 million, up 70.0% from $16.0 million.

Services segment revenue was $57.2 million, up 14.4% from $50.0 million, as a result of increased revenue from deployment and support services. Services segment profit, driven primarily by the higher level of revenue and lower costs, was $21.6 million, more than double the $10.0 million recorded in the prior quarter.

North American revenue was $177.2 million (or 53% of total revenue) compared with $175.1 million (or 54% of total revenue). Outside North America, revenue was $157.0 million (or 47% of total revenue) up 7% from $147.3 million (or 46% of total revenue).

Growth portfolio revenue was $202.8 million (or 61% of total revenue), compared with $194.4 million (or 60% of total revenue). Given the level of research and development expenses in early lifecycle products, this portfolio is not presently profitable. Core portfolio revenue was $131.4 million (or 39% of total revenue), compared with $128.0 million (or 40% of total revenue).

Non-GAAP Financial Measures and Comparisons

We believe that comparing some quarterly non-GAAP financial measures on a sequential basis provides important supplemental information to management and investors regarding financial and business trends relating to our financial results. Commonly compared non-GAAP financial data includes gross profit as a percentage of revenue, operating expenses, operating earnings, net earnings and net earnings per share. A complete reconciliation between non-GAAP financial measures and the GAAP financial measures, along with an explanation of why we believe non-GAAP measures to be of value to management and investors, is contained in the Reconciliation of Non-GAAP Adjustments provided on pages 28 through 31.

Second quarter 2011 compared with first quarter 2011

Non-GAAP gross profit margin was 37.7%, compared with 38.3% in the prior quarter. Higher services gross margins partially offset lower product gross margins. Services margins increased due to the higher level of revenue and lower costs. Product margins decreased due to the lower level of data and cross-connect system revenue, which was somewhat offset by improved margins on optical transport systems.

Non-GAAP operating expenses were $138.3 million, compared with $142.1 million. Increased research and development expenses were offset by lower spending across the rest of the business.

Non-GAAP operating loss was $12.2 million, compared with $18.7 million, driven by higher revenue and lower operating expenses.

Driven primarily by higher revenue and lower operating expenses, non-GAAP net loss was $6.9 million or $0.02 per share (basic and diluted), compared with $10.9 million or $0.03 per share (basic and diluted).

27

TELLABS, INC.

RECONCILIATION OF NON-GAAP ADJUSTMENTS ⁽¹⁾

(Unaudited)

	Second Quarter 2011									Second Quarter 2010
In millions, except per-share data	As Reported			Adjustments			Non-GAAP			As Reported			Adjustments			Non-GAAP
Revenue
Products	$	277.0		$	—		$	277.0		$	361.9		$	—		$	361.9
Services		57.2			—			57.2			60.9			—			60.9
Total revenue		334.2			—			334.2			422.8			—			422.8
Cost of Revenue
Products (a)		173.0			(0.5	)		172.5			155.7			(0.6	)		155.1
Services (a)		36.2			(0.6	)		35.6			40.9			(0.6	)		40.3
Total cost of revenue		209.2			(1.1	)		208.1			196.6			(1.2	)		195.4
Gross Profit		125.0			1.1			126.1			226.2			1.2			227.4
Gross profit as a percentage of revenue		37.4	%		0.3	%		37.7	%		53.5	%		0.3	%		53.8	%
Gross profit as a percentage of revenue - products		37.5	%		0.2	%		37.7	%		57.0	%		0.1	%		57.1	%
Gross profit as a percentage of revenue - services		36.7	%		1.1	%		37.8	%		32.8	%		1.0	%		33.8	%
Operating Expenses
Research and development (a)		83.5			(3.2	)		80.3			71.3			(2.4	)		68.9
Sales and marketing (a)		40.8			(1.3	)		39.5			43.8			(1.4	)		42.4
General and administrative (a)		21.0			(2.5	)		18.5			24.9			(2.5	)		22.4
Intangible asset amortization (b)		5.1			(5.1	)		—			7.4			(7.4	)		—
Restructuring and other charges (c)		—			—			—			(0.5	)		0.5			—
Total operating expenses		150.4			(12.1	)		138.3			146.9			(13.2	)		133.7
Operating (Loss) Earnings		(25.4	)		13.2			(12.2	)		79.3			14.4			93.7
Operating (loss) earnings as a percentage of revenue		-7.6	%		3.9	%		-3.7	%		18.8	%		3.4	%		22.2	%
Other Income
Interest income, net		3.1			—			3.1			3.0			—			3.0
Other (expense) income, net		(1.1	)		—			(1.1	)		2.1			—			2.1
Total other income		2.0			—			2.0			5.1			—			5.1
(Loss) Earnings Before Income Tax		(23.4	)		13.2			(10.2	)		84.4			14.4			98.8
Income tax benefit (expense) (d)		3.3			—			3.3			(20.3	)		(11.3	)		(31.6	)
Net (Loss) Earnings	$	(20.1	)	$	13.2		$	(6.9	)	$	64.1		$	3.1		$	67.2
Weighted Average Shares Outstanding
Basic		364.6						364.6			385.4						385.4
Diluted		364.6						364.6			389.9						389.9
Net Earnings Per Share
Basic	$	(0.06	)	$	0.04		$	(0.02	)	$	0.17		$	—		$	0.17
Diluted	$	(0.06	)	$	0.04		$	(0.02	)	$	0.16		$	0.01		$	0.17

(1) Reconciliation of non-GAAP Adjustments

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), Tellabs, Inc. has provided non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effect of certain charges, as “adjusted” and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate certain items of expenses and losses from cost of revenue, operating expenses, other income and expenses, and income taxes. Management believes that this presentation allows investors to better evaluate the current operational and financial performance of our business and facilitate comparisons to historical results of operations. Management uses these measures for reviewing our financial results and for business planning and performance management. Management discloses this information publicly along with a reconciliation of the comparable GAAP amounts, to provide access to the detail and general nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, including significant restructuring and other charges, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.

28

TELLABS, INC.

RECONCILIATION OF NON-GAAP ADJUSTMENTS ⁽¹⁾

(Unaudited)

	Six Months 2011									Six Months 2010
In millions, except per-share data	As Reported			Adjustments			Non-GAAP			As Reported			Adjustments			Non-GAAP
Revenue
Products	$	549.4		$	—		$	549.4		$	680.4		$	—		$	680.4
Services		107.2			—			107.2			121.6			—			121.6
Total revenue		656.6			—			656.6			802.0			—			802.0
Cost of Revenue
Products (a)		332.5			(1.0	)		331.5			301.3			(1.0	)		300.3
Services (a)		76.8			(1.2	)		75.6			82.6			(1.1	)		81.5
Total cost of revenue		409.3			(2.2	)		407.1			383.9			(2.1	)		381.8
Gross Profit		247.3			2.2			249.5			418.1			2.1			420.2
Gross profit as a percentage of revenue		37.7	%		0.3	%		38.0	%		52.1	%		0.3	%		52.4	%
Gross profit as a percentage of revenue - products		39.5	%		0.2	%		39.7	%		55.7	%		0.2	%		55.9	%
Gross profit as a percentage of revenue - services		28.4	%		1.1	%		29.5	%		32.1	%		0.9	%		33.0	%
Operating Expenses
Research and development (a)		163.8			(5.8	)		158.0			140.5			(4.1	)		136.4
Sales and marketing (a)		85.5			(2.6	)		82.9			88.9			(2.5	)		86.4
General and administrative (a)		44.7			(5.2	)		39.5			49.7			(4.4	)		45.3
Intangible asset amortization (b)		10.3			(10.3	)		—			14.8			(14.8	)		—
Restructuring and other charges (c)		1.0			(1.0	)		—			9.5			(9.5	)		—
Total operating expenses		305.3			(24.9	)		280.4			303.4			(35.3	)		268.1
Operating (Loss) Earnings		(58.0	)		27.1			(30.9	)		114.7			37.4			152.1
Operating (loss) earnings as a percentage of revenue		-8.8	%		4.1	%		-4.7	%		14.3	%		4.7	%		19.0	%
Other Income
Interest income, net		6.4			—			6.4			6.9			—			6.9
Other (expense) income, net		(1.7	)		—			(1.7	)		4.8			—			4.8
Total other income		4.7			—			4.7			11.7			—			11.7
(Loss) Earnings Before Income Tax		(53.3	)		27.1			(26.2	)		126.4			37.4			163.8
Income tax benefit (expense) (d)		9.1			(0.7	)		8.4			(16.7	)		(35.7	)		(52.4	)
Net (Loss) Earnings	$	(44.2	)	$	26.4		$	(17.8	)	$	109.7		$	1.7		$	111.4
Weighted Average Shares Outstanding
Basic		363.8						363.8			385.0						385.0
Diluted		363.8						363.8			389.5						389.5
Net (Loss) Earnings Per Share
Basic	$	(0.12	)	$	0.07		$	(0.05	)	$	0.28		$	0.01		$	0.29
Diluted	$	(0.12	)	$	0.07		$	(0.05	)	$	0.28		$	0.01		$	0.29

(1) Reconciliation of non-GAAP Adjustments

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), Tellabs, Inc. has provided non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effect of certain charges, as “adjusted” and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate certain items of expenses and losses from cost of revenue, operating expenses, other income and expenses, and income taxes. Management believes that this presentation allows investors to better evaluate the current operational and financial performance of our business and facilitate comparisons to historical results of operations. Management uses these measures for reviewing our financial results and for business planning and performance management. Management discloses this information publicly along with a reconciliation of the comparable GAAP amounts, to provide access to the detail and general nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, including significant restructuring and other charges, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.

29

TELLABS, INC.

RECONCILIATION OF NON-GAAP ADJUSTMENTS ⁽¹⁾

(Unaudited)

	Second Quarter 2011									First Quarter 2011
In millions, except per-share data	As Reported			Adjustments			Non-GAAP			As Reported			Adjustments			Non-GAAP
Revenue
Products	$	277.0		$	—		$	277.0		$	272.4		$	—		$	272.4
Services		57.2			—			57.2			50.0			—			50.0
Total revenue		334.2			—			334.2			322.4			—			322.4
Cost of Revenue
Products (a)		173.0			(0.5	)		172.5			159.5			(0.5	)		159.0
Services (a)		36.2			(0.6	)		35.6			40.6			(0.6	)		40.0
Total cost of revenue		209.2			(1.1	)		208.1			200.1			(1.1	)		199.0
Gross Profit		125.0			1.1			126.1			122.3			1.1			123.4
Gross profit as a percentage of revenue		37.4	%		0.3	%		37.7	%		37.9	%		0.4	%		38.3	%
Gross profit as a percentage of revenue - products		37.5	%		0.2	%		37.7	%		41.4	%		0.2	%		41.6	%
Gross profit as a percentage of revenue - services		36.7	%		1.1	%		37.8	%		18.8	%		1.2	%		20.0	%
Operating Expenses
Research and development (a)		83.5			(3.2	)		80.3			80.3			(2.6	)		77.7
Sales and marketing (a)		40.8			(1.3	)		39.5			44.7			(1.3	)		43.4
General and administrative (a)		21.0			(2.5	)		18.5			23.7			(2.7	)		21.0
Intangible asset amortization (b)		5.1			(5.1	)		—			5.2			(5.2	)		—
Restructuring and other charges (c)		—			—			—			1.0			(1.0	)		—
Total operating expenses		150.4			(12.1	)		138.3			154.9			(12.8	)		142.1
Operating (Loss) Earnings		(25.4	)		13.2			(12.2	)		(32.6	)		13.9			(18.7	)
Operating (loss) earnings as a percentage of revenue		-7.6	%		3.9	%		-3.7	%		-10.1	%		4.3	%		-5.8	%
Other Income
Interest income, net		3.1			—			3.1			3.3			—			3.3
Other expense, net		(1.1	)		—			(1.1	)		(0.6	)		—			(0.6	)
Total other income		2.0			—			2.0			2.7			—			2.7
(Loss) Earnings Before Income Tax		(23.4	)		13.2			(10.2	)		(29.9	)		13.9			(16.0	)
Income tax benefit (expense) (d)		3.3			—			3.3			5.8			(0.7	)		5.1
Net (Loss) Earnings	$	(20.1	)	$	13.2		$	(6.9	)	$	(24.1	)	$	13.2		$	(10.9	)
Weighted Average Shares Outstanding
Basic		364.6						364.6			363.0						363.0
Diluted		364.6						364.6			363.0						363.0
Net (Loss) Earnings Per Share
Basic	$	(0.06	)	$	0.04		$	(0.02	)	$	(0.07	)	$	0.04		$	(0.03	)
Diluted	$	(0.06	)	$	0.04		$	(0.02	)	$	(0.07	)	$	0.04		$	(0.03	)

(1) Reconciliation of non-GAAP Adjustments

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), Tellabs, Inc. has provided non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effect of certain charges, as “adjusted” and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate certain items of expenses and losses from cost of revenue, operating expenses, other income and expenses, and income taxes. Management believes that this presentation allows investors to better evaluate the current operational and financial performance of our business and facilitate comparisons to historical results of operations. Management uses these measures for reviewing our financial results and for business planning and performance management. Management discloses this information publicly along with a reconciliation of the comparable GAAP amounts, to provide access to the detail and general nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, including significant restructuring and other charges, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.

30

Footnotes to reconciliation of non-GAAP adjustments:

(a) The adjustments to cost of revenue, research and development, sales and marketing, and general and administrative expenses reflect equity-based compensation expense. We exclude these measures when reviewing financial results and for business planning and performance management. We believe that the exclusion of equity-based compensation expense allows for more accurate comparisons of operating results to our peer companies. In addition, we believe this non-cash GAAP measure is not indicative of our fundamental operating performance.

(b) We exclude amortization of intangible assets resulting from acquisitions to evaluate our continuing operational performance. The amortization of purchased intangible assets associated with acquisitions results in recording expense in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. We believe this non-cash GAAP measure is not indicative of our fundamental operating performance. Accordingly, we analyze the performance of operations without regard to such expenses.

(c) We exclude restructuring and other charges because we believe that they occur outside of the ordinary course of and are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning and performance management. Although these events are reflected in our GAAP financials, these transactions may limit the comparability of our fundamental operations with prior and future periods.

(d) We calculate a separate tax expense and effective tax rate for GAAP and for non-GAAP purposes. For non-GAAP purposes, we use a 32% effective tax rate which represents the projected, long term effective tax rate on non-GAAP pretax income.

31

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the quarter.

Outlook

We expect third-quarter 2011 revenue to be flat, in a range from $325 million to $345 million. We expect third-quarter non-GAAP gross margin to be 39%, plus or minus a point or two, depending on mix. We expect third-quarter non-GAAP operating expenses to be down to the mid-$130 millions.

Forward-Looking Statements

This Management’s Discussion and Analysis and other sections of this Form 10-Q, including the statements under the caption “Outlook”, 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 current and available information 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,” “predict,” “plan,” “possible,” “project,” “intend,” “likely,” “will,” “should,” “could,” “may,” “foreseeable,” “would” 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: customer concentration; successful expansion into adjacent markets with new and existing products and platforms; new product acceptance and profitability; our ability to compete with larger suppliers that can provide end to end solutions; overall negative economic conditions generally and disruptions in credit and capital markets, including specific impacts of these conditions on the telecommunications industry; financial condition of telecommunications service providers, equipment vendors and contract manufacturers, including the impact of any bankruptcies; availability of components and critical manufacturing equipment and capacity; the impact of customer and vendor consolidation; integration of a new business; product demand and industry capacity; competitive products and pricing; competitive pressures from new entrants to the telecommunications industry; initiatives to improve profitability that may have financial consequences, including further restructuring charges and the ability to realize anticipated savings under such cost-reduction initiatives; exiting businesses and product areas; impairment charges and other cost cutting initiatives and related charges and costs; manufacturing efficiencies; research and new product development; protection of and access to intellectual property, patents and technology; ability to attract and retain highly qualified personnel; foreign economic conditions, including currency rate fluctuations; the regulatory and trade environment; the impact of new or revised accounting rules or interpretations, including revenue recognition requirements; availability and terms of future acquisitions; divestitures and investments; 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 Item 1A of our most recently filed Form 10-K. Our 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 are advised not to rely on these forward-looking statements when making investment decisions. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of our business. We undertake 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. The foregoing discussion should be read in conjunction with the risk factors, financial statements and related notes and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of July 1, 2011, there were no material changes to the market risks disclosure, Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2010.

32

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of disclosure controls and procedures as of July 1, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There were no changes during the period covered by this Form 10-Q in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under “Note 12 – Contingencies – Legal Proceedings” to the condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. The risk factors described in our Annual Report could materially adversely affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no other material changes to the risk factors included in our Annual Report for the year ended December 31, 2010.

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

Repurchases of Common Stock:

Period of Purchases	Total Number  of Shares Purchased		Average Purchase Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Remaining Dollar Value of Shares Available to be Purchased Under the Programs (In millions) 1
4/2/11 through 5/6/11		2,659	$	5.20		2,659	$	224.6
5/7/11 through 6/3/11		2,706	$	4.68		2,706	$	224.6
6/4/11 through 7/1/11		1,356	$	4.09		1,356	$	224.6
Total		6,721	$	4.77		6,721

¹  The amounts in this column represent the remaining amounts under the current $600 million program described below. The Rule10b5-1 repurchase program described below does not have a repurchase amount limit; therefore, it is not included in the remaining value of shares.

We repurchase outstanding common stock under two programs authorized by our Board of Directors, the Rule 10b5-1 program and a repurchase program of up to $600 million of outstanding common stock. In addition, we purchase shares to cover withholding taxes on shares issued under employee stock plans.

Under the 10b5-1 program, we intend to continue to use cash generated by employee stock option exercises (other than those of Company officers and board members) to repurchase stock. We purchased $32,038 (6,721 shares) in the second quarter of 2011 and $0.5 million (0.1 million shares) in the first six months of 2011 under this program.

As of July 1, 2011, we purchased 56.6 million shares of our common stock under the $600 million repurchase program at a total cost of $375.4 million, leaving $224.6 million available to be purchased under this program. We did not purchase any shares under this program in the second quarter and first half of 2011. We may change our repurchase activity and we provide no assurance that we will continue our repurchase activity in the future.

In addition, we purchased 0.6 million shares for $2.8 million in the second quarter of 2011 and 0.9 million shares for $4.3 million in the first six months of 2011 to cover withholding taxes on shares issued under employee stock plans.

We record repurchased shares as Treasury stock.

33

Item 6. Exhibits

(A) Exhibits

31.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished and not filed

34

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/ Thomas P. Minichiello
	Thomas P. Minichiello
	Vice President of Finance and Chief Accounting Officer
	(Principal Accounting Officer and duly authorized officer)
	August 9, 2011
	(Date)

35

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert W. Pullen, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 9, 2011

/s/ Robert W. Pullen

Robert W. Pullen

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy J. Wiggins, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 9, 2011

/s/ Timothy J. Wiggins

Timothy J. Wiggins

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tellabs, Inc. (the “Company”) on Form 10-Q for the quarter ended July 1, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert W. Pullen, the Chief Executive Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert W. Pullen

Robert W. Pullen

Chief Executive Officer

Date: August 9, 2011

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tellabs, Inc. (the “Company”) on Form 10-Q for the quarter ended July 1, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy J. Wiggins, the Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Timothy J. Wiggins

Timothy J. Wiggins

Chief Financial Officer

Date: August 9, 2011

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML



Equity-Based Compensation (Schedule Of Cash-Settled Stock Appreciation Rights Activity) (Details) (Cash-Settled SARs [Member], USD $)	6 Months Ended
	Jul. 01, 2011	Dec. 31, 2010
Cash-Settled SARs [Member]
Shares, Non-vested - beginning of year	445,233
Shares, Granted	41,700
Shares, Forfeited/Expired	(31,036)
Shares, Non-vested - end of period	455,897
Weighted Average Exercise Price, Outstanding - beginning of year	$ 7.51	$ 7.73
Weighted Average Exercise Price, Granted	$ 5.38
Weighted Average Exercise Price, Forfeited/Expired	$ 7.76
Weighted Average Exercise Price, Outstanding - end of period	$ 7.51	$ 7.73

XML



Consolidated Balance Sheets (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Current Assets
Cash and cash equivalents	$ 213.6	$ 208.8
Investments in marketable securities	844.4	925.7
Total cash, cash equivalents and marketable securities	1,058.0	1,134.5
Other marketable securities	167.5	213.6
Accounts receivable, net of allowances of $1.4 and $1.3	342.2	342.6
Inventories
Raw materials	36.9	30.3
Finished goods	119.0	132.0
Total inventories	155.9	162.3
Income taxes	19.8	14.8
Miscellaneous receivables and other current assets	45.3	45.0
Total Current Assets	1,788.7	1,912.8
Property, Plant and Equipment
Land	21.3	20.8
Buildings and improvements	209.8	204.2
Equipment	452.0	422.8
Total property, plant and equipment	683.1	647.8
Accumulated depreciation	(404.3)	(378.5)
Property, plant and equipment, net	278.8	269.3
Goodwill	205.3	204.9
Intangible Assets, Net of Amortization	86.4	96.7
Other Assets	110.9	119.2
Total Assets	2,470.1	2,602.9
Current Liabilities
Accounts payable	106.4	123.4
Accrued compensation	47.7	97.2
Restructuring and other charges	3.8	7.7
Income taxes	70.6	88.4
Loan related to other marketable securities	167.5	213.6
Deferred revenue	65.9	43.0
Other accrued liabilities	80.6	89.8
Total Current Liabilities	542.5	663.1
Long-Term Restructuring Liabilities	2.5	3.1
Income Taxes	21.7	28.1
Other Long-Term Liabilities	51.1	47.1
Stockholders' Equity
Preferred stock: authorized 5,000,000 shares of $0.01 par value; no shares issued and outstanding
Common stock: authorized 1,000,000,000 shares of $0.01 par value; 505,010,116 and 501,744,627 shares issued	5.0	5.0
Additional paid-in capital	1,564.1	1,547.9
Treasury stock, at cost: 140,198,952 and 139,243,079 shares	(1,226.9)	(1,222.1)
Retained earnings	1,363.4	1,422.1
Accumulated other comprehensive income	146.7	108.6
Total Stockholders' Equity	1,852.3	1,861.5
Total Liabilities and Stockholders' Equity	$ 2,470.1	$ 2,602.9

XML



Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data	Jul. 01, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Accounts receivable, allowances	$ 1.4	$ 1.3
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, authorized	1,000,000,000	1,000,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares issued	505,010,116	501,744,627
Treasury stock, shares	140,198,952	139,243,079

XML



Equity-Based Compensation (Schedule Of Equity-Based Compensation Expense) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Equity-based compensation expense	$ 8.0	$ 7.4	$ 15.6	$ 13.2
Income tax benefit	(1.2)	(2.5)	(2.6)	(4.3)
Total equity-based compensation expense after income taxes	6.8	4.9	13.0	8.9
Cost Of Revenue - Products [Member]
Equity-based compensation expense	0.5	0.6	1.0	1.0
Cost Of Revenue - Services [Member]
Equity-based compensation expense	0.6	0.6	1.2	1.1
Research And Development [Member]
Equity-based compensation expense	3.1	2.4	5.6	4.2
Sales And Marketing [Member]
Equity-based compensation expense	1.3	1.3	2.6	2.5
General And Administrative [Member]
Equity-based compensation expense	$ 2.5	$ 2.5	$ 5.2	$ 4.4

XML



Investments (Tables)

6 Months Ended

Jul. 01, 2011

Investments

Available-For-Sale Marketable Securities

July 1, 2011	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. government debt obligations	$	98.0	$	0.1	$	(0.1	)	$	98.0
Corporate debt obligations guaranteed by FDIC		102.7		0.4		(0.1	)		103.0
Corporate debt obligations		229.1		0.7		(0.6	)		229.2
Mortgage-backed debt obligations guaranteed by GNMA		99.0		0.6		(0.4	)		99.2
Certificates of deposit guaranteed by FDIC		2.0		—		—			2.0
Foreign government debt obligations		222.0		0.4		(1.0	)		221.4
Foreign corporate debt obligations guaranteed by foreign governments		91.9		0.1		(0.4	)		91.6
Total	$	844.7	$	2.3	$	(2.6	)	$	844.4
December 31, 2010
U.S. government debt obligations	$	259.0	$	0.1	$	(0.7	)	$	258.4
Corporate debt obligations guaranteed by FDIC		102.3		0.3		—			102.6
Corporate debt obligations		95.6		0.5		(0.2	)		95.9
Mortgage-backed debt obligations guaranteed by GNMA		175.5		0.8		(1.2	)		175.1
Certificates of deposit guaranteed by FDIC		3.3		—		—			3.3
Foreign government debt obligations		201.4		1.6		(0.9	)		202.1
Foreign corporate debt obligations guaranteed by foreign governments		87.8		0.6		(0.1	)		88.3
Total	$	924.9	$	3.9	$	(3.1	)	$	925.7

Maturities Of Available-For-Sale Investments

	Amortized Cost		Fair Value
Less than 12 months	$	179.8	$	180.3
Due in 1 to 5 years		555.4		554.6
Due after 5 years		109.5		109.5
Total	$	844.7	$	844.4

Investments In Marketable Securities With Unrealized Losses

	Unrealized Loss Less than 12 months					Unrealized Loss Greater than 12 months					Total
July 1, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government debt obligations	$	27.1	$	(0.1	)	$	—	$	—		$	27.1	$	(0.1	)
Corporate debt obligations guaranteed by FDIC		11.3		(0.1	)		—		—			11.3		(0.1	)
Corporate debt obligations		110.9		(0.6	)		—		—			110.9		(0.6	)
Mortgage-backed debt obligations guaranteed by GNMA		37.4		(0.3	)		2.4		(0.1	)		39.9		(0.4	)
Foreign government debt obligations		132.3		(1.0	)		—		—			132.3		(1.0	)
Foreign government debt obligations guaranteed by foreign governments		51.2		(0.4	)		—		—			51.2		(0.4	)
Total	$	370.2	$	(2.5	)	$	2.4	$	(0.1	)	$	372.6	$	(2.6	)
December 31, 2010
U.S. government debt obligations	$	218.6	$	(0.7	)	$	—	$	—		$	218.6	$	(0.7	)
Corporate debt obligations		47.5		(0.2	)		—		—			47.5		(0.2	)
Mortgage-backed debt obligations guaranteed by GNMA		115.7		(1.2	)		—		—			115.7		(1.2	)
Foreign government debt obligations		92.9		(0.9	)		—		—			92.9		(0.9	)
Foreign government debt obligations guaranteed by foreign governments		32.6		(0.1	)		—		—			32.6		(0.1	)
Total	$	507.3	$	(3.1	)	$	—	$	—		$	507.3	$	(3.1	)

Gross Realized Gains And Losses Related To Fixed Income Investments

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Gross realized gains	$	1.0		$	4.5		$	1.4		$	7.9
Gross realized losses		(1.3	)		(0.2	)		(1.8	)		(0.4	)
Total	$	(0.3	)	$	4.3		$	(0.4	)	$	7.5

XML



Document And Entity Information	6 Months Ended
	Jul. 01, 2011	Jul. 29, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 01, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	tlab
Entity Registrant Name	TELLABS INC
Entity Central Index Key	0000317771
Current Fiscal Year End Date	--12-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		364,884,602

XML



Equity-Based Compensation (Schedule Of Assumptions Used To Calculate Weighted Average Fair Value Of Stock Option Grants) (Details)	6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010
Equity-Based Compensation
Expected volatility	46.40%	42.00%
Risk-free interest rate	2.20%	2.30%
Expected term (in years)	5.3	5.3
Expected dividend yield	1.50%	1.00%

XML



Equity-Based Compensation (Tables)

6 Months Ended

Jul. 01, 2011

Equity-Based Compensation

Schedule Of Assumptions Used To Calculate Weighted Average Fair Value Of Stock Option Grants

	7/1/11			7/2/10
Expected volatility		46.4	%		42.0	%
Risk-free interest rate		2.2	%		2.3	%
Expected term (in years)		5.3			5.3
Expected dividend yield		1.5	%		1.0	%

Schedule Of Stock Option Activity

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in  millions)
Outstanding – beginning of year		26,851,964		$	11.18
Granted		2,073,278		$	5.37
Exercised		(263,821	)	$	1.80
Forfeited/expired		(2,703,169	)	$	29.32
Outstanding – end of period		25,958,252		$	8.92		4.0	$	1.5
Exercisable – end of period		21,841,803		$	9.46		3.0	$	1.1
Shares expected to vest		25,635,340		$	8.96		3.9	$	1.5

Schedule Of Cash-Settled Stock Appreciation Rights Activity

	Shares			Weighted Average Exercise Price
Outstanding – beginning of year		445,233		$	7.73
Granted		41,700		$	5.38
Forfeited/expired		(31,036	)	$	7.76
Outstanding – end of period		455,897		$	7.51

Schedule Of Restricted Stock Unit Activity

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		5,372,417		$	7.19
Granted		2,793,050		$	5.37
Vested		(2,279,895	)	$	6.80
Forfeited		(391,299	)	$	6.38
Non-vested – end of period		5,494,273		$	6.48

Schedule Of Performance Stock Unit Activity

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		2,127,318		$	5.86
Granted 1		1,824,569		$	5.58
Vested		(798,241	)	$	5.07
Forfeited		(525,762	)	$	7.82
Non-vested – end of period		2,627,884		$	5.51

¹  This includes the additional 183,737 shares from the 2010 grant that were earned based on 2010 operating earnings and strategic goals.

Schedule Of Equity-Based Compensation Expense

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Cost of revenue – products	$	0.5		$	0.6		$	1.0		$	1.0
Cost of revenue – services		0.6			0.6			1.2			1.1
Research and development		3.1			2.4			5.6			4.2
Sales and marketing		1.3			1.3			2.6			2.5
General and administrative		2.5			2.5			5.2			4.4
Equity-based compensation expense before income taxes		8.0			7.4			15.6			13.2
Income tax benefit		(1.2	)		(2.5	)		(2.6	)		(4.3	)
Total equity-based compensation expense after income taxes	$	6.8		$	4.9		$	13.0		$	8.9

Schedule Of Total Equity-Based Compensation Expense By Type

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Stock options	$	1.3		$	1.4		$	2.6		$	2.7
Cash-Settled SARs		(0.1	)		(0.1	)		(0.2	)		0.1
Restricted Stock		5.4			4.0			9.8			7.5
Performance stock units		1.4			2.1			3.4			2.9
Total	$	8.0		$	7.4		$	15.6		$	13.2

XML



Equity-Based Compensation (Narrative) (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	6 Months Ended
	Jul. 01, 2011	Jul. 01, 2011	Jul. 01, 2011 Performance Stock Shares [Member]		Jul. 02, 2010 Performance Stock Shares [Member]	Jul. 01, 2011 Restricted Stock [Member]	Jul. 02, 2010 Restricted Stock [Member]
Equity-based grants vesting period in years, minimum		one
Equity-based grants vesting period in years, maximum		four
Vesting period for a majority of equity-based compensation awards granted in years		three
Number of shares for equity-based compensation grants approved by share holders	53,889,977	53,889,977
Number of shares for equity-based compensation approved by shareholders available for grant	18,872,031	18,872,031
Contractual term of stock options and stock appreciation rights, years		10
The aggregate intrinsic value of exercised stock options	$ 0.3
Unrecognized equity-based compensation cost	43.0	43.0
Weighted average period for equity-based compensation, years		1.9
The weighted average fair value of restricted stock granted during period		$ 2.07
Fair market value of restricted stock vested						10.9
The weighted average grant date fair value of restricted stock per share			$ 5.58	[1]		$ 5.37	$ 8.78
Performance stock units granted			1,640,832		1,132,220
The weighted average fair value of performance stock units granted during period			$ 5.40		$ 7.73
Results of 2010 operating earnings strategic goal target			$ 237.0
Additional shares granted for performance stock units for performance greater than 100 percent of targets			183,737
Percentage of performance stock units earned			125.00%
Shares earned per performance stock unit			1.25
Number of common shares vested and issued for performance stock units granted in 2010			306,155

[1] This includes the additional 183,737 shares from the 2010 grant that were earned based on 2010 operating earnings and strategic goals.

XML



Product Warranties

6 Months Ended

Jul. 01, 2011

Product Warranties

Product Warranties

7. Product Warranties

We provide warranties for all of our products. The specific terms and conditions of those warranties vary depending on the product. We provide a basic limited warranty, including parts and labor, for all products except access products for periods ranging from 90 days to 5 years. The basic limited warranty for access products covers parts and labor for periods ranging from 2 to 6 years.

The estimate of warranty liability involves many factors, including the number of units shipped, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of the recorded warranty liability and adjust the amounts as necessary. Other adjustments to accruals for product warranties represent reductions due to favorable experience to previous estimates.

We classify the portion of warranty liability that we expect to incur in the next 12 months as a current liability. We classify the portion of warranty liability that we expect to incur more than 12 months in the future as a long-term liability. Product warranty liabilities are as follows:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Balance – beginning of period	$	21.2		$	28.9		$	19.4		$	31.4
Accruals for product warranties		2.1			1.5			4.9			3.9
Settlements		(1.9	)		(0.7	)		(2.3	)		(2.9	)
Other adjustments to accruals for product warranties		(1.4	)		(2.3	)		(2.0	)		(5.0	)
Balance – end of period	$	20.0		$	27.4		$	20.0		$	27.4

	Balance at 7/1/11		Balance at 7/2/10
Balance sheet classification - end of period
Other accrued liabilities	$	8.7	$	10.5
Other long-term liabilities		11.3		16.9
Total product warranty liabilities	$	20.0	$	27.4

XML



Comprehensive (Loss) Income (Tables)

6 Months Ended

Jul. 01, 2011

Comprehensive (Loss) Income

Comprehensive (Loss) Income

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Net (loss) earnings	$	(20.1	)	$	64.1		$	(44.2	)	$	109.7
Net change in unrealized gains (losses) related to:
Available-for-sale securities, net of tax		2.4			(0.7	)		(0.6	)		(0.3	)
Cash flow hedges, net of tax		—			(0.1	)		—			1.3
Net investment hedges, net of tax		(2.7	)		5.9			(10.0	)		10.6
Foreign currency translation adjustments		13.1			(43.8	)		48.9			(73.5	)
Comprehensive (loss) income	$	(7.3	)	$	25.4		$	(5.9	)	$	47.8

XML



Derivative Financial Instruments (Effect Of Derivative Instruments Not Designated As hedging Instruments On The Consolidated Statements Of Operations) (Details) (Foreign Currency Forward And Options Contracts [Member], Other Income [Member], USD $) In Millions	3 Months Ended				6 Months Ended
	Jul. 01, 2011		Jul. 02, 2010		Jul. 01, 2011		Jul. 02, 2010
Foreign Currency Forward And Options Contracts [Member] | Other Income [Member]
Gain (loss) recognized in other (expense) income, net	$ 2.1	[1]	$ (8.1)	[1]	$ 6.5	[1]	$ (13.5)	[1]

[1] The gains or losses from changes in the fair value of the derivative contracts are generally offset by gains or losses of the underlying transactions being hedged.

XML



Investments (Investments In Marketable Securities With Unrealized Losses) (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Gross unrealized losses less than 12 months, Fair Value	$ 370.2	$ 507.3
Gross unrealized losses greater than 12 months, Fair Value	2.4
Total gross unrealized losses, Fair Value	372.6	507.3
Gross unrealized losses less than 12 months	(2.5)	(3.1)
Gross unrealized loss on investments, greater than 12 months	(0.1)
Total gross unrealized losses	(2.6)	(3.1)
U.S. Government Debt Obligations [Member]
Gross unrealized losses less than 12 months, Fair Value	27.1	218.6
Total gross unrealized losses, Fair Value	27.1	218.6
Gross unrealized losses less than 12 months	(0.1)	(0.7)
Total gross unrealized losses	(0.1)	(0.7)
Corporate Debt Obligations Guaranteed By FDIC [Member]
Gross unrealized losses less than 12 months, Fair Value	11.3
Total gross unrealized losses, Fair Value	11.3
Gross unrealized losses less than 12 months	(0.1)
Total gross unrealized losses	(0.1)
Corporate Debt Obligations [Member]
Gross unrealized losses less than 12 months, Fair Value	110.9	47.5
Total gross unrealized losses, Fair Value	110.9	47.5
Gross unrealized losses less than 12 months	(0.6)	(0.2)
Total gross unrealized losses	(0.6)	(0.2)
Foreign Government Debt Obligations Guaranteed By Foreign Governments [Member]
Gross unrealized losses less than 12 months, Fair Value	51.2	32.6
Total gross unrealized losses, Fair Value	51.2	32.6
Gross unrealized losses less than 12 months	(0.4)	(0.1)
Total gross unrealized losses	(0.4)	(0.1)
Mortgage-Backed Debt Obligations Guaranteed By GNMA [Member]
Gross unrealized losses less than 12 months, Fair Value	37.4	115.7
Gross unrealized losses greater than 12 months, Fair Value	2.4
Total gross unrealized losses, Fair Value	39.9	115.7
Gross unrealized losses less than 12 months	(0.3)	(1.2)
Gross unrealized loss on investments, greater than 12 months	(0.1)
Total gross unrealized losses	(0.4)	(1.2)
Foreign Government Debt Obligations [Member]
Gross unrealized losses less than 12 months, Fair Value	132.3	92.9
Total gross unrealized losses, Fair Value	132.3	92.9
Gross unrealized losses less than 12 months	(1.0)	(0.9)
Total gross unrealized losses	$ (1.0)	$ (0.9)

XML



Product Warranties (Tables)

6 Months Ended

Jul. 01, 2011

Product Warranties

Standard Product Warranty Liabilities Schedule

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Balance – beginning of period	$	21.2		$	28.9		$	19.4		$	31.4
Accruals for product warranties		2.1			1.5			4.9			3.9
Settlements		(1.9	)		(0.7	)		(2.3	)		(2.9	)
Other adjustments to accruals for product warranties		(1.4	)		(2.3	)		(2.0	)		(5.0	)
Balance – end of period	$	20.0		$	27.4		$	20.0		$	27.4

Balance Sheet Classification Of Product Warranty Liabilities

	Balance at 7/1/11		Balance at 7/2/10
Balance sheet classification - end of period
Other accrued liabilities	$	8.7	$	10.5
Other long-term liabilities		11.3		16.9
Total product warranty liabilities	$	20.0	$	27.4

XML



Contingencies

6 Months Ended

Jul. 01, 2011

Contingencies

Contingencies

12. Contingencies

Legal Proceedings

We are subject to legal claims and litigation arising in the ordinary course of business, such as employment or intellectual property claims, including the matters described below. We are unable to determine the likelihood of an unfavorable outcome against us and are unable to reasonably estimate a range of loss, if any.

Makor Issues & Rights, Ltd. v. Tellabs, Inc. On June 18, 2002, a class action complaint was filed in the United States District Court of the Northern District of Illinois against Tellabs, Michael Birck (Chairman of the Board of Tellabs) and Richard Notebaert (former CEO, President and Director of Tellabs). Thereafter, eight similar complaints were also filed in the United States District Court of the Northern District of Illinois. All nine of these actions were subsequently consolidated, and on December 3, 2002, a consolidated amended class action complaint was filed against Tellabs, Mr. Birck, Mr. Notebaert, and certain other of our current or former officers and/or directors. The consolidated amended complaint alleged that during the class period (December 11, 2000-June 19, 2001) the defendants violated the federal securities laws by making materially false and misleading statements, including, among other things, allegedly providing revenue forecasts that were false and misleading, misrepresenting demand for our products, and reporting overstated revenue for the fourth quarter 2000 in our financial statements. Further, certain of the individual defendants were alleged to have violated the federal securities laws by trading our securities while allegedly in possession of material, non-public information about us pertaining to these matters. The consolidated amended complaint seeks unspecified restitution, damages and other relief.

On January 17, 2003, Tellabs and the other named defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. On May 19, 2003, the Court granted our motion and dismissed all counts of the consolidated amended complaint, while affording plaintiffs an opportunity to replead. On July 11, 2003, plaintiffs filed a second consolidated amended class action complaint against Tellabs, Messrs. Birck and Notebaert, and many (although not all) of the other previously named individual defendants, realleging claims similar to those contained in the previously dismissed consolidated amended class action complaint. We filed a second motion to dismiss on August 22, 2003, seeking the dismissal with prejudice of all claims alleged in the second consolidated amended class action complaint. On February 19, 2004, the Court issued an order granting that motion and dismissed the action with prejudice. On March 18, 2004, the plaintiffs filed a Notice of Appeal to the United States Federal Court of Appeal for the Seventh Circuit, appealing the dismissal. The appeal was fully briefed and oral argument was heard on January 21, 2005. On January 25, 2006, the Seventh Circuit issued an opinion affirming in part and reversing in part the judgment of the district court, and remanding for further proceedings. On February 8, 2006, defendants filed with the Seventh Circuit a petition for rehearing with suggestion for rehearing en banc. On April 19, 2006, the Seventh Circuit ordered plaintiffs to file an answer to the petition for rehearing, which was filed by the plaintiffs on May 3, 2006. On July 10, 2006, the Seventh Circuit denied the petition for rehearing with a minor modification to its opinion, and remanded the case to the district court. On September 22, 2006, defendants filed a motion in the district court to dismiss some (but not all) of the remaining claims. On October 3, 2006, the defendants filed with the United States Supreme Court a petition for a writ of certiorari seeking to appeal the Seventh Circuit's decision. On January 5, 2007, the defendants' petition was granted. The United States Supreme Court heard oral arguments on March 28, 2007. On June 21, 2007, the United States Supreme Court vacated the Seventh Circuit's judgment and remanded the case for further proceedings. On November 1, 2007, the Seventh Circuit heard oral arguments for the remanded case. On January 17, 2008, the Seventh Circuit issued an opinion adhering to its earlier opinion reversing in part the judgment of the district court, and remanded the case to the district court for further proceedings. On February 24, 2009, the district court granted plaintiffs' motion for class certification. On August 13, 2010, the Court granted in large part Tellabs' motion for summary judgment. Subsequently, the parties agreed to settle the lawsuit and on July 27, 2011, the Court granted the plaintiffs' motion for final approval of class action settlement and dismissed the lawsuit without prejudice. All settlement amounts will be paid by Tellabs' insurers.

Fujitsu Network Communications Inc. v. Tellabs, Inc. On January 28, 2008, Fujitsu Network Communications, Inc. and Fujitsu Limited filed a complaint in the United States District Court for the Eastern District of Texas against Tellabs in a case captioned Fujitsu Network Communications, Inc. and Fujitsu Limited v. Tellabs, Inc. and Tellabs Operations, Inc., Civil Action No. 6:08-cv-00022-LED. The complaint alleges infringement of U.S. Patent Nos. 5,526,163, 5,521,737, 5,386,418 and 6,487,686, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On March 21, 2008, Tellabs filed its answer, defenses and counterclaims in response to the complaint. A trial date had been set for May 10, 2010, in the Eastern District of Texas, however on July 7, 2009, the court granted Tellabs' motion to transfer and issued an order transferring the action to the United States District Court for the Northern District of Illinois. On September 15, 2009, the Court in the Northern District of Illinois consolidated this action, for discovery purposes only, with the action instituted by Tellabs against Fujitsu in the Northern District of Illinois. On November 4, 2010, the Court dismissed with prejudice Fujitsu's claim for infringement of Fujitsu's U.S. Patent No. 6,487,686. In conjunction with the dismissal, Fujitsu signed a covenant not to sue Tellabs for infringement as to any claim of Fujitsu's U.S. Patent No. 6,487,686, as to any Tellabs products as they currently exist or existed in the past. On March 31, 2011, the Court issued an Order denying a motion by Tellabs for summary judgment of invalidity based on indefiniteness of Fujitsu's U.S. Patent No. 5,386,418, and granting a motion by Fujitsu for summary judgment for judicial correction of an error in asserted Claim 1 of the same patent as originally issued. The parties currently remain in the discovery phase, and a trial date has been set for January 17, 2012. The parties also await the Court's issuance of a Markman ruling.

Tellabs Operations, Inc. v. Fujitsu Limited and Fujitsu Network Communications Inc. On June 11, 2008, Tellabs Operations, Inc. filed a complaint in the United States District Court for the Northern District of Illinois against Fujitsu Limited and Fujitsu Network Communications, Inc. in a case captioned Tellabs Operations, Inc. v. Fujitsu Limited and Fujitsu Network Communications, Inc. Civil Action No. 1:08-cv-3379. The complaint alleges infringement of Tellabs Operations, Inc.'s U.S. Patent No. 7,369,772, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On September 5, 2008, each of Fujitsu Limited and Fujitsu Network Communications, Inc. served its answer, defenses and counterclaims in response to the complaint. Fujitsu Limited also brought counterclaims against Tellabs, Inc. and Tellabs Operations, Inc. alleging infringement of two U.S. patents, namely U.S. Patent Nos. 5,533,006 and 7,227,681, seeking unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On September 22, 2008, Tellabs Operations, Inc. filed its answer to the counterclaims of Fujitsu Network Communications, Inc., and also filed its counterclaims and reply to counterclaims of Fujitsu Limited. On that same date, Tellabs, Inc. filed its answer and counterclaims against Fujitsu Limited. On September 15, 2009, the Court in the Northern District of Illinois consolidated this action, for discovery purposes only, with the action filed by Fujitsu transferred to the Northern District of Illinois by the Eastern District of Texas. On March 31, 2011, the Court issued an Order granting Tellabs' motion for summary judgment of invalidity of all claims of Fujitsu's U.S. Patent No. 5,533,006. The parties currently remain in the discovery phase, and a trial date has been set for January 17, 2012. The parties also await the Court's issuance of a Markman ruling.

Telcordia Technologies Inc. v. Tellabs, Inc. On May 4, 2009, Telcordia Technologies, Inc. filed a complaint against Tellabs in the United States District Court for the District of New Jersey in a case captioned Telcordia Technologies Inc. v. Tellabs, Inc., Civil Action No. 2:09-cv-02089. The complaint alleges infringement of U.S. Patent Nos. 4,893,306, 4,835,763 and Re. 36,633, and seeks unspecified damages including enhanced damages, as well as attorney fees and other remedies including injunctive relief. On July 27, 2009, Telcordia filed a first amended complaint adding Tellabs Operations, Inc. and Tellabs North America, Inc. as additional defendants. On September 1, 2009, Tellabs filed answers, defenses and counterclaims in response to the first amended complaint. On December 15, 2009, the Court granted Tellabs' motion to transfer, which resulted in a transfer of the action to the United States District Court for the District of Delaware. The parties are in the early phases of discovery. A trial date has not yet been set.

Lambda Optical Solutions, LLC v. Alcatel-Lucent SA, et al. On June 4, 2010, a complaint was filed in the United States District Court for the District of Delaware against Tellabs and several other companies in a case captioned Lambda Optical Solutions, LLC v. Alcatel-Lucent SA, et al., Civil Action No. 1:10-cv-00487-UNA. The complaint alleges infringement of U.S. Patent Nos. 6,973,229, and seeks unspecified damages including enhanced damages, as well as interest, costs, expenses, attorney fees and other remedies including injunctive relief. Tellabs was served with the Complaint on September 13, 2010. Tellabs responded to the Complaint on November 2, 2010, denying Lambda's allegations. The parties are in the earliest phases of the litigation. No trial date has been set.

Cheetah Omni, LLC v. Tellabs, Inc. On June 3, 2011, a complaint was filed in the United States District Court for the Eastern District of Michigan Southern Division against Tellabs in a case captioned Cheetah Omni, LLC v. Tellabs, Inc. and Tellabs North America, Inc., Civil Action No. 2:11-cv-12429-VAR-MAR. The complaint alleges infringement of U.S. Patent Nos. 6,940,647 and 6,856,459, and seeks unspecified damages, as well as interest, costs, disbursements, attorney fees and other remedies including injunctive relief. Tellabs is reviewing the complaint, but has not yet been served with or responded to the complaint.

Apart from the matters described above, we are and in the future may be subject to various legal proceedings, claims and litigation arising in the ordinary course of business. Any legal proceedings, claims and litigation, whether current or future, and whether with or without merit, potentially can result in: costly litigation; diverting management's time, attention and resources; delaying or halting product shipments or services delivery; requiring us to pay damages; requiring us to enter into royalty-bearing licensing arrangements or to obtain substitute technology of lower quality or higher costs; or otherwise imposing obligations or restrictions that could adversely affect our business, financial condition and operating results.

XML



Goodwill

6 Months Ended

Jul. 01, 2011

Goodwill

Goodwill

3. Goodwill

We review goodwill annually for impairment, unless potential interim indicators exist that could result in an impairment. Given that we have experienced a significant decline in business volumes from a major customer that has had an adverse impact on the results of the Broadband segment which is not expected to reverse in the near-term, and that Tellabs' overall market capitalization has been below book value, we completed an interim step one review. Based on this review, which compares the segment's fair value to carrying value, we concluded that Broadband segment goodwill may potentially be impaired. At this time, we cannot estimate the impact, if any, this may have on our financial statements. We will proceed with a step two analysis to determine whether or not an impairment charge is to be recorded. The amount of goodwill associated with the Broadband segment is $82.7 million.

XML



Investments (Narrative) (Details) (USD $) In Millions, except Per Share data	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010	Dec. 31, 2010
Investments
Other-than-temporary impairment charges on investments	$ 1.2		$ 1.2
Shares acquired from business acquisition	10.6		10.6
Shares borrowed in stock loan agreement			10.6
Value of other marketable securities and loan related to other marketable securities	167.5		167.5		213.6
Market price per share of other marketable securities and Loan related to other marketable securities	$ 15.86		$ 15.86		$ 20.23
Fees associated with the stock loan agreement	0.3	0.4	0.6	0.8
Investments in partnerships and start-up technology companies	$ 5.7		$ 5.7		$ 6.3

XML



Income Taxes

6 Months Ended

Jul. 01, 2011

Income Taxes

Income Taxes

9. Income Taxes

We recorded a tax benefit of $3.3 million in the second quarter and $9.1 million for the first six months of 2011. Tax expense reflects an effective tax rate below the federal statutory rate of 35% due to limitations on our ability to record a full tax benefit on losses from domestic operations, and the effect of establishing a valuation allowance against domestic deferred tax assets. In addition, our effective tax rate was favorably impacted by a $2.8 million benefit in the second quarter and $6.2 million for the first six months of 2011 from the reversal of tax accruals no longer required due to the settlement of audits or the expiration of a statute of limitations.

XML



Net (Loss) Earnings Per Share

6 Months Ended

Jul. 01, 2011

Net (Loss) Earnings Per Share

Net (Loss) Earnings Per Share

14. Net (Loss) Earnings Per Share

The following table sets forth the computation of net (loss) earnings per share:

	Second Quarter					Six Months
	7/1/11			7/2/10		7/1/11			7/2/10
Numerator:
Net (loss) earnings	$	(20.1	)	$	64.1	$	(44.2	)	$	109.7
Denominator:
Denominator for basic net (loss) earnings per share – weighted average shares outstanding		364.6			385.4		363.8			385.0
Effect of dilutive securities:
Employee stock options and restricted and performance stock awards		—			4.5		—			4.5
Denominator for diluted net (loss) earnings per share – adjusted weighted average shares outstanding and assumed conversions		364.6			389.9		363.8			389.5
Net (loss) earnings per share, basic	$	(0.06	)	$	0.17	$	(0.12	)	$	0.28
Net (loss) earnings per share, diluted	$	(0.06	)	$	0.16	$	(0.12	)	$	0.28
Anti-dilutive employee equity-based awards, excluded 1		25.7			18.9		25.2			19.2

¹ We exclude certain employee equity-based awards from the weighted average shares outstanding computation because the exercise price was greater than the average market price of the common shares; therefore, the effect would have been anti-dilutive.

Under U.S. GAAP, dilutive securities are not included in the computation of diluted earnings per share when a company is in a loss position. If we were not in a loss position, diluted weighted average shares outstanding would have been 365.9 million in the second quarter and the first six months of 2011.

XML



Comprehensive (Loss) Income

6 Months Ended

Jul. 01, 2011

Comprehensive (Loss) Income

Comprehensive (Loss) Income

10. Comprehensive (Loss) Income

Comprehensive (loss) income for the second quarter and the first six months of 2011 and 2010 consists of the following:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Net (loss) earnings	$	(20.1	)	$	64.1		$	(44.2	)	$	109.7
Net change in unrealized gains (losses) related to:
Available-for-sale securities, net of tax		2.4			(0.7	)		(0.6	)		(0.3	)
Cash flow hedges, net of tax		—			(0.1	)		—			1.3
Net investment hedges, net of tax		(2.7	)		5.9			(10.0	)		10.6
Foreign currency translation adjustments		13.1			(43.8	)		48.9			(73.5	)
Comprehensive (loss) income	$	(7.3	)	$	25.4		$	(5.9	)	$	47.8

XML



Restructuring And Other Charges (Restructuring And Other Charges Activity By Segment) (Details) (USD $) In Millions	3 Months Ended	6 Months Ended
	Jul. 01, 2011	Jul. 01, 2011
Beginning Balance	$ 8.9	$ 10.8
Restructuring Expense		1.0
Cash Payments	(2.6)	(5.5)
Ending Balance	6.3	6.3
2010 Restructuring Plan [Member]
Beginning Balance	2.5	2.4
Restructuring Expense	0.1	0.6
Cash Payments	(1.5)	(1.9)
Ending Balance	1.1	1.1
2010 Restructuring Plan [Member] | Broadband Segment [Member]
Beginning Balance	1.4	1.4
Restructuring Expense	0.1	0.4
Cash Payments	(0.9)	(1.2)
Ending Balance	0.6	0.6
2010 Restructuring Plan [Member] | Transport Segment [Member]
Beginning Balance	0.9	1.0
Cash Payments	(0.5)	(0.6)
Ending Balance	0.4	0.4
2010 Restructuring Plan [Member] | Services Segment [Member]
Beginning Balance	0.2
Restructuring Expense		0.2
Cash Payments	(0.1)	(0.1)
Ending Balance	0.1	0.1
Pre-2010 Restructuring Plans [Member]
Beginning Balance	6.4	8.4
Restructuring Expense	(0.1)	0.4
Cash Payments	(1.1)	(3.6)
Ending Balance	5.2	5.2
Pre-2010 Restructuring Plans [Member] | Broadband Segment [Member]
Beginning Balance	5.1	6.4
Restructuring Expense		0.1
Cash Payments	(0.7)	(2.1)
Ending Balance	4.4	4.4
Pre-2010 Restructuring Plans [Member] | Transport Segment [Member]
Beginning Balance	0.5	1.5
Restructuring Expense	(0.1)	(0.2)
Cash Payments		(0.9)
Ending Balance	0.4	0.4
Pre-2010 Restructuring Plans [Member] | Services Segment [Member]
Beginning Balance	0.8	0.5
Restructuring Expense		0.5
Cash Payments	(0.4)	(0.6)
Ending Balance	$ 0.4	$ 0.4

XML



Equity-Based Compensation

6 Months Ended

Jul. 01, 2011

Equity-Based Compensation

Equity-Based Compensation

8. Equity-Based Compensation

The Tellabs, Inc. Amended and Restated 2004 Incentive Compensation Plan (2004 Plan) provides for the grant of short-term and long-term incentives, including stock options, stock appreciation rights (SARs), restricted stock and performance stock units (PSUs). Equity-based grants vest over one to four years, with the majority vesting over a three-year period. We recognize compensation expense for stock options and restricted stock on a straight-line basis over the service period based on the fair value on the grant date. Stock options and SARs granted but unexercised expire 10 years from the grant date. Stockholders previously approved 53,889,977 shares for grant under the 2004 Plan, of which 18,872,031 remain available for grant at July 1, 2011.

Stock Options

We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of assumptions that will have a significant impact on the fair value estimate. The following table summarizes the assumptions used to compute the weighted average fair value of stock option grants:

	7/1/11			7/2/10
Expected volatility		46.4	%		42.0	%
Risk-free interest rate		2.2	%		2.3	%
Expected term (in years)		5.3			5.3
Expected dividend yield		1.5	%		1.0	%

We based our calculation of expected volatility on a combination of historical and implied volatility for options granted. We based the risk-free interest rate on the U.S. Treasury yield curve in effect at the date of grant. We estimated the expected term of the options using their vesting period, post-vesting employment termination behavior and historical exercise patterns. We based the expected dividend yield on the option's exercise price and annualized dividend rate at the date of grant.

The following is a summary of stock option activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in  millions)
Outstanding – beginning of year		26,851,964		$	11.18
Granted		2,073,278		$	5.37
Exercised		(263,821	)	$	1.80
Forfeited/expired		(2,703,169	)	$	29.32
Outstanding – end of period		25,958,252		$	8.92		4.0	$	1.5
Exercisable – end of period		21,841,803		$	9.46		3.0	$	1.1
Shares expected to vest		25,635,340		$	8.96		3.9	$	1.5

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price as of July 1, 2011, that the option holders would have received had all holders exercised their options as of that date. The aggregate intrinsic value of exercised stock options during the second quarter of 2011 was $0.3 million.

The weighted average fair value of stock options granted during the first six months of 2011 was $2.07.

Cash-Settled Stock Appreciation Rights

The 2004 Plan provides for the granting of cash-settled SARs in conjunction with, or independent of, the stock options under the 2004 Plan. These SARs allow the holder to receive in cash the difference between the cash-settled SARs' grant price (the market value of our stock on the grant date) and the market value of our stock on the date the holder exercises the SAR. These cash payments were negligible in the first half of 2011 and 2010.

The following is a summary of cash-settled SARs activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Exercise Price
Outstanding – beginning of year		445,233		$	7.73
Granted		41,700		$	5.38
Forfeited/expired		(31,036	)	$	7.76
Outstanding – end of period		455,897		$	7.51

Restricted Stock

The fair market value of restricted stock vested was $10.9 million in the first half of 2011. The weighted average grant date fair value of restricted stock was $5.37 per share in the first six months of 2011 and $8.78 per share in the first six months of 2010.

The following is a summary of restricted stock activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		5,372,417		$	7.19
Granted		2,793,050		$	5.37
Vested		(2,279,895	)	$	6.80
Forfeited		(391,299	)	$	6.38
Non-vested – end of period		5,494,273		$	6.48

Performance Stock Units

The 2004 Plan provides for the granting of PSUs. We granted 1,640,832 PSUs in the first six months of 2011 and 1,132,220 PSUs in the first six months of 2010. The PSUs granted in the first six months of 2011 entitle the recipients to receive shares of our common stock commencing in March 2012, contingent on the achievement of strategic goals for the 2011 fiscal year. Following achievement of these measures and subject to continued employment, one-third of such shares will be issued in annual installments in February 2012, February 2013 and February 2014. At maximum target performance, we will issue two shares for each PSU granted. The weighted average price of PSUs granted in the first six months of 2011 was $5.40 per share and the weighted average price of PSUs granted in the first six months of 2010 was $7.73 per share.

The PSUs granted in 2010 entitle the recipients to receive shares of our common stock commencing in March 2011, contingent on the achievement of operating earnings targets for the 2010 fiscal year. Based upon above-target operating earnings of $237.0 million and market share and market penetration gains in some of the identified product areas, 125% of the PSUs were earned and 1.25 shares for each PSU (183,737 additional shares) granted will be paid out, subject to continued employment. We issued one-third (306,155 shares) of the total shares in the first quarter of 2011 and generally, one-third of such shares will be issued in annual installments in March 2012 and March 2013.

The following is a summary of PSU activity during 2011 as of July 1, 2011:

	Shares			Weighted Average Grant Date Fair Value
Non-vested – beginning of year		2,127,318		$	5.86
Granted 1		1,824,569		$	5.58
Vested		(798,241	)	$	5.07
Forfeited		(525,762	)	$	7.82
Non-vested – end of period		2,627,884		$	5.51

¹  This includes the additional 183,737 shares from the 2010 grant that were earned based on 2010 operating earnings and strategic goals.

Equity-Based Compensation Expense

The following table sets forth the total equity-based compensation expense resulting from stock options, SARs, restricted stock, and PSUs by line item on the statement of operations:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Cost of revenue – products	$	0.5		$	0.6		$	1.0		$	1.0
Cost of revenue – services		0.6			0.6			1.2			1.1
Research and development		3.1			2.4			5.6			4.2
Sales and marketing		1.3			1.3			2.6			2.5
General and administrative		2.5			2.5			5.2			4.4
Equity-based compensation expense before income taxes		8.0			7.4			15.6			13.2
Income tax benefit		(1.2	)		(2.5	)		(2.6	)		(4.3	)
Total equity-based compensation expense after income taxes	$	6.8		$	4.9		$	13.0		$	8.9

The following table sets forth the total equity-based compensation expense by type:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Stock options	$	1.3		$	1.4		$	2.6		$	2.7
Cash-Settled SARs		(0.1	)		(0.1	)		(0.2	)		0.1
Restricted Stock		5.4			4.0			9.8			7.5
Performance stock units		1.4			2.1			3.4			2.9
Total	$	8.0		$	7.4		$	15.6		$	13.2

As of July 1, 2011, we had $43.0 million of unrecognized equity-based compensation cost that we expect to recognize over a weighted average period of 1.9 years.

XML



Equity-Based Compensation (Schedule Of Performance Stock Unit Activity) (Details) (Performance Stock Shares [Member], USD $)	6 Months Ended
	Jul. 01, 2011
Performance Stock Shares [Member]
Shares, Non-vested - beginning of year	2,127,318
Shares, Granted	1,824,569	[1]
Shares, Vested	(798,241)
Shares, Forfeited	(525,762)
Shares, Non-vested - end of period	2,627,884
Weighted Average Grant Date Fair Value, Non-vested - beginning of year	$ 5.86
Weighted Average Grant Date Fair Value, Granted	$ 5.58	[1]
Weighted Average Grant Date Fair Value, Vested	$ 5.07
Weighted Average Grant Date Fair Value, Forfeited	$ 7.82
Weighted Average Grant Date Fair Value, Non-vested - end of period	$ 5.51

[1] This includes the additional 183,737 shares from the 2010 grant that were earned based on 2010 operating earnings and strategic goals.

XML



Basis Of Presentation

6 Months Ended

Jul. 01, 2011

Basis Of Presentation

Basis Of Presentation

1. Basis of Presentation

We prepared the accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial statements, the requirements of Form 10-Q and applicable rules of the U.S. Securities and Exchange Commission's Regulation S-X. Therefore, they do not include all disclosures normally required by U.S. generally accepted accounting principles for complete financial statements. Accordingly, the financial statements and notes herein are to be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.

In our opinion, the accompanying unaudited 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.

XML



Fair Value Measurements

6 Months Ended

Jul. 01, 2011

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, marketable securities and derivatives. The carrying value of the cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value because of their short-term nature. We determine the fair value of marketable securities and derivatives based on observable inputs such as quoted prices in active markets, or other than quoted prices in active markets, that are observable either directly or indirectly.

Fair value is measured as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – Observable inputs, such as quoted prices in active markets;

• Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining fair value for recurring financial assets and liabilities, we separate our financial instruments into three categories: marketable securities, other marketable securities and loan related to other marketable securities, and derivative financial instruments. These assets and liabilities are all valued based on the market approach that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Marketable Securities

We use a third-party provider to determine fair values of marketable securities. The third-party provider receives market prices for each marketable security from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources with reasonable levels of price transparency. The third-party provider uses these multiple prices as inputs into a pricing model to determine a weighted average price for each security. We classify U.S. Treasury bills and bonds as Level 1 based upon quoted prices in active markets. All other marketable securities are classified as Level 2 based upon the other than quoted prices with observable market data. The type of instruments that are valued based upon the observable market data include U.S. government sponsored enterprise (agency) debt obligations, Federal Deposit Insurance Corporation (FDIC)-backed corporate debt obligations, investment grade corporate bonds, state and municipal debt obligations, mortgage-backed debt obligations guaranteed by the Government National Mortgage Association (GNMA), certain FDIC-backed bank certificates of deposit, foreign government debt obligations and foreign corporate debt obligations guaranteed by foreign governments.

Other Marketable Securities and Loan Related to Other Marketable Securities

We classify holdings in other marketable securities (Cisco common stock) and the related loan as Level 1 in the fair value hierarchy. We classify these as Level 1 since they are actively traded through a governed exchange.

Derivative Financial Instruments

Our foreign currency forward contracts are executed as exchange-traded. Market participants can be described as large money center or regional banks. Exchange-traded derivatives typically fall within Level 1 or Level 2 in the fair value hierarchy depending on whether they are deemed to be actively traded or not.

We have elected to value derivatives as Level 2, using observable market data at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs for currency derivatives are the spot rate, interest rates and credit derivative markets. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date. The following values are calculated from commonly quoted intervals available from a third-party financial information provider. Forward points and LIBOR rates are used to calculate a discount rate to apply to assets and liabilities. One-year credit default swap spreads are used to discount derivative assets, all of which have final maturities of less than 12 months. We calculate the discount to the derivative liabilities to reflect the potential credit risk to lenders and have used the spread over LIBOR based on the credit risk of our counterparties. Each asset is individually discounted to reflect our potential credit risk and we have used the spread over LIBOR based on similar credit risk. We do not adjust the fair value for immaterial credit risk.

We have applied a valuation method for financial assets and liabilities and recurring non-financial assets consistently during this period and prior periods. The following table sets forth by level within the fair value hierarchy "Financial instruments owned at fair value." Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Assets and liabilities measured at fair value on a recurring basis are:

	Fair Value Measurements at July 1, 2011
	Balance at 7/1/11		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	98.0	$	98.0	$	—	$	—
Corporate debt obligations guaranteed by FDIC		103.0		—		103.0		—
Corporate debt obligations		229.2		—		229.2		—
Mortgage-backed debt obligations guaranteed by GNMA		99.2		—		99.2		—
Certificates of deposit guaranteed by FDIC		2.0		—		2.0		—
Foreign government debt obligations		221.4		—		221.4		—
Foreign corporate debt obligations guaranteed by foreign governments		91.6		—		91.6		—
Subtotal		844.4		98.0		746.4		—
Other marketable securities		167.5		167.5		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,012.1	$	265.5	$	746.6	$	—
Liabilities
Loan related to other marketable securities	$	167.5	$	167.5	$	—	$	—
Derivative financial instruments		0.3		—		0.3		—
Total Liabilities	$	167.8	$	167.5	$	0.3	$	—

	Fair Value Measurements at December 31, 2010
	Balance at 12/31/10		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	258.4	$	258.4	$	—	$	—
Corporate debt obligations guaranteed by FDIC		102.6		—		102.6		—
Corporate debt obligations		95.9		—		95.9		—
Mortgage-backed debt obligations guaranteed by GNMA		175.1		—		175.1		—
Certificates of deposit guaranteed by FDIC		3.3		—		3.3		—
Foreign government debt obligations		202.1		—		202.1		—
Foreign corporate debt obligations guaranteed by foreign governments		88.3		—		88.3		—
Subtotal		925.7		258.4		667.3		—
Other marketable securities		213.6		213.6		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,139.5	$	472.0	$	667.5	$	—
Liabilities
Loan related to other marketable securities	$	213.6	$	213.6	$	—	$	—
Derivative financial instruments		1.0		—		1.0		—
Total Liabilities	$	214.6	$	213.6	$	1.0	$	—

XML



Derivative Financial Instruments (Narrative) (Details) In Millions, unless otherwise specified	Jul. 01, 2011 USD ($)	Jul. 01, 2011 EUR (€)	Jul. 01, 2011 Non-Designated Hedges [Member]
Number of currencies in foreign currency forward contracts			11
Notional amount of foreign currency derivatives not designated as hedges	$ 159.0
Net unrealized gain on net investment hedges in accumulated other comprehensive income	6.7
Notional value of net investment hedges		€ 50

XML



Restructuring And Other Charges (Restructuring And Other Charges) (Details) (USD $) In Millions	3 Months Ended	6 Months Ended
	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Restructuring expense	$ (0.5)	$ 1.0	$ 9.5
Severance And Other Termination Benefits [Member]
Restructuring expense	(0.5)	1.2	7.1
Facility- And Asset-Related Charges [Member]
Restructuring expense		$ (0.2)	$ 2.4

XML



Segment Information (Segment Profit And Reconciliation To Operating (Loss) Earnings By Segment) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Total segment profit	$ 45.8	$ 158.5	$ 91.5	$ 283.8
Total	334.2	422.8	656.6	802.0
Sales and marketing expenses	(40.8)	(43.8)	(85.5)	(88.9)
General and administrative expenses	(21.0)	(24.9)	(44.7)	(49.7)
Equity-based compensation	(4.3)	(3.6)	(8.0)	(6.2)
Intangible asset amortization	(5.1)	(7.4)	(10.3)	(14.8)
Restructuring and other charges		0.5	(1.0)	(9.5)
Operating (Loss) Earnings	(25.4)	79.3	(58.0)	114.7
Broadband Segment [Member]
Total segment profit	(3.0)	86.1	16.7	146.9
Transport Segment [Member]
Total segment profit	27.2	51.7	43.2	96.7
Services Segment [Member]
Total segment profit	$ 21.6	$ 20.7	$ 31.6	$ 40.2

XML



Net (Loss) Earnings Per Share (Narrative) (Details) In Millions	3 Months Ended	6 Months Ended
	Jul. 01, 2011	Jul. 01, 2011
Net (Loss) Earnings Per Share
Diluted weighted average shares outstanding in the absence of a loss	365.9	365.9

XML



Equity-Based Compensation (Schedule Of Restricted Stock Unit Activity) (Details) (Restricted Stock [Member], USD $)	6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010
Restricted Stock [Member]
Shares, Non-vested - beginning of year	5,372,417
Shares, Granted	2,793,050
Shares, Vested	(2,279,895)
Shares, Forfeited	(391,299)
Shares, Non-vested - end of period	5,494,273
Weighted Average Grant Date Fair Value, Non-vested - beginning of year	$ 7.19
Weighted Average Grant Date Fair Value, Granted	$ 5.37	$ 8.78
Weighted Average Grant Date Fair Value, Vested	$ 6.80
Weighted Average Grant Date Fair Value, Forfeited	$ 6.38
Weighted Average Grant Date Fair Value, Non-vested - end of period	$ 6.48

XML



Investments

6 Months Ended

Jul. 01, 2011

Investments

Investments

5. Investments

We account for investments in marketable securities at fair value, with the unrealized gain or loss, less deferred income taxes, shown as a separate component of stockholders' equity. We base realized gains and losses on specific identification of the security sold. At July 1, 2011, and December 31, 2010, available-for-sale marketable securities consisted of the following:

July 1, 2011	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. government debt obligations	$	98.0	$	0.1	$	(0.1	)	$	98.0
Corporate debt obligations guaranteed by FDIC		102.7		0.4		(0.1	)		103.0
Corporate debt obligations		229.1		0.7		(0.6	)		229.2
Mortgage-backed debt obligations guaranteed by GNMA		99.0		0.6		(0.4	)		99.2
Certificates of deposit guaranteed by FDIC		2.0		—		—			2.0
Foreign government debt obligations		222.0		0.4		(1.0	)		221.4
Foreign corporate debt obligations guaranteed by foreign governments		91.9		0.1		(0.4	)		91.6
Total	$	844.7	$	2.3	$	(2.6	)	$	844.4
December 31, 2010
U.S. government debt obligations	$	259.0	$	0.1	$	(0.7	)	$	258.4
Corporate debt obligations guaranteed by FDIC		102.3		0.3		—			102.6
Corporate debt obligations		95.6		0.5		(0.2	)		95.9
Mortgage-backed debt obligations guaranteed by GNMA		175.5		0.8		(1.2	)		175.1
Certificates of deposit guaranteed by FDIC		3.3		—		—			3.3
Foreign government debt obligations		201.4		1.6		(0.9	)		202.1
Foreign corporate debt obligations guaranteed by foreign governments		87.8		0.6		(0.1	)		88.3
Total	$	924.9	$	3.9	$	(3.1	)	$	925.7

The following table summarizes the maturities of our available-for-sale marketable securities at July 1, 2011:

	Amortized Cost		Fair Value
Less than 12 months	$	179.8	$	180.3
Due in 1 to 5 years		555.4		554.6
Due after 5 years		109.5		109.5
Total	$	844.7	$	844.4

Actual maturities will likely differ from the contractual maturities because borrowers have the right to call or prepay certain obligations.

Gross unrealized gains and losses related to fixed-income securities were caused by interest rate fluctuations. We review investments held with unrealized losses to determine if the loss is other-than-temporary. We evaluated near-term prospects of the security in relation to the severity and duration of the unrealized loss. We also assessed our intent to sell the security, whether it is more likely than not that the security will be required to be sold before recovery, or the security is not expected to recover its entire amortized cost basis. Based on our review, we recognized an other-than-temporary impairment of $1.2 million in the second quarter and first six months of 2011. No other-than-temporary impairments were recorded in the second quarter and first six months of 2010.

Investments in marketable securities with unrealized losses at July 1, 2011, and December 31, 2010, were as follows:

	Unrealized Loss Less than 12 months					Unrealized Loss Greater than 12 months					Total
July 1, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government debt obligations	$	27.1	$	(0.1	)	$	—	$	—		$	27.1	$	(0.1	)
Corporate debt obligations guaranteed by FDIC		11.3		(0.1	)		—		—			11.3		(0.1	)
Corporate debt obligations		110.9		(0.6	)		—		—			110.9		(0.6	)
Mortgage-backed debt obligations guaranteed by GNMA		37.4		(0.3	)		2.4		(0.1	)		39.9		(0.4	)
Foreign government debt obligations		132.3		(1.0	)		—		—			132.3		(1.0	)
Foreign government debt obligations guaranteed by foreign governments		51.2		(0.4	)		—		—			51.2		(0.4	)
Total	$	370.2	$	(2.5	)	$	2.4	$	(0.1	)	$	372.6	$	(2.6	)
December 31, 2010
U.S. government debt obligations	$	218.6	$	(0.7	)	$	—	$	—		$	218.6	$	(0.7	)
Corporate debt obligations		47.5		(0.2	)		—		—			47.5		(0.2	)
Mortgage-backed debt obligations guaranteed by GNMA		115.7		(1.2	)		—		—			115.7		(1.2	)
Foreign government debt obligations		92.9		(0.9	)		—		—			92.9		(0.9	)
Foreign government debt obligations guaranteed by foreign governments		32.6		(0.1	)		—		—			32.6		(0.1	)
Total	$	507.3	$	(3.1	)	$	—	$	—		$	507.3	$	(3.1	)

The following table presents gross realized gains and losses related to fixed income investments for the three months and six months ending July 1, 2011, and July 2, 2010:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Gross realized gains	$	1.0		$	4.5		$	1.4		$	7.9
Gross realized losses		(1.3	)		(0.2	)		(1.8	)		(0.4	)
Total	$	(0.3	)	$	4.3		$	(0.4	)	$	7.5

As a result of the acquisition of Advanced Fibre Communications, Inc. (AFC) in 2004, we acquired 10.6 million shares of Cisco common stock, shown as Other marketable securities in Current Assets. AFC owned this stock as a result of its investment in privately held Cerent Corporation, which was acquired by Cisco in 1999. In 2000, AFC entered into two three-year hedge contracts, pledging all of the Cisco stock to secure the obligations under the contracts. When the hedge contracts matured in 2003, AFC entered into stock loan agreements with a lender, borrowing 10.6 million shares of Cisco stock to settle the hedge contracts on the Cisco stock. The aggregate amount of the fair values of those stock loans is reflected as a current liability on the balance sheets as of July 1, 2011, and December 31, 2010. The values of both the asset and liability move in tandem with each other since each is based on the number of shares we hold at the current stock price. At July 1, 2011, Other marketable securities and Loan related to other marketable securities was $167.5 million at a market price of $15.86 per share and $213.6 million at a market price of $20.23 per share at December 31, 2010. The fees associated with the stock loan agreement were $0.3 million for the second quarter of 2011, $0.4 million for the second quarter of 2010, $0.6 million for the first six months of 2011, and $0.8 million for the first six months of 2010.

In addition to the above investments, we maintain investments in partnerships and start-up technology companies. We record these investments in Other Assets, at cost. These investments totaled $5.7 million at July 1, 2011, and $6.3 million at December 31, 2010. We review each investment quarterly, including historical and projected financial performance, expected cash needs and recent funding events. We recognize other-than-temporary impairments if the market value of the investment is below its cost basis for an extended period of time or if the issuer has experienced significant financial declines or difficulties in raising capital to continue operations. No other-than-temporary impairments were recorded for the second quarter and first six months of 2011 and 2010.

XML



Derivative Financial Instruments (Effect Of Derivative Instruments Designated As Hedging Instruments On The Consolidated Statements Of Operations) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Cash Flow Hedges [Member]
Gain (Loss) Recognized in Accumulated OCI, net (Effective Portion)		$ 0.9		$ 1.8
Cash Flow Hedges [Member] | Cost Of Revenue [Member]
Gain Reclassified from Accumulated OCI into Total Cost of Revenue (Effective Portion)		1.0		0.6
Net Investment Hedges [Member]
Gain (Loss) Recognized in Accumulated OCI, net (Effective Portion)	(2.7)	5.9	(10.0)	10.6
Net Investment Hedges [Member] | Other Income [Member]
Loss recognized in other income net: excluded from effectiveness testing gain (loss)	$ (0.2)		$ (0.3)

XML



Segment Information (Tables)

6 Months Ended

Jul. 01, 2011

Segment Information

Consolidated Revenue By Segment

	Second Quarter				Six Months
	7/1/11		7/2/10		7/1/11		7/2/10
Broadband	$	162.7	$	228.7	$	335.7	$	419.8
Transport		114.3		133.2		213.7		260.6
Services		57.2		60.9		107.2		121.6
Total	$	334.2	$	422.8	$	656.6	$	802.0

Segment Profit And Reconciliation To Operating (Loss) Earnings By Segment

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Broadband	$	(3.0	)	$	86.1		$	16.7		$	146.9
Transport		27.2			51.7			43.2			96.7
Services		21.6			20.7			31.6			40.2
Total segment profit		45.8			158.5			91.5			283.8
Sales and marketing expenses		(40.8	)		(43.8	)		(85.5	)		(88.9	)
General and administrative expenses		(21.0	)		(24.9	)		(44.7	)		(49.7	)
Equity-based compensation		(4.3	)		(3.6	)		(8.0	)		(6.2	)
Intangible asset amortization		(5.1	)		(7.4	)		(10.3	)		(14.8	)
Restructuring and other charges		—			0.5			(1.0	)		(9.5	)
Operating (loss) earnings	$	(25.4	)	$	79.3		$	(58.0	)	$	114.7

XML



Subsequent Events (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended
	Jul. 25, 2011
Expected pretax cost	$ 22
Number Of Employees For Workforce Reduction	330
Net headcount reduction	200
Cash Settlements [Member]
Expected pretax cost	18
Severance And Other Termination Benefits [Member]
Expected pretax cost	13
Facility- And Asset-Related Charges [Member]
Expected pretax cost	$ 9

XML



Goodwill (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Goodwill	$ 205.3	$ 204.9
Broadband Segment [Member]
Goodwill	$ 82.7

XML



Derivative Financial Instruments (Fair Value Of Derivative Instruments In The Consolidated Balance Sheet) (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Derivatives Designated As Hedging Instruments [Member] | Liability Derivatives Reported In Other Accrued Liabilities [Member]
Cash flow and net investment hedges, liabilities		$ 0.8
Asset Derivatives Reported In Miscellaneous Receivables And Other Current Assets [Member]
Balance sheet hedges (Non-designated hedges) assets	0.2	0.2
Total derivative, assets	0.2	0.2
Liability Derivatives Reported In Other Accrued Liabilities [Member]
Balance sheet hedges (Non-designated hedges) liabilities	0.2	0.2
Total derivative, liabilities	$ 0.2	$ 1.0

XML



Restructuring And Other Charges (Narrative) (Details) (USD $) In Millions	3 Months Ended	6 Months Ended						3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended							3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011 January 2010 Restructuring Plan [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Broadband Segment [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Transport Segment [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Services Segment [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Severance And Other Termination Benefits [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Severance And Other Termination Benefits [Member]	Jul. 01, 2011 January 2010 Restructuring Plan [Member] Facility- And Asset-Related Charges [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member] Broadband Segment [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member] Transport Segment [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member] Services Segment [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member] Severance And Other Termination Benefits [Member]	Jul. 01, 2011 July 2009 Restructuring Plan [Member] Facility- And Asset-Related Charges [Member]	Jul. 01, 2011 Restructuring Plans Prior To 2009 [Member] Facility- And Asset-Related Charges [Member]	Jul. 02, 2010 Severance And Other Termination Benefits [Member]	Jul. 01, 2011 Severance And Other Termination Benefits [Member]	Jul. 02, 2010 Severance And Other Termination Benefits [Member]	Jul. 02, 2010 Facility- And Asset-Related Charges [Member]	Jul. 01, 2011 Facility- And Asset-Related Charges [Member]	Jul. 02, 2010 Facility- And Asset-Related Charges [Member]
Restructuring expense	$ (0.5)	$ 1.0	$ 9.5					$ 0.1	$ 0.6		$ 0.1					$ 0.6		$ (0.2)	$ (0.5)	$ 1.2	$ 7.1		$ (0.2)	$ 2.4
Cumulative pretax restructuring charges incurred to date				9.6	6.1	3.2	0.3		7.0	2.6		7.0	2.6	2.1	2.3	6.6	0.4
Expected total cash payments				7.0												6.7
Cumulative cash payments				$ 5.9												$ 5.9

XML



Stock Repurchase Programs

6 Months Ended

Jul. 01, 2011

Stock Repurchase Programs

Stock Repurchase Programs

13. Stock Repurchase Programs

We repurchase outstanding common stock under two programs authorized by our Board of Directors, the Rule 10b5-1 program and a repurchase program of up to $600 million of outstanding common stock. In addition, we purchase shares to cover withholding taxes on shares issued under employee stock plans.

Under the 10b5-1 program, we intend to continue to use cash generated by employee stock option exercises (other than those of Company officers and board members) to repurchase stock. We purchased $32,038 (6,721 shares) in the second quarter of 2011 and $0.5 million (0.1 million shares) in the first six months of 2011 under this program.

As of July 1, 2011, we purchased 56.6 million shares of our common stock under the $600 million repurchase program at a total cost of $375.4 million, leaving $224.6 million available to be purchased under this program. We did not purchase any shares under this program in the second quarter and first half of 2011. We may change our repurchase activity and we provide no assurance that we will continue our repurchase activity in the future.

In addition, we purchased 0.6 million shares for $2.8 million in the second quarter of 2011 and 0.9 million shares for $4.3 million in the first six months of 2011 to cover withholding taxes on shares issued under employee stock plans.

We record repurchased shares as Treasury stock.

XML



Comprehensive (Loss) Income (Comprehensive (Loss) Income) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Comprehensive (Loss) Income
Net (loss) earnings	$ (20.1)	$ 64.1	$ (44.2)	$ 109.7
Available-for-sale securities, net of tax	2.4	(0.7)	(0.6)	(0.3)
Cash flow hedges, net of tax		(0.1)		1.3
Net investment hedges, net of tax	(2.7)	5.9	(10.0)	10.6
Foreign currency translation adjustments	13.1	(43.8)	48.9	(73.5)
Comprehensive (loss) Income	$ (7.3)	$ 25.4	$ (5.9)	$ 47.8

XML



Net (Loss) Earnings Per Share (Calculation Of Net (Loss) Earnings Per Share) (Details) (USD $) In Millions, except Per Share data	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Net (Loss) Earnings Per Share
Net (loss) earnings	$ (20.1)	$ 64.1	$ (44.2)	$ 109.7
Denominator for basic net (loss) earnings per share - weighted average shares outstanding	364.6	385.4	363.8	385.0
Employee stock options and restricted and performance stock awards		4.5		4.5
Denominator for diluted net (loss) earnings per share - adjusted weighted average shares outstanding and assumed conversions	364.6	389.9	363.8	389.5
Net (loss) earnings per share, basic	$ (0.06)	$ 0.17	$ (0.12)	$ 0.28
Net (loss) earnings per share, diluted	$ (0.06)	$ 0.16	$ (0.12)	$ 0.28
Anti-dilutive employee equity-based awards, excluded	25.7	18.9	25.2	19.2

XML



Derivative Financial Instruments

6 Months Ended

Jul. 01, 2011

Derivative Financial Instruments

Derivative Financial Instruments

6. Derivative Financial Instruments

Financial Contracts and Market Risk

We conduct business on a global basis in U.S. and foreign currencies subjecting us to risks associated with fluctuating foreign exchange rates. To mitigate these risks, we use derivative foreign exchange contracts to address nonfunctional exposures that are expected to be settled in one year or less. The derivative foreign exchange contracts consist of foreign currency forward and option contracts.

Derivative financial contracts involve elements of market and credit risk. The market risk that results from these contracts relates to changes in foreign currency exchange rates, which generally are offset by changes in the value of the underlying assets or liabilities being held. Credit risk relates to the risk of nonperformance by a counterparty to one of the derivative contracts. We do not believe there is a significant credit risk associated with our hedging activities. We monitor the counterparties' credit ratings and other market data to minimize credit risk. In addition, we also limit the aggregate contract amount entered into with any one financial institution to mitigate credit risk.

Cash Flow Hedges

At July 1, 2011, we did not have any cash flow hedges outstanding. We use foreign currency forward and option contracts, designated as cash flow hedges, to mitigate currency risk related to an imbalance of nonfunctional currency denominated costs and related revenue. We conduct monthly effectiveness tests of these hedging relationships on a spot-to-spot basis, excluding forward points. Effective gains and losses from derivative contracts are recorded in Accumulated other comprehensive income until the underlying transactions occur, at which time they are reclassified to Total cost of revenue. Ineffectiveness is recorded to Other (expense) income, net. If it becomes probable that an anticipated transaction that is hedged will not occur, we immediately reclassify the gains or losses related to that hedge from Accumulated other comprehensive income to Other (expense) income, net. We continue to monitor the Company's overall currency exposure and may elect to add additional cash flow hedges in the future if deemed necessary.

Balance Sheet Hedges (Non-designated Hedges)

Short-term monetary assets and liabilities denominated in currencies other than the functional currency of the Tellabs entity entering into the transaction are remeasured through income as foreign currency rates fluctuate. Changes in the value of derivative contracts intended to offset these fluctuations are also recorded in income. These derivative contracts are not designated as hedges. At July 1, 2011, we held non-designated foreign currency forward contracts in 11 currencies, with a gross notional equivalent of $159.0 million.

Net Investment Hedges

We entered into three-month foreign currency forward contracts, designated as net investment hedges, to hedge a portion of our net investment in one of our foreign subsidiaries to preserve the U.S. dollar value of our Euro cash. Effective changes in the fair value of these contracts due to exchange rate fluctuations are recorded within Accumulated other comprehensive income. Those amounts will be reflected in income only when we dispose of the investment in the foreign subsidiary. We conduct monthly effectiveness tests of net investment hedges on a spot-to-spot basis, excluding forward points, and any measurement of ineffectiveness is recorded in income. As of July 1, 2011, we had a net unrealized gain of $6.7 million in Accumulated other comprehensive income related to settled contracts. We held net investment hedges with a notional value of 50 million Euros at the end of the quarter.

The fair value of derivative instruments in the Consolidated Balance Sheet as of July 1, 2011, was as follows:

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Net investment hedges	$	—	$	—
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	0.2

The fair value of derivative instruments in the Consolidated Balance Sheet as of December 31, 2010, was as follows:

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Cash flow and net investment hedges	$	—	$	0.8
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	1.0

The effect of derivative instruments designated as hedging instruments on the Consolidated Statements of Operations follows:

	Three Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified  from Accumulated OCI into Total Cost of Revenue (Effective Portion)				Loss Recognized in Other Income net: Excluded from Effectiveness  Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	0.9	$	—	$	1.0	$	—		$	—
Net investment hedges	$	(2.7	)	$	5.9		N/A		N/A	$	(0.2	)	$	—

	Six Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified from Accumulated OCI into Total Cost  of Revenue (Effective Portion)				Loss Recognized in Other Income, net: Excluded  from Effectiveness Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	1.8	$	—	$	0.6	$	—		$	—
Net investment hedges	$	(10.0	)	$	10.6		N/A		N/A	$	(0.3	)	$	—

The effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations follows:

	Second Quarter					Six Months
	Gain (Loss) Recognized in Other (Expense) Income, net 1					Gain (Loss) Recognized in Other Income), net 1
	7/1/11		7/2/10			7/1/11		7/2/10
Foreign currency forward and option contracts	$	2.1	$	(8.1	)	$	6.5	$	(13.5	)

¹ The gains or losses from changes in the fair value of the derivative contracts are generally offset by gains or losses of the underlying transactions being hedged.

XML



Restructuring And Other Charges (Tables)

6 Months Ended

Jul. 01, 2011

Restructuring And Other Charges

Summary Of Restructuring Costs

	Second Quarter					Six Months
	7/1/11		7/2/10			7/1/11			7/2/10
Severance and other termination benefits	$	—	$	(0.5	)	$	1.2		$	7.1
Facility- and asset-related charges		—		—			(0.2	)		2.4
Total restructuring and other charges	$	—	$	(0.5	)	$	1.0		$	9.5

Summary Of Restructuring Reserve Activity

			Second Quarter Activity
	Balance at 4/1/11		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.1		$	(0.9	)	$	0.6
Transport		0.9		—			(0.5	)		0.4
Services		0.2		—			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.5		0.1			(1.5	)		1.1
Previous Restructuring Plans
Broadband		5.1		—			(0.7	)		4.4
Transport		0.5		(0.1	)		—			0.4
Services		0.8		—			(0.4	)		0.4
Subtotal Previous Restructuring Plans		6.4		(0.1	)		(1.1	)		5.2
Total Restructuring Plans	$	8.9	$	—		$	(2.6	)	$	6.3

			Six Months Activity
	Balance at 12/31/10		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.4		$	(1.2	)	$	0.6
Transport		1.0		—			(0.6	)		0.4
Services		—		0.2			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.4		0.6			(1.9	)		1.1
Previous Restructuring Plans
Broadband		6.4		0.1			(2.1	)		4.4
Transport		1.5		(0.2	)		(0.9	)		0.4
Services		0.5		0.5			(0.6	)		0.4
Subtotal Previous Restructuring Plans		8.4		0.4			(3.6	)		5.2
Total Restructuring Plans	$	10.8	$	1.0		$	(5.5	)	$	6.3

XML



Investments (Gross Realized Gains And Losses Related To Fixed Income Investments) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Investments
Gross realized gains	$ 1.0	$ 4.5	$ 1.4	$ 7.9
Gross realized losses	(1.3)	(0.2)	(1.8)	(0.4)
Total	$ (0.3)	$ 4.3	$ (0.4)	$ 7.5

XML



Net (Loss) Earnings Per Share (Tables)

6 Months Ended

Jul. 01, 2011

Net (Loss) Earnings Per Share

Net (Loss) Earnings Per Share

	Second Quarter					Six Months
	7/1/11			7/2/10		7/1/11			7/2/10
Numerator:
Net (loss) earnings	$	(20.1	)	$	64.1	$	(44.2	)	$	109.7
Denominator:
Denominator for basic net (loss) earnings per share – weighted average shares outstanding		364.6			385.4		363.8			385.0
Effect of dilutive securities:
Employee stock options and restricted and performance stock awards		—			4.5		—			4.5
Denominator for diluted net (loss) earnings per share – adjusted weighted average shares outstanding and assumed conversions		364.6			389.9		363.8			389.5
Net (loss) earnings per share, basic	$	(0.06	)	$	0.17	$	(0.12	)	$	0.28
Net (loss) earnings per share, diluted	$	(0.06	)	$	0.16	$	(0.12	)	$	0.28
Anti-dilutive employee equity-based awards, excluded 1		25.7			18.9		25.2			19.2

¹ We exclude certain employee equity-based awards from the weighted average shares outstanding computation because the exercise price was greater than the average market price of the common shares; therefore, the effect would have been anti-dilutive.

XML



Consolidated Statements Of Cash Flows (USD $) In Millions	6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010
Operating Activities
Net (loss) earnings	$ (44.2)	$ 109.7
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization	38.6	39.1
Loss on disposal of property, plant and equipment	0.1	0.2
Equity-based compensation	15.6	13.2
Deferred income taxes	(2.8)	(0.5)
Restructuring and other charges	1.0	9.5
Net loss (gain) on investments in marketable securities	0.4	(7.5)
Other-than-temporary impairment charges on investments	1.2
Excess tax benefits from equity-based compensation	(0.2)	0.6
Net changes in assets and liabilities:
Accounts receivable	12.2	(22.9)
Inventories	9.4	(8.7)
Miscellaneous receivables and other current assets	(4.7)	4.8
Other assets	(0.9)	3.8
Accounts payable	(18.2)	7.0
Restructuring and other charges	(5.5)	(6.5)
Deferred revenue	20.7	33.4
Other accrued liabilities	(67.9)	(13.2)
Income taxes	(11.7)	3.6
Other long-term liabilities	3.6	0.3
Net Cash (Used for) Provided by Operating Activities	(53.3)	165.9
Investing Activities
Capital expenditures	(32.1)	(14.1)
Payments for purchases of investments	(384.9)	(923.7)
Proceeds from sales and maturities of investments	485.1	1,010.3
Net Cash Provided by Investing Activities	68.1	72.5
Financing Activities
Proceeds from short-term borrowings	1.3
Payments of short-term borrowings	(1.3)
Proceeds from issuance of common stock under stock plans	0.5	6.7
Repurchase of common stock	(4.8)	(21.3)
Excess tax benefits from equity-based compensation	0.2	(0.6)
Dividends paid	(14.5)	(15.4)
Net Cash Used for Financing Activities	(18.6)	(30.6)
Effect of Exchange Rate Changes on Cash	8.6	(10.9)
Net Increase in Cash and Cash Equivalents	4.8	196.9
Cash and Cash Equivalents - Beginning of Year	208.8	154.0
Cash and Cash Equivalents - End of Period	$ 213.6	$ 350.9

XML



Fair Value Measurements (Tables)

6 Months Ended

12 Months Ended

Jul. 01, 2011

Dec. 31, 2010

Fair Value Measurements

Assets And Liabilities Measured At Fair Value On A Recurring Basis

	Fair Value Measurements at July 1, 2011
	Balance at 7/1/11		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	98.0	$	98.0	$	—	$	—
Corporate debt obligations guaranteed by FDIC		103.0		—		103.0		—
Corporate debt obligations		229.2		—		229.2		—
Mortgage-backed debt obligations guaranteed by GNMA		99.2		—		99.2		—
Certificates of deposit guaranteed by FDIC		2.0		—		2.0		—
Foreign government debt obligations		221.4		—		221.4		—
Foreign corporate debt obligations guaranteed by foreign governments		91.6		—		91.6		—
Subtotal		844.4		98.0		746.4		—
Other marketable securities		167.5		167.5		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,012.1	$	265.5	$	746.6	$	—
Liabilities
Loan related to other marketable securities	$	167.5	$	167.5	$	—	$	—
Derivative financial instruments		0.3		—		0.3		—
Total Liabilities	$	167.8	$	167.5	$	0.3	$	—

	Fair Value Measurements at December 31, 2010
	Balance at 12/31/10		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Investments in marketable securities
U.S. government debt obligations	$	258.4	$	258.4	$	—	$	—
Corporate debt obligations guaranteed by FDIC		102.6		—		102.6		—
Corporate debt obligations		95.9		—		95.9		—
Mortgage-backed debt obligations guaranteed by GNMA		175.1		—		175.1		—
Certificates of deposit guaranteed by FDIC		3.3		—		3.3		—
Foreign government debt obligations		202.1		—		202.1		—
Foreign corporate debt obligations guaranteed by foreign governments		88.3		—		88.3		—
Subtotal		925.7		258.4		667.3		—
Other marketable securities		213.6		213.6		—		—
Derivative financial instruments		0.2		—		0.2		—
Total Assets	$	1,139.5	$	472.0	$	667.5	$	—
Liabilities
Loan related to other marketable securities	$	213.6	$	213.6	$	—	$	—
Derivative financial instruments		1.0		—		1.0		—
Total Liabilities	$	214.6	$	213.6	$	1.0	$	—

XML



Product Warranties (Narrative) (Details)	6 Months Ended
	Jul. 01, 2011
Product Warranties
Basic limited warranty except access products, minimum range in days	90
Basic limited warranty except access products, maximum range in years	5
Basic limited warranty for access products, minimum range in years	2
Basic limited warranty for access products, maximum range in years	6
Number of months of estimated warranty included in current liabilities	12
Number of months over which warranty liability is classified as a long-term liability	12

XML



Derivative Financial Instruments (Tables)

6 Months Ended

12 Months Ended

3 Months Ended

6 Months Ended

Jul. 01, 2011

Dec. 31, 2010

Jul. 01, 2011

Derivatives Designated As Hedging Instruments [Member]

Jul. 01, 2011

Derivatives Designated As Hedging Instruments [Member]

Jul. 01, 2011

Non-Designated Hedges [Member]

Fair Value Of Derivative Instruments In The Consolidated Balance Sheet

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Net investment hedges	$	—	$	—
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	0.2

	Asset Derivatives Reported in Miscellaneous Receivables and Other Current Assets		Liability Derivatives Reported in Other Accrued Liabilities
Cash flow and net investment hedges	$	—	$	0.8
Balance sheet hedges (Non-designated hedges)		0.2		0.2
Total derivatives	$	0.2	$	1.0

Effect Of Derivative Instruments On The Consolidated Statements Of Operations

	Three Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified  from Accumulated OCI into Total Cost of Revenue (Effective Portion)				Loss Recognized in Other Income net: Excluded from Effectiveness  Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	0.9	$	—	$	1.0	$	—		$	—
Net investment hedges	$	(2.7	)	$	5.9		N/A		N/A	$	(0.2	)	$	—

	Six Months Ended
	Gain (Loss) Recognized  in Accumulated OCI, net (Effective Portion)					Gain Reclassified from Accumulated OCI into Total Cost  of Revenue (Effective Portion)				Loss Recognized in Other Income, net: Excluded  from Effectiveness Testing Gain (Loss)
	7/1/11			7/2/10		7/1/11		7/2/10		7/1/11			7/2/10
Cash flow hedges	$	—		$	1.8	$	—	$	0.6	$	—		$	—
Net investment hedges	$	(10.0	)	$	10.6		N/A		N/A	$	(0.3	)	$	—

	Second Quarter					Six Months
	Gain (Loss) Recognized in Other (Expense) Income, net 1					Gain (Loss) Recognized in Other Income), net 1
	7/1/11		7/2/10			7/1/11		7/2/10
Foreign currency forward and option contracts	$	2.1	$	(8.1	)	$	6.5	$	(13.5	)

¹ The gains or losses from changes in the fair value of the derivative contracts are generally offset by gains or losses of the underlying transactions being hedged.

XML



Restructuring And Other Charges

6 Months Ended

Jul. 01, 2011

Restructuring And Other Charges

Restructuring And Other Charges

2. Restructuring and Other Charges

On January 25, 2010, management initiated a restructuring plan to enable us to shift investment from TDM (Time Division Multiplexing) to Ethernet and IP (Internet Protocol) products, move our supply chain closer to suppliers, and reduce general and administrative expenses. Restructuring expense for the second quarter of 2011 was $0.1 million for severance-related charges. Restructuring expense for the first six months of 2011 was $0.6 million for severance-related charges. The cumulative pretax restructuring charges for this plan are $9.6 million, which consists of $7.0 million for workforce reductions and $2.6 million for facility- and asset-related charges. By segment, total charges to date under this plan are $6.1 million for Broadband, $3.2 million for Transport, and $0.3 million for Services. Total cash payments under this plan are expected to be $7.0 million, of which $5.9 million has been paid through the second quarter of 2011. Restructuring actions under this plan were completed in the first quarter of 2011.

On July 6, 2009, management initiated a restructuring plan as we aligned costs with customer spending and market conditions at that time. We recorded a $0.1 million reduction to restructuring expense for the second quarter of 2011 for severance-related charges. Restructuring expense for the first six months of 2011 was $0.6 million for severance-related charges. The cumulative pretax restructuring charges for this plan are $7.0 million, which consists of $6.6 million in severance charges for workforce reductions and $0.4 million for facility- and asset-related charges. By segment, total charges to date under this plan are $2.6 million for Broadband, $2.1 million for Transport, and $2.3 million for Services. Total cash payments under this plan are expected to be $6.7 million for workforce reductions, of which $5.9 million has been paid through the second quarter of 2011. Restructuring actions under this plan were completed in the first quarter of 2011.

Reductions of $0.2 million to restructuring expense for previous restructuring plans in the first six months of 2011 are facility-related. These net reductions are due to changes in estimates to previous restructuring plans.

The balance for restructuring plans relates to net lease obligations that expire through 2015 and cash severance that we expect to pay through the third quarter of 2012.

The following table summarizes restructuring and other charges recorded for the plans mentioned above, as well as adjustments to reserves recorded for prior restructurings:

	Second Quarter					Six Months
	7/1/11		7/2/10			7/1/11			7/2/10
Severance and other termination benefits	$	—	$	(0.5	)	$	1.2		$	7.1
Facility- and asset-related charges		—		—			(0.2	)		2.4
Total restructuring and other charges	$	—	$	(0.5	)	$	1.0		$	9.5

The following table summarizes restructuring and other charges activity by segment for the second quarter and first six months of 2011 and the status of the reserves at July 1, 2011:

			Second Quarter Activity
	Balance at 4/1/11		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.1		$	(0.9	)	$	0.6
Transport		0.9		—			(0.5	)		0.4
Services		0.2		—			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.5		0.1			(1.5	)		1.1
Previous Restructuring Plans
Broadband		5.1		—			(0.7	)		4.4
Transport		0.5		(0.1	)		—			0.4
Services		0.8		—			(0.4	)		0.4
Subtotal Previous Restructuring Plans		6.4		(0.1	)		(1.1	)		5.2
Total Restructuring Plans	$	8.9	$	—		$	(2.6	)	$	6.3

			Six Months Activity
	Balance at 12/31/10		Restructuring Expense			Cash Payments			Balance at 7/1/11
2010 Restructuring Plan
Broadband	$	1.4	$	0.4		$	(1.2	)	$	0.6
Transport		1.0		—			(0.6	)		0.4
Services		—		0.2			(0.1	)		0.1
Subtotal 2010 Restructuring Plan		2.4		0.6			(1.9	)		1.1
Previous Restructuring Plans
Broadband		6.4		0.1			(2.1	)		4.4
Transport		1.5		(0.2	)		(0.9	)		0.4
Services		0.5		0.5			(0.6	)		0.4
Subtotal Previous Restructuring Plans		8.4		0.4			(3.6	)		5.2
Total Restructuring Plans	$	10.8	$	1.0		$	(5.5	)	$	6.3

XML



Segment Information

6 Months Ended

Jul. 01, 2011

Segment Information

Segment Information

11. Segment Information

We report operating results for three segments: Broadband, Transport and Services.

The Broadband segment includes data, access and managed access product portfolios that facilitate delivery of next-generation wireline and wireless services and the delivery of bundled voice, video and high-speed Internet/data services over copper-based and/or fiber-based networks. Data products include the Tellabs^® 7300 Metro Ethernet Switching Series, the Tellabs^® 8600 Managed Edge System, the Tellabs^® 8800 Multiservice Router Series and the Tellabs^® SmartCore^® 9100 Platform. Access offerings include the Tellabs^® 1000 Multiservice Access Series, the Tellabs^® 1100 Multiservice Access Series and the Tellabs^® 1600 Optical Network Terminal (ONT) Series. Managed access products include the Tellabs^® 6300 Managed Transport System and the Tellabs^® 8100 Managed Access System.

The Transport segment includes solutions that enable service providers to transport service and manage optical bandwidth by adding capacity when and where it's needed. Wireline and wireless carriers use these products within the metropolitan portion of their transport networks to support wireless services, business services for enterprise customers, and triple-play voice, video and data services for residential customers. Product offerings include the Tellabs^® 3000 Series of voice-enhancement products, the Tellabs^® 5000 Series of digital cross-connect systems, and the Tellabs^® 7100 Optical Transport System (OTS).

The Services segment includes deployment, support, training and professional services. These services support all phases of the network: planning, building and operating.

We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketing expenses, general and administrative expenses, the amortization of intangibles, restructuring and other charges and the impact of equity-based compensation.

Consolidated revenue by segment follows:

	Second Quarter				Six Months
	7/1/11		7/2/10		7/1/11		7/2/10
Broadband	$	162.7	$	228.7	$	335.7	$	419.8
Transport		114.3		133.2		213.7		260.6
Services		57.2		60.9		107.2		121.6
Total	$	334.2	$	422.8	$	656.6	$	802.0

Segment profit and reconciliation to operating (loss) earnings by segment follows:

	Second Quarter						Six Months
	7/1/11			7/2/10			7/1/11			7/2/10
Broadband	$	(3.0	)	$	86.1		$	16.7		$	146.9
Transport		27.2			51.7			43.2			96.7
Services		21.6			20.7			31.6			40.2
Total segment profit		45.8			158.5			91.5			283.8
Sales and marketing expenses		(40.8	)		(43.8	)		(85.5	)		(88.9	)
General and administrative expenses		(21.0	)		(24.9	)		(44.7	)		(49.7	)
Equity-based compensation		(4.3	)		(3.6	)		(8.0	)		(6.2	)
Intangible asset amortization		(5.1	)		(7.4	)		(10.3	)		(14.8	)
Restructuring and other charges		—			0.5			(1.0	)		(9.5	)
Operating (loss) earnings	$	(25.4	)	$	79.3		$	(58.0	)	$	114.7

The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and therefore asset, depreciation and amortization, or capital expenditure by segment information is not provided to our chief operating decision maker.

XML



Income Taxes (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Income Taxes
Income tax benefit (expense)	$ 3.3	$ (20.3)	$ 9.1	$ (16.7)
Federal statutory rate			35.00%
Income tax benefit due to the reversal of tax accruals	$ 2.8		$ 6.2

XML



Stock Repurchase Programs (Narrative) (Details) (USD $)	6 Months Ended		3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011 Other Stock Repurchases [Member]	Jul. 01, 2011 Other Stock Repurchases [Member]	Jul. 01, 2011 Rule 10b5-1 program [Member]	Jul. 01, 2011 Rule 10b5-1 program [Member]	Jul. 01, 2011 $600 Million Repurchase Program [Member]
Authorization to repurchase outstanding common stock							$ 600,000,000
Repurchase of common stock - shares			600,000	900,000	6,721	100,000
Cumulative Repurchase of common stock - shares							56,600,000
Cumulative Repurchase of outstanding common stock							375,400,000
Repurchase of outstanding common stock	4,800,000	21,300,000	2,800,000	4,300,000	32,038	500,000
Stock available to be purchased under stock repurchase program							$ 224,600,000

XML



Fair Value Measurements (Assets And Liabilities Measured At Fair Value On A Recurring Basis) (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Investments in marketable securities	$ 844.4	$ 925.7
Other marketable securities	167.5	213.6
Derivative financial instruments - Assets	0.2	0.2
Total Assets	1,012.1	1,139.5
Loan related to other marketable securities	167.5	213.6
Derivative financial instruments - Liabilities	0.3	1.0
Total Liabilities	167.8	214.6
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Investments in marketable securities	98.0	258.4
Other marketable securities	167.5	213.6
Total Assets	265.5	472.0
Loan related to other marketable securities	167.5	213.6
Total Liabilities	167.5	213.6
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member] | U.S. Government Debt Obligations [Member]
Investments in marketable securities	98.0	258.4
Significant Other Observable Inputs (Level 2) [Member]
Investments in marketable securities	746.4	667.3
Derivative financial instruments - Assets	0.2	0.2
Total Assets	746.6	667.5
Derivative financial instruments - Liabilities	0.3	1.0
Total Liabilities	0.3	1.0
Significant Other Observable Inputs (Level 2) [Member] | Foreign Government Debt Obligations [Member]
Investments in marketable securities	221.4	202.1
Significant Other Observable Inputs (Level 2) [Member] | Certificates Of Deposit Guaranteed By FDIC [Member]
Investments in marketable securities	2.0	3.3
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-Backed Debt Obligations Guaranteed By GNMA [Member]
Investments in marketable securities	99.2	175.1
Significant Other Observable Inputs (Level 2) [Member] | Corporate Debt Obligations Guaranteed By FDIC [Member]
Investments in marketable securities	103.0	102.6
Significant Other Observable Inputs (Level 2) [Member] | Corporate Debt Obligations [Member]
Investments in marketable securities	229.2	95.9
Significant Other Observable Inputs (Level 2) [Member] | Foreign Corporate Debt Obligations Guaranteed By Foreign Governments [Member]
Investments in marketable securities	91.6	88.3
Foreign Government Debt Obligations [Member]
Investments in marketable securities	221.4	202.1
Certificates Of Deposit Guaranteed By FDIC [Member]
Investments in marketable securities	2.0	3.3
Mortgage-Backed Debt Obligations Guaranteed By GNMA [Member]
Investments in marketable securities	99.2	175.1
U.S. Government Debt Obligations [Member]
Investments in marketable securities	98.0	258.4
Corporate Debt Obligations Guaranteed By FDIC [Member]
Investments in marketable securities	103.0	102.6
Corporate Debt Obligations [Member]
Investments in marketable securities	229.2	95.9
Foreign Corporate Debt Obligations Guaranteed By Foreign Governments [Member]
Investments in marketable securities	$ 91.6	$ 88.3

XML



Subsequent Events

6 Months Ended

Jul. 01, 2011

Subsequent Events

Subsequent Events

15. Subsequent Events

On July 25, 2011, management initiated a restructuring plan that will enable us to align our cost structure to current business conditions. Actions under this plan are expected to be substantially completed by the end of the second quarter of 2012. We expect to record pretax charges in the third quarter of 2011 through the second quarter of 2012 of approximately $22 million. The pretax charges will consist of $13 million for workforce reductions of approximately 330 employees and $9 million for facility- and asset-related charges. Estimated cash payments under this plan are expected to be $18 million beginning in the third quarter of 2011 and continuing through the end of 2012.

As a consequence of our increased focus on growth markets and growth products, we are still hiring people with different skill sets as needed around the world, therefore, we expect our net headcount to decline by about 200 people over the next year.

XML



Consolidated Statements of Operations (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Revenue
Products	$ 277.0	$ 361.9	$ 549.4	$ 680.4
Services	57.2	60.9	107.2	121.6
Total revenue	334.2	422.8	656.6	802.0
Cost of Revenue
Products	173.0	155.7	332.5	301.3
Services	36.2	40.9	76.8	82.6
Total cost of revenue	209.2	196.6	409.3	383.9
Gross Profit	125.0	226.2	247.3	418.1
Gross profit as a percentage of revenue	37.40%	53.50%	37.70%	52.10%
Gross profit as a percentage of revenue - products	37.50%	57.00%	39.50%	55.70%
Gross profit as a percentage of revenue - services	36.70%	32.80%	28.40%	32.10%
Operating Expenses
Research and development	83.5	71.3	163.8	140.5
Sales and marketing	40.8	43.8	85.5	88.9
General and administrative	21.0	24.9	44.7	49.7
Intangible asset amortization	5.1	7.4	10.3	14.8
Restructuring and other charges		(0.5)	1.0	9.5
Total operating expenses	150.4	146.9	305.3	303.4
Operating (Loss) Earnings	(25.4)	79.3	(58.0)	114.7
Operating (loss) earnings as a percentage of revenue	(7.60%)	18.80%	(8.80%)	14.30%
Other Income
Interest income, net	3.1	3.0	6.4	6.9
Other (expense) income, net	(1.1)	2.1	(1.7)	4.8
Total other income	2.0	5.1	4.7	11.7
(Loss) Earnings Before Income Tax	(23.4)	84.4	(53.3)	126.4
Income tax benefit (expense)	3.3	(20.3)	9.1	(16.7)
Net (Loss) Earnings	$ (20.1)	$ 64.1	$ (44.2)	$ 109.7
Weighted Average Shares Outstanding
Basic	364.6	385.4	363.8	385.0
Diluted	364.6	389.9	363.8	389.5
Net (Loss) Earnings Per Share
Basic	$ (0.06)	$ 0.17	$ (0.12)	$ 0.28
Diluted	$ (0.06)	$ 0.16	$ (0.12)	$ 0.28
Cash Dividends Per Share	$ 0.02	$ 0.02	$ 0.04	$ 0.04

XML



Investments (Available-For-Sale Marketable Securities) (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Amortized Cost	$ 844.7	$ 924.9
Unrealized Gain	2.3	3.9
Unrealized Loss	(2.6)	(3.1)
Fair Value	844.4	925.7
Foreign Government Debt Obligations [Member]
Amortized Cost	222.0	201.4
Unrealized Gain	0.4	1.6
Unrealized Loss	(1.0)	(0.9)
Fair Value	221.4	202.1
Certificates Of Deposit Guaranteed By FDIC [Member]
Amortized Cost	2.0	3.3
Fair Value	2.0	3.3
Mortgage-Backed Debt Obligations Guaranteed By GNMA [Member]
Amortized Cost	99.0	175.5
Unrealized Gain	0.6	0.8
Unrealized Loss	(0.4)	(1.2)
Fair Value	99.2	175.1
Corporate Debt Obligations Guaranteed By FDIC [Member]
Amortized Cost	102.7	102.3
Unrealized Gain	0.4	0.3
Unrealized Loss	(0.1)
Fair Value	103.0	102.6
U.S. Government Debt Obligations [Member]
Amortized Cost	98.0	259.0
Unrealized Gain	0.1	0.1
Unrealized Loss	(0.1)	(0.7)
Fair Value	98.0	258.4
Corporate Debt Obligations [Member]
Amortized Cost	229.1	95.6
Unrealized Gain	0.7	0.5
Unrealized Loss	(0.6)	(0.2)
Fair Value	229.2	95.9
Foreign Corporate Debt Obligations Guaranteed By Foreign Governments [Member]
Amortized Cost	91.9	87.8
Unrealized Gain	0.1	0.6
Unrealized Loss	(0.4)	(0.1)
Fair Value	$ 91.6	$ 88.3

XML



Equity-Based Compensation (Schedule Of Stock Option Activity) (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Jul. 01, 2011
Equity-Based Compensation
Options Outstanding - beginning of year	26,851,964
Options Granted	2,073,278
Options exercised	(263,821)
Options Forfeited/Expired	(2,703,169)
Options Outstanding - end of period	25,958,252
Options Exercisable - end of period	21,841,803
Options Expected to Vest	25,635,340
Weighted Average Exercise Price, Outstanding - beginning of year	$ 11.18
Weighted Average Exercise Price, Granted	$ 5.37
Weighted Average Exercise Price, Exercised	$ 1.80
Weighted Average Exercise Price, Forfeited/Expired	$ 29.32
Weighted Average Exercise Price, Outstanding - end of period	$ 8.92
Weighted Average Exercise Price, Exercisable - end of period	$ 9.46
Weighted Average Exercise Price, Options Expected to Vest	$ 8.96
Weighted Average Remaining Contractual Term on Outstanding Options at Period End, in years	4.0
Weighted Average Remaining Contractual Term on Exercisable Options at Period End, in years	3.0
Weighted Average Remaining Contractual Term on Options Expected to Vest at Period End, in years	3.9
Aggregate Intrinsic Value of Outstanding Options at End of Period	$ 1.5
Aggregate Intrinsic Value of Exercisable - End of Period	1.1
Aggregate Intrinsic Value of Options Expected to Vest in Period End	$ 1.5

XML



Segment Information (Consolidated Revenue By Segment) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Revenue	$ 334.2	$ 422.8	$ 656.6	$ 802.0
Services Segment [Member]
Segment Revenue	57.2	60.9	107.2	121.6
Transport Segment [Member]
Segment Revenue	114.3	133.2	213.7	260.6
Broadband Segment [Member]
Segment Revenue	$ 162.7	$ 228.7	$ 335.7	$ 419.8

XML



Product Warranties (Standard Product Warranty Liabilities Schedule) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Product Warranties
Balance - beginning of period	$ 21.2	$ 28.9	$ 19.4	$ 31.4
Accruals for product warranties	2.1	1.5	4.9	3.9
Settlements	(1.9)	(0.7)	(2.3)	(2.9)
Other adjustments to accruals for product warranties	(1.4)	(2.3)	(2.0)	(5.0)
Balance - end of period	$ 20.0	$ 27.4	$ 20.0	$ 27.4

XML



Product Warranties (Balance Sheet Classification Of Product Warranty Liabilities) (Details) (USD $) In Millions	Jul. 01, 2011	Apr. 01, 2011	Dec. 31, 2010	Jul. 02, 2010	Apr. 02, 2010	Jan. 01, 2010
Product Warranties
Other accrued liabilities	$ 8.7			$ 10.5
Other long-term liabilities	11.3			16.9
Total product warranty liabilities	$ 20.0	$ 21.2	$ 19.4	$ 27.4	$ 28.9	$ 31.4

XML



Equity-Based Compensation (Schedule Of Total Equity-Based Compensation Expense By Type) (Details) (USD $) In Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2011	Jul. 02, 2010	Jul. 01, 2011	Jul. 02, 2010
Equity-based compensation expense	$ 8.0	$ 7.4	$ 15.6	$ 13.2
Stock Options [Member]
Equity-based compensation expense	1.3	1.4	2.6	2.7
Cash-Settled SARs [Member]
Equity-based compensation expense	(0.1)	(0.1)	(0.2)	0.1
Restricted Stock [Member]
Equity-based compensation expense	5.4	4.0	9.8	7.5
Performance Stock Units [Member]
Equity-based compensation expense	$ 1.4	$ 2.1	$ 3.4	$ 2.9

XML



Investments (Schedule Of Maturities Of Available-For-Sale Marketable Securities) (Details) (USD $) In Millions	Jul. 01, 2011	Dec. 31, 2010
Investments
Due in less than 12 months, Amortized Cost	$ 179.8
Due in 1 to 5 years, Amortized Cost	555.4
Due after 5 years, Amortized Cost	109.5
Total, Amortized Cost	844.7	924.9
Due in less than 12 months, Fair Value	180.3
Due in 1 to 5 years, Fair Value	554.6
Due after 5 years, Fair Value	109.5
Total, Fair Value	$ 844.4	$ 925.7