Infinera

Infinera Corporation
2015 Proxy Statement
and
2014 Annual Report on Form 10-K

Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089

NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 7, 2015
10:00 a.m. Pacific Time

Dear Stockholder:

You are cordially invited to attend the 2015 Annual Meeting of Stockholders (the “Annual Meeting”) of Infinera

Corporation, a Delaware corporation. Notice is hereby given that the meeting will be held on Thursday, May 7,
2015, at 140 Caspian Court, Sunnyvale, California 94089 at 10:00 a.m. Pacific Time, for the following purposes:

1. To elect to the Board of Directors (the “Board”) the three nominees for Class II directors named in the

Proxy Statement;

2. To ratify the appointment of Ernst & Young LLP as Infinera’s independent registered public accounting

firm for the fiscal year ending December 26, 2015;

3. To approve, on an advisory basis, the compensation of Infinera’s named executive officers, as described

in the Proxy Statement; and

4. To transact such other business as may properly come before the meeting or any postponement or

adjournment thereof.

These items of business are more fully described in the Proxy Statement accompanying this Notice.

The record date for the Annual Meeting is March 18, 2015. Only stockholders of record at the close of
business on that date may vote at the Annual Meeting or any postponement or adjournment thereof. A list of our
stockholders will be maintained and open for examination by any of our stockholders, for any purpose germane to
the Annual Meeting, during regular business hours at the address listed above for ten days prior to the meeting.

We are pleased to inform you that Infinera will again be utilizing the U.S. Securities and Exchange

Commission rules that allow issuers to furnish proxy materials to their stockholders via the Internet. We believe
that these rules allow us to provide our stockholders with the information they need more quickly and conveniently,
while lowering the cost of delivery and reducing the environmental impact of the Annual Meeting.

As a stockholder of Infinera, your vote is important. Whether or not you expect to attend the Annual
Meeting in person, it is important that you vote as soon as possible so that your shares are represented.
To vote your shares, please follow the instructions in the Notice of Internet Availability of Proxy Materials,
which is being mailed to you on or about March 26, 2015.

On behalf of the Board, thank you for your participation in this important annual process.

By Order of the Board,

/S/ JAMES L. LAUFMAN
James L. Laufman
Senior Vice President, General Counsel and
Corporate Secretary

Sunnyvale, California
March 26, 2015

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TABLE OF CONTENTS

PROXY STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meeting Agenda and Voting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board and Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Program Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND VOTING PROCEDURAL

1
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
PROPOSAL 1—ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Director Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Information Regarding Nominees and Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Independence of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Stockholder Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Board Oversight of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Stock Ownership Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Information Regarding the Board and its Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Director Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Director Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Fiscal 2014 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Additional Information with Respect to Director Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Registered Public Accounting Firm’s Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pre-Approval Policies and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . 23
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Overview of our Executive Compensation Program Philosophy and Process . . . . . . . . . . . . . . . . . . . . . . . . 29
Fiscal 2014 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Additional Information Regarding Our Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Compensation Committee Report
EXECUTIVE COMPENSATION TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Fiscal 2014 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Fiscal 2014 Grants of Plan Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Fiscal 2014 Outstanding Equity Awards at Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Fiscal 2014 Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability . . . . . . . . . . . 48
Fiscal 2014 Estimated Payments and Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
RISK ASSESSMENT OF COMPENSATION PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PROPOSAL 3—ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . . . 53
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
STOCKHOLDER PROPOSALS FOR 2016 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING THE SAME LAST NAME AND

ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

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INFINERA CORPORATION

PROXY STATEMENT SUMMARY

This summary highlights selected information contained elsewhere in this Proxy Statement. The summary
does not contain all of the information that you should consider, and you should read and consider carefully the
complete Proxy Statement before voting.

2015 Annual Meeting of Stockholders

Time and Date: 10:00 a.m. Pacific Time, on Thursday, May 7, 2015
Place:
Record Date:
Voting:

Infinera Corporation, 140 Caspian Court, Sunnyvale, California 94089
March 18, 2015
Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to
one vote for each director nominee and one vote for each of the other proposals to be voted on.

Meeting Agenda and Voting Matters

Agenda Items

Board Vote
Recommendation

Page Reference
(for more detail)

1. To elect to the Board of Directors the three nominees for Class II

directors named in the Proxy Statement.

2. To ratify the appointment of Ernst & Young LLP as Infinera’s

independent registered public accounting firm for the fiscal year
ending December 26, 2015.

FOR EACH
DIRECTOR NOMINEE
FOR

3. To approve, on an advisory basis, the compensation of Infinera’s

FOR

7

20

53

named executive officers, as described in the Proxy Statement.
4. To transact such other business that may properly come before
the meeting or any postponement or adjournment thereof.

Board Nominees

Name

Age Director Since

Independent(1)

AC

CC

NGC

TAC

James A. Dolce, Jr. . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . .

52
66
54

2014
2010
2010

X
X
—

— — —
C
M —
— — —

M
—
M

Committee Memberships

AC = Audit Committee; CC = Compensation Committee; NGC = Nominating and Governance Committee
TAC = Technology and Acquisition Committee; C = Chairman; M = Member
(1) Under the rules and regulations of the Securities and Exchange Commission and the listing standards of The NASDAQ

Stock Market (“NASDAQ”).

Board and Governance Highlights

Board Independence. 6 out of 8 of our directors are independent.

Board Composition. The size of our Board of Directors is currently fixed at eight and is divided into three
classes. The board annually assesses its performance through a board self-evaluation.

Board Committees. We have four committees of the Board of Directors—Audit, Compensation, Nominating
and Governance, and Technology and Acquisition. With the exception of the Technology and Acquisition
Committee (our President serves on this committee) all other committees are composed entirely of
independent directors.

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Leadership Structure. We have separated the positions of Chairman and Chief Executive Officer (“CEO”).

Director Stock Ownership. Each non-employee director is required to own shares of Infinera common stock
having a value of at least four times the annual cash retainer.

Risk Oversight. Members of our senior management team are responsible for implementation of our day-to-
day risk management processes, while the Board of Directors, as a whole and through its committees, has
responsibility for the oversight of overall risk management

Business Highlights

Our financial results for fiscal 2014 reflect a year of winning footprint, building strong relationships with our
customers, and increasing profitability. We continued to gain strong market acceptance of our Intelligent Transport
Network and the Infinera DTN-X platform. Highlights included:

• Revenue was $668.1 million in fiscal 2014, a 23% increase compared to fiscal 2013, marking the second
consecutive year where we have grown significantly faster than the overall dense wavelength division
multiplexing market.

• Non-GAAP gross margin(1) was 44.0% in fiscal 2014 as compared to 41.6% in fiscal 2013 and 37.9% in
fiscal 2012, demonstrating the leverage we have achieved from our vertical integration and the value
proposition of our Intelligent Transport Network.

• Non-GAAP operating income(2) was $55.7 million in fiscal 2014 as compared to a non-GAAP operating
income of $7.8 million in fiscal 2013 and a non-GAAP operating loss of $41.2 million in fiscal 2012.

(1) As used in this Proxy Statement, GAAP refers to U.S. generally accepted accounting principles. For a reconciliation of

GAAP to Non-GAAP Gross Profit and Gross Margin for fiscal years 2014, 2013 and 2012, please see Appendix A to this
Proxy Statement.

(2) For a reconciliation of GAAP to Non-GAAP Operating Income (Loss) for fiscal years 2014, 2013 and 2012, please see

Appendix A to this Proxy Statement.

Executive Compensation Program Highlights

Our executive compensation program is designed to balance near-term results with long-term success and
continue to encourage our executive officers (including our named executive officers (“NEOs”) for fiscal 2014) to
build value through innovation and execution. To fulfill this mission, we have a pay-for-performance philosophy
that forms the foundation for all decisions regarding executive compensation made by our management team and
our Compensation Committee. As explained in more detail in the Compensation Discussion and Analysis section
of this Proxy Statement, our executive compensation program for fiscal 2014 reflects our pay-for-performance
compensation philosophy and the continued strong alignment of the interests of our executive officers with those
of our stockholders. Highlights of our executive compensation program for fiscal 2014 included:

• The majority of our CEO’s fiscal 2014 target total direct compensation was in equity.

•

66% of our CEO’s target total direct compensation was in equity, which links our CEO’s
compensation directly to the value of our common stock. In fiscal 2014, our CEO received a
performance-based restricted stock unit (“PSU”) award for 160,330 shares of our common stock and
a restricted stock unit (“RSU”) award for 106,880 shares of our common stock. Target total direct
compensation consists of base salary, target cash incentive opportunity and target equity incentive
compensation.

• The majority of our CEO’s fiscal 2014 target total direct compensation and target equity

compensation were at risk.

•

56% of our CEO’s target total direct compensation was completely at risk based on our
performance against measurable performance objectives set forth under the fiscal 2014 bonus plan
(the “2014 Bonus Plan”) and PSU awards.

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•

56% of our CEO’s target equity compensation was in PSU awards. The PSU awards are 100%
subject to risk of forfeiture based on our relative total stockholder return (“TSR”) performance over
three performance periods against the Standard & Poor’s North American Technology Multimedia
Networking Index (“S&P Networking Index”).

FY14 Mix of Pay: CEO

FY14 Mix of Pay: Other NEO Average(1)

Base Salary
15%

Base Salary
27%

Perf.-Based RSUs
37%

Target Bonus
19%

Perf.-Based RSUs
18%

Target Bonus
24%

Time-Based RSUs
29%

Time-Based RSUs
31%

(1) The average fiscal 2014 mix of pay for our NEOs other than our CEO excludes compensation for Messrs. Feller and

Laufman, who were both hired during the fiscal year.

• Our fiscal 2014 PSU awards included rigorous performance requirements. To support our pay-for-
performance philosophy and further emphasize the importance of creating long-term stockholder value,
our fiscal 2014 PSU awards contain several features we consider to be best practices:

• Sustained performance requirement. To earn the maximum number of shares under the PSU

awards, which is 150% of target shares, our TSR must exceed that of the S&P Networking Index by
25 points or more as calculated on each of the three separate measurement points (coinciding with
the end of our fiscal 2014, 2015 and 2016).

• Steeper downside slope. PSU awards are reduced one and one-half times faster if our TSR

underperforms the S&P Networking Index (3-to-1 downside) than they are increased if our TSR
outperforms the S&P Networking Index (2-to-1 upside). For example, if we underperform the S&P
Networking Index by 10 points of TSR, 70% of the target PSU awards would be earned. If we
outperform the S&P Networking Index by 10 points of TSR, 120% of the target PSU awards would be
earned.

• Additional award cap. Regardless of our performance versus the S&P Networking Index, PSU

awards are capped at 50% of target for any period in which our TSR is negative. Therefore, even if
we significantly outperform the S&P Networking Index in challenging market conditions, our PSU
awards provide only modest rewards unless incremental stockholder value is created.

• Our fiscal 2014 payouts reflect our pay-for performance philosophy. Our fiscal 2014 payouts reflect
our strong performance. As indicated above, our executive compensation program strives to align the
compensation outcomes for our NEOs with performance against measurable objectives. Our fiscal 2014
revenue and non-GAAP operating income results demonstrated significant growth over fiscal 2013 and
exceeded the maximum levels established under our fiscal 2014 Bonus Plan, resulting in the maximum
funding for the financial component at 150%. As of the end of fiscal 2014, we had two outstanding PSU
performance cycles that measure our TSR against that of an independently constituted market index. We
continued to outperform both the S&P Networking Index and the NASDAQ Telecommunications Index
(“Telecomm Index”) for our fiscal 2014 PSU awards and fiscal 2013 PSU awards, respectively, which
resulted in maximum payouts (150% of target) for the performance cycles that concluded at the end of
our fiscal 2014. The outstanding PSU award granted in fiscal 2012 failed to meet the non-GAAP
operating profit target of $60 million for fiscal 2014 and the remaining shares under this award were
cancelled.

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• We continue to maintain sound corporate governance policies and practices. We seek to maintain

sound corporate governance standards. During fiscal 2014, the following policies and practices continued
to be in effect and in addition we added a policy to address pledging of our common stock by NEOs:

“Double-Trigger” Change-of-Control Agreements

• No Tax Gross-Ups
•
• Annual Compensation Risk Assessment
• No Executive Perquisites
•

Independent Compensation Consultant Reporting
Directly to Compensation Committee

• Executive Clawback Policy
• Anti-Hedging Policy
• No Pledging of our Common Stock by

NEOs

• Fully Independent Compensation

Committee

• Stock Ownership Policy
• No Guaranteed Bonuses

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PROXY STATEMENT
2015 ANNUAL MEETING OF STOCKHOLDERS

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND VOTING PROCEDURAL MATTERS

Annual Meeting

Q: Why am I being provided access to these proxy materials?

A: The Board of Directors (the “Board”) of Infinera Corporation (referred to herein as “Infinera,” “we,” “us” or
“our”) is providing you access to these proxy materials in connection with the solicitation of proxies by the
Board for use at the 2015 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday,
May 7, 2015 at 10:00 a.m. Pacific Time, and at any adjournment or postponement thereof, for the purpose of
considering and acting upon the matters described herein. These materials were first sent or given to
stockholders on or about March 26, 2015.

Q: What is the Notice of Internet Availability of Proxy Materials?

A:

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (the
“SEC”), instead of mailing a printed copy of our proxy materials to all stockholders entitled to vote at the Annual
Meeting, Infinera is furnishing the proxy materials to its stockholders via the Internet. If you received a Notice of
Internet Availability of Proxy Materials (the “Notice”) by mail, you will not receive a printed copy of the proxy
materials. Instead, the Notice will instruct you as to how you may access and review the proxy materials and
submit your vote via the Internet. If you received a Notice by mail and would like to receive a printed copy of the
proxy materials, please follow the instructions for requesting such materials included in the Notice.

Choosing to receive your future proxy materials by email will save us the cost of printing and mailing the
documents to you and will reduce the impact of the Annual Meeting on the environment. If you choose to
receive future proxy materials by email, you will receive an email next year with instructions containing a link
to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will
remain in effect until you terminate it.

On the date of mailing of the Notice, all stockholders of record and beneficial owners will have the ability to
access all of our proxy materials on a website referred to in the Notice. These proxy materials will be available
free of charge.

Q: Where is the Annual Meeting?

A: The Annual Meeting will be held at our principal executive offices, located at 140 Caspian Court, Sunnyvale,

California 94089.

Q: Can I attend the Annual Meeting?

A: You are invited to attend the Annual Meeting if you were a stockholder of record or a beneficial owner as of

the close of business on March 18, 2015 (the “Record Date”). If you are a stockholder of record, please bring
a form of personal identification to be admitted to the meeting. If your shares are held in the name of your
broker, trustee or other nominee and you plan to attend the meeting, you must present proof of your beneficial
ownership of those shares as of the Record Date, such as a bank or brokerage account statement or letter,
together with a form of personal identification, to be admitted to the meeting. The Annual Meeting will begin
promptly at 10:00 a.m. Pacific Time.

Q: What proposals will be voted on at the Annual Meeting?

A: At the Annual Meeting, stockholders will be asked to vote on:

• The election of three Class II directors to serve until the 2018 Annual Meeting of Stockholders or until

their successors have been duly elected and qualified;

• The ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered public

accounting firm for the fiscal year ending December 26, 2015; and

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• The approval, on an advisory basis, of the compensation of Infinera’s named executive officers, as

described in this Proxy Statement.

We are not currently aware of any other business to be acted upon at the Annual Meeting. If any other matters
are properly submitted for consideration at the Annual Meeting, including any proposal to adjourn the Annual
Meeting, the persons named as proxies will vote the shares represented thereby at their discretion.
Adjournments of the Annual Meeting may be made for the purpose of, among other things, soliciting additional
proxies. Any adjournment may be made from time to time by approval of the holders of common stock
representing a majority of the votes present in person or by proxy at the Annual Meeting, whether or not a
quorum exists, without further notice other than by an announcement at the Annual Meeting.

Q: What is the voting requirement to approve each of the proposals and how does the Board recommend

that I vote?

A: Proposal 1—Directors are elected by a plurality vote, which means that the three directors who receive the
most “FOR” votes cast by the shares present in person, or represented by proxy, and entitled to vote at the
Annual Meeting will be elected. “WITHHOLD” votes will not affect the outcome of the election. Stockholders
may not cumulate votes in the election of directors. Broker non-votes are not deemed to be votes cast and,
therefore, are not included in the tabulation of the voting results on this proposal and will not affect the
outcome of the vote. The Board unanimously recommends that you vote your shares “FOR” the
nominees listed in Proposal 1.

Proposal 2—Ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered public
accounting firm for the fiscal year ending December 26, 2015, requires the affirmative vote of a majority of the
total votes cast by holders of shares present in person, or represented by proxy, and entitled to vote on this
proposal at the Annual Meeting. You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. Abstentions
are deemed to be votes cast and have the same effect as a vote “AGAINST” this proposal. Broker non-votes
are not deemed to be votes cast and, therefore, are not included in the tabulation of the voting results on this
proposal and will not affect the outcome of the vote. The Board unanimously recommends that you vote
your shares “FOR” Proposal 2.

Proposal 3—Approval, on an advisory basis, of the compensation of Infinera’s named executive officers
requires the affirmative vote of a majority of the total votes cast by holders of shares present in person, or
represented by proxy, and entitled to vote on this proposal at the Annual Meeting. You may vote “FOR,”
“AGAINST” or “ABSTAIN” on this proposal. Abstentions are deemed to be votes cast and have the same
effect as a vote “AGAINST” this proposal. Broker non-votes are not deemed to be votes cast and, therefore,
are not included in the tabulation of the voting results on this proposal and will not affect the outcome of the
vote. The Board unanimously recommends that you vote your shares “FOR” Proposal 3.

Stock Ownership

Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

A: Stockholders of Record—If your shares are registered directly in your name with our transfer agent,

Computershare Shareowner Services LLC, you are considered the “stockholder of record” with respect to
those shares, and, with the exception of certain stockholders who have been solicited by mail, the Notice has
been sent directly to you.

Beneficial Owners—Many stockholders hold their shares through a broker, trustee or other nominee, rather
than directly in their own name. If your shares are held in a brokerage account or by a bank or other nominee,
you are considered the “beneficial owner” of shares held in “street name.” The Notice has been forwarded to
you by your broker, trustee or other nominee who is considered, with respect to those shares, the stockholder
of record. As the beneficial owner, you have the right to direct your broker, trustee or other nominee on how to
vote your shares. For directions on how to vote shares beneficially held in street name, refer to the voting
instruction card provided by your broker, trustee or other nominee. Because a beneficial owner is not the
stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a
legal proxy issued in your name from the broker, trustee or other nominee that holds your shares, giving you
the right to vote the shares at the Annual Meeting.

2

Quorum and Voting

Q: Who is entitled to vote at the Annual Meeting?

A: Stockholders of record of our common stock at the close of business on the Record Date are entitled to

receive notice of and to vote their shares at the Annual Meeting. Such stockholders are entitled to cast one
vote for each share of common stock held as of the Record Date. As of the close of business on the Record
Date, there were 129,018,886 shares of common stock outstanding and entitled to vote at the Annual
Meeting. Shares held as of the Record Date include shares that are held directly in your name as the
stockholder of record and those shares held for you as a beneficial owner through a broker, bank or other
nominee

Q: How many shares must be present or represented to conduct business at the Annual Meeting?

A: The presence of the holders of a majority of the shares of our common stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting. Such stockholders are counted as
present at the meeting if they (1) are present in person at the Annual Meeting or (2) have properly submitted a
proxy.

Under the General Corporation Law of the State of Delaware, as amended, abstentions and broker non-votes
are counted as present and entitled to vote and are included for purposes of determining whether a quorum is
present at the Annual Meeting.

Q: What is a broker non-vote and how are they counted at the Annual Meeting?

A: A broker non-vote occurs when the broker holding shares for a beneficial owner does not vote on a particular
proposal because the broker does not exercise available discretionary voting power with respect to that
proposal or, in the absence of discretionary voting power, has not received instructions from the beneficial
owner on how to vote the shares. Broker non-votes will be counted towards the presence of a quorum, but will
not be counted towards the vote total for any proposal.

Q: Which proposals are considered “routine” or “non-routine?”

A: The election of directors (Proposal 1) and the non-binding advisory vote on Infinera’s named executive officer
compensation (Proposal 3) are “non-routine” matters for which discretionary voting power does not exist
under applicable rules. A broker, trustee or other nominee cannot vote without instructions on non-routine
matters, and therefore, broker non-votes may exist in connection with Proposals 1 and 3. Thus, if you hold
your shares in street name and you do not instruct your broker, bank or other nominee how to vote with
respect to Proposals 1 and 3, no votes will be cast on your behalf.

The ratification of Ernst & Young LLP as our independent registered public accounting firm (Proposal 2) is
considered a “routine” matter for which discretionary voting power exists under applicable rules. A broker,
trustee or other nominee may generally vote on routine matters, and therefore no broker non-votes are
expected to exist in connection with Proposal 2.

Q: How can I vote my shares in person at the Annual Meeting?

A: Stockholders of Record—Shares held in your name as the stockholder of record may be voted in person at
the Annual Meeting, even if previously voted by another method. To vote in person, please bring a form of
personal identification to be admitted to the meeting.

Beneficial Owners—Shares held beneficially in street name may be voted in person at the Annual Meeting
only if you obtain a legal proxy issued in your name from the broker, trustee or other nominee that holds your
shares, giving you the right to vote the shares at the Annual Meeting. Otherwise you will not be permitted to
vote at the meeting.

Even if you plan to attend the Annual Meeting, we recommend that you submit your vote as described
in the Notice and below, so that your vote will be counted if you later decide not to attend the Annual
Meeting.

3

Q: How can I vote my shares without attending the Annual Meeting?

A: Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct

how your shares are voted without attending the Annual Meeting. If you are a stockholder of record, you may
vote by submitting a proxy (please refer to the voting instructions in the Notice or below). If you hold shares
beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or other
nominee (please refer to the voting instructions provided to you by your broker, trustee or other nominee).

Internet—Stockholders of record with Internet access may submit proxies by following the instructions on the
Notice. Most of our stockholders who hold shares beneficially in street name may vote by accessing the
website specified in the voting instructions provided by their brokers, trustees or other nominees.

Telephone—Depending on how your shares are held, you may be able to vote by telephone. If this option is
available to you, you will receive information explaining this procedure.

Mail—If you have not already received one, you may request a proxy card from Infinera, and indicate your
vote by completing, signing and dating the card where indicated and returning it in the prepaid envelope that
will be included with the proxy card.

Q: How will my shares be voted if I submit a proxy via the Internet, by telephone or by mail and do not

make specific choices?

A:

If you are a stockholder of record or have obtained a proxy voting form from your broker, trustee or other
nominee that holds your shares giving you the right to vote the shares, and you submit a proxy via the
Internet, by telephone or by mail and do not make voting selections, the shares represented by that proxy will
be voted “FOR” the nominees listed in Proposal 1 and “FOR” Proposals 2 and 3. If you are a beneficial owner
of shares and your broker, trustee or other nominee does not receive instructions from you about how your
shares are to be voted, the shares represented by that proxy will not be voted with respect to Proposals 1 and
3 and will be counted as broker non-votes, and will be voted with respect to Proposal 2 at the discretion of
your broker, trustee or other nominee.

Q: Can I change or revoke my vote?

A: Subject to any rules your broker, trustee or other nominee may have, you may change your proxy instructions

at any time before your proxy is voted at the Annual Meeting.

Stockholders of Record—If you are a stockholder of record, you may change your vote by (1) filing with our
Corporate Secretary, prior to your shares being voted at the Annual Meeting, a written notice of revocation or
a duly executed proxy card, in either case dated later than the prior proxy relating to the same shares or
(2) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not, by
itself, revoke a proxy). Any written notice of revocation or subsequent proxy card must be received by our
Corporate Secretary prior to the taking of the vote at the Annual Meeting. Such written notice of revocation or
subsequent proxy card should be hand delivered to our Corporate Secretary or should be sent to our principal
executive offices, Attn: Corporate Secretary. A stockholder of record who has voted via the Internet or by
telephone may also change his or her vote by making a timely and valid Internet or telephone vote at a later
time but prior to 11:59 p.m. Eastern Time, on the day prior to the Annual Meeting.

Beneficial Owners—If you are a beneficial owner of shares held in street name, you may change your vote by
(1) submitting new voting instructions by any of the applicable voting methods allowed to your broker, trustee
or other nominee or (2) attending the Annual Meeting and voting in person if you have obtained a proxy voting
form from the broker, trustee or other nominee that holds your shares giving you the right to vote the shares.

Q: Who will bear the cost of soliciting votes for the Annual Meeting?

A: We will bear all expenses of soliciting proxies for the Annual Meeting. We may reimburse brokerage firms,

custodians, nominees, fiduciaries and other persons representing beneficial owners of common stock for their
reasonable expenses in forwarding solicitation materials to such beneficial owners. Directors, officers and
employees of Infinera may also solicit proxies in person or by other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be reimbursed for reasonable out-of-

4

pocket expenses in connection with such solicitation. We have engaged the services of Morrow & Co., LLC,
470 West Avenue, Stamford, Connecticut 06902, as our proxy solicitor to aid in the solicitation of proxies from
certain brokers, bank nominees and other institutional owners. Morrow’s fees for this service are estimated to
be $9,500 plus expenses.

Q: Where can I find the voting results of the Annual Meeting?

A: We intend to announce preliminary voting results at the Annual Meeting and will publish final results on a

Current Report on Form 8-K filed with the SEC.

Q: Are votes confidential? Who counts the votes?

A: We will continue to hold the votes of all stockholders in confidence from directors, officers and employees

except:

•

•

•

•

as necessary to meet applicable legal requirements and to assert or defend claims for or against the
Company;

in the case of a contested proxy solicitation;

if a stockholder makes a written comment on the proxy card or otherwise communicates his or her vote to
management; or

to allow the independent inspectors of election to certify the results of the vote.

We also will continue to retain an independent tabulator to receive and tabulate the proxies and independent
inspector of election to certify the results.

Additional Information

Q: What should I do if I receive more than one Notice or set of proxy materials?

A:

If you receive more than one Notice or set of proxy materials, your shares are likely registered in more than
one name or brokerage account. Please follow the voting instructions on each Notice or voting instruction card
that you receive to ensure that all of your shares are voted.

Q: Can I access Infinera’s proxy materials and Annual Report on Form 10-K via the Internet?

A: Our proxy materials will be available on its website at www.infinera.com/annual_meeting, and all stockholders
of record and beneficial owners will have the ability to vote free of charge online with their control number
referred to in the Notice at www.proxyvote.com. Our Annual Report on Form 10-K for the fiscal year ended
December 27, 2014 (the “2014 Annual Report”) is also available on the Internet as indicated in the Notice. In
addition, you can access this Proxy Statement and the 2014 Annual Report by going to Infinera’s website at
www.infinera.com/annual_meeting. The 2014 Annual Report is not incorporated into this Proxy Statement and
is not considered proxy soliciting material.

Q: What information from this proxy statement is incorporated by reference into certain Company SEC

filings?

A: We have made previous filings under the Securities Act of 1933, as amended, and the Securities Exchange

Act of 1934, as amended (the “Exchange Act”) that incorporate future filings, including this proxy statement, in
whole or in part. However, the Compensation Committee Report and the Report of the Audit Committee shall
not be incorporated by reference into any such filings.

Q: How can I view or request copies of the Company’s corporate documents and SEC filings?

A: Our website contains our Amended and Restated By-Laws, Corporate Governance Guidelines, Board

committee charters, Code of Business Conduct and Ethics and our SEC filings. To view these documents, go
to www.infinera.com, click on “Company” then click on “Investor Relations” and then click on “Corporate
Governance.” To view our SEC filings and Forms 3, 4 and 5 filed by our directors and executive officers, go to
www.infinera.com, click on “Company” then click on “Investor Relations” and then click on “SEC Filings.”

5

We will promptly deliver free of charge, upon request, a copy of the Corporate Governance Guidelines, Board
committee charters or Code of Business Conduct and Ethics to any stockholder requesting a copy. Requests
should be directed to Infinera Corporation, c/o Corporate Secretary, 140 Caspian Court, Sunnyvale, California
94089.

We will promptly deliver free of charge, upon request, a copy of the 2014 Annual Report and this Proxy
Statement to any stockholder requesting a copy. Requests should be directed to Infinera Corporation, c/o
Corporate Secretary, 140 Caspian Court, Sunnyvale, California 94089.

6

PROPOSAL 1—ELECTION OF DIRECTORS

General

The Board currently consists of eight directors and is divided into three classes. Each class of the Board
serves a staggered three-year term. Our Class II directors, whose terms expire at the Annual Meeting, are James
A. Dolce, Jr., Paul J. Milbury and David F. Welch, Ph.D.

There are three nominees for election to Class II of the Board this year, Messrs. Dolce and Milbury and
Dr. Welch. The nomination of these directors to stand for election at the Annual Meeting has been recommended
by the Nominating and Governance Committee and has been approved by the Board. Each of the nominees for
our Class II directors, if elected, will serve for a three-year term expiring at the 2018 Annual Meeting of
Stockholders, or until his successor is duly elected and qualified, or until his earlier death, resignation or removal
from the Board.

Director Qualifications

The Nominating and Governance Committee reviews candidates for service on the Board and recommends
nominees for election to fill vacancies on the Board, including nomination for re-election of directors whose terms
are due to expire. In discharging its responsibilities to nominate candidates for election to the Board, the
Nominating and Governance Committee endeavors to identify, recruit and nominate candidates characterized by
wisdom, maturity, sound judgment, excellent business skills and high integrity. The Nominating and Governance
Committee generally recommends that any new director be appointed to the class of directors that is up for re-
election at the next annual meeting of stockholders, while maintaining the quality of distribution of the three
classes of directors that comprise the Board. The Nominating and Governance Committee seeks to assure that
the Board is composed of individuals of diverse backgrounds who have a variety of complementary experience,
training and relationships relevant to our business. This diversity of background and experience includes ensuring
that the Board includes individuals with experience or skills sufficient to meet the requirements of the various rules
and regulations of NASDAQ and the SEC, such as the requirements to have a majority of independent directors
and an Audit Committee Financial Expert. In nominating candidates to fill vacancies created by the expiration of
the term of a director, the Nominating and Governance Committee determines whether the incumbent director is
willing to stand for re-election. The Nominating and Governance Committee evaluates each director’s performance
to determine suitability for re-election, taking into consideration, among other things, each director’s willingness to
fully participate and contribute to the Board and its committees, ability to work constructively with the rest of the
members of the Board, personal and professional integrity and familiarity with our business, operations and
markets.

Each of the nominees to fill positions as Class II directors has consented to serve if elected. However, if any
of the persons nominated by the Board subsequently declines to accept election, or is otherwise unavailable for
election prior to the Annual Meeting, proxies solicited by the Board will be voted by the proxy holders for the
election of any other person or persons as the Board may recommend, at its option, or may decide to further
reduce the number of directors that constitute the entire Board.

Information Regarding Nominees and Continuing Directors

Set forth below is information regarding each person nominated for election as a Class II director at the
Annual Meeting, as well as for each director continuing service on the Board, including their ages as of March 26,
2015, the periods during which they have served as a director, certain information as to their principal occupations,
directorships they hold in corporations whose shares are publicly registered and qualifications for serving as a
member of the Board, including the skills, qualities, attributes and experiences that led the Board to determine it is
appropriate to nominate these directors.

7

Nominees for Election as Class II Directors whose terms expire at the 2015 Annual Meeting of
Stockholders. If re-elected the Class II Directors terms would expire at the 2018 Annual Meeting of
Stockholders.

James A. Dolce, Jr.
Director since 2014
Age 52

Paul J. Milbury
Director since 2010
Age 66

James A. Dolce, Jr. has been a member of the Board since May 2014.
Since March 2014, Mr. Dolce has served as the CEO and a director of
Lookout, Inc., a mobile security company. Mr. Dolce has been the founder
of four successful technology companies and has held senior executive
positions at both Juniper Networks, Inc. and Akamai Technologies, Inc.
Prior to joining Lookout, Mr. Dolce was the Vice President of Carrier
Market Development at Akamai and prior to that, he was the founder and
CEO of Verivue, Inc., which was acquired by Akamai. Prior to Verivue, Mr.
Dolce served as Executive Vice President of Worldwide Field Operations
for Juniper from July 2002 to April 2006, where he led Juniper’s global
sales, marketing and customer service efforts. During Mr. Dolce’s tenure,
Juniper grew from annual revenue of $547 million to $2.3 billion. Mr. Dolce
joined Juniper through its acquisition of Unisphere Networks, Inc., where
he served as CEO from April 1999 to July 2002. During this period, Mr.
Dolce guided Unisphere’s rapid growth from initial product launch to over
$200 million annual revenue. Mr. Dolce currently serves on the board of
directors of Juniper Networks.

The Board believes that Mr. Dolce’s extensive executive management
experience in the telecommunications industry enables him to provide
significant experience to the Board. Mr. Dolce has also served as the CEO
of two private companies. The Board also benefits from Mr. Dolce’s
service as a member of our Technology and Acquisition Committee.

Paul J. Milbury has been a member of the Board since July 2010. Mr.
Milbury served as Vice President of Operations and Chief Financial Officer
(“CFO”) of Starent Networks, Corp., a provider of mobile network
solutions, from January 2007 until its acquisition by Cisco Systems, Inc., a
networking and telecommunications company, in December 2009. From
December 2009 to July 2010, Mr. Milbury played a key role in integrating
Starent Networks into Cisco Systems to create the Mobile Internet
Technology Group. From December 2000 to March 2007, Mr. Milbury
served as Vice President and CFO of Avid Technology, Inc., a digital
media creation, management and distribution solutions company. Mr.
Milbury currently serves on the board of directors of Gigamon, Inc.

As Chairman of our Audit Committee and as an Audit Committee Financial
Expert, Mr. Milbury provides the Board with a strong understanding and
high level of experience in the areas of finance, accounting and
operations. The Board also benefits from Mr. Milbury’s service as a
member of our Compensation Committee, his executive management
experience at Starent Networks, Cisco Systems and Avid Technology,
and his experience as a director at various public and private companies.

8

David F. Welch, Ph.D.
Director since 2010
Age 54

David F. Welch, Ph.D. co-founded Infinera and has served as our
President since June 2013 and as a member of the Board since October
2010. Dr. Welch has served as our Executive Vice President, Chief
Strategy Officer from January 2004 to June 2013, as our Chief
Development Officer/Chief Technology Officer from May 2001 to January
2005, as our Chief Marketing Officer from January 2005 to January 2009,
and as a member of our board of directors from May 2001 to November
2006. Prior to joining Infinera, Dr. Welch served in various executive roles,
including as Chief Technology Officer of the Transmission Products Group
of JDS Uniphase Corporation, an optical component company, and Chief
Technology Officer and Vice President of Corporate Development of SDL
Inc., an optical component company. Dr. Welch holds over 130 patents,
and has been awarded the Optical Society of America’s (“OSA”) Adolph
Lomb Medal, Joseph Fraunhofer Award, the John Tyndall Award and the
IET JJ Thompson Medal for Achievement in Electronics, in recognition of
his technical contributions to the optical industry. He is a Fellow of OSA
and the Institute of Electrical and Electronics Engineers.

As co-founder and President of Infinera, Dr. Welch has strong institutional
knowledge of Infinera, coupled with a deep technical understanding of the
optical networking industry. The Board believes that Dr. Welch’s
leadership skills, industry experience and comprehensive technical
knowledge provide the Board with an important perspective into our
product development, marketing and selling strategies. The Board also
benefits from Dr. Welch’s service on our Technology and Acquisition
Committee.

Incumbent Class III Directors whose terms expire at the 2016 Annual Meeting of Stockholders.

Marcel Gani
Director since 2014
Age 62

Marcel Gani has been a member of the Board since June 2014. Mr. Gani
has been an independent consultant since 2009. His previous experience
includes Lecturer in Accounting and Finance at the Leavey School of
Business at Santa Clara University, and multiple roles at Juniper
Networks, including Chief of Staff from January 2005 to March 2006 and
Executive Vice President and CFO from February 1997 to December
2004. Prior to Juniper, Mr. Gani served as Vice President and CFO of
NVIDIA Corporation from February 1996 to February 1997. Mr. Gani also
served as CFO of Grand Junction Networks, Primary Access Corporation
and NeXT Computer, Inc. Mr. Gani also serves on the board of directors
of Envivio, Inc., a video technology company.

The Board believes that Mr. Gani’s executive management experience as
a former CFO for various public and private companies in the technology
industry provides the Board with broad experience in finance, including
accounting and financial reporting. In addition, the Board also benefits
from his service as a member of the Nominating and Governance
Committee and Audit Committee, as well as an Audit Committee Financial
Expert.

9

Carl Redfield
Director since 2006
Age 68

Mark A. Wegleitner
Director since 2011
Age 64

Carl Redfield has been a member of the Board since August 2006. From
September 2004 to his retirement in May 2008, Mr. Redfield served as
Senior Vice President, New England Development Center Executive
Sponsor, of Cisco Systems. From February 1997 through September
2004, Mr. Redfield served as Cisco Systems’ Senior Vice President,
Manufacturing and Logistics.

The Board believes that Mr. Redfield’s executive management
experience, along with his significant manufacturing and logistics
experience, enable Mr. Redfield to make significant contributions to the
Board. In addition, the Board benefits from Mr. Redfield’s institutional
knowledge of Infinera and his service as a member of our Compensation
Committee and as Chairman of our Nominating and Governance
Committee.

Mark A. Wegleitner has been a member of the Board since May 2011.
Since April 2011, Mr. Wegleitner has served as President of Wegleitner
Consulting, LLC, a privately owned telecommunications consulting
company. From September 2007 until his retirement in July 2010, Mr.
Wegleitner served as the Senior Vice President, Technology, for Verizon
Communications Inc., a telecommunications company, where his
responsibilities included technology assessment, network architecture,
platform development and laboratory testing for wireline and wireless
communications networks. From July 2000 to September 2007, he served
as Chief Technology Officer (“CTO”) for Verizon, with responsibility for
wireline communications technologies. Prior to the creation of Verizon, Mr.
Wegleitner held various positions in the Network Services division of Bell
Atlantic, a telecommunications company, including CTO from January
1999 to July 2000. Prior to joining Bell Atlantic, he worked at Bell
Laboratories and AT&T General Departments.

The Board believes that Mr. Wegleitner’s extensive experience in the
telecommunications industry provides the Board with a high level of
expertise and experience. The Board also benefits from Mr. Wegleitner’s
service as a member of our Technology and Acquisition Committee and
as Chairman of our Compensation Committee.

10

Incumbent Class I Directors whose terms expire at the 2017 Annual Meeting of Stockholders.

Thomas J. Fallon
Director since 2009
Age 53

Kambiz Y. Hooshmand
Director since 2009
Age 53

Thomas J. Fallon has served as our CEO since January 2010 and as a
member of the Board since July 2009. From January 2010 to June 2013,
Mr. Fallon also served as our President. Mr. Fallon served as our Chief
Operating Officer from October 2006 to December 2009, and as our Vice
President of Engineering and Operations from April 2004 to September
2006. From August 2003 to March 2004, Mr. Fallon was Vice President,
Corporate Quality and Development Operations at Cisco Systems. From
March 1991 to August 2003, Mr. Fallon served in a variety of functions at
Cisco, including General Manager of the Optical Transport Business Unit
and Vice President of Service Provider Manufacturing. Prior to joining
Cisco, Mr. Fallon served in various manufacturing roles at Sun
Microsystems and Hewlett Packard. Mr. Fallon currently serves on the
board of Hercules Technology Growth Capital, Inc., a specialty finance
company, and the Engineering Advisory Board of the Cockrell School at
the University of Texas.

As the CEO of Infinera, the Board believes that Mr. Fallon provides
significant institutional knowledge of Infinera and industry knowledge, as
well as key insight and advice in the Board’s consideration and oversight
of corporate strategy and management development. The Board believes
that Mr. Fallon’s leadership skills and executive management experience,
along with his operational management experience and technical
expertise, enable Mr. Fallon to make significant contributions to the Board.

Kambiz Y. Hooshmand has been a member of the Board since
December 2009 and has served as Chairman of the Board since October
2010. From March 2005 to May 2009, Mr. Hooshmand served as
President and CEO of Applied Micro Circuits Corporation (“AMCC”), a
communications solutions company. From February 2002 to March 2005,
Mr. Hooshmand served as Group Vice President and General Manager of
Cisco Systems. From March 2000 to February 2002, Mr. Hooshmand
served as Vice President and Division General Manager of the DSL
Business Unit at Cisco Systems. From June 1997 to February 2000,
Mr. Hooshmand served as Cisco Systems’ Vice President of Engineering.
From January 1992 to June 1997, Mr. Hooshmand served as Director of
Engineering of StrataCom, Inc., a networking solutions company, which
was acquired by Cisco Systems. Mr. Hooshmand served on the board of
directors of Power-One, Inc., an energy efficient power solutions
company, from October 2009 to July 2013. Power-One was acquired by
ABB Ltd., a power and automation technology company, in July 2013.

As the Chairman of the Board of Infinera, Mr. Hooshmand brings his
leadership skills, industry experience and comprehensive knowledge of
our business, financial position and operations to the Board deliberations.
Mr. Hooshmand brings significant executive management and technical
experience in the networking industry as a result of his executive positions
at AMCC, Cisco Systems and StrataCom. The Board also benefits from
Mr. Hooshmand’s service as a member of our Audit Committee and
Nominating and Governance Committee, as well as Chairman of our
Technology and Acquisition Committee.

Vote Required

Directors are elected by a plurality vote, which means that the three directors who receive the most “FOR”
votes cast by the shares present in person, or represented by proxy, and entitled to vote at the Annual Meeting will
be elected. “WITHHOLD” votes and broker non-votes will not affect the outcome of the election. Stockholders may
not cumulate votes in the election of directors.

Proposal 1—Recommendation of the Board

The Board unanimously recommends a vote “FOR” the election to the Board of the three Class II nominees

listed above.

11

CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS

We have adopted a number of policies and practices, some of which are described below, that highlight our

commitment to sound corporate governance principles. We also maintain a Corporate Governance section on the
Investor Relations’ page on our website, which can be found at www.infinera.com.

Independence of the Board

In accordance with the current listing standards of NASDAQ, the Board, on an annual basis, affirmatively

determines the independence of each director or nominee for election as a director. The Board has determined
that, with the exception of Mr. Fallon and Dr. Welch, both of whom are employees of Infinera, all of its members
are “independent directors,” using the definition of that term in the listing standards of NASDAQ. Also, all members
of the Audit Committee, Compensation Committee and Nominating and Governance Committee, as more fully
described below, are independent directors.

Stockholder Communications with the Board

Stockholders may communicate with the Board by writing to the following address:

Board of Directors
c/o Corporate Secretary
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089

Communications are distributed to the Board or to any individual director, as appropriate, depending on the

facts and circumstances outlined in the communication. At the direction of the Board, all mail received may be
opened and screened for security purposes. Communications that are unduly hostile, threatening, illegal or
similarly unsuitable will be excluded with the provision that any communication that is filtered out will be made
available to any independent or non-employee director upon request.

Board Leadership Structure

In January 2010, we separated the positions of Chairman of the Board and CEO. Separating these positions
allows our CEO to focus on our day-to-day business, while allowing the Chairman of the Board to lead the Board
in its fundamental role of providing advice to and independent oversight of management. While our Bylaws do not
require that our Chairman of the Board and CEO positions be separate, the Board believes that having separate
positions is the appropriate leadership structure for Infinera at this time and demonstrates our commitment to good
corporate governance practices. The Board has assigned the Chairman of the Board with responsibility for
presiding over meetings of the Board, developing meeting agendas, facilitating communication between
management and the Board, representing director views to management and improving meeting effectiveness,
among other things.

The Board believes that its leadership structure is appropriate. The Board also believes that the combination

of an independent chairman, three of our four committees comprised entirely of independent directors and the
regular use of executive sessions of the independent directors enables the Board to maintain independent
oversight of our strategies and activities.

Board Oversight of Risk

Risk is inherent with every business and the Board is responsible for overseeing our risk management

function. Members of our senior management team are responsible for implementation of our day-to-day risk
management processes, while the Board, as a whole and through its committees, has responsibility for the
oversight of overall risk management. In connection with the Board’s annual strategic plan review, senior
management makes a multidisciplinary presentation to the Board that includes any significant strategic,
operational, financial, legal and compliance risks facing Infinera, our general risk management strategy and

12

actions taken by senior management in compliance with this strategy. At other meetings of the Board, senior
management provides updates to the Board on any specific risk-related issues. In its risk oversight role, the Board
has the responsibility to satisfy itself that the risk management processes designed and implemented by
management are adequate and functioning as designed. In addition, each of the committees of the Board
considers any risks that may be within its area of responsibilities and Board members, or Board committee
members, periodically engage in discussions with members of our senior management team as appropriate.
Specifically, the Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk
management in the areas of financial reporting, internal controls and compliance with certain public reporting
requirements. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect
to the management of risks arising from our compensation policies and programs. The Nominating and
Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the management
of risks associated with Board organization, membership and structure, succession planning for our directors and
executive officers, and corporate governance. The Technology and Acquisition Committee assists the Board in
fulfilling its oversight responsibilities with respect to managing the risks associated with technology development
and acquisitions and investments. Each of the committee Chairs reports to the full Board at regular meetings
concerning the activities of the committee, the significant issues it has discussed and the actions taken by the
committee.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers
(including our principal executive officer, principal financial officer, and principal accounting officer or controller, or
persons performing similar functions) and our directors. The Code of Business Conduct and Ethics reflects our
policy of dealing with all persons, including our customers, employees, investors and suppliers, with honesty and
integrity. All employees are required to complete training on our Code of Business Conduct and Ethics. A copy of
our Code of Business Conduct and Ethics is posted on our website at www.infinera.com in the Corporate
Governance section on our Investor Relations’ page. You may also obtain a copy of our Code of Business
Conduct and Ethics without charge by writing to: Infinera Corporation, c/o Corporate Secretary, 140 Caspian
Court, Sunnyvale, California 94089. We intend to disclose future amendments to certain provisions of our Code of
Business Conduct and Ethics, or waivers of such provisions, applicable to any principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions and our directors
on our website identified above or on a Form 8-K if required by the applicable listing standards.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines which govern, among other things, member
criteria, responsibilities, compensation and education, committee composition and charters, communication
activities and management succession. You can access these Corporate Governance Guidelines, along with other
materials such as Board committee charters, on our website at www.infinera.com in the Corporate Governance
section on our Investor Relations’ page.

Stock Ownership Policy

The Board believes that it is important to link the interests of our directors and management to those of our
stockholders. Accordingly, the Board has adopted a stock ownership policy for our directors and executive officers
who are designated as reporting officers under Section 16 of the Exchange Act (“Section 16 Officers”). For
additional information regarding our Stock Ownership Policy, please see the section entitled “Compensation
Discussion and Analysis—Additional Information Regarding Our Compensation Practices—Stock Ownership
Policy.”

Information Regarding the Board and its Committees

The Board met nine times during fiscal 2014. The Board acted by written consent three times during fiscal
2014. During fiscal 2014, each director then in office, with the exception of Mr. Redfield, attended 75% or more of
the meetings of the Board and the committees on which he served during the period for which he was a director,
committee chairman or committee member, as applicable. During fiscal 2014, Mr. Redfield’s ability to attend Board

13

and committee meetings was influenced by health considerations. Our independent directors meet in executive
sessions, without management present, during most regular meetings of the Board. Directors are encouraged, but
not required, to attend our annual meetings of stockholders. One member of the Board attended our 2014 Annual
Meeting of Stockholders.

The Board has four standing committees: an Audit Committee, a Compensation Committee, a Nominating and

Governance Committee, and a Technology and Acquisition Committee. Mr. Fallon does not serve on any
committees of the Board. All members served the entire fiscal year unless otherwise noted. The following table
provides membership and meeting information for the Board and each of the committees of the Board as of the
end of fiscal 2014:

Name

Board Audit Compensation

James A. Dolce, Jr.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand(3) . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.

Total Meetings in Fiscal 2014 . . . . . . . . . . . . . . . . . . . .

M
M
M
C
M
M
M
M

9

—
—
M
M
C
—
—
—

10

—
—
—
—
M
M
C
—

6

Nominating
and
Governance

Technology
and
Acquisition

—
—
M
M
—
C
—
—

8

M
—
—
C
—
—
M
M

3

C = Chairman; M = Member
(1) Mr. Dolce became a member of the Technology and Acquisition Committee effective as of September 16, 2014.
(2) Mr. Gani became a member of the Audit Committee effective as of June 9, 2014 and a member of the Nominating and

Governance Committee effective as of September 16, 2014.

(3) Mr. Hooshmand became a member of the Audit Committee effective as of May 15, 2014.

Below is a description of each standing committee of the Board. The Board has determined that each member

of the Audit, Compensation and Nominating and Governance Committees meets the applicable rules and
regulations regarding “independence” and that each such member is free of any relationship that would interfere
with his individual exercise of independent judgment with regard to Infinera. Each committee of the Board has a
written charter approved by the Board. Copies of each charter are posted on our website at www.infinera.com in
the Corporate Governance section on our Investor Relations’ page.

Audit Committee

The Audit Committee reviews and monitors our financial statements, financial reporting process and our
external audits, including, among other things, our internal controls and audit functions, the results and scope of
the annual audit and other services provided by our independent registered public accounting firm as well as our
compliance with legal matters that have a significant impact on our financial statements. Our Audit Committee also
consults with our management and our independent registered public accounting firm prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries into aspects of our financial affairs. Our
Audit Committee is responsible for establishing procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous
submission by our employees of concerns regarding questionable accounting or auditing matters. In addition, our
Audit Committee is directly responsible for the appointment, retention, compensation and oversight of the work of
our independent registered public accounting firm, including approving services and fee arrangements. Any related
party transactions are subject to approval by our Audit Committee. A more detailed description of the Audit
Committee’s functions can be found in our Audit Committee charter. A copy of the Audit Committee charter is
available on our website at www.infinera.com in the Corporate Governance section on our Investor Relations’
page.

The current members of the Audit Committee are Messrs. Gani, Hooshmand and Milbury. Mr. Milbury chairs
the Audit Committee. The Audit Committee met ten times during fiscal 2014. The Audit Committee did not act by

14

written consent during fiscal 2014. Each member of our Audit Committee is independent for Audit Committee
purposes under the rules and regulations of the SEC and the listing standards of NASDAQ. In addition to
qualifying as independent under the NASDAQ rules, each member of our Audit Committee can read and
understand fundamental financial statements in accordance with NASDAQ Audit Committee requirements. The
Board has determined that Messrs. Gani and Milbury are each an “Audit Committee Financial Expert” as defined in
Item 407(d)(5)(ii) of Regulation S-K. The designation does not impose on Messrs. Gani and Milbury any duties,
obligations or liabilities that are greater than are generally imposed on them as members of the Audit Committee
and the Board.

Compensation Committee

The Compensation Committee has the responsibility, authority and oversight relating to the development of

our overall compensation strategy and compensation policies and programs. The Compensation Committee
establishes our compensation philosophy and policies, administers all of our compensation plans for executive
officers, and recommends the compensation for the non-employee directors of the Board. The Compensation
Committee seeks to assure that our compensation policies and practices promote stockholder interests and
support our compensation objectives and philosophy as described in more detail in the Compensation Discussion
and Analysis section of this Proxy Statement.

The Compensation Committee also oversees, reviews and administers all of our material employee benefit

plans, including our 401(k) plan, and reviews and approves various other compensation policies and matters. The
Compensation Committee may form and delegate authority to one or more subcommittees as appropriate. A more
detailed description of the Compensation Committee’s functions can be found in our Compensation Committee
charter. A copy of the Compensation Committee charter is available on our website at www.infinera.com in the
Corporate Governance section on the Investor Relations’ page.

The current members of the Compensation Committee are Messrs. Milbury, Redfield and Wegleitner.
Mr. Wegleitner chairs the Compensation Committee. The Compensation Committee met six times during fiscal
2014. The Compensation Committee acted by written consent four times during fiscal 2014. Each member of our
Compensation Committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange
Act, an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code and satisfies the
director and compensation committee independence requirements under the listing standards of NASDAQ.

Non-Executive Equity Award Subcommittee

The guidelines for the size of new hire, promotional and annual retention equity awards for Section 16 Officers
are reviewed and approved by the Compensation Committee. The Compensation Committee has delegated to the
Non-Executive Equity Award Subcommittee (the “Subcommittee”), consisting of the CEO, General Counsel and
Vice President of Human Resources, the authority to formally approve new hire, promotional and annual retention
equity awards to certain employees pursuant to guidelines pre-approved by the Compensation Committee. The
delegation does not include the authority to make equity awards to employees who are Section 16 Officers. The
delegation of authority to the Subcommittee is not exclusive and the Board and Compensation Committee have
retained the right to approve any equity awards at their discretion. The Subcommittee acted by written consent 12
times and met in person one time during fiscal 2014.

Nominating and Governance Committee

The Nominating and Governance Committee reviews and recommends changes to corporate governance
policies and practices applicable to Infinera. In addition, the Nominating and Governance Committee is responsible
for identifying, evaluating and making recommendations of nominees to the Board and evaluating the performance
of the Board and individual directors, including those eligible for re-election at the annual meeting of stockholders.
The Nominating and Governance Committee also oversees an annual board evaluation process to determine
whether the Board is functioning effectively. The Nominating and Governance Committee is also responsible for
reviewing developments in corporate governance practices, and evaluating and making recommendations to the
Board concerning corporate governance matters. A more detailed description of the Nominating and Governance
Committee’s functions can be found in our Nominating and Governance Committee charter. A copy of the
Nominating and Governance Committee charter is available on our website at www.infinera.com in the Corporate
Governance section on our Investor Relations’ page.

15

The current members of the Nominating and Governance Committee are Messrs. Gani, Hooshmand and

Redfield, each of whom is independent under the listing standards of NASDAQ. Mr. Redfield chairs the
Nominating and Governance Committee. The Nominating and Governance Committee met eight times during
fiscal 2014. The Nominating and Governance Committee did not act by written consent during fiscal 2014.

Board Nominees and Diversity

The Nominating and Governance Committee reviews and reports to the Board on a periodic basis with regard

to matters of corporate governance, and reviews, assesses and makes recommendations on the effectiveness of
our corporate governance policies. In addition, our Nominating and Governance Committee reviews and makes
recommendations to the Board regarding the size and composition of the Board and the appropriate qualities and
skills required of our directors in the context of the then-current composition of the Board. This includes an
assessment of each candidate’s independence, personal and professional integrity, financial literacy or other
professional or business experience relevant to an understanding of our business, ability to think and act
independently and with sound judgment, and ability to serve our stockholders’ long-term interests. While we do not
have a formal written policy on director diversity, the Board and the Nominating and Governance Committee
consider diversity when reviewing the overall composition of the Board and considering the slate of nominees for
annual election to the Board and the appointment of individual directors to the Board. Diversity, in this context,
includes factors such as experience, specialized expertise, geographic location, cultural background, gender and
ethnicity. These factors, and others considered useful by our Nominating and Governance Committee, are
reviewed in the context of an assessment of the perceived needs of the Board at a particular point in time. As a
result, the priorities and emphasis of our Nominating and Governance Committee and of the Board may change
from time to time to take into account changes in business and other trends, as well as the portfolio of skills and
experience of current and prospective directors.

Our Nominating and Governance Committee leads the search for, selects and recommends candidates for

election to the Board. Consideration of new director candidates typically involves a series of committee
discussions, review of information concerning candidates and interviews with selected candidates. Candidates for
nomination to the Board typically have been suggested by other members of the Board or by our executive
officers. From time to time, our Nominating and Governance Committee may engage the services of a third-party
search firm to identify director candidates. Our Nominating and Governance Committee will also consider
candidates proposed in writing by stockholders, provided such proposal meets the eligibility requirements for
submitting stockholder proposals for inclusion in our next proxy statement and is accompanied by the required
information about the candidate specified in Section 2.4 of our Bylaws. Candidates proposed by stockholders are
evaluated by our Nominating and Governance Committee using the same criteria as for all other candidates.

If a stockholder wishes to recommend a director candidate for consideration by the Nominating and
Governance Committee, pursuant to our Corporate Governance Guidelines, the stockholder must have held at
least 1,000 shares of our common stock for at least six months and must notify the Nominating and Governance
Committee by writing to our Corporate Secretary at our principal executive offices, and must include the following
information:

• To the extent reasonably available, information relating to such director candidate that would be required
to be disclosed in a proxy statement pursuant to Regulation 14A under the Exchange Act, in which such
individual is a nominee for election to the Board;

• The director candidate’s written consent to (a) if selected, be named in our proxy statement and proxy,

and (b) if elected, to serve on the Board;

• The other information set forth in the applicable sections of Section 2.4 of our Bylaws; and

• Any other information that such stockholder believes is relevant in considering the director candidate.

Technology and Acquisition Committee

The Technology and Acquisition Committee reviews with management, makes recommendations to the Board

on and, when expressly authorized by the Board, approves acquisitions, investments, joint ventures and other
strategic transactions in which we may engage from time-to-time. The Technology and Acquisition Committee also

16

evaluates the execution, financial results and integration of any such potential transactions. In addition, the
Technology and Acquisition Committee provides advice and counsel on matters relating to technology
development and innovation, as well as enhancing the Board’s understanding to allow for better input and direction
regarding our strategy, progress and risks. A more detailed description of the Technology and Acquisition
Committee’s functions can be found in our Technology and Acquisition Committee charter. A copy of the
Technology and Acquisition Committee charter is available on our website at www.infinera.com in the Corporate
Governance section on our Investor Relations’ page.

The current members of the Technology and Acquisition Committee are Messrs. Dolce, Hooshmand and

Wegleitner and Dr. Welch. Mr. Hooshmand chairs the Technology and Acquisition Committee. The Technology
and Acquisition Committee met three times during fiscal 2014. The Technology and Acquisition Committee did not
act by written consent during fiscal 2014.

Compensation Committee Interlocks and Insider Participation

During fiscal 2014, the Compensation Committee of the Board consisted of Messrs. Milbury, Redfield and
Wegleitner. None of these individuals was at any time during fiscal 2014, or at any other time, an executive officer
or employee of Infinera. No member of our Compensation Committee had any relationship with Infinera during
fiscal 2014 requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of our executive
officers has ever served as a member of the board or compensation committee of any other entity that has or has
had one or more executive officers serving as a member of the Board or Compensation Committee.

17

COMPENSATION OF DIRECTORS

Our compensation program for our non-employee directors is designed to attract and retain highly-qualified,

independent directors to represent stockholders on the Board and to act in their best interests. Until September
2014, the Nominating and Governance Committee, which consists solely of independent directors, had the primary
responsibility for reviewing and recommending any changes to our director compensation program, with
compensation changes approved or ratified by the full Board. During fiscal 2014, the Nominating and Governance
Committee engaged an outside advisor to provide relevant market data regarding our director compensation
programs in order to review the program. The Nominating and Governance Committee and Board determined that
a mix of cash compensation and equity awards should continue to be used in our compensation program for our
non-employee directors. Directors who are also employees of Infinera do not participate in our director
compensation program, nor do they receive any additional compensation for their service as directors. Starting in
September 2014, the Compensation Committee now has the primary responsibility for reviewing and
recommending any changes to our director compensation program, with compensation changes approved or
ratified by the full Board.

Director Fees

Unless otherwise noted, during fiscal 2014, our cash compensation program for our non-employee directors

was as follows:

Position

Annual Retainer Fee
($)

Non-Employee Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee Member
. . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and Acquisition Committee Chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and Acquisition Committee Member

50,000(1)
40,000
30,000
12,500
20,000(2)
8,000
10,000
5,000
10,000
5,000

(1) Beginning at the start of the second quarter of fiscal 2014, the annual retainer for non-employee directors was increased

from $40,000 annually to $50,000 annually.

(2) Beginning at the start of the second quarter of fiscal 2014, the annual retainer for the Compensation Committee chair was

increased from $16,000 annually to $20,000 annually.

We do not pay any meeting fees for the Board or any of the committees of the Board. We pay the retainer
fees set forth above in quarterly installments. Retainer fees are paid in arrears. In addition, we have a policy of
reimbursing our non-employee directors for reasonable travel, lodging and other expenses incurred in connection
with their attendance at Board and committee meetings.

Director Equity Awards

Non-employee directors are eligible to receive equity awards as follows:

•

Initial RSU Award. Each individual who commences service as a non-employee director upon his or her
election or appointment to the Board at an annual meeting of stockholders will receive a RSU award for a
number of shares with an aggregate fair market value as reported on NASDAQ equal to $165,000. The
Initial RSU Award vests in equal annual installments over three years, subject to his or her continued
service with Infinera through each applicable vesting date.

• Annual RSU Award. On the date of each annual meeting of stockholders, each individual who continues
to serve as a non-employee director after that annual meeting will be eligible to receive a RSU award for
a number of shares with an aggregate fair market value as reported on NASDAQ equal to $165,000. The
Annual RSU Award will vest as to 100% of the shares on the earlier of the date of the next annual
meeting of stockholders or the one-year anniversary of the date of grant, provided that the non-employee
director remains a service provider of the Company through the vesting date.

18

In addition to the Initial RSU Award, any individual who is first elected or appointed as a non-employee

director other than at an annual meeting of stockholders and at least six months prior to the next annual meeting of
stockholders will also be eligible for a RSU award for a number of shares with an aggregate fair market value as
reported on NASDAQ equal to $165,000 pro-rated for the number of months remaining until the next scheduled
annual meeting of stockholders.

For the Annual RSU Award in connection with the 2014 Annual Meeting of Stockholders, we granted RSU
awards in the amount of 19,009 shares of Infinera common stock to each non-employee director then in office.
These RSU awards vest in full on May 7, 2015, subject to each non-employee director’s continued service to
Infinera through the vesting date.

Fiscal 2014 Director Compensation

The following table sets forth all of the compensation awarded to, earned by, or paid to the non-employee

members of the Board in fiscal 2014.

Name

Fees Earned
or Paid in Cash
($)(1)

Stock
Awards
($)(2)

Option
Awards
($)

James A. Dolce, Jr.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth A. Goldman(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip J. Koen(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dan Maydan, Ph.D.(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,596
36,099
26,195
115,295
26,905
25,385
90,500
70,500
76,500

—

327,335 —
334,975 —
—
163,667 —
—
—
163,667 —
163,667 —
163,667 —

—
—

Total
($)

359,931
371,074
26,195
278,962
26,905
25,385
254,167
234,167
240,167

(1) For a description of the annual non-employee director retainer fees and retainer fees for chair positions and for service as

Chairman of the Board, see the disclosure above under “Director Fees.”

(2) The amounts reported in this column represent the aggregate grant date fair value of the RSU awards granted in fiscal 2014

computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718,
“Compensation—Stock Compensation” (“ASC 718”) and without any adjustment for estimated forfeitures. These amounts
reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the
non-employee directors with respect to these awards at the time the shares of Infinera common stock underlying the RSU
awards are vested and/or sold. There can be no assurance that the actual value realized by a non-employee director will be
at or near the grant date fair value of the RSU awards granted.
(3) Mr. Dolce was appointed as a director effective as of May 15, 2014.
(4) Mr. Gani was appointed as a director effective as of June 9, 2014.
(5) Mr. Goldman resigned as a director effective as of May 15, 2014.
(6) Mr. Koen resigned as a director effective as of May 14, 2014.
(7) Dr. Maydan resigned as a director effective as of May 15, 2014.

Additional Information with Respect to Director Equity Awards

Name

James A. Dolce, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth A. Goldman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip J. Koen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dan Maydan, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner

Shares Subject to
Stock Awards Outstanding
at Fiscal Year-End
(#)(1)

Shares Subject to
Option Awards Outstanding
at Fiscal Year-End
(#)(2)

38,018
35,560

—

19,009

—
—

19,009
19,009
19,009

—
—
—

100,000

—
—

32,600
157,100
70,000

(1)

(2)

Includes unvested RSU awards.
Includes both vested and unvested stock options to purchase shares of Infinera common stock.

19

PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Audit Committee of the Board has selected Ernst & Young LLP, independent registered public accounting

firm, as our independent auditors for the fiscal year ending December 26, 2015 and has further directed that we
submit the appointment of independent auditors for ratification by the stockholders at the Annual Meeting. Ernst &
Young LLP has audited our financial statements since fiscal 2001. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.

Ratification of appointment of Ernst & Young LLP as our independent registered public accounting firm is not

required pursuant to our Bylaws, our other governing documents or law. However, we are submitting the
appointment of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the appointment, the Audit Committee will reconsider whether or not to retain that firm.
Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of different
independent auditors at any time during the year if it determines that such change would be in the best interests of
Infinera and its stockholders.

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and

entitled to vote at the Annual Meeting will be required to ratify the appointment of Ernst & Young LLP. Abstentions
will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative
votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.

Independent Registered Public Accounting Firm’s Fees

The following table sets forth the aggregate fees for audit, tax and other services provided by Ernst & Young

LLP for the fiscal years ended December 27, 2014 and December 28, 2013. All of the services described in the
following table were approved in conformity with the Audit Committee’s pre-approval processes and procedures.

Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,563,000
47,000
2,000

$1,628,000
9,000
2,000

Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,612,000

$1,639,000

2014

2013

Audit Fees

This category of the table above includes fees for the integrated audit of our annual consolidated financial

statements and internal control over financial reporting, the preparation by Ernst & Young LLP of a report
expressing its opinion regarding the effectiveness of our internal control over financial reporting, review of the
condensed consolidated financial statements included in our quarterly reports on Form 10-Q, and services that are
normally provided by Ernst & Young LLP in connection with statutory and regulatory filings for those fiscal years.
The category also includes statutory audits required by non-U.S. jurisdictions. Audit fees for fiscal 2013 include
$0.3 million of fees related to comfort letter procedures in connection with the issuance of $150 million aggregate
principal amount of 1.75% Convertible Senior Notes due 2018.

Tax Fees

This category of the table above includes fees for tax compliance, tax advice and tax planning.

All Other Fees

This category of the table above principally includes support and advisory services provided by Ernst & Young

LLP that are not included in the service categories reported above.

20

Pre-Approval Policies and Procedures

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services rendered by

Ernst & Young LLP, our independent registered public accounting firm. The Audit Committee can pre-approve
specified services in defined categories of audit services, audit-related services and tax services up to specified
amounts, as part of the Audit Committee’s approval of the scope of the engagement of Ernst & Young LLP or on
an individual case-by-case basis before Ernst & Young LLP is engaged to provide a service. The Audit Committee
has determined that the rendering of the services other than audit services by Ernst & Young LLP is compatible
with maintaining the principal accountant’s independence.

Vote Required

Approval of Proposal 2 requires the affirmative vote of a majority of the votes cast on this proposal.

“ABSTENTIONS” will have the same effect as an “AGAINST” vote. Broker non-votes are not deemed to be votes
cast and, therefore, are not included in the tabulation of the voting results on this proposal and will not affect the
outcome of the vote.

Proposal 2—Recommendation of the Board

The Board unanimously recommends a vote “FOR” the ratification of the appointment of Ernst & Young LLP

as Infinera’s independent registered public accounting firm for its fiscal year ending December 26, 2015.

21

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board currently consists of the three non-employee directors named below. The
Board annually reviews the NASDAQ listing standards’ definition of independence for Audit Committee members
and has determined that each member of the Audit Committee meets that standard. The Board has also
determined that Messrs. Gani and Milbury are each an Audit Committee Financial Expert as described in
applicable rules and regulations of the SEC.

The principal purpose of the Audit Committee is to assist the Board in its general oversight of our accounting
practices, system of internal controls, audit processes and financial reporting processes. The Audit Committee is
responsible for appointing and retaining our independent auditor and approving the audit and non-audit services to
be provided by the independent auditor. The Audit Committee’s function is more fully described in its charter,
which the Board has adopted and which the Audit Committee reviews on an annual basis.

Our management is responsible for preparing our financial statements and ensuring they are complete and

accurate and prepared in accordance with generally accepted accounting principles. Ernst & Young LLP, our
independent registered public accounting firm, is responsible for performing an independent audit of our
consolidated financial statements in accordance with generally accepted auditing standards and expressing an
opinion on the effectiveness of our internal control over financial reporting.

The Audit Committee has reviewed and discussed the audited financial statements included in our 2014
Annual Report with our management and Ernst & Young LLP. The Audit Committee has also discussed with
Ernst & Young LLP the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit
Committees” issued by Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee also has
received and reviewed the written disclosures and the letter from Ernst & Young LLP required by applicable
requirements of the PCAOB regarding Ernst & Young LLP’s communications with the Audit Committee concerning
independence, and has discussed with Ernst & Young LLP its independence from Infinera.

Based upon the review and discussions described above, the Audit Committee recommended to the Board
that the audited financial statements referred to above be included in our 2014 Annual Report for filing with the
SEC.

Submitted by the following members of the Audit Committee:

Paul J. Milbury, Chairman
Marcel Gani
Kambiz Y. Hooshmand

22

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to us regarding beneficial ownership of our common

stock as of the Record Date by:

• Each person known by us to be the beneficial owner of more than 5% of any class of our voting

securities;

• Our named executive officers;

• Each of our directors; and

• All current named executive officers and directors as a group.

The information provided in this table is based on our records, information filed with the SEC and information

provided to Infinera, except where otherwise noted. To our knowledge and unless as otherwise indicated, each
stockholder possesses sole voting and investment power over the shares listed, except for shares owned jointly
with such person’s spouse. Percentage beneficially owned is based on 129,018,886 shares of common stock
outstanding on the Record Date. Unless otherwise indicated, the principal address of each of the stockholders
below is c/o Infinera Corporation, 140 Caspian Court, Sunnyvale, California 94089.

Name of Beneficial Owner

Common
Shares
Currently
Held

Common Shares
That May Be
Acquired Within
60 Days of the
Record Date(1)

Total
Beneficial
Ownership

Percent
Beneficially
Owned

. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,792,952
7,728,166
7,108,991

5% or More Stockholders
FMR LLC(2)
The Vanguard Group(3) . . . . . . . . . . . . . . . . . .
BlackRock, Inc.(4)
. . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers and Directors
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . .
Brad Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.(5) . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . . . . . .
James A. Dolce, Jr. . . . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand(6)
. . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield(7) . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . .

852,418
56,313
1,347,841
29,211

—
—
—

48,567
18,067
69,001
17,467

—
—
—

18,792,952
7,728,166
7,108,991

14.6%
6.0%
5.5%

685,662
8,333
910,480
13,540

—

25,346
17,780
119,009
51,609
126,109
74,009

1,538,080
64,646
2,258,321
42,751

—

25,346
17,780
167,576
69,676
195,110
91,476

1.2%
*
1.7%
*
*
*
*
*
*
*
*

All current executive officers and

directors as a group (11 persons) . . . . .

2,438,885

2,031,877

4,470,762

3.4%

*
(1)

(2)

Less than 1% of the outstanding shares of common stock.
Includes shares represented by vested, unexercised stock options as of the Record Date and stock options, RSUs or other
rights that are expected to vest within 60 days as of the Record Date. These shares are deemed to be outstanding for the
purpose of computing the percentage ownership of the person holding the stock options or RSUs, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other person.
Information based on a Schedule 13G/A filed with the SEC on February 13, 2015 by FMR LLC (“FMR”), Edward C. Johnson
III (FMR’s Director and Chairman), Abigail P. Johnson (FMR’s Director, Vice Chairman, Chief Executive Officer and
President) and Fidelity Growth Company Fund (“Fidelity”). Such amendment states that FMR is deemed to be the beneficial
owner of 18,792,952 shares by virtue of its control over Fidelity, which is deemed to be the beneficial owner of 11,614,794
shares as a result of its acting as investment advisor to various investment companies registered under Section 8 of the
Investment Company Act of 1940. Such amendment further states that (a) FMR has sole voting power over 2,200,500
shares, shared voting power over no shares, sole dispositive power over 18,792,952 shares, and shared dispositive power
over no shares; (b) Mr. Johnson has neither sole nor shared voting power over any shares, sole dispositive power over
18,792,952 shares, and shared dispositive power over no shares; (c) Ms. Johnson has neither sole nor shared voting power
over any shares, sole dispositive power over 18,792,952 shares, and shared dispositive power over no shares and

23

(d) Fidelity has sole voting power over 11,614,794 shares, shared voting power over no shares, sole dispositive power over
no shares, and shared dispositive power over no shares. The address of FMR is 245 Summer Street, Boston,
Massachusetts 02210.

(3) According to a Schedule 13G/A filed with the SEC on February 10, 2015 by The Vanguard Group (“Vanguard”). Vanguard is
the beneficial owner of 7,728,166 and has sole voting power with respect to 167,400 shares, sole dispositive power with
respect to 7,571,966 shares and shared dispositive power with respect to 156,200 shares. The address of Vanguard is 100
Vanguard Boulevard, Malvern, Pennsylvania 19355.

(4) According to a Schedule 13G/A filed with the SEC on February 2, 2015 by BlackRock, Inc. (“BlackRock”). BlackRock is the

beneficial owner of 7,108,991 shares and has sole voting power with respect to 6,841,607 shares and sole dispositive power
with respect to 7,108,991 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10022.

(5) Consists of (i) 14,132 shares held by Dr. Welch; (ii) 277,966 shares held by The Welch Family Trust dated 4/3/96;

(iii) 319,493 shares held by LRFA, LLC, a limited liability company of which Dr. Welch is the sole managing member;
(iv) 180,000 shares held by The Welch Group, L.P., a limited partnership of which Dr. Welch is the general partner;
(v) 553,750 shares held by SEI Private Trust Company, Trustee of The Welch Family Heritage Trust I u/l dated 9/24/01; and
(vi) 2,500 shares held by Dr. Welch as trustee for his children. Dr. Welch disclaims beneficial ownership of the shares held in
trust for his children.

(6) Consists of (i) 35,234 shares held by Mr. Hooshmand; and (ii) 13,333 shares held by 2002 Hooshmand Family Trust UA

03/01/2002.

(7) Consists of (i) 39,562 shares held by Mr. Redfield; and (ii) 29,439 shares held by The Carl Redfield Trust 2000 dated

10/18/00.

24

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis provides information related to the fiscal 2014 compensation

program and related decisions for the NEOs identified below. For fiscal 2014, these individuals were:

• Thomas J. Fallon, our CEO;

• David F. Welch, Ph.D., our President;

• Brad Feller, our CFO;

• Robert J. Jandro, our Senior Vice President, Worldwide Sales;

•

•

James L. Laufman, our Senior Vice President, General Counsel and Secretary; and

Ita M. Brennan, our former CFO.

Fiscal 2014 Management Changes. Ms. Brennan terminated her employment with us in February 2014.
Mr. Feller began his employment with us as Senior Vice President in January 2014 and was appointed as our CFO
effective in March 2014. Alastair A. Short, our former Senior Vice President, General Counsel and Secretary,
terminated his employment with us in August 2014. We hired Mr. Laufman to serve as our Senior Vice President,
General Counsel and Secretary in October 2014.

Executive Summary

Our executive compensation program is designed to balance near-term results with long-term success and to

encourage employees to continue to build value through innovation and execution. To fulfill this mission, we have a
“pay-for-performance” compensation philosophy that forms the foundation for all decisions regarding executive
compensation made by the Compensation Committee. In addition, we are committed to equity-based pay practices,
which help insure alignment of executives’ and employees’ interests with the interests of our stockholders.

Fiscal 2014 Business Highlights

Our financial results for fiscal 2014 reflect a year of winning footprint, building strong relationships with our
customers, and increasing profitability. We continued to gain strong market acceptance of our Intelligent Transport
Network and the Infinera DTN-X platform. Highlights included:

• Revenue was $668.1 million in fiscal 2014, a 23% increase compared to fiscal 2013, marking the second
consecutive year where we have grown significantly faster than the overall dense wavelength division
multiplexing market.

• Non-GAAP gross margin was 44.0% in fiscal 2014 as compared to 41.6% in fiscal 2013 and 37.9% in
fiscal 2012, demonstrating the leverage we have achieved from our vertical integration and the value
proposition of our Intelligent Transport Network.

• Non-GAAP operating income was $55.7 million in fiscal 2014 as compared to a non-GAAP operating
income of $7.8 million in fiscal 2013 and a non-GAAP operating loss of $41.2 million in fiscal 2012.

The following tables illustrate the growth in our revenue and shift to non-GAAP profitability over the last three

fiscal years (in millions):

$800

$700

$600

$500

$400

$300

$200

$100

$0

$438

FY12

Revenue

$544

$668

FY13
Fiscal Year

FY14

$80

$60

$40

$20

$0

($20)

($40)

($60)

Non-GAAP Opera(cid:2)ng Income (Loss)(1)

$55.7

$7.8

($41.2)

FY12

FY13
Fiscal Year

FY14

(1) For a reconciliation of GAAP to Non-GAAP Gross Profit, Gross Margin and Operating Income (Loss) for fiscal years 2014,

2013 and 2012, please see Appendix A to this Proxy Statement.

25

Throughout the year, a steady flow of customers adopted the Infinera DTN-X platform to address their 100
Gigabits per second needs. Since its introduction in mid-2012, we have sold the Infinera DTN-X platform to 59
customers, representing a broad array of service providers including Tier 1 and Tier 2 telecommunications service
providers, Internet content providers, cable operators, wholesale and enterprise carriers, research and education
institutions, and government entities. We continued to demonstrate excellent financial performance on a year-over-
year basis and achieved substantially all of our operational goals, which resulted in our NEOs earning higher
levels of performance-based compensation under our variable compensation programs.

Providing value and return to our stockholders is central to our compensation philosophy.

Annualized 1-Year, 3-Year and 5-Year Total Stockholder Return

52%

Infinera

S&P N. American Multimedia Networking Index

33%

19%

13%

11%

8%

1-Year TSR

3-Year TSR

5-Year TSR

Fiscal 2014 Executive Compensation Program Design Highlights

Our executive compensation program for fiscal 2014 reflects our performance results and the continued

strong alignment of the interests of our executive officers with those of our stockholders. Highlights of our
executive compensation program for fiscal 2014 were:

• The majority of our CEO’s fiscal 2014 target total direct compensation was in equity.

•

66% of our CEO’s target total direct compensation was in equity, which links our CEO’s
compensation directly to the value of our common stock. In fiscal 2014, our CEO received a PSU
award for 160,330 shares of our common stock and a RSU award for 106,880 shares of our common
stock. Target total direct compensation consists of base salary, target cash incentive opportunity and
target equity incentive compensation.

FY14 TDC: CEO

Base Salary, 15%

Target Cash
Incentive, 19%

Target Equity
Incentive, 66%

• The majority of our CEO’s fiscal 2014 target total direct compensation and target equity

compensation were at risk.

•

•

56% of our CEO’s target total direct compensation was completely at risk based on our
performance against measurable performance objectives set forth under the 2014 Bonus Plan and
PSU awards.

56% of our CEO’s target equity compensation was in PSU awards. The PSU awards are 100%
subject to risk of forfeiture based on our relative TSR performance over three performance periods
against the S&P Networking Index.

26

• Our fiscal 2014 PSU awards included rigorous performance requirements. To support our pay-for-
performance philosophy and further emphasize the importance of creating long-term stockholder value,
our fiscal 2014 PSU awards contain several features we consider to be best practices:

• Sustained performance requirement. To earn the maximum number of shares under the PSU

awards, which is 150% of target shares, our TSR must exceed that of the S&P Networking Index by
25 points or more as calculated on each of the three separate measurement points (coinciding with
the end of our fiscal 2014, 2015 and 2016).

• Steeper downside slope. PSU awards are reduced one and one-half times faster if our TSR

underperforms the S&P Networking Index (3-to-1 downside) than they are increased if our TSR
outperforms the S&P Networking Index (2-to-1 upside). For example, if we underperform the S&P
Networking Index by 10 points of TSR, 70% of the target PSU awards would be earned. If we
outperform the S&P Networking Index by 10 points of TSR, 120% of the target PSU awards would be
earned.

• Additional award cap. Regardless of our performance versus the S&P Networking Index, PSU

awards are capped at 50% of target for any period in which our TSR is negative. Therefore, even if
we significantly outperform the S&P Networking Index in challenging market conditions, our PSU
awards provide only modest rewards unless incremental stockholder value is created.

Fiscal 2014 Executive Compensation Program Payout Highlights

Our fiscal 2014 payouts reflect our strong performance. As indicated above, our executive compensation

program strives to align the compensation outcomes for our NEOs with performance against measurable
objectives. The tables below summarize the results of key performance metrics that included fiscal 2014 as some
or all of the performance measurement period under our 2014 Bonus Plan and PSU awards.

Our fiscal 2014 revenue and non-GAAP operating income results demonstrated significant growth over fiscal
2013 and exceeded the maximum levels established under our fiscal 2014 Bonus Plan, resulting in the maximum
funding for the financial component at 150%.

Metric

Fiscal 2013
Actual Results

Revenue ($MM) . . . . . . . . . . . . . . . . . . . . .
. . .
Non-GAAP Operating Income ($MM)

$544.1
$ 7.8

Fiscal 2014 Financial Performance

Target

$ 600
>$ 15

Maximum

Actual

$ 652
>$ 32

$668.1
$ 55.7

Funding as
% of Target

150%

As of the end of fiscal 2014, we had two outstanding PSU performance cycles that measure our TSR against
that of an independently constituted market index. As summarized in the table below, we continued to outperform
both the S&P Networking Index (fiscal 2014 PSU awards) and the Telecomm Index (fiscal 2013 PSU awards),
which resulted in maximum payouts (150% of target) for the performance cycles that concluded at the end of our
fiscal 2014. The outstanding PSU award granted in fiscal 2012 failed to meet the non-GAAP operating profit target
of $60 million for fiscal 2014 and the remaining shares under this award were cancelled for Mr. Fallon and
Dr. Welch.

Year of
Grant

Benchmark

Applicable
Measurement
Period

% of Target
Award Tied
to Period

Performance Comparison

Infinera %
Change

Index %
Change

Infinera
Minus Index

Payout as % of
Target
(2-for-1 upside,
150% max)

2014
2013

S&P Networking Index(1)(2)
Telecomm Index(1)(2)

~1-year
~2-years

33%
33%

+ 65%
+ 8% + ~57 points
+128% +30% + ~98 points

150%
150%

(1) Performance is calculated using a 60-day average closing stock price and index value leading up to and including the grant

date and at the end of the performance period.

(2) One-third of the target award is measured at the end of the first, second and third fiscal years after the grant date.

27

Governance of Executive Compensation

Our executive compensation program reflects our core executive compensation governance principles and

practices, including the following:

• Executive Clawback Policy. We maintain an executive clawback policy that applies to our Section 16

Officers relating to reimbursement of incentive compensation under specified circumstances as set forth
in the policy.

• Anti-Hedging Policy. Our insider trading policy prohibits all employees, including our NEOs, from hedging

their Infinera common stock.

• No Pledging of our Common Stock by NEOs. In fiscal 2014 we revised our insider trading policy to

prohibit our NEOs from pledging our common stock as collateral for a loan.

• Fully Independent Compensation Committee. Our executive compensation program is reviewed annually

by the Compensation Committee, which consists solely of independent directors.

• Stock Ownership Policy. Our Section 16 Officers and Board members are subject to minimum stock
ownership requirements as described below in the section entitled “Compensation Discussion and
Analysis—Additional Information Regarding Our Compensation Practices—Stock Ownership Policy.”

• No Guaranteed Bonuses. We do not provide any guaranteed bonuses for any of our executive officers
with the exception of sign on bonuses that may be negotiated as part of an executive officer new hire
package.

• No Tax Gross-Ups. We do not have any arrangements providing for tax “gross-ups” of any compensation

elements with any of our executive officers.

•

“Double-trigger” Change of Control Arrangements. Our change of control agreements contain “double-
trigger” arrangements that require a termination of employment without cause or a constructive
termination of employment following a change of control of Infinera before payments and benefits are
triggered.

• Annual Compensation Risk Assessment. The Compensation Committee annually conducts a

compensation risk assessment to determine whether our compensation arrangements, or components
thereof, create risks that are reasonably likely to have a material adverse effect on Infinera (as set forth in
the section entitled “Risk Assessment of Compensation Practices” above).

• No Executive Perquisites. Our executive officers are only eligible to receive the same benefits and

perquisites as our other salaried employees.

•

Independent Compensation Consultant Reporting Directly to Compensation Committee. The
Compensation Committee relies upon input from an independent compensation consultant that is
retained directly by the Compensation Committee.

Advisory Vote on Fiscal 2013 Named Executive Officer Compensation—“Say-on-Pay” Vote

In calendar 2014, stockholders were provided with the opportunity to cast an advisory (non-binding) vote (a
“Say-on-Pay”) on the compensation of our NEOs for fiscal 2013. Our stockholders overwhelmingly approved our
Say-on-Pay vote that occurred in calendar 2014 for fiscal 2013 NEO compensation, with over 96% of votes cast
voting in favor of our Say-on-Pay proposal. For fiscal 2014, we retained our general approach to our executive
compensation program, with a continued emphasis on rewarding our executive officers through compensation if
they deliver value for our stockholders. The Compensation Committee welcomes input from our stockholders, as
well as the outcome of our annual Say-on-Pay vote, when making executive compensation program decisions.

28

Overview of our Executive Compensation Program Philosophy and Process

Compensation Objectives and Philosophy

Our executive compensation program is designed to attract, retain, and reward talented executive officers and

to motivate them to pursue our corporate objectives, while fostering the creation of long-term value for our
stockholders. To achieve this mission, we take a “pay-for-performance” approach that forms the foundation for the
design of our executive compensation program. The Compensation Committee also designs the various
components of our executive compensation program to support our company culture (i.e., increasing levels of
accountability through the use of “at risk” pay for more senior employees), the internal environment relative to
industry conditions, current business priorities and strategy and product development cycles.

Compensation-Setting Process Roles

Role and Authority of Compensation Committee. The Compensation Committee is responsible for our
executive compensation program and all related policies and practices. The Compensation Committee has the
responsibility to review and approve the compensation of each of our executive officers, including the NEOs. In
addition, the Compensation Committee reviews, approves and administers our material compensation, equity and
employee benefit plans and programs, which are generally available to our employees, including the NEOs. The
Compensation Committee also has the authority to engage its own advisors to assist it in carrying out its
responsibilities, and the reasonable compensation for such advisor services is paid by Infinera.

Role of Compensation Consultant. During fiscal 2014, the Compensation Committee engaged the services of

Compensia, Inc. (“Compensia”). Compensia provided the Compensation Committee with an analysis of
competitive market data regarding our NEO compensation relative to our industry sector, information on
compensation trends, peer group and general market data, as well as assistance with base salary, incentive plan
design and the structure of our executive compensation programs. The Compensation Committee selected
Compensia to report directly to the Compensation Committee. Compensia interacted with management at the
direction of the Compensation Committee but did not provide any other services for Infinera or its management
team in fiscal 2014. Compensia’s fees were paid by Infinera. The Compensation Committee annually reviews the
independence of its compensation consultant and during fiscal 2014 it determined that there were no conflicts of
interest in connection with Compensia’s work.

Roles in Determination of CEO Compensation. Our compensation consultant provides market data and
considerations for the Compensation Committee to evaluate in relation to the amount and form of our CEO’s
compensation. As part of this process, the Compensation Committee considers input from the Board and feedback
from the Chairman of the Board in particular. While the Compensation Committee considers the feedback or
recommendations it receives, all decisions regarding our CEO’s compensation are made by the Compensation
Committee or by the Board based on its own judgment and the interests of our stockholders, in executive sessions
excluding our CEO.

Role in Determination of non-CEO Compensation. As a result of his close working relationship with each of

the other NEOs, our CEO is asked to provide his assessment of their performance to the Compensation
Committee. Our CEO is assisted by our Vice President of Human Resources in making these assessments. Our
CEO then presents his performance assessment and makes formal recommendations to the Compensation
Committee regarding adjustments to base salary, annual cash incentive award opportunities and equity awards for
our executives (other than himself). While the Compensation Committee considers the recommendations of our
CEO in determining compensation for the other NEOs, its decisions are based on its own judgment and the
interests of our stockholders. None of the NEOs makes any recommendations regarding his own compensation
and, with the exception of our General Counsel, in his role as secretary of the meeting, none of the executive
officers is present at meetings in which his compensation is determined.

Executive Compensation Elements

We provide base salaries to attract, retain and motivate our executive officers for their day-to-day

contributions, annual incentive cash compensation to link payments to the achievement of our annual financial
and/or operational performance, and long-term equity-based incentive compensation to align the interests of our
executive officers with that of our stockholders and provide significant motivational and retention value to our

29

executive officers. These are the key elements of our executive compensation program. We believe each is
necessary to attract, retain and motivate our executive officers, on whom our success largely depends. In addition,
we also provide employee benefits that are generally available to all our employees including our NEOs, and
certain severance and “double-trigger” change of control payments and benefits as part of our executive
compensation program as described further below.

Allocation of Compensation across Pay Elements

In determining how we allocate an NEO’s target total direct compensation opportunity among these various

elements, we seek to remain market competitive while emphasizing compensation elements that reward
performance against measures that we believe correlate closely with increases in long-term stockholder value.
Equity awards, which for fiscal 2014 consisted of RSU awards and PSU awards, represent a large component of
our NEOs’ target total direct compensation opportunity in order to encourage sustained, long-term performance
and ensure alignment of the interests of our NEOs and our stockholders. Consistent with our pay-for-performance
approach, a significant portion of our NEOs’ fiscal 2014 target total direct compensation opportunity was
completely at-risk, including 56% of our CEO’s total target direct compensation opportunity. We believe this
emphasis on equity and variable, at-risk compensation is appropriate because our NEOs have the greatest
influence on our performance over time.

The following charts show our mix of target total direct compensation for fiscal 2014 for our CEO and other

NEOs as a group:

FY14 Mix of Pay: CEO

FY14 Mix of Pay: Other NEO Average(1)

Base Salary
15%

Base Salary
27%

Perf.-Based RSUs
37%

Target Bonus
19%

Perf.-Based RSUs
18%

Target Bonus
24%

Time-Based RSUs
29%

Time-Based RSUs
31%

(1) The average fiscal 2014 mix of pay for our NEOs other than our CEO excludes compensation for Messrs. Feller and

Laufman, who were both hired during the fiscal year.

Competitive Positioning

In making compensation decisions for our executive officers (other than our President), the Compensation
Committee reviews and analyzes competitive market practices using data drawn from a group of peer companies
and the Radford Global Technology survey. In the case of our President, given the limited number of relevant data
points available from the peer group, the Compensation Committee relies largely on survey data from Radford.
The Compensation Committee reviews the group of peer companies annually and updates its composition as
necessary to take into account changes in both our business and the businesses of the peer group companies.
The compensation peer group used in helping to design the fiscal 2014 executive compensation program was
developed in May 2013, using the following targeted selection criteria:

•

Industry: companies in the communications equipment or related industry segments;

• Annual Revenue: $200 million to $800 million;

• Market Capitalization: $200 million to $2 billion; and

• Number of Employees: 600 to 2,400.

In addition to these criteria, the Compensation Committee considered each potential peer company’s revenue
growth rates, primary location and whether the potential peer company included Infinera in its compensation peer

30

group. The Compensation Committee also considered whether a potential peer company was selected as a peer
company of Infinera by one of the major proxy advisory groups. Given the limited number of companies directly
comparable to us from a business perspective and the wide range of factors under consideration, not all peer
companies satisfy all of the selection criteria.

The compensation peer group established for setting compensation at the beginning of fiscal 2014 consisted

of the following 19 companies:

ADTRAN, Inc.
Aruba Networks, Inc.
Calix, Inc.
Ciena Corporation
Coherent, Inc.
Emulex Corporation
Extreme Networks, Inc.
Finisar Corporation
Harmonic Inc.
InterDigital, Inc.

IPG Photonics Corporation
Ixia
NeoPhotonics Corporation
NETGEAR, Inc.
Riverbed Technology, Inc.
ShoreTel, Inc.
Sonus Networks, Inc.
Symmetricom, Inc.
ViaSat, Inc.

Given that not all of the peer companies report data for a position comparable to each of our NEOs, the
Compensation Committee also reviewed market data derived from the Radford Global Technology survey with
annual revenues between $200 million and $1 billion. Where both data sets were available, the Compensation
Committee reviewed market data that was blended from the compensation peer group and the Radford survey.
The Compensation Committee did not review the individual companies comprising the survey data. In this
discussion, where we refer to “market” levels of pay and the “market group,” we are referring to the combined
compensation peer group and survey data described above that were then in effect and applicable to the NEOs.

In June 2014, the Compensation Committee reviewed the compensation peer group based on updated
information from Compensia, in generally the same manner as described above. This resulted in the removal of
NeoPhotonics (fell below the targeted range for market capitalization) and Symmetricom (acquired) from the peer
group and the addition of Plantronics and QLogic (both of which fell within the targeted range for revenue and
market capitalization). Data collected from this updated compensation peer group was considered in negotiating
and determining Mr. Laufman’s initial compensation in connection with his appointment as our Senior Vice
President and General Counsel in October 2014.

Use of Market Data

For its fiscal 2014 compensation decisions, the Compensation Committee continued to adopt a more holistic

and flexible approach in its use of market data than it had taken prior to fiscal 2013. While the Compensation
Committee continued to review and reference market data, the data generally was limited to enabling the
Compensation Committee to be informed of market practices to ensure that our executive compensation program
remains competitive, and such data was particularly informative in the context of setting compensation for new
hires. In addition to the market data, several other factors were taken into account in setting the amount of each
executive’s compensation elements. These factors included:

• Recruitment, retention and historical factors. Historically, several of our longer-tenured executives

have received base salaries significantly below market levels and have received variable compensation
opportunities that were at or above market levels. The Compensation Committee’s goal was to set all
elements of compensation competitively, using a balanced approach that does not use rigid percentiles to
target pay levels for each compensation element, but instead evaluates market data from a variety of
perspectives, making its compensation decisions based on a variety of relevant factors, including those
listed below.

• Lack of directly comparable data for some of our key roles. Compensation data for some of our key
positions (i.e., President) are often not explicitly reported by companies in our compensation peer group
or survey data. This results in limited sample sizes and/or inconclusive data that can be misleading if
targeting a specific percentile for market positioning.

31

• Market positioning may be distorted by the source of the data. Certain elements of compensation

reported from one source can be consistently lower than the data collected from another, given
differences in methods used to collect market data. Targeting pay levels at specific percentiles of this
data could have resulted in outcomes that did not align with the internal value of various roles at Infinera.

• Desire to account for other factors not captured in the market data. As outlined below, the

Compensation Committee also considered several qualitative factors that were not necessarily reflected
in the market data.

Relevant Qualitative Factors

In addition to our uses of competitive market data as described above, the Compensation Committee

considers a range of subjective and qualitative factors when making compensation decisions, including:

• The role the executive officer plays and the importance of such individual to our business strategy and

objectives;

• Each executive officer’s tenure, skills and experience;

• The responsibilities and particular nature of the functions performed or managed by the executive officer;

• Our CEO’s recommendations and his assessment of the executive officer’s performance (other than his

own performance);

• The value of unvested equity awards held by each executive officer and in comparison to other members

of our executive team and senior employees;

• The impact of our compensation decisions on key financial and other metrics such as our equity award

burn-rate;

• Our overall performance as compared to internal plans and external benchmarks;

• The potential impact on stockholder dilution of its compensation decisions relative to peers and historical

practices;

•

Internal pay equity across the executive team; and

• Competitive labor market pressures and the likely cost, difficulty and impact on our business and strategic

objectives that would be encountered in recruiting a replacement for the role filled by each of our
executive officers.

The Compensation Committee does not assign relative weights or rankings to any of these factors and does

not solely use any quantitative formula, target percentile or multiple for establishing compensation among the
executive officers or in relation to the market data. Instead, the Compensation Committee relies upon its members’
knowledge and judgment in assessing the various qualitative and quantitative inputs it receives regarding each
individual and makes compensation decisions accordingly.

Relevant Factors Related to Individual Executives

With respect to determining fiscal 2014 executive compensation, in addition to the foregoing, the

Compensation Committee broadly considered the following:

• Mr. Fallon has served as our CEO since January 2010 and as a member of the Board since July 2009.
He also served as our President from January 2010 through June 2013. The Compensation Committee
believes that Mr. Fallon has continued to demonstrate considerable leadership and strategic direction in
managing Infinera and our executive team during his time as CEO. In addition, the Compensation
Committee believes that Mr. Fallon has provided Infinera with significant institutional and industry
knowledge, as well as key oversight of corporate strategy and management development. The
Compensation Committee also considered that certain elements of Mr. Fallon’s compensation, such as
his base salary, had been set at below market levels for several years. In fiscal 2013, the Compensation
Committee began to increase Mr. Fallon’s base salary, consistent with its desire to move his target total
cash compensation closer to the market median and to recognize him for his significant contributions to
Infinera.

32

• Mr. Feller assumed the role of CFO in March 2014. At the time of Mr. Feller’s hire, the Compensation
Committee reviewed market data for his position. His base salary, target bonus opportunity and initial
equity awards were approved at levels that the Compensation Committee believed were necessary to
recruit him to join Infinera and that were deemed to be appropriate in light of his experience.

• Dr. Welch is a co-founder of Infinera, has served as our President since June 2013, and has served as a
member of the Board since October 2010. The Compensation Committee believes that Dr. Welch has
added significant value in supervising and managing our product marketing, corporate marketing,
business development, network strategy, product line management, product architecture, network
systems analysis and systems engineering organizations. In particular, his experience, knowledge and
deep technical understanding of the optical network industry enabled Dr. Welch, among other things, to
successfully align our product development initiatives with our marketing and sales strategies.

• Mr. Jandro has served as our Senior Vice President, Worldwide Sales, since May 2013. Mr. Jandro has
over 25 years of experience in the telecommunications and software industries. Since joining Infinera,
Mr. Jandro has focused his team on building a strong flow of orders from current customers, as well as
expanding opportunities with new customers and markets.

• Mr. Laufman has served as our Senior Vice President and General Counsel since October 2014.
Mr. Laufman brings to Infinera his many years of experience as a General Counsel for technology
companies, working with boards of directors and senior management. The goal with respect to his role is
to continue to provide effective leadership through a cost effective, responsive and professional legal
organization. At the time of Mr. Laufman’s hire, and as discussed above in the section entitled
“Competitive Positioning,” the Compensation Committee reviewed market group data for his position. His
base salary, target bonus opportunity and initial equity award were approved at levels that the
Compensation Committee believed were necessary to recruit him to join Infinera and that were deemed
to be appropriate in light of his experience.

• Ms. Brennan served as our CFO from June 2010 until February 2014. Ms. Brennan announced her

decision to leave Infinera in October 2013 and no additional compensation decisions were made for her
with respect to fiscal 2014 compensation. Ms. Brennan did not receive any additional severance
payments upon her departure. Ms. Brennan entered into a consulting agreement with Infinera from
March 1, 2014 until August 1, 2014 that allowed her outstanding equity to continue to vest until the
consulting agreement terminated on August 1, 2014.

Fiscal 2014 Compensation

Base Salaries

In January and February 2014, the Compensation Committee reviewed the base salaries for fiscal 2014 for
each of the then-employed NEOs (other than Ms. Brennan who had already indicated her intention to depart). At
this time, the Compensation Committee approved an increase to Mr. Fallon and Dr. Welch’s base salaries but
made no adjustment to the base salary for Mr. Jandro. Given that historically, our CEO’s salary generally had been
below market levels, and after taking into consideration Mr. Fallon’s significant contributions and strong leadership
during fiscal 2013, the Compensation Committee determined that a 25% increase in his salary was appropriate in
order to maintain competitiveness with market practices and to recognize his performance during the year.
Messrs. Feller and Laufman’s base salaries were established at the time they joined us.

The following table shows the annual base salary for each of our NEOs for fiscal 2013 and fiscal 2014:

Name

Fiscal 2013
Annual Base Salary

Fiscal 2014
Annual Base Salary

Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad Feller(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ita M. Brennan(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$375,000

—

$360,000
$350,000

—

$325,000

$468,750
$360,000
$375,000
$350,000
$325,000
$325,000

(1) Mr. Feller’s base salary was set as part of his new hire package. His actual fiscal 2014 base salary was prorated based on

his length of service during fiscal 2014.

33

(2) Mr. Laufman was employed by us during fiscal 2014 following his hire in October 2014. His actual fiscal 2014 base salary

was prorated based on his length of service during fiscal 2014.

(3) Ms. Brennan served as CFO until February 2014. Her resignation was announced in October 2013.

Performance-Based Incentive Cash Compensation (2014 Bonus Plan)

Target Bonuses. For fiscal 2014, the Compensation Committee reviewed the target bonus opportunities
(which are expressed as a percentage of base salary) for Mr. Fallon, Dr. Welch and Mr. Jandro, but did not make
any adjustments to these amounts. Messrs. Feller and Laufman’s target bonus opportunities were established at
the time they joined us. The following table shows the target bonus opportunities (as a percentage of base salary)
for each of the NEOs for fiscal 2013 and fiscal 2014:

Name

Fiscal 2013
Target Bonus
(as a percentage
of base salary)

Fiscal 2014
Target Bonus
(as a percentage
of base salary)

Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad Feller
David F. Welch, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ita M. Brennan(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125%
—
80%
100%
—
65%

125%
60%
80%
100%
—
—

(1) At the time of Mr. Laufman’s hire in October 2014, his target bonus opportunity was set at 60% of his base salary. However,

given his start later in the fiscal year, Mr. Laufman was not eligible to participate in the 2014 Bonus Plan.

(2) Ms. Brennan served as CFO until February 2014 at which time her employment terminated. Accordingly, she was not

eligible to participate in the 2014 Bonus Plan.

Bonus Plan Design. In February 2014, the Compensation Committee approved the 2014 Bonus Plan and set

the funding criteria for all eligible employees, including the NEOs. Bonuses under the 2014 Bonus Plan for
participating NEOs were funded based on our performance against a mix of financial objectives (weighted at 80%)
and operational objectives (weighted at 20%) as discussed below. For fiscal 2014, the Compensation Committee
determined that NEOs would not be eligible for a mid-year bonus payout to emphasize full year fiscal performance
and to align better with our annual operating plan.

The plan also contained an individual performance component as it related to NEOs that could adjust bonus
payouts by a factor of 75% to 125% of the funded amount. The CEO was responsible for reviewing the individual
performance of each NEO (other than himself). The Compensation Committee then had sole discretion to
determine any individual performance adjustments for each NEO and the final bonus payout for fiscal 2014.

The financial objectives involved our revenue and non-GAAP operating income, and were selected to focus

our NEOs on important and measurable financial measures and to align their interests with those of our
stockholders. The Compensation Committee believes that revenue growth is an essential component of the long-
term success and viability of Infinera. In addition, the Compensation Committee determined that a focus on
operating income would serve to make generating a return for stockholders a priority. For purposes of the 2014
Bonus Plan, “non-GAAP operating income” was calculated excluding non-cash stock-based compensation
expenses. For a reconciliation of GAAP to non-GAAP operating income for fiscal 2014, please see Appendix A to
this Proxy Statement.

For fiscal 2014, the threshold, target and maximum levels of performance required for the financial objectives

were as follows:

Financial Objectives
(weighted at 80% for NEOs)

Threshold
Performance

Target
Performance

Stretch
Performance

Maximum
Performance

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 565 million $ 600 million $ 625 million $ 652 million
Non-GAAP Operating Income . . . . . . . . . . . . . . . >$ 8 million >$ 15 million >$ 32 million >$ 34 million
150%
Funding as a Percentage of Target . . . . . . . . . . .

100%

125%

40%

•

If performance attainment on either of the financial objectives was below the threshold, this would have
resulted in a 0% funding level as it related to the financial objectives.

34

• For performance attainment below target (100%) but at or above the threshold (40%), the funding level
would be interpolated for revenue between $565 million and $600 million, so long as operating income
was greater than $8 million.

• For performance attainment below stretch (125%) but at or above target (100%) performance, the funding
level would be interpolated on a straight-line basis for revenue between $600 million and $625 million so
long as operating income was greater than $15 million.

• For performance attainment below maximum (150%) but at or above stretch (125%) performance, the
funding level would be interpolated on a straight-line basis for revenue between $625 million and $652
million so long as operating income was greater than $32 million.

• For performance attainment above maximum, funding was capped at 150%.

The Compensation Committee also determined that focusing on specific operational objectives was important

to measuring our success in fiscal 2014 and to supporting our objectives of creating long-term value for our
stockholders. The Compensation Committee approved the operational objectives listed below for the 2014 Bonus
Plan, which included (i) an important quality metric; (ii) three key technology development goals; and
(iii) attainment of key customer wins. Funding tied to the operating objectives was based upon the achievement as
determined by the Compensation Committee of each operating objective as (i) on track or ahead of schedule or
(ii) meets or exceeds quality metrics. No funding occurs for any operating objective that was behind schedule or
failed to meet quality target metrics. Funding was capped at 100% for the operational objectives.

Operational Objectives
(weighted at 20% for NEOs)

Quality: DOA rate—Line cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development:

• Product development goal #1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Product development goal #2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Product development goal #3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key Wins:

• 12 new Infinera DTN-X customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
• Network deployment by a Tier 1 customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighting

Maximum
Attainment

100%
100%

100%

20%

20%
10%
10%

25%
15%

Bonus Plan Payouts. The following table shows our actual performance with respect to each financial and

operational objective under the 2014 Bonus Plan:

Performance Measures

Financial Objectives (weighted at 80%)

Actual Performance

Revenue for Fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-GAAP Operating Income for Fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

668.1 million
55.7 million

Operational Objectives (weighted at 20%)

Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Wins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Achieved

Partially Achieved(1)

Achieved

(1) We achieved two of the three development goals during fiscal 2014. For the development goal that was not achieved, the

eligible NEOs received no payout for this portion of the bonus.

35

Upon review of the full fiscal 2014 actual financial and operational performance as compared to the pre-

established target levels, the Compensation Committee approved a payout to our NEOs based on the
achievement of the financial objectives at 150% of target performance and the operational objectives at 90% of
target performance. Consistent with past practice, no adjustments were made to the payouts of any of the NEOs,
including the CEO, based on individual performance. The following table sets forth the bonus payments for fiscal
2014 earned by our NEOs pursuant to the 2014 Bonus Plan.

Name

Fiscal 2014
Final Bonus Payout(1)

Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad Feller(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jim Laufman(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ita M. Brennan(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$808,594
$285,796(3)
$414,000
$483,000

—
—

(1) Bonuses were paid in March 2015.
(2)

In addition to Mr. Feller’s payout under the 2014 Bonus Plan, Mr. Feller received a $30,000 sign-on bonus as part of his new
hire package.

(3) Given Mr. Feller’s hire after the start of the fiscal year, his bonus for fiscal 2014 was prorated based on his length of service

during the year.

(4) Mr. Laufman was hired in the fourth quarter of fiscal 2014. As a result, he was not eligible to participate in the 2014 Bonus

Plan.

(5) Ms. Brennan served as CFO until February 2014. Since she left Infinera prior to the end of the fiscal year, she was not

eligible to participate in the 2014 Bonus Plan.

Long-Term Equity-Based Incentive Compensation

Equity Compensation Design. Under the Infinera 2007 Equity Incentive Plan (the “2007 Plan”), the

Compensation Committee grants equity awards to eligible employees, including the NEOs. The Compensation
Committee periodically reviews our equity award grant practices and may make adjustments and policy changes
as it deems appropriate. In addition, in recent years, the Compensation Committee has moved to reduce our
annual aggregate equity utilization. This has been accomplished by limiting the group of employees eligible for
equity awards, by using a mix of RSU awards and PSU awards, and by reducing the size of the annual grants
made to employees, including the NEOs. While the Compensation Committee usually awards RSUs and PSUs to
NEOs, as part of his new hire package Mr. Feller received a stock option award.

The Compensation Committee believes that it is in the best interests of Infinera and our stockholders to grant
performance-based equity awards to senior employees, including the NEOs. It also believes that our performance-
based equity awards foster a more direct pay-for-performance culture and multi-year vesting schedules create
longer-term incentives that maintain alignment of the interests of our NEOs with those of our stockholders. The
NEOs are intended to benefit from these equity awards based on continued service to Infinera as well as our
sustained performance over time and the ability of our NEOs to impact the results that drive stockholder value.

36

In determining the appropriate mix of such equity awards, the Compensation Committee considered how each

equity vehicle supports our compensation strategy as follows:

Type of Award

RSU Awards

PSU Awards

Description

Why It Is Used

• Provide the opportunity to

receive a specified number of
shares subject to the
participant’s continued
employment for a specified
period.

• Typically have a three-year or
four-year vesting period to
encourage a long-term
perspective and to encourage
key employees to remain at
Infinera.

• Provide the opportunity to
receive shares upon the
achievement of pre-established
performance objectives.

•

If the threshold performance
level is not achieved, the entire
portion of the award tied to such
performance objective will be
forfeited.

• Supports retention and
succession planning.

• Provides a direct incentive for

future performance.

• Useful in recruiting new

executives.

• Supports pay-for-performance
philosophy and retention
efforts.

•

Links compensation directly to
Infinera performance in areas
identified as important by the
Compensation Committee.

In February 2014, the Compensation Committee granted annual equity awards for fiscal 2014 in the form of
RSU awards and PSU awards to each of the then-employed NEOs (other than Ms. Brennan). In determining the
size of these annual equity awards, the Compensation Committee considered the factors described above in the
sections entitled “Use of Market Data,” “Relevant Qualitative Factors” and “Relevant Factors Related to Individual
Executives,” with particular attention to internal equity considerations, the potential dilutive impact of equity awards
and the amount and value of unvested equity awards held by each of the NEOs. The Compensation Committee
believed a combination of time-based and performance-based equity awards promote close alignment of the
interests of our NEOs with those of our stockholders. Messrs. Feller and Laufman received their equity awards in
connection with their new hire packages (as discussed below).

The following table sets forth the annual equity awards granted to each of the then-employed NEOs in

February 2014:

Name

RSUs

Target Shares Maximum Shares

PSU Awards

Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,888
62,770
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,619
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ita M. Brennan(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—

160,330
41,847
27,079
—

240,495
62,770
40,618
—

(1) Ms. Brennan served as CFO until February 2014. She did not receive any equity awards in fiscal 2014.

The RSU awards are scheduled to vest in annual installments with one-third of the underlying shares vesting

on May 5 of each of 2015, 2016 and 2017, subject to each NEO’s continued service with us through each
applicable vesting date. Annual awards approved by the Compensation Committee for NEOs and other employees
in connection with our annual equity review typically vest annually over three years in equal installments.

The PSU awards can be earned based on our TSR performance relative to that of the S&P Networking Index.
The Compensation Committee selected relative TSR as the performance measure for the PSU awards because it

37

believes that our relative TSR is an important indicator of our long-term success and closely aligns the interests of our
NEOs with those of our stockholders while also minimizing the dilutive effect of our equity awards if we underperform. In
choosing an appropriate comparator group, the Compensation Committee selected the S&P Networking Index based on
a review of its components, the relatively close correlation between our historical stock price movement and that of the
S&P Networking Index, as well as the relevance and importance of the telecommunications industry to our business.
The Compensation Committee believes that comparing our TSR performance to that of the S&P Networking Index will
provide an appropriate and meaningful measure of our performance against a reasonable and objective benchmark,
which at the time included nine of our peer companies. Further, the Compensation Committee believes that the S&P
Networking Index was a better performance measure than the Telecomm Index as the S&P Networking Index more
closely aligned with companies in our peer group and industry segment.

Our relative TSR is measured against the S&P Networking Index at three intervals for the PSUs granted in fiscal
2014, with one-third of each NEO’s target PSUs allocated to each of the three measurement periods. The table below
outlines the performance criteria used to determine the percentage of the fiscal 2014 PSU awards that would be earned
by our NEOs for various levels of TSR performance relative to the S&P Networking Index for each period.

INFN TSR vs. Index . . . . . . . . . . . . . . . . .
Payment as Percentage of Target . . . . .
Slope . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-33 points Match + 25 points

0% 100%

3 to 1

—

150%

2 to 1

Minimum Target

Maximum

Payment is capped at 50% if TSR is negative.
To earn the maximum number of PSU awards,
our TSR must be positive and at least 25
points higher than the S&P Networking Index
at each of the three measurement periods.

As shown above, for each point of positive TSR we deliver above the TSR for the S&P Networking Index, the
number of shares earned increases by 2% up to a maximum of 150% of the target award level. For each point of TSR
we deliver below the TSR for the S&P Networking Index, the number of shares earned decreases by 3% and can be
reduced to 0% of the target award level.

For purposes of calculating TSR performance for Infinera and the S&P Networking Index, the performance periods

are as follows:

(i)

(ii)

for the first performance period, the start price is the 60-day average (of our closing stock price or the index, as
applicable) leading up to and inclusive of February 25, 2014, and the end price is the 60-day average leading
up to and inclusive of the last day of fiscal 2014;

for the second performance period, the start price is the 60-day average leading up to and inclusive of
February 25, 2014, and the end price is the 60-day average leading up to and inclusive of the last day of fiscal
2015; and

(iii)

for the third performance period, the start price is the 60-day average leading up to and inclusive of
February 25, 2014 and the end price is the 60-day average leading up to and inclusive of the last day of fiscal
2016.

Notwithstanding our TSR performance relative to the S&P Networking Index, if our TSR is negative for any
performance period, the payout will be capped at 50% of the target number of shares allocated to that period. PSU
awards will be forfeited upon failure to achieve the TSR threshold for the relevant period, with the exception that if any
shares allocated to the first and second performance periods would have otherwise vested but for the 50% cap imposed
by a negative TSR for that period, then with respect to the first performance period, those shares may vest based on
TSR performance for the second period criteria, or with respect to the second period, those shares may vest based on
TSR performance for the third period, respectively, provided in each case that for the applicable subsequent period, our
TSR is positive and results achieved are at or above 100% of target.

For similar awards measuring TSR against an appropriate index that may be awarded by the Compensation

Committee to executive officers for fiscal 2016 compensation, the Compensation Committee has determined to start the
measurement period using the 60-day average (of our closing stock price or the index, as applicable) leading up to and
inclusive of the last day of the fiscal year prior to the grant of the award.

38

PSU Results. For the initial performance period ended December 27, 2014, our TSR performance exceeded

the TSR performance of the S&P Networking Index by approximately 57 points. As a result, 150% of the target
number of shares subject to the PSU awards allocated to the initial performance period vested, as shown in the
table below:

Name

PSU Summary for Initial Performance Period

Target Number of PSUs Actual Number of PSUs Vested

Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53,444
13,949
9,027

80,166
20,923
13,540

Outstanding PSU Awards Granted in Prior Fiscal Years. The table below provides information regarding

outstanding performance-based awards granted prior to fiscal 2014 that were eligible to vest in fiscal 2014,
including vesting conditions and number of shares vesting based on performance through fiscal 2014.

Name

Thomas J. Fallon . . . . . . . . . . .

David F. Welch, Ph.D.

. . . . . . .

Actual Number
of Shares
Vested For
Fiscal 2014
Performance
Period
(#)

85,000

—

37,500

—

Fiscal
Year of
Grant

2013
2012
2013
2012

Target
Number of
RSUs Granted
in Grant Year
(#)

170,000
175,000
75,000
33,000

Maximum Number
of Shares That
Could Vest For
Fiscal 2014
Performance
Period
(#)

85,000
87,500
37,500
16,500

Performance
Measure

Relative TSR(1)
Operating Profit(2)
Relative TSR(1)
Operating Profit(2)

(1)

(2)

In fiscal 2013, the Compensation Committee granted to the then-current NEOs a performance award that measures our TSR
against the TSR of the Telecomm Index. This performance award pays out at 150% if our TSR outperforms the Telecomm
Index by 25 points or more. Our TSR performance exceeded the TSR performance of this index by approximately 98 points
for the performance period measured. For the second performance period, the start price was the 60-day average (of our
closing stock price or the index value, as applicable) leading up to and inclusive of January 30, 2013 and the end price was
the 60-day average (of our closing stock price or the index value, as applicable) leading up to and inclusive of the last day of
fiscal 2014.
In fiscal 2012, the Compensation Committee granted to the then-current NEOs a performance award based on certain
milestones related to the Infinera DTN-X and non-GAAP operating profit. The performance criteria related to the Infinera
DTN-X was established for fiscal 2013. The performance criteria that related to fiscal 2014 performance required us to meet
a non-GAAP operating profit target of $60 million for fiscal 2014. This performance criteria for fiscal 2014 was not met and
the remaining shares under this award were cancelled.

2014 New Hire Awards

Brad Feller. In connection with his hire in January 2014, Mr. Feller received an award of 166,297 RSUs. This

RSU award is scheduled to vest in annual installments with one-fourth of the underlying shares vesting on
February 5 of each of 2015, 2016, 2017 and 2018, subject to his continued service with us through each
applicable vesting date. In addition, Mr. Feller was granted an incentive stock option to purchase 25,000 shares of
common stock that vest as to 25% of the shares on the 12-month anniversary of his hire date and then as to 1/48th
of the shares each month thereafter, subject to his continued service with us through each applicable vesting date.
The size of these equity awards was determined as the result of arm’s length negotiations with Mr. Feller and
approved at the level that the Compensation Committee believed was necessary to recruit him to join Infinera.

James Laufman. In connection with his hire in October 2014, Mr. Laufman received an award of 94,607

RSUs. This RSU award is scheduled to vest in annual installments with one-fourth of the underlying shares vesting
on November 5 of each of 2015, 2016, 2017 and 2018, subject to his continued service with us through each
applicable vesting date. The size of this equity award was determined as the result of arm’s length negotiations
with Mr. Laufman and approved at the level that the Compensation Committee believed was necessary to recruit
him to join Infinera.

39

Employee Benefits and Perquisites

Our NEOs do not receive any executive perquisites and are eligible to receive all the same benefits as
salaried employees except with respect to accrued paid time off (“PTO”), which Infinera and the Compensation
Committee believe are reasonable and consistent with its overall compensation objectives to better enable us to
attract and retain employees. These benefits include medical, dental, vision, and disability benefits, a 401(k) plan,
and other plans and programs, including the 2007 ESPP, made available to other eligible employees in the
applicable country of residence. We only recently began to provide a 401(k) plan match that began for fiscal 2015
that is applicable to all eligible participants, including NEOs. Employee benefits and perquisites are reviewed
periodically to ensure that benefit levels remain competitive, but are not included in the Compensation
Committee’s annual determination of the total compensation for each of our NEOs.

Starting in February 2014, U.S. employees at the Senior Vice President level and above, at any U.S. work

location, began participating in the “As Needed” PTO Program. Under this program, these employees may
schedule PTO as they see fit and as business necessity allows, although they must continue to meet all job
expectations and remain responsible for ensuring appropriate coverage for the time they will be out of the office.
Under this program, PTO does not accrue for these employees. Each of these employees covered by this program
received a payout of their accrued vacation in February 2014.

Additional Information Regarding Our Compensation Practices

Change of Control Benefits

The Compensation Committee considers maintaining a stable and effective management team to be essential

to protecting and enhancing the best interests of Infinera and its stockholders. Accordingly, the Compensation
Committee has entered into Change of Control Agreements (the “COC Agreements”) with certain vice president
level officers and above, including each of the NEOs, to encourage their continued attention, dedication and
continuity with respect to their roles and responsibilities without the distraction that may arise from the possibility or
occurrence of a change of control of Infinera. The COC Agreements for Messrs. Feller and Laufman were entered
into in January 2014 and October 2014, respectively, upon their hire.

An NEO will receive payments and benefits under his or her COC Agreement only if his or her employment is
terminated without “Cause,” or by him or her as a result of a “Constructive Termination” (as more fully described in
the section entitled “Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability”
below), within 12 months following a Change of Control transaction. The Compensation Committee believes that
this “double-trigger” structure provides an appropriate balance between the corporate objectives described above
and the potential compensation payable to each NEO upon a Change of Control. The Compensation Committee
also believes that should Infinera engage in any discussions or negotiations relating to a Change of Control that
the Board believes is in the best interests of our stockholders, these COC Agreements will help to ensure that our
NEOs remain focused on the consummation of such potential transaction, without significant distraction or concern
regarding their personal circumstances, such as continued employment.

The following terms apply with respect to our NEOs if we undergo a Change of Control and the NEO’s
employment is terminated without Cause or as a result of a Constructive Termination within 12 months following
the Change of Control, subject to such individual entering into and not revoking a release of claims in our favor
within 60 days of the termination date:

•

100% of all outstanding equity awards will vest;

• The CEO will be paid a lump sum severance payment equal to two (2) times his annual base salary and
the other NEOs will be paid a lump sum severance payment equal to one and one-half (1.5) times their
annual base salary; and

• The CEO will be reimbursed for premiums under COBRA for a period of twenty-four (24) months and the

other NEOs will be reimbursed for premiums under COBRA for a period of eighteen (18) months.

40

Severance Policy

In addition to the Change of Control payments and benefits discussed above, the Compensation Committee
has taken appropriate steps to provide competitive post-employment compensation arrangements that promote
the continued attention, dedication and continuity of members of our management team, including the NEOs, and
enable us to continue to recruit talented executives. Accordingly, the Compensation Committee has adopted an
executive severance policy, under which severance payments and benefits will become payable if the employment
of a member of our management team is terminated by us without Cause, subject to such individual entering into
and not revoking a release of claims in our favor:

• The CEO will be paid a lump sum severance payment equal to one and one-half (1.5) times his annual

base salary and the other NEOs will be paid a lump sum severance payment equal to one (1) times their
annual base salary; and

• The CEO will be reimbursed for premiums under COBRA for a period of eighteen (18) months and the

other NEOs will be reimbursed for premiums under COBRA for a period of twelve (12) months.

If an NEO’s employment with Infinera is less than one year, the amount of severance payable to such
individual will be equal to the lesser of (x) the base salary paid to such individual during his or her period of
employment, or (y) the severance amount set forth above.

Acceleration of Equity Awards upon Death or Disability. In addition, all awards granted under our equity
incentive plans permit accelerated vesting in the event of an employee’s death or terminal illness (with exceptions
in certain circumstances). Because we do not have any other policy with respect to severance payments or
benefits in the event of an employee’s death or disability, the Compensation Committee believes that in the event
of an employee’s death or terminal illness, it would be appropriate to provide the accelerated vesting of his or her
RSU awards, PSU awards and stock options.

The estimated payments and benefits that would be received by each NEO in connection with a qualifying

termination of employment are presented in the section entitled “Estimated Payments and Benefits upon
Termination, Change of Control or Death/Disability” below.

Equity Grant Policy

In 2007, the Compensation Committee approved a policy for the grant of equity awards. Under this policy, a
Subcommittee of the Compensation Committee has been delegated the authority to grant new hire, promotional
and annual retention equity awards to non-executive employees pursuant to certain pre-approved guidelines. This
Subcommittee is currently comprised of our CEO, General Counsel and Vice President of Human Resources.

The Subcommittee generally meets on the second Monday of each month to approve new hire and

promotional equity awards that are within pre-approved guidelines established by the Compensation Committee.
Annual performance equity awards for such non-executive employees are also scheduled to occur as part of the
monthly meetings of the Subcommittee.

The delegation to the Subcommittee does not include the authority to grant equity awards to new employees

who are or are reasonably expected to become Section 16 Officers or to current Section 16 Officers. All equity
award grants to Section 16 Officers and directors, as well as grants that are outside of the pre-approved
guidelines, must be made by the Compensation Committee.

Executive Clawback Policy

We maintain an Executive Clawback Policy that applies to our Section 16 Officers. Pursuant to this policy, the

Compensation Committee has the authority to seek:

•

•

repayment of any cash incentive payment;

cancellation of unvested, unexercised or unreleased equity incentive awards; and

41

•

repayment of any compensation earned on previously exercised or released equity incentive awards,

where such payments, equity incentive awards and/or compensation earned on previously exercised or

released equity incentive payments was predicated on financial results that were augmented by fraud,
embezzlement, gross negligence or deliberate disregard of applicable rules resulting in significant monetary loss,
damage or injury to Infinera (the “Excess Compensation”), whether or not such activity resulted in a financial
restatement. The Compensation Committee shall have sole discretion under this policy, consistent with any
applicable statutory requirements, to seek reimbursement for any Excess Compensation paid or received by the
Section 16 Officer or director for up to a 12-month period prior to the date of the Compensation Committee action
to require reimbursement of the Excess Compensation. Further, following a restatement of our financial
statements, we will recover any compensation received by the CEO and CFO that is required to be recovered by
Section 304 of the Sarbanes-Oxley Act of 2002.

For purposes of this policy, Excess Compensation will be measured as the positive difference, if any, between

the compensation earned by a Section 16 Officer or director and the compensation that would have been earned
by a Section 16 Officer or director had the fraud, embezzlement, gross negligence or deliberate disregard of
applicable rules resulting in significant monetary loss, damage or injury to Infinera not occurred.

Stock Ownership Policy

The Board believes that it is important to link the interests of our NEOs to those of our stockholders. Our
Stock Ownership Policy requires our Section 16 Officers (which includes each of our NEOs) to accumulate and
hold a minimum number of shares of Infinera common stock within three years of the later of (i) the effective date
of the policy or (ii) the date of appointment or promotion of the Section 16 Officer. As of the Record Date, each of
our Section 16 Officers and directors has either satisfied these ownership guidelines or had time remaining to do
so. The specific Infinera stock ownership requirements for our Section 16 Officers and directors as a multiple of
annual base salary (or cash retainer, in the case of directors) are as follows:

• CEO:
• President:
• CFO:
• Other NEOs:
• Non-employee Directors:

4x annual base salary
2x annual base salary
2x annual base salary
1x annual base salary
4x annual cash retainer

Shares that count towards satisfaction of this policy include: (i) shares owned outright by the Section 16
Officer or director or his or her immediate family members residing in the same household, (ii) shares held in trust
for the benefit of the Section 16 Officer or director or his or her family and (iii) vested, unexercised, in-the-money
option shares (the “spread” or “intrinsic value” of options). The value of a share is measured on the last day of the
fiscal year as the greater of (i) the closing price on the date of calculation or (ii) the purchase price actually paid by
the person for such share of Infinera common stock (for the avoidance of doubt the purchase price for RSU
awards, PSU awards and other similar full value awards is zero).

Anti-hedging Policy

Under our insider trading policy, we prohibit our employees, including our NEOs, from hedging the risk

associated with ownership of shares of Infinera common stock and other securities.

Anti-pledging Policy

Our insider trading policy prohibits our NEOs from pledging Infinera common stock as collateral for a loan.

Tax and Accounting Treatment of Compensation

Section 162(m) of the Internal Revenue Code limits the amount that we may deduct for compensation paid to
our CEO and to certain other of our most highly compensated executive officers (other than our CFO) to $1 million
per individual in any tax year, unless such compensation is exempt from the deduction limit. An exemption from
this deduction limit is available for various forms of “performance-based” compensation.

42

While it cannot predict how the deduction limit may impact our executive compensation program in future
years, the Compensation Committee intends to maintain an approach to executive compensation that strongly
links pay to performance. While it has not adopted a formal policy regarding tax deductibility of compensation paid
to our CEO and certain other of our most highly compensated executive officers, the Compensation Committee
intends to consider tax deductibility under Section 162(m) as a factor in its compensation decisions. However, from
time to time, we may provide compensation or grant equity awards to our executive officers that may not be
deductible when, for example, we believe that such compensation is appropriate and in the best interests of our
stockholders.

We account for the equity compensation awarded to our executive officers and other employees under
ASC 718, which requires us to estimate and record an expense for each award of equity compensation over the
service period of the award. Accounting rules also require us to record cash compensation as an expense at the
time the obligation is incurred.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with

management. Based on its review and discussions with management, the Compensation Committee has
recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee

Mark A. Wegleitner, Chairman
Paul J. Milbury
Carl Redfield

43

EXECUTIVE COMPENSATION TABLES

The following tabular information and accompanying narratives and footnotes provide all of the compensation
awarded to, earned by, or paid to the individuals who served as our principal executive officer, principal financial officer
and our three other highest paid executive officers during fiscal 2014. As previously noted, we refer to these executive
officers as our NEOs.

Fiscal 2014 Summary Compensation Table

Name and Principal Position

Year

Salary
($)

Bonus
($)

Stock
Awards
($)(1)

Option
Awards
($)(1)

Non-Equity
Incentive Plan
Compensation
($)

All Other
Compensation
($)

Total
($)

CEO

Thomas J. Fallon . . . . . . . . . . . . . . 2014 468,029
2013 375,000
2012 300,000

— 2,036,202
— 1,898,390
— 2,626,800
Brad Feller(5) . . . . . . . . . . . . . . . . . . 2014 346,154 30,000(6) 1,499,999

CFO

President

David F. Welch, Ph.D. . . . . . . . . . . 2014 374,885
2013 355,308
2012 350,000
Robert J. Jandro . . . . . . . . . . . . . . . 2014 350,000
2013 207,338

—
822,290
— 1,433,280
— 1,857,880
—
532,106
— 1,303,200

. . . . . . . . . . . 2014

62,500

—

999,996

Senior Vice President,
Worldwide Sales
James L. Laufman(7)

Senior Vice President and

General Counsel

Ita M. Brennan(9) . . . . . . . . . . . . . . . 2014

former CFO

56,250
2013 325,000
2012 300,000

—
—
—

—

946,920
672,240

—
—
—

96,323

—
—
—
—
—

—

—
—
—

808,594(2)
635,250(4)
18,750(4)
285,796(2)

414,000(2)
390,298(4)
28,000(4)
483,000(2)
280,162(4)

16,423(3)
—
—
1,034(3)

31,774(3)
—
—
11,068(3)
—

3,329,248
2,908,640
2,945,550
2,259,306

1,642,949
2,178,886
2,235,880
1,376,174
1,790,700

— (8)

59(3)

1,062,555

—
286,286(4)
9,750(4)

14,808(10)
—
—

71,058
1,558,206
981,990

(1) The amounts reported in this column represent the aggregate grant date fair value of the listed equity awards, computed in

accordance with ASC 718. See Notes 2 and 13 of the notes to our consolidated financial statements contained in our 2014 Annual
Report on Form 10-K filed on February 18, 2015 for a discussion of all assumptions made by us in determining the ASC 718 values
of equity awards.

(2) The amounts reported in this column represent annual incentive cash awards earned under our 2014 Bonus Plan. For additional
information regarding our 2014 Bonus Plan, please see the section entitled “Fiscal 2014 Compensation—Performance-Based
Incentive Cash Compensation (2014 Bonus Plan)” in the Compensation Discussion and Analysis above.

(3) This amount represents the payment of accrued vacation time and life insurance premiums.
(4) These amounts represent payouts under our annual cash incentive plan.
(5) Mr. Feller began his employment as Senior Vice President of Finance on January 13, 2014 and was appointed CFO effective as of

March 1, 2014.

(6) Mr. Feller received a sign-on bonus in connection with his hiring on January 13, 2014.
(7) Mr. Laufman began his employment as Senior Vice President and General Counsel on October 20, 2014 and his base salary was

set at $325,000.

(8) Mr. Laufman was hired in the fourth quarter of fiscal 2014 and, as a result, he was not eligible to participate in the 2014 Bonus

Plan.

(9) Ms. Brennan resigned as CFO effective as of February 28, 2014. Ms. Brennan entered into a consulting agreement with Infinera

from March 1, 2014 until August 1, 2014 that allowed her outstanding equity to continue to vest until the consulting agreement
terminated on August 1, 2014.

(10) This amount represents the payment of accrued vacation time.

44

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(1) The closing price of our common stock as of the last trading day prior to our fiscal year-end, December 26, 2014, was

$14.91 per share, which was used as the value of our common stock in the calculations.

(2) This stock option grant is fully vested.
(3) The remaining unvested portion of this RSU grant vested in its entirety on February 5, 2015.
(4) This PSU grant entitled the NEO to receive shares of common stock based on the attainment of long-term strategic

objectives related to our Infinera DTN-X product and operating income levels. The PSUs vested as to 50% of the original
grant upon the achievement of $100 million in recognized revenue from our Infinera DTN-X product in fiscal 2013. The
performance criteria for the remaining 50% of the total grant (as indicated in the table above) were not met and the
remaining shares were cancelled.

(5) The remaining unvested portion of this RSU grant vests in its entirety on February 5, 2016, subject to continued employment

with Infinera.

(6) The PSU awards can be earned based on our TSR performance relative to that of the Telecomm Index as measured over a
period of three performance periods. For purposes of calculating TSR performance for Infinera and the Telecomm Index
under the PSU awards, the baseline value for our relative TSR calculations is the 60-day average closing price of our
common stock and the Telecomm Index leading up to January 30, 2013, which was the grant date of the awards. TSR for
Infinera and the Telecomm Index is then calculated by comparing the average closing price of our common stock and the
Telecomm Index to this baseline value for the final 60 days of our fiscal 2013, 2014 and 2015. This performance award pays
out at 150% if our TSR outperforms the S&P Networking Index by 25 points or more and 0% if our TSR underperforms the
S&P Networking Index by 25 points or more. The PSUs vested on February 5, 2015 as to 150% of the target shares upon
the achievement of the second performance period.

(7) The remaining unvested portion of this RSU grant vests in its entirety on May 5, 2017, subject to his continued employment

with Infinera.

(8) For a description of this PSU award, please see the section entitled “Fiscal 2014 Compensation—Long-Term Equity-Based

Incentive Compensation” in the Compensation Discussion and Analysis above.

(9) This option vests and becomes exercisable as to 1/4th of the underlying shares on January 13, 2015 and then 1/48th per

month thereafter, subject to his continued service to Infinera on each applicable vesting date.

(10) The remaining unvested portion of this RSU grant vests in its entirety on February 5, 2018, subject to his continued

employment with Infinera.

(11) The remaining unvested portion of this RSU grant vests in its entirety on December 31, 2014, subject to his continued

service to Infinera on each applicable vesting date.

(12) The remaining unvested portion of this RSU grant vests in its entirety on August 5, 2017, subject to his continued service to

Infinera on each applicable vesting date.

(13) The remaining unvested portion of this RSU grant vests in its entirety on November 5, 2018, subject to his continued service

to Infinera on each applicable vesting date.

(14) Ms. Brennan resigned as CFO effective as of February 28, 2014. Ms. Brennan entered into a consulting agreement with

Infinera from March 1, 2014 until August 1, 2014 that allowed her outstanding equity to continue to vest until the consulting
agreement terminated on August 1, 2014. No equity awards were outstanding as of the last day of fiscal 2014.

47

Fiscal 2014 Option Exercises and Stock Vested Table

The following table sets forth the number of shares acquired and the value realized upon the exercise of stock

options and the vesting of RSU awards and PSU awards during fiscal 2014 by each of our NEOs.

Name

Thomas J. Fallon . . . . . . . . . . . . . . . . . .
Brad Feller . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . .
Ita M. Brennan(3)
. . . . . . . . . . . . . . . . . .

Number of Shares
Acquired on
Exercise
(#)

Value Realized
on Exercise
($)(1)

Number of Shares
Acquired on
Vesting
(#)

Value Realized
on Vesting
($)(2)

300,000

1,538,645

—
—
—
—

—
—
—
—

321,594

385,949

221,667

—

166,499
30,000

—

87,458

1,824,319

—

1,466,677
267,000

—

719,779

(1) The value realized on the exercise date is based on the difference in the fair market value of our common stock on the
exercise date and the exercise price, and does not necessarily reflect the proceeds actually received by the NEO.
(2) The value realized on vesting is based on the fair market value of our common stock on the vesting date and does not

necessarily reflect the proceeds actually received by the NEO.

(3) Ms. Brennan resigned as CFO effective as of February 28, 2014. Ms. Brennan entered into a consulting agreement with

Infinera from March 1, 2014 until August 1, 2014 that allowed her outstanding equity to continue to vest until the consulting
agreement terminated on August 1, 2014.

Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability

Change of Control Benefits

As discussed above in the “Compensation Discussion and Analysis—“Double-trigger” Change of Control and

Severance Policy” section, the terms below apply with respect to our NEOs if we undergo a Change of Control
transaction and the employment of the NEO is terminated without Cause or as a result of a Constructive
Termination within 12 months following the transaction, subject to the NEO entering into and not revoking a
release of claims in our favor within 60 days of the termination date:

•

100% of all outstanding equity awards will vest;

• The CEO will be paid a lump sum severance payment equal to two (2) times annual base salary and the
other NEOs will be paid a lump sum severance payment equal to one and one-half (1.5) times annual
base salary; and

• The CEO will be reimbursed for premiums under COBRA for a period of twenty-four (24) months and the

other NEOs will be reimbursed for premiums under COBRA for a period of eighteen (18) months.

Severance Policy

As discussed above in the “Compensation Discussion and Analysis—“Double-trigger” Change of Control and

Severance Policy” section, the Compensation Committee determined that Infinera shall pay severance to our
NEOs in the event the employment of the NEO is terminated by Infinera, except in the event of termination
following a Change of Control or for Cause. The Compensation Committee established the following terms for
severance payments, subject to such individual entering into and not revoking a release of claims in our favor:

• The CEO will be paid a lump sum severance payment equal to one and one-half (1.5) times annual base
salary and the other NEOs will be paid a lump sum severance payment equal to one (1) times annual
base salary; and

• The CEO will be reimbursed for premiums under COBRA for a period of eighteen (18) months and the
other named executive officers will be reimbursed for premiums under COBRA for a period of twelve
(12) months.

If a named executive officer’s employment with Infinera is less than one year, the amount of severance
payable to such individual shall be equal to the lesser of (x) the base salary paid to such individual during their
period of employment, or (y) the severance amount set forth above.

48

Death and Disability Benefits

Pursuant to our 2000 Stock Option Plan and the 2007 Plan, accelerated vesting is provided in the event of the

death (with exceptions in certain circumstances) or permanent disability of an employee, including our NEOs.
Accrued vacation will also be paid out in the event of the death or permanent disability of such individual. We do
not currently provide any other benefits in the event of an employee’s death or permanent disability.

For purposes of these benefits, the following terms have the following meanings:

Change of Control

. . . . . . . . . .

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of Infinera representing fifty percent
(50%) or more of the total voting power represented by Infinera’s then
outstanding voting securities; (ii) the consummation of the sale or disposition by
Infinera of all or substantially all of Infinera’s assets; (iii) the consummation of a
merger or consolidation of Infinera with any other corporation, other than a
merger or consolidation which would result in the voting securities of Infinera
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting power
represented by the voting securities of Infinera or such surviving entity or its
parent outstanding immediately after such merger or consolidation; or (iv) a
change in the composition of the Board occurring within a two (2) year period,
as a result of which less than a majority of the directors are Incumbent
Directors. “Incumbent Directors” means directors who either (A) are directors of
Infinera as of the date hereof, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the directors of
Infinera at the time of such election or nomination (but will not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to Infinera).

Constructive Termination . . . . The executive officer’s resignation as a result of, and within three (3) months

following the expiration of any Company cure period (discussed below)
following the occurrence of one or more of the following: (i) a material reduction
in the executive officer’s job, duties or responsibilities in a manner that is
substantially inconsistent with the position, duties or responsibilities held by the
executive officer immediately before such reduction, (ii) a material reduction in
the executive officer’s base salary (in other words, a reduction of more than five
percent of executive’s base salary within the twelve-month period following a
Change of Control), or (iii) a material change in the work location at which the
executive officer is required to perform services for Infinera (in other words, a
requirement that the executive officer relocate to a work location that is more
than 50 miles from the executive’s work location in effect as of the date
immediately prior to a Change in Control). The executive officer will not resign
as the result of a Constructive Termination without first providing Infinera with
written notice of the acts or omissions constituting the grounds for “Constructive
Termination” within ninety (90) days of the initial existence of the grounds for
“Constructive Termination” and a cure period of thirty (30) days following the
date of such notice.

(i) The executive officer’s willful failure to substantially perform his or her duties
and responsibilities to Infinera or deliberate violation of a company policy; (ii)
the executive officer’s commission of any act of fraud, embezzlement,
dishonesty or any other willful misconduct that has caused or is reasonably
expected to result in material injury to Infinera; (iii) unauthorized use or
disclosure by the executive officer of any proprietary information or trade
secrets of Infinera or any other party to whom the executive officer owes an

49

Cause . . . . . . . . . . . . . . . . . . . . .

obligation of nondisclosure as a result of his or her relationship with Infinera; or
(iv) the executive officer’s willful breach of any of his or her obligations under
any written agreement or covenant with Infinera. The determination as to
whether the executive officer is being terminated for Cause will be made in
good faith by Infinera and will be final and binding on the executive officer.

Fiscal 2014 Estimated Payments and Benefits Table

The amount of compensation and benefits payable to each of our NEOs in the event of a termination of
employment by Infinera, a termination of employment following a Change of Control transaction, or a termination
of employment due to death or permanent disability has been estimated in the table below. The value of the
outstanding equity award vesting acceleration was calculated based on the assumption that the termination event
occurred on December 27, 2014, the day of fiscal 2014. The closing price of our common stock as of the last
trading day of fiscal 2014, was $14.91 per share, which was used as the value of our common stock in the
calculations below. The value of the vesting acceleration was calculated by (i) multiplying the number of
accelerated shares of common stock underlying unvested, in-the-money equity awards by $14.91 and
(ii) subtracting the exercise price for the unvested stock options.

Name

Type of Benefit

Thomas J. Fallon . . . . . . . . Cash Severance

Vesting Acceleration(1)
Continued Coverage of Employee Benefits

Potential Payments in Connection With:

Termination
Under
Severance
Policy
($)

Termination
After a
Change
of Control
($)

Termination
Upon
Death or
Disability
($)

702,044

—

36,660

936,058
8,872,196
48,881

—

8,872,196

—

Total Benefits

738,704

9,857,135

8,872,196

Brad Feller . . . . . . . . . . . . . Cash Severance

Vesting Acceleration(2)
Continued Coverage of Employee Benefits

346,154

—

18,588

519,231
2,626,738
27,882

—

2,626,738

—

Total Benefits

364,742

3,173,851

2,626,738

David F. Welch, Ph.D. . . . . Cash Severance

Vesting Acceleration(3)
Continued Coverage of Employee Benefits

374,885

—

24,440

562,328
5,139,477
36,660

—

5,139,477

—

Total Benefits

399,325

5,738,465

5,139,477

Robert J. Jandro . . . . . . . . Cash Severance

Vesting Acceleration(4)
Continued Coverage of Employee Benefits

350,000

—

13,248

525,000
2,351,277
19,872

—

2,351,277

—

Total Benefits

363,248

2,896,149

2,351,277

James L. Laufman . . . . . . . Cash Severance

Vesting Acceleration(5)
Continued Coverage of Employee Benefits

Total Benefits

62,500

—

18,588

81,088

93,750
1,410,590
27,882

—

1,410,590

—

1,532,222

1,410,590

(1) The vesting of 595,050 shares of common stock would accelerate if Mr. Fallon was terminated without Cause, as a result of
a Constructive Termination within 12 months following a Change of Control or upon death or permanent disability as of
December 27, 2014.

(2) The vesting of 191,297 shares of common stock would accelerate if Mr. Feller was terminated without Cause, as a result of
a Constructive Termination within 12 months following a Change of Control or upon death or permanent disability as of
December 27, 2014.

50

(3) The vesting of 344,700 shares of common stock would accelerate if Dr. Welch was terminated without Cause, as a result of
a Constructive Termination within 12 months following a Change of Control or upon death or permanent disability as of
December 27, 2014.

(4) The vesting of 157,698 shares of common stock would accelerate if Mr. Jandro was terminated without Cause, as a result of
a Constructive Termination within 12 months following a Change of Control or upon death or permanent disability as of
December 27, 2014.

(5) The vesting of 94,607 shares of common stock would accelerate if Mr. Laufman was terminated without Cause, as a result

of a Constructive Termination within 12 months following a Change of Control or upon death or permanent disability as of
December 27, 2014.

51

RISK ASSESSMENT OF COMPENSATION PRACTICES

During fiscal 2014, at the request of the Compensation Committee, a review of the risks associated with our

organization-wide compensation policies and practices was conducted. This review was conducted by Compensia
with input from our legal, finance and human resources departments. This assessment included:

• A review of the policies and practices relating to the components of our compensation programs and

arrangements;

• A review of incentive-based cash and equity compensation plans and arrangements;

• The identification of compensation design features that could potentially encourage excessive or

imprudent risk taking, and identification of business risks that these features could potentially encourage;
and

• Consideration of the presence or absence of controls, policies, plan features or other factors that mitigate

potential risks.

Although all compensation programs were considered, particular attention was paid to incentive-based plans

and arrangements involving variable payouts, where an employee might be able to influence payout factors and
compensation plans and arrangements involving our executive team. In substantially all cases, these
compensation plans and arrangements are centrally designed and administered and, excluding sales incentive
compensation, are substantially identical across function and geography. Incentive compensation was found to be
based on a blend of financial and operational objectives, which allows us to avoid an over-emphasis on shorter-
term financial goals. In addition, the financial and operational objectives used to determine the performance
measures for our incentive-based compensation plans and arrangements were found to be substantially derived
from our annual operating plan, which is approved by the Board.

In addition, the assessment considered the controls and other mitigating factors that serve to offset elements

of our compensation policies and practices that may introduce or encourage risk-taking, including:

• Oversight of major incentive compensation plans and arrangements and decision-making by the

Compensation Committee, which, in most cases, retains the ability to adjust elements of incentive
compensation in its discretion;

•

Internal controls over financial reporting and compensation practices regularly reviewed and/or tested by
internal auditors and subject to testing as part of the annual independent integrated audit by our external
auditors;

• Audit Committee oversight and review of financial results and non-GAAP adjustments used in certain

components of incentive compensation;

• The existence of, and training relating to, corporate standards of business conduct and ethics;

• Substantial alignment of compensation of and benefits for executive and non-executive, salaried

employees;

• A clawback policy pursuant to which the Compensation Committee has a one-year look-back provision
and provides the authority to recoup up to 100% of any incentive compensation that resulted from a
material misstatement of financial results; and

• Stock ownership guidelines applicable to our Section 16 Officers to align their interests with those of our

stockholders.

Compensia’s review concluded that the risks associated with our compensation policies and practices were
being effectively managed by Infinera. Based on this review, as well as our assessment of the factors described
above, we have determined that the risks associated with our compensation policies and practices are not
reasonably likely to result in a material adverse effect on Infinera. This risk assessment was presented to and
reviewed by the Compensation Committee.

52

PROPOSAL 3—ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables

our stockholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our NEOs as
disclosed in the Compensation Discussion and Analysis and the tabular disclosures of this Proxy Statement. This
proposal, commonly known as a “say-on-pay” proposal, provides our stockholders with the opportunity to express
their views on the compensation of our NEOs.

As described in the section entitled “Compensation Discussion and Analysis,” we believe that the skill, talent,
judgment and dedication of our executive officers are critical factors affecting the long-term value of Infinera. The
goals of our executive compensation programs are to fairly compensate our executives, attract and retain highly-
qualified executives able to contribute to our long-term success, encourage performance consistent with clearly
defined corporate goals and align our executives’ long-term interests with those of our stockholders. The specific
goals that our current executive compensation programs reward are focused on financial and operational
objectives, including specific revenue and operating income targets as well as important operation goals important
to the short-term and long-term growth of Infinera. Please read the “Compensation Discussion and Analysis”
section of this Proxy Statement beginning on page 25 for additional details about our executive compensation
programs, including information about the fiscal 2014 compensation of our NEOs.

We are asking our stockholders to indicate their support for the compensation of our NEOs as described in
this Proxy Statement. This vote is not intended to address any specific item of compensation, but rather the overall
compensation of our NEOs and the philosophy, policies, practices and objectives described in this Proxy
Statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED: That the Company’s stockholders approve, on an advisory basis, the compensation of the
named executive officers, as disclosed in the Proxy Statement for the 2015 Annual Meeting of
Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission,
including the Compensation Discussion and Analysis, the compensation tables and the accompanying
footnotes and narratives within the Compensation of Executive Officers section of the Proxy Statement.”

As an advisory vote, this say-on-pay proposal is not binding upon Infinera, the Board or the Compensation
Committee. However, Infinera, the Board and the Compensation Committee, which are responsible for overseeing,
reviewing and administering our executive compensation programs, value the opinions expressed by our
stockholders and will continue to consider our stockholders’ concerns in evaluating future compensation options
for our NEOs.

Vote Required

Approval of Proposal 3 requires the affirmative vote of a majority of the votes cast on this proposal.

“ABSTENTIONS” will have the same effect as an “AGAINST” vote. Broker non-votes will not be counted as having
been voted on the proposal.

Proposal 3—Recommendation of the Board

The Board unanimously recommends a vote “FOR” the approval of the compensation of our named executive

officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC.

53

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

We have adopted a formal policy that our executive officers, directors, and principal stockholders, including
their immediate family members and affiliates, are not permitted to enter into a related party transaction with us
without the prior consent of our Audit Committee, or other independent members of the Board in the case it is
inappropriate for our Audit Committee to review such transaction due to a conflict of interest. Any request for us to
enter into a transaction with an executive officer, director, principal stockholder, or any of such persons’ immediate
family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to our Audit
Committee for review, consideration and approval. All of our directors, executive officers and employees are
required to report to our Audit Committee any such related party transaction. In approving or rejecting the
proposed agreement, our Audit Committee shall consider the relevant facts and circumstances available and
deemed relevant to the Audit Committee, including, but not limited to the risks, costs and benefits to us, the terms
of the transaction, the availability of other sources for comparable services or products, and, if applicable, the
impact on a director’s independence. Our Audit Committee shall approve only those agreements that, in light of
known circumstances, are, or are not inconsistent with, our best interests, as our Audit Committee determines in
the good faith exercise of its discretion.

In fiscal 2014, Infinera did not engage in any related party transactions.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The members of the Board, our executive officers and persons who hold more than 10% of our outstanding

common stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which requires
them to file reports with respect to their ownership of our common stock and certain transactions in our common
stock. Based solely upon (i) the copies of Section 16(a) reports that we received from such persons for their fiscal
2014 transactions in our common stock and their common stock holdings and (ii) the written representations
received from one or more of such persons, we believe that all reporting requirements under Section 16(a) were
met in a timely manner during fiscal 2014.

54

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 27, 2014 with respect to the shares of our common

stock that may be issued under our existing equity compensation plans.

(a)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights

(b)
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights

(c)
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
First Column)

Plan Category

Equity compensation plans approved by security

holders(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,216,641(2)

$7.29

24,517,443(3)

Equity compensation plans not approved by security

holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

11,216,641

—

—

24,517,443

(1) Our 2007 Plan provides that on the first day of our fiscal year, the number of shares of common stock authorized under the
2007 Plan shall be increased by the lesser of (i) 9,000,000 shares of common stock, (ii) 5% of the outstanding shares of
common stock on the last day of the immediately preceding fiscal year or (iii) such other amount as determined by the Board
or a committee of the Board. For 2015, the Board approved no increase to the number of shares of common stock
authorized for issuance under the 2007 Plan, as recommended by the Compensation Committee. Our 2007 ESPP
previously provided that on the first day of our fiscal year, the number of shares of common stock authorized under the 2007
ESPP shall be increased by the lesser of (i) 1,875,000 shares of common stock, (ii) 1% of the outstanding shares of
common stock on such date or (iii) such other amount as is determined by the Board or a committee of the Board. At the
2014 Annual Meeting of Stockholders, our stockholders approved an amendment and restatement of the 2007 ESPP,
whereby the annual evergreen provision was removed and the number of shares issuable under the 2007 ESPP was
increased by 7,500,000 Shares.
(2) This amount includes the following:

•

•

•

4,298,386 shares issuable upon the exercise of outstanding stock options granted under the 2000 Stock Plan and 2007
Plan.
6,041,890 shares subject to RSUs granted under the 2007 Plan. Since these awards have no exercise price, they are
not included in the weighted average exercise price calculation in column (b).
876,365 shares issuable pursuant to outstanding stock awards that have been granted under the 2007 Plan, but not yet
earned as of December 27, 2014. The number of shares, if any, to be issued pursuant to such outstanding awards will
be determined based on certain performance metrics, as discussed above in the “Compensation Discussion and
Analysis” section. Since these awards have no exercise price, they are not included in the weighted average exercise
price calculation in column (b).

(3) This amount includes 7,261,664 shares of common stock available for future issuances under our 2007 ESPP.

STOCKHOLDER PROPOSALS FOR 2016 ANNUAL MEETING

To be considered for inclusion in our Proxy Statement for the 2016 Annual Meeting of Stockholders (the “2016

Annual Meeting”), stockholder proposals must comply with our Bylaws and the requirements of Rule 14a-8 under
the Exchange Act and be received by our Corporate Secretary at our principal executive offices no later than
November 27, 2015, or no later than 120 calendar days before the one-year anniversary of the date on which we
first mailed our Proxy Statement or Notice to stockholders in connection with this year’s Annual Meeting.

To be raised at the 2016 Annual Meeting, stockholder proposals must comply with our Bylaws. Under our
Bylaws, a stockholder must give timely notice thereof in proper written form to our Corporate Secretary of any
business, including nominations of directors for the Board that the stockholder wishes to raise at our 2016 Annual
Meeting. To be timely, the stockholder notice must be received by our Corporate Secretary no later than
February 10, 2016 nor earlier than January 11, 2016, or no later than the 45th day nor earlier than the 75th day
before the one-year anniversary of the date on which we first mailed our Proxy Statement or Notice to

55

stockholders in connection with this year’s Annual Meeting. To be in proper written form, the stockholder notice
must contain a brief description of such business and the reasons for conducting such business at the meeting, as
well as certain other information as set forth in greater detail in our Bylaws. In connection with a stockholder
nomination of a candidate for the Board, the stockholder notice must also include certain information as set forth in
our Bylaws about both the nominee and the stockholder making the nomination. If you wish to bring a stockholder
proposal or nominate a candidate for director, you are advised to review our Bylaws, which contain additional
requirements about advance notice of stockholder proposals and director nominations. Our current Bylaws may be
found on our website at www.infinera.com in the Corporate Governance section on our Investor Relations’ page.

Under Rule 14a-8 of the Exchange Act, if the date of the 2016 Annual Meeting changes by more than 30 days

from the anniversary of this year’s Annual Meeting, to be included in our Proxy Statement, stockholder proposals
must be received by us within a reasonable time before our solicitation is made.

Under our Bylaws, if the date of the 2016 Annual Meeting is advanced by more than 30 days prior to or
delayed by more than 60 days after the one-year anniversary of the date of this year’s Annual Meeting, then, for
notice by the stockholder to be timely, it must be received by our Corporate Secretary no earlier than the close of
business on the 120th day prior to the 2016 Annual Meeting and no later than the close of business on the later of
(i) the 90th day prior to the 2016 Annual Meeting, or (ii) the tenth day following the day on which disclosure in a
press release reported by Marketwired, Inc., Associated Press or a comparable national news service or in a
document publicly filed by Infinera with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act of the
date of the 2016 Annual Meeting is first made.

If we receive notice of a matter to come before the 2016 Annual Meeting that is not in accordance with the

deadlines described above and as more fully set forth in our Bylaws and Rule 14a-8 of the Exchange Act, we will
use our discretion in determining whether or not to bring such matter before the 2016 Annual Meeting. If such
matter is brought before the 2016 Annual Meeting, then our proxy card for such meeting will confer upon our proxy
holders’ discretionary authority to vote on such matter.

DELIVERY OF DOCUMENTS TO STOCKHOLDERS
SHARING THE SAME LAST NAME AND ADDRESS

To reduce the expense of delivering duplicate proxy materials to stockholders who may have more than one

account holding our common stock, but sharing the same address, we have adopted a procedure, approved by the
SEC, called “householding.” Under this procedure, stockholders who have the same last name and address, and
who do not participate in electronic delivery of proxy materials, will receive only one copy of our Notice, and as
applicable, any additional proxy materials that are delivered. This procedure reduces duplicate mailings and saves
printing costs and postage fees, as well as natural resources. Stockholders who participate in “householding” will
continue to have access to and utilize separate proxy voting instructions.

Once you have received notice from your broker that they will be “householding” communications to your

address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any
time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy materials or
if you would like an additional copy of any of the proxy materials, please notify your broker or direct your written
request to Infinera Corporation, 140 Caspian Court, Sunnyvale, California 94089, Attention: Corporate Secretary,
or call (408) 572-5200. Stockholders who currently receive multiple copies of the Proxy Statement at their address
and would like to request “householding” of their communications should contact their broker.

56

OTHER MATTERS

The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If any

other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board,

/S/

JAMES L. LAUFMAN

James L. Laufman
Senior Vice President, General Counsel and
Corporate Secretary

Sunnyvale, California
March 26, 2015

57

[THIS PAGE INTENTIONALLY LEFT BLANK]

Appendix A

Infinera Corporation
Unaudited Reconciliations from GAAP to Non-GAAP
(In thousands)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Gross Profit:

Years Ended

December 27,
2014

December 28,
2013

December 28,
2012

$668,079

$544,122

$438,437

U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$288,304
5,607

$218,639
7,496

$157,569
8,534

Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$293,911

$226,135

$166,103

Reconciliation of Gross Margin:

U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43.2%
0.8%

40.2%
1.4%

Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

44.0%

$

41.6%

35.9%
2.0%

37.9%

Reconciliation of Operating Income (Loss):

U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 27,342
28,394

$ (24,186)
31,976

$ (83,001)
41,819

Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 55,736

$ 7,790

$ (41,182)

The non-GAAP measures of gross profit, gross margin and operating income (loss) exclude non-cash stock-

based compensation expenses. We believe these adjustments are appropriate to enhance an overall
understanding of our underlying financial performance and also our prospects for the future and are considered by
management for the purpose of making operational decisions. In addition, these results are the primary indicators
management uses as a basis for our planning and forecasting of future periods. The presentation of this additional
information is not meant to be considered in isolation or as a substitute for gross profit, gross margin and operating
income (loss) prepared in accordance with GAAP. Non-GAAP financial measures are not based on a
comprehensive set of accounting rules or principles and are subject to limitations.

A-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 27, 2014

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: 001-33486

Infinera Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

77-0560433
(IRS Employer
Identification No.)

140 Caspian Court
Sunnyvale, CA 94089
(Address of principal executive offices, including zip code)
(408) 572-5200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $0.001 Par Value

Name of Each Exchange on Which Registered
The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  
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  

    No  

    No  

    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  

    No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained 

herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in 
Part III of this Form 10-K or any amendment to this Form 10-K.    

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   

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  
The aggregate market value of the registrant’s common stock, $0.001 par value per share, held by non-affiliates of the registrant on June 27, 

    No  

2014, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $845,017,931 (based on the 
closing sales price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and 
each person who owns more than 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be 
deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 9, 
2015, 128,004,196 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.

Portions of the registrant’s Proxy Statement for its 2015 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are 

incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

DOCUMENTS INCORPORATED BY REFERENCE

 
INFINERA CORPORATION

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 27, 2014

Table of Contents

Part I

Item 1.

Business .................................................................................................................................

Item 1A. Risk Factors ............................................................................................................................

Item 1B. Unresolved Staff Comments ....................................................................................................

Item 2.

Properties ................................................................................................................................

Item 3.

Legal Proceedings ...................................................................................................................

Item 4. Mine Safety Disclosures ..........................................................................................................

Part II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities ..................................................................................................................

Item 6.

Selected Financial Data ...........................................................................................................

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .....

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ....................................................

Item 8.

Financial Statements and Supplementary Data .......................................................................

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....

Item 9A. Controls and Procedures .........................................................................................................

Item 9B. Other Information ....................................................................................................................

Part III

Item 10. Directors, Executive Officers and Corporate Governance ........................................................

Item 11. Executive Compensation .........................................................................................................

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ................................................................................................................

Item 13. Certain Relationships and Related Transactions, and Director Independence .........................

Item 14. Principal Accounting Fees and Services ..................................................................................

Part IV

Page

1

14

30

30

30

31

32

34

35

50

52

95

95

96

97

97

97

97

97

Item 15. Exhibits, Financial Statement Schedules .................................................................................

98

 
 
ITEM 1.   

Overview

BUSINESS

Part I

Infinera Corporation (“we” or “Infinera”) provides optical transport networking equipment, software and 

services to Tier 1 and Tier 2 telecommunications service providers, Internet content providers (“ICPs”), cable 
operators, wholesale and enterprise carriers, research and education institutions, and government entities 
(collectively, “Service Providers”) across the globe. Optical transport networks are deployed by Service Providers 
facing significant demands for transmission capacity prompted by increased use of high-speed Internet access, 
mobile broadband, high-definition video streaming services, business Ethernet services and cloud-based 
services.

Our technologies and platforms enable Service Providers to deliver vast amounts of bandwidth with 

greater ease. We leverage our unique large scale photonic integrated circuits (“PICs”) to deliver innovative 
optical networking solutions for the most demanding network environments. The Infinera Intelligent Transport 
Network is an architecture that enables Service Providers to automate, converge and scale their long-haul, 
subsea, data center and metro optical networks. This architectural approach helps Service Providers to rapidly 
deploy reliable, differentiated services while reducing their operating costs through scale, multi-layer 
convergence and automation. 

We manufacture large-scale Indium Phosphide PICs, which are used as a key differentiating component 
inside our Intelligent Transport Network platforms. Our first and second generation PICs transmit and receive 100 
Gigabits per second (“Gbps”) of wavelength division multiplexing (“WDM”) transmission capacity and incorporate 
the functionality of over 60 discrete optical functions into a pair of PICs approximately the size of a fingernail. Our 
third generation PICs, commercially available since 2012, transmit and receive 500 Gbps, incorporating over 600 
discrete optical functions into a pair of PICs. Our PICs are combined with the FlexCoherent Processors to deliver 
coherent optical transmission and with high-performance Optical Transport Network (“OTN”) switching 
capabilities to offer Service Providers a unique combination of highly-scalable transmission capacity and easy to 
use bandwidth management tools to simplify transport network operations.

Similar to how silicon integrated circuits changed the dynamics of the computing industry by increasing 
computing performance and reliability while reducing physical size, power consumption and heat dissipation, we 
believe our PICs change the dynamics of the optical transport network industry by increasing optical 
performance and reliability while reducing physical size, power consumption and heat dissipation. We fabricate 
PICs and develop the software and strategic hardware elements that together comprise the optical transport 
network platforms at the foundation of our Intelligent Transport Network architecture. We sell these optical 
transport network platforms to Service Providers along with a comprehensive suite of installation, management 
and support services. We believe that Service Providers facing increasing demand for greater optical transport 
network transmission capacity and the need for more favorable network economics will adopt our optical network 
solutions.

 The Infinera DTN-X platform supports 100 Gbps WDM transmission capacity with 500 Gbps super-

channels and also integrates 5 Terabits per second (“Tbps”) of OTN switching in a single bay. The Infinera DTN-
X platform leverages the unique capabilities of our 500 Gbps PICs to deliver our high-capacity Intelligent 
Transport Networks that reduce power, cooling and space requirements while simplifying transport network 
operations. The Infinera DTN platform currently supports 10 Gbps WDM transmission capacity combined with 
integrated switching capabilities. 

In addition to Service Providers that are looking for network architectures to respond to continued 

demand for bandwidth across their long-haul and subsea networks, Service Providers are now starting to build 
networks to support data center interconnections across metro cloud and campus environments. Our recently 
introduced Cloud Xpress platform is optimized to help Service Providers scale cloud networks with hyper-scale 
density, simplified operations and low power. 

“Infinera,” “Infinera DTN,” “Infinera DTN-X,” “ATN,” “Infinera Intelligent Transport Network,” 
“FlexCoherent,” “Infinera Instant Bandwidth” are trademarks or service marks of Infinera Corporation in the 
United States, certain other countries and /or the European Union. Any other trademarks or trade names 
mentioned are the property of their respective owners.

1

 
 
Infinera was founded in December 2000, originally operated under the name “Zepton Networks,” and is 

headquartered in Sunnyvale, California. We are incorporated in the State of Delaware. Our principal executive 
offices are located at 140 Caspian Court, Sunnyvale, CA 94089. Our telephone number is (408) 572-5200.

Industry Background

Optical transport networking equipment carries digital information using light waves over fiber optic 

networks. The advent of WDM systems has enabled the transmission of larger amounts of data by using multiple 
wavelengths over a single optical fiber. Service Providers often use WDM systems to carry communications 
traffic between cities, referred to as long-haul networks, and within large metropolitan areas, referred to as metro 
networks. Fiber optic networks are generally capable of carrying most types of communications traffic, including 
conventional long-distance telephone calls, e-mails, web sessions and high-definition video streams. As service 
traffic grows, Service Providers add transmission capacity to existing optical networks or purchase and deploy 
additional systems to keep pace with bandwidth demands and service expansion.

We believe that a number of trends in the communications industry are increasing demand for network 

capacity and ultimately will increase demand for optical transport networking systems. These trends include 
growth in bandwidth-intensive services like streaming high-definition video services, the proliferation of 4G and 
WiFi mobile broadband due to the availability of smartphones and tablets, and the growth of cloud services. 

Consumers and businesses increasingly rely on the cloud for their application needs. As cloud adoption 

increases, large network operators are reporting a magnification effect on incoming traffic, such that a single 
request from an end user can generate many times the amount of traffic between data centers than was 
contained in the request. This server-to-server traffic is also called east-west traffic and this magnification effect 
is accelerating the deployment of high-capacity transport solutions into the metro cloud. 

We believe that Service Providers seek the following solutions that will allow them to increase their 

revenue and/or expand their service offerings:

• 

• 

• 

• 

high-capacity solutions that scale transmission capacity to meet increasing bandwidth demand;

efficient solutions that optimize performance and increase reliability while reducing physical space, 
power consumption and heat dissipation;

easy to use solutions that reduce the time to deploy new transmission capacity while lowering 
operational expenses; and

improved integration between Internet Protocol equipment such as routers and optical transport 
networking equipment.

We believe that the Infinera Intelligent Transport Network architecture is uniquely enabled to deliver 

improvements in these areas compared to competitive WDM systems that still rely on discrete optical 
components rather than PICs. We also believe that our Intelligent Transport Network architecture enables 
Service Providers to deploy reliable, high-capacity, efficient optical transport network solutions that are easy to 
use and improve the integration between the layers of Service Provider networks resulting in the lowest total cost 
of ownership.

The Infinera Strategy

Our goal is to be the preeminent provider of optical transport networking systems to Service Providers 

around the world. Key aspects of our strategy to achieve this goal are as follows:

• 

• 

Increasing our customer base and expanding our geographical footprint. We continue to diversify 
our customer base across multiple markets. In 2015 and beyond, we intend to increase our 
penetration with new and existing customers while leveraging our Infinera DTN-X and Cloud 
Xpress platforms. In 2014, we further increased our presence outside of the United States, with the 
addition of new customers  across multiple regions. 

Penetrating adjacent markets. We are developing and building new products for specific markets, 
including the metro aggregation and metro cloud markets. In 2014, we increased our addressable 
markets by introducing the Cloud Xpress platform for the metro cloud market. In addition, we plan 
to introduce a product to address the metro aggregation market towards the end of 2015, allowing 

2

us to further expand our total addressable market. We intend to continually add functionality to our 
existing products and to develop the service and support infrastructure needed to address the long-
haul, metro aggregation and metro cloud markets.

•  Continuing commitment to provide world-class support services to our customers. We believe that 
our lead in customer experience capabilities is a major differentiator. Infinera's global customer 
service and technical support team is committed to making our customers successful by providing 
the highest quality support services to deploy, operate and maintain their networks.

•  Maintaining and extending our technology lead. We plan to incorporate the functionality of 

additional discrete functions into our PICs in order to continue to increase our technology lead. In 
addition, we intend to pursue the expansion of our digital switching and bandwidth management 
capabilities in order to enhance the performance, scalability and economic advantages of our 
products.

•  Continuing investment in PIC manufacturing activities. We believe that our vertical integration and 
manufacturing capabilities serve as competitive advantages. We intend to continue to invest in the 
manufacturing capabilities needed to produce new generations of PICs.

• 

Investing in Software Defined Networking. We are seeing a trend in which Service Providers are 
looking for more programmable networks and we plan to add application programming interfaces to 
our Intelligent Transport Network architecture so they can be used by Service Providers to build 
more agile networks that can deliver competitive services. Although this trend has not really taken 
hold yet in the wide area networking space, we believe that our products are uniquely architected to 
handle the needs of software defined networks (“SDN”) with large pools of intelligent bandwidth.  

Customers

As of December 27, 2014, we have sold our Intelligent Transport Network platform to 140 customers 

worldwide, including:

• 

• 

• 

Tier-1 carriers for domestic and international networks;

Tier-2 carriers;

internet content provider/data center operators;

•  wholesale and enterprise carriers;

•  multiple system operators/cable companies; and

• 

research and education/government entities.

At the end of 2014, we had 59 customers who have purchased the Infinera DTN-X platform. We do not 

have long-term sales commitments from our customers. One customer accounted for over 10% of our revenue in 
2014. Revenue from this customer was 19% of total revenue in 2014. No individual customer accounted for over 
10% of our revenue in 2013 or 2012.

Technology

Intelligent Transport Network Architecture

Infinera was founded with a vision of increasing the functionality and improving the economics of optical 

transport systems. To that end, our core engineering team consists of optical component and systems experts 
who have collaborated to create an innovative optical networking architecture that combines the delivery of large 
amounts of low-cost bandwidth with distributed switching and the embedded software intelligence of bandwidth 
management to manage larger networks and deliver high-capacity services quickly and cost-effectively. We have 
focused our efforts, time and capital on developing multiple platforms based on our Intelligent Transport Network 
architecture.

3

Our Intelligent Transport Network architecture enables Service Providers to create rich end-user 

experiences based on efficient, high-capacity transport by combining the following elements:

• 

Scalability. The proliferation of data centers, rise of big data and increasing consumption of video 
are fundamentally changing traffic characteristics in operator networks. The Infinera Intelligent 
Transport Network delivers 500 Gbps FlexCoherent super-channels today and is designed to scale 
without compromise to enable terabit super-channels and terabit Ethernet in the future.

•  Convergence. Networks are growing in complexity with the proliferation of chassis, network layers 
and fiber interconnects. Complexity increases the time it takes to plan and deploy network services 
and increases the cost of maintenance, operation, power, space and cooling. By converging packet 
and OTN switching functions with WDM, the Infinera Intelligent Transport Network is designed to 
reduce complexity while lowering overall network spending without compromising performance.

• 

Automation. Network operators face intensifying competition to meet customer demand for 
immediate bandwidth needs and better visibility into the network. The Infinera Intelligent Transport 
Network features intelligent software control and open SDN application programming interfaces 
(“APIs”) to help simplify multi-layer provisioning. Automation allows the end-user to control their 
own network services. Furthermore, our Infinera Instant Bandwidth offering enables our customers 
to align service revenue to transport network growth by instantly provisioning additional capacity 
when it is needed.

Infinera PICs

We believe that our proprietary PICs are a key source of our value proposition and competitive 
advantage. We manufacture and package our PICs at our own facilities for use exclusively with our Infinera DTN, 
Infinera DTN-X and Cloud Xpress platforms. We began the design and manufacture of our PICs shortly after we 
were founded in December 2000. We employ a multi-disciplinary approach towards the development and 
manufacture of our PICs, with significant interaction between our manufacturing, system engineering and 
advanced technology groups. As a leader in the development of photonic integration, we have protected the 
intellectual property associated with our PIC manufacturing through a combination of trade secrets, patents and 
contractual protections. We believe that as a result of the combination of the multiple disciplines that were 
required to develop our PIC, together with the intellectual property protections that we have established, it will be 
difficult for others to duplicate the technology we have developed.

The Infinera DTN platform transmits optical capacity in increments of 100 Gbps, utilizing a pair of PICs. 

The Infinera DTN-X and Cloud Xpress transmit 500 Gbps super-channels, utilizing a pair of PICs. Our first and 
second generation 100 Gbps PICs integrate the functionality of 60 optical functions onto a pair of chips, and our 
third generation 500 Gbps PICs have increased this integration to over 600 discrete functions per pair of chips. 
We believe that large-scale photonic integration enables significantly improved manufacturing economics for 
optical networking, allowing future optical transport cost reductions to be viably sustained on a cost curve defined 
by volume manufacturing efficiencies, greater functional integration, increased device density and manufacturing 
yield enhancements.

Infinera FlexCoherent Processor

The term “coherent transmission” generally implies the combination of a number of technologies used to 

transmit data over optical transport networks. These optical transmission methodologies are based on varying 
optical technologies, namely: phase modulation, polarization multiplexing, coherent detection and advanced 
digital signal processing. These “coherent technologies” are used by Service Providers to enable higher data 
capacities to be transmitted over their existing optical fiber infrastructure, typically using the same or better 
design rules than those used for 10 Gbps transmission. Typically, a coherent transmitter uses a more complex 
optical circuit and requires a significantly greater number of optical components than more traditional non-
coherent transmission methodologies. We have integrated proprietary coherent technologies onto our 
FlexCoherent Processor, which works in conjunction with our 500 Gbps PICs to construct a single module. This 
module incorporates our long-haul FlexCoherent 500 Gbps WDM super-channels with software selectable 
modulation formats and exceptional optical transport performance.

4

Super-Channels

The Infinera DTN-X and Cloud Xpress platforms support five channels of 100 Gbps capacity in a single 

line card. This 500 Gbps pool of bandwidth is managed as a super-channel that can be deployed in a single 
operational motion. Competitive solutions would require the installation of five discrete line modules, each turned 
up with its own operational motion, in order to achieve the same system capacity. This results in competitive 
advantages in the areas of space and power consumption, leading to lower operational costs and long-term 
system reliability, as well as significant reductions in time to install and repair.

Integrated OTN Switching

OTN offers a highly-structured approach to service multiplexing and switching which enables customers 

to reduce operational costs and more efficiently utilize higher-capacity bandwidth in their networks. Historically, 
the OTN switching and WDM transport functions have been deployed by Service Providers in separate systems. 
Our unique PIC technology allows the Infinera DTN and Infinera DTN-X platforms to fully integrate WDM 
transport and OTN switching capabilities in a single platform, without compromising overall system functionality 
or capacity. This is achieved by reducing the number of elements and fiber connections in the network, as well as 
lowering space and power requirements. This results in an improved total cost of ownership for the customer.

Infinera Instant Bandwidth

Infinera Instant Bandwidth enables Service Providers to license the 500 Gbps super-channel pool of 

bandwidth in 100 Gbps increments. With the Infinera Instant Bandwidth program, Service Providers can instantly 
provision an additional 100G of transmission capacity on demand without the deployment of any incremental 
equipment. The Instant Bandwidth program is uniquely enabled by our super-channel capability and PICs.

Infinera IQ Network Operating System 

The Infinera IQ Network Operating System is our embedded software operating system, which enables 

our Service Providers to simplify and speed up the tasks they perform to deliver, differentiate, and manage 
services and to optimize the utilization of their networks. The IQ Network Operating System supports GMPLS for 
end-to-end provisioning, protection and restoration services, and a host of performance monitoring and software-
definable testing capabilities. 

Infinera Line System

Our Intelligent Transport Network platforms are built upon and connected to one another using an 

optical “line system.” The Infinera Line System (“ILS”) provides optical amplification and enables the 
management communication channel between network nodes. ILS currently supports up to 1.6 Tbps of optical 
capacity on a single fiber using the Infinera DTN platform. The latest version of ILS, called FlexILS, supports up 
to 9.5 Tbps of capacity using the Infinera DTN-X platform. ILS is fully integrated into our management and 
control software and can be managed across platforms. Our bandwidth management capabilities allow our 
customers to manage and utilize the available capacity as a single pool of bandwidth to satisfy customer 
requirements, including services at speeds from 1 Gbps up to 100 Gbps.

Products and Services

Our product portfolio consists of the Infinera DTN-X and the Infinera DTN platforms targeted primarily 

for long-haul and subsea networks and the Cloud Xpress and ATN platforms targeted primarily for metro 
networks. We also provide software solutions to increase the efficiency and optimization of the network.

Long-haul and Subsea Network Products

The Infinera DTN and Infinera DTN-X platforms are carrier-class, which means that they comply with 

applicable Telcordia and equivalent major international standards for central office-based network elements.

The Infinera DTN and Infinera DTN-X platforms are modular in design that enable Service Providers to 
add capacity in a cost-efficient manner. While the initial deployment of these products at a customer site involves 
the installation of a line system (including common equipment, such as a chassis, amplifiers, management 
controllers and related equipment), Service Providers can increase the capacity of the Infinera DTN and Infinera 
DTN-X platforms by purchasing our Digital Line Modules, Tributary Adapter Modules and Tributary Optical 

5

Modules. We believe that the density and the modular architecture of the Infinera DTN and Infinera DTN-X 
platforms enable significant flexibility and scalability for Service Providers. 

Infinera DTN Platform 

The Infinera DTN platform is based on our first and second generation PIC technology to enable digital 
processing and management of data with the capability to generate WDM wavelengths and to add, drop, switch, 
manage, protect and restore network traffic digitally using integrated OTN switching. The Infinera DTN platform 
can automate the connection of circuits and provisioning of new services without costly and cumbersome manual 
intervention.

Our current Infinera DTN platform delivers 10 Gbps wavelengths enabling fiber capacity of 1.6 Tbps and 

per-chassis I/O capacity of 400 Gbps. The Infinera DTN platform supports a broad range of optical service 
interfaces including Gigabit Ethernet (“GbE”) (1 GbE, 10 GbE, 40 GbE and 100GbE) and separate synchronous 
optical network/synchronous digital hierarchy.

Infinera DTN-X Platform

The Infinera DTN-X platform is based on our third generation 500 Gbps PICs that integrate more than 
600 discrete optical functions delivering the world’s first 500 Gbps FlexCoherent super-channels, based on 100 
Gbps per channel. The Infinera DTN-X platform delivers a step function improvement in network economics to 
help Service Providers more efficiently manage the explosive growth of traffic brought on by video, mobile and 
cloud-based services. The Infinera DTN-X platform is a next-generation multi-terabit packet optical transport 
platform that is fundamentally multiple products in one:

• 

• 

• 

a WDM transmission system based on the world’s first 500 Gbps super-channels, which enable 
cost-effective WDM transmission capacity;

an integrated OTN switching system that will scale from 5 Tbps in its first release and up to 100 
Tbps in the future and will enable operators to efficiently manage larger data transmission with 
grooming of traffic down to 1 Gbps granularity; and

a system that is designed to be upgradeable to Multi-Protocol Label Switching (“MPLS”) switching 
in the future which will help further enable convergence of the network for improved efficiency, 
reducing the number interconnections between network layers.

We are also developing additional features for the Infinera DTN-X platform including the following:

• 

• 

a packet switching module (“PXM”) that provides highly-efficient packet-optical transport network 
architectures, which enables Service Providers to reduce the number of expensive router ports 
required to offer a portfolio of services based on Carrier Ethernet and MPLS; and 

a highly software controllable system designed to support programmatic control of the network by 
SDN and other software enablers developed by Infinera or third parties. 

We believe that the convergence of network layers can only be achieved when the best in class 

performance of each individual layer is realized in a single platform. In most competitive solutions, a Service 
Provider must make a choice between maximizing either the system’s transmission capacity or its OTN switching 
capability. The Infinera DTN-X platform, unlike other competitive offerings, was designed from the beginning to 
converge switching with WDM transport without compromising the performance of either function. This purpose-
built design centers around three unique technology building blocks - PICs paired with a FlexCoherent 
Processor, custom switching application-specific integrated circuits (“ASICs”) and a software-defined control 
plane. We believe that ours is the only platform available in the market that will allow all components, including 
the optical functions based on our PIC technology, to scale in a manner consistent with Moore’s Law-like 
semiconductor manufacturing economics and, therefore, deliver simultaneously best-of-breed switching, 
integrated with best-of-breed WDM.

6

Infinera DTN-X Platform for Submarine Network Applications

For submarine transport applications, we deliver Soft-Decision Forward Error Correction (“SD-FEC”) 

enabled super-channel line cards. With these modules, the Infinera DTN-X platform can be used as a Submarine 
Line Terminating Equipment (“SLTE”) node, increasing the total optical capacity of traditional submarine systems 
to a maximum of up to 9.5 Tbps and distances of up to 10,000 km. The Infinera DTN-X platform leverages its 
digital operations and software automation to allow Infinera's SLTE solution to significantly reduce engineering 
complexity for submarine cable upgrades and to enable lower cost, faster deployment of additional capacity on 
existing systems.

Metro Network Products

Infinera Cloud Xpress Platform

The Cloud Xpress platform is a family of metro optical products, designed for network operators 

delivering cloud-based services to consumers and businesses worldwide. The Cloud Xpress platform is 
optimized for the metro cloud, the transport network that interconnects multiple data centers within a metro area. 
In addition, the Cloud Xpress platform is designed to simplify the deployment of high-bandwidth connections 
while lowering the power and space required to scale metro cloud networks.

The Cloud Xpress platform is designed to provide the following benefits for our metro cloud customers:

•  Hyper-scale Density - The Cloud Xpress platform delivers 1 Tbps of combined input and output 

capacity in just two rack units (“RUs”) with up to 500 Gbps of line-side capacity and a 40 GbE 
client-side interface. We are currently developing offerings of 10Gbe and 100 GbE client-side 
interfaces. For network operators that need to scale the metro cloud in the least amount of space, 
the Cloud Xpress leads the industry with 21 Tbps of combined input and output capacity per 42 
RUs.

• 

Simplified Operations - Cloud data centers use a different operational model than traditional service 
provider central offices. The Cloud Xpress platform is designed with a rack-and-stack form factor 
and a new software approach that will enable it to plug into existing cloud provisioning systems 
using open SDN APIs. By offering an experience similar to the server and storage infrastructure 
currently deployed in the cloud, the Cloud Xpress platform enables smooth integration into existing 
operational processes enabling cloud providers to scale quickly, reduce human errors and lower 
operational costs. 

• 

Low Power - The Cloud Xpress platform consumes half as much power as compared to other 
similar metro cloud solutions currently in the market.

Infinera ATN Platform

The ATN platform is a metro-optimized coarse WDM and dense WDM ("DWDM") aggregation and 

transport solution with 400 Gbps of combined input and output capacity. The ATN platform is a cost-effective, 
efficient multiservice aggregation and transport platform with features to enhance simplicity of use and operation. 
The ATN platform supports direct wavelength connectivity to Infinera DTN and Infinera DTN-X nodes, reducing 
equipment costs and providing unique network management capabilities across our Intelligent Transport 
Network. The ATN platform can be used to extend the benefits of the Infinera DTN and Infinera DTN-X platforms, 
or can also be used as a standalone WDM access system.

Software and Services

Infinera Management Suite

The Infinera Management Suite is a network element management system used by Service Providers 

to manage their Infinera DTN, Infinera DTN-X, ATN and Cloud Xpress platforms. Our management suite of 
software includes the Digital Network Administrator, a scalable, robust, feature-rich element management 
system, and our Graphical Node Manager, an easy-to-use web-based management interface. Our hardware 
products, the Infinera DTN, Infinera DTN-X, ATN and Cloud Xpress platforms, are managed in an integrated 
fashion by the Infinera Management Suite.

7

Customer Support Services 

In connection with our product offerings, we provide a comprehensive range of support services for all 
hardware and software products. These support services cover all phases of network ownership, from the initial 
installation through day-to-day maintenance activities and professional services. Our support services are 
designed to efficiently manage and maintain customer network operations in the face of today's ever-increasing 
demands for lower operational costs and minimized downtime.

Our support organization continues to scale and provide world-class services that successfully support 

customers in over 70 countries around the world. In addition, we continue to expand our services portfolio in 
order to meet the needs of our customers.

Sales and Marketing 

We market and sell our products and related support services primarily through our direct sales force, 

supported by marketing and product management personnel. We also use distribution or support partners to 
enter new markets or when requested by a potential customer. Our sales team has significant previous 
experience with the buying process and sales cycles typical of high-value telecommunications products. We 
expect to continue to add sales and support employees as we grow our business.

The sales process for our products entails discussions with prospective customers, analyzing their 

networks and identifying how they can utilize our systems capabilities within their networks. This process 
requires developing strong customer relationships, and we expect to leverage our sales force and customer 
support capabilities to establish relationships with both domestic and international Service Providers.

Over the course of the sales cycle, Service Providers often test our products before buying. Prior to 

commercial deployment, the Service Provider will generally perform a field trial of our products. Upon successful 
completion, the Service Provider generally accepts the products installed in its network and may continue with 
commercial deployment of additional products. We anticipate that our sales cycle, from initial contact with a 
Service Provider through the signing of a purchase agreement, may, in some cases, take several quarters.

Direct Sales Force. Our sales team sells directly to Service Providers worldwide. We maintain a sales 

presence throughout the United States, as well as in a number of international locations, including Argentina, 
Belgium, China, France, Germany, Hong Kong, Italy, Japan, Netherlands, Singapore, South Africa, Spain, 
Sweden, Russia and the United Kingdom. We continued to expand our sales force in 2014 as we addressed new 
geographical markets and to support the sales of our expanded portfolio of products. Going forward, the addition 
of incremental sales headcount is expected to be success-based and in support of new customer accounts.

Indirect Sales Force. We have and will continue to employ business consultants, resale partners and 

sales agents to assist in our sales efforts and to accelerate and strengthen our customer relationships. We 
expect to work with business partners to assist our customers in the sale, deployment and maintenance of our 
systems and have entered into distribution and resale agreements to facilitate the sale of our products.

Marketing and Product Management. Our product management team is responsible for defining the 

product features and development plan required to maximize our success in the marketplace. Product 
management supports our sales efforts with product and application expertise. Our marketing team works to 
create demand for our products by communicating our value proposition and differentiation through direct 
customer interaction, public relations, attendance at tradeshows and other events, as well as programs via the 
Internet and other marketing channels.

Research and Development

Continued investment in research and development is critical to our business. To this end, we have 

assembled a team of engineers with expertise in various fields, including systems, sub-systems, software and 
components. Our research and development efforts are currently focused in Sunnyvale, California; Allentown, 
Pennsylvania; Beijing, China; Bangalore, India; and Kanata, Canada. We have invested significant time and 
financial resources into the development and enhancement of new and existing products. We will continue to 
expand our product offerings and the capabilities of existing products in the future and plan to dedicate 
significant resources to these continued research and development efforts. We are continually increasing the 
scalability and software features of our current platforms. We are also working to develop new generations of 

8

 
PICs, and we intend to enable further integration in our Intelligent Transport Network architecture through 
continued research and development. We believe that these efforts will continue to allow us to be competitive in 
the markets we currently serve but will allow us to address adjacent markets to fuel our future growth.

Our research and development expenses were $133.5 million, $124.8 million and $117.2 million in 

2014, 2013 and 2012, respectively.

Employees

As of December 27, 2014, we had 1,495 employees. A total of 567 of those employees were located 

outside of the United States. None of our U.S. employees are subject to a collective bargaining agreement. 
Employees in certain foreign jurisdictions may be represented by local workers’ councils and/or collective 
bargaining agreements, as may be customary or required in those jurisdictions. We have not experienced any 
work stoppages, and we consider our employee relationships to be good.

Manufacturing

We have invested significant time and capital to develop and improve the manufacturing process that 

we use to produce and package our products. This includes significant investments in personnel, equipment and 
the facilities needed to manufacture and package our products in Sunnyvale, California and Allentown, 
Pennsylvania. We also have invested in automating our manufacturing process and in training and maintaining 
the quality of our manufacturing workforce. As a leader in the development of photonic integration, our 
manufacturing processes have been developed over several years and are protected through a combination of 
trade secrets, patents and contractual protections. We believe that the investments we have made towards the 
manufacturing and packaging of our products provide us with a significant competitive advantage. We also 
believe that our current manufacturing facilities can accommodate an increase in production capacity as our 
business continues to grow.

            We also use contract manufacturers to assemble portions of our products. Each contract manufacturer 
procures components necessary to assemble the products in our forecast according to our specifications and 
bills of material. Despite outsourcing certain manufacturing operations for cost-effective scale and flexibility, we 
perform rigorous in-house quality control testing to ensure the reliability of our products. Our supply chain risk 
mitigation strategies are continuous and are institutionalized in our supply chain design for external 
manufacturing and for procurement of components. We currently have three contract manufacturers in four 
different countries, China, Malaysia, Mexico and Thailand, as well as the capability to redirect manufacturing to 
U.S. qualified factories of two electronic manufacturing services partners.

Backlog 

As of December 27, 2014 and December 28, 2013, our total order backlog was approximately $124.4 

million and $59.0 million, respectively. Our backlog is subject to future events that could cause the amount or 
timing of the related revenue to change, and, in certain cases, may be canceled without penalty. Orders in 
backlog may be fulfilled several quarters following receipt or may relate to multi-year support service obligations. 
As a result, we believe that backlog should not be viewed as an accurate indicator of future operating results for 
any particular period. A backlogged order may not result in revenue in a particular period, and the actual revenue 
may not be equal to our backlog amounts. Our presentation of backlog may not be comparable with that of other 
companies in our industry.

Competition 

Our current technologies and platforms support two transport equipment markets - long-haul/subsea 

and metro cloud.

The transport network equipment market for long-haul/subsea networks is highly competitive but has 
consolidated significantly over the last decade. The metro cloud transport equipment market is a relatively new 
market that we expect to be highly competitive. Competition in the markets we serve is based on any one or a 
combination of the following factors:

• 

• 

price and other commercial terms;

functionality;

9

 
 
 
• 

• 

• 

• 

• 

• 

• 

• 

• 

form factor or density;

power consumption;

customer qualification testing;

existing business and customer relationships;

the ability of products and services to meet customers’ immediate and future network requirements;

installation simplicity;

service and support;

scalability and investment protection; and

length of product lead times.

Competition in the optical transport networking for both markets is dominated by a combination of very 

large, multi-national companies and smaller companies. Many of our competitors have substantially greater 
name recognition and technical, financial and marketing resources, along with greater manufacturing capacity, as 
well as better established relationships with the incumbent carriers, than we do. Many of our competitors have 
more resources to develop or acquire, and more experience in developing or acquiring new products and 
technologies and in creating market awareness for these products and technologies. In addition, many of our 
competitors have the financial resources to offer competitive products at below market pricing levels that could 
prevent us from competing effectively. Further, many of our competitors have built long-standing relationships 
with some of our prospective customers and a number of competitors have the ability to provide financing to 
customers and could, therefore, have an inherent advantage in selling products to those customers.

In the long-haul/subsea market, our main competitors include current WDM suppliers, such as Alcatel-

Lucent, Ciena Corporation, Coriant, Huawei and ZTE. These companies have historically set the competitive 
benchmarks for price and functionality. In the emerging metro cloud market, we expect significant competition 
from public and private companies that have announced plans to develop or have developed products that would 
compete with us in this market. In addition, we may compete with other companies as we expand into new 
markets or as other companies develop products that are competitive with us.

Intellectual Property

Our success as a company depends upon our ability to protect our core technology and intellectual 
property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade 
secrets, copyrights and trademarks, as well as customary contractual protections.

We rely primarily on trade secret protection for our PIC and PIC manufacturing processes, including 

design, fabrication and testing of our PICs. However, there can be no assurances that trade secrets will be 
sufficient to provide us with a competitive advantage or that others have not or will not reverse engineer our 
designs or discover, develop or disclose the same or similar designs and manufacturing processes.

As of December 27, 2014, we held 298 U.S. patents and 56 international patents expiring between 

2021 and 2034, and held 140 U.S. and 63 foreign pending patent applications.  We do not know whether any of 
our pending patent applications will result in the issuance of patents or whether the examination process will 
require us to narrow our claims.

We may not receive competitive advantages from the rights granted under our patents and other 
intellectual property. Any patents granted to us may be contested, circumvented or invalidated over the course of 
our business, and we may not be able to prevent third parties from infringing these patents. Therefore, the exact 
effect of the protection of these patents cannot be predicted with certainty.

We believe that the frequency of assertions of patent infringement is increasing as patent holders, 

including entities that are not in our industry and who purchase patents as an investment or to monetize such 
rights by obtaining royalties, use such actions as a competitive tactic as well as a source of additional revenue. 
For example, we are involved in litigation with Cambrian Science Corporation (“Cambrian”) for alleged 
infringement of their patents. See the section set forth in Item 3. “Legal Proceedings” for additional information 
regarding this lawsuit. Any claim of infringement from a third party, even those without merit, could cause us to 

10

 
 
 
 
 
incur substantial costs defending against such claims, and could distract our management from running our 
business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to 
pay substantial damages. A judgment could also include an injunction or other court order that could prevent us 
from selling our products. In addition, we might be required to seek a license for the use of such intellectual 
property, which may not be available on commercially reasonable terms or at all. Alternatively, we may be 
required to develop non-infringing technology, which would require significant effort and expense and may 
ultimately not be successful.

In addition to trade secret and patent protections, we generally control access to and the use of our 

proprietary software and other confidential information. This protection is accomplished through a combination of 
internal and external controls, including contractual protections with employees, contractors, customers and 
partners, and through a combination of U.S. and international copyright laws. We incorporate a number of third 
party software programs into our products pursuant to license agreements.

We license some of our software pursuant to agreements that impose restrictions on our customers’ 

ability to use such software, such as prohibiting reverse engineering and limiting the use of copies. We also seek 
to avoid disclosure of our intellectual property by relying on non-disclosure and assignment of intellectual 
property agreements with our employees and consultants that acknowledge our exclusive ownership of all 
intellectual property developed by the individual during the course of his or her work with us. The agreements 
also require that each person maintain the confidentiality of all proprietary information disclosed to them. Other 
parties may not comply with the terms of their agreements with us, and we may not be able to enforce our rights 
adequately against these parties. We also rely on contractual rights to establish and protect our proprietary rights 
in our products.

We incorporate open source software into our products. Although we monitor our use of open source 

software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is 
a risk that such licenses could be construed in a manner that could impose unanticipated conditions or 
restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses 
from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale 
of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could 
adversely affect our business, operating results and financial condition.

Environmental Matters

Our business and operations are subject to environmental laws in various jurisdictions around the world 

including the Waste Electrical and Electronic Equipment and Restriction of the Use of Certain Hazardous 
Substances in Electrical and Electronic Equipment regulations adopted by the European Union. We seek to 
operate our business in compliance with such laws. Environmental regulation is increasing and we expect that 
our operations will be subject to additional environmental compliance requirements, which may expose us to 
additional costs. We are also subject to disclosure requirements related to the presence of "conflict minerals" in 
our products. To date, our compliance costs relating to environmental regulations have not resulted in a material 
adverse effect on our business, results of operations or financial condition.

Business Segment Data and Our Foreign Operations

We operate in the single industry segment of optical transport networking systems. Information 
concerning revenue, results of operations and revenue by geographic area is set forth in Item 7. “Management’s 
Discussion and Analysis of Financial Condition and Results of Operations” and in Note 15, “Segment 
Information,” of Notes to Consolidated Financial Statements, both of which are incorporated herein by reference. 
Information concerning identifiable assets is also set forth in Note 15, “Segment Information,” of Notes to 
Consolidated Financial Statements. Information on risks attendant to our foreign operations is set forth below in 
Item 1A. “Risk Factors.”

11

 
 
Executive Officers

Our executive officers and their ages and positions as of December 27, 2014, are set forth below:

Name
Thomas J. Fallon ...............

Age
53

Position
Chief Executive Officer and Director

David F. Welch, Ph.D.........

Brad Feller .........................

Robert J. Jandro ................

James L. Laufman .............

54

41

59

49

Co-founder, President and Director

Chief Financial Officer

Senior Vice President, Worldwide Sales

Senior Vice President, General Counsel and Corporate Secretary

Thomas J. Fallon has served as our Chief Executive Officer since January 2010. Mr. Fallon also 

served as our President from January 2010 to June 2013, and as our Chief Operating Officer from October 2006 
to December 2009. From April 2004 to September 2006, Mr. Fallon served as our Vice President of Engineering 
and Operations. From August 2003 to March 2004, Mr. Fallon was Vice President, Corporate Quality and 
Development Operations at Cisco Systems, Inc., a networking and telecommunications company. From March 
1991 to August 2003, Mr. Fallon served in a variety of functions at Cisco, including General Manager of the 
Optical Transport Business Unit and Vice President of Service Provider Manufacturing. Prior to joining Cisco, Mr. 
Fallon also served in various manufacturing roles at Sun Microsystems and Hewlett Packard. Mr. Fallon currently 
serves on the board of Picarro, Inc., a private company, Hercules Technology Growth Capital, Inc., a specialty 
finance company, and the Engineering Advisory Board of the Cockrell School at the University of Texas. Mr. 
Fallon holds B.S.M.E. and M.B.A. degrees from the University of Texas at Austin. 

David F. Welch, Ph.D. co-founded our company and has served as our President since June 2013 and 

as a member of our board of directors since October 2010.  Dr. Welch has served as our Executive Vice 
President, Chief Strategy Officer from January 2004 to June 2013, as our Chief Development Officer/Chief 
Technology Officer from May 2001 to January 2005, as our Chief Marketing Officer from January 2005 to 
January 2009, and as a member of our board of directors from May 2001 to November 2006. Prior to joining 
Infinera, Dr. Welch served in various executive roles, including as Chief Technology Officer of the Transmission 
Products Group of JDS Uniphase Corporation, an optical component company, and Chief Technology Officer and 
Vice President of Corporate Development of SDL Inc., an optical component company. Dr. Welch holds over 130 
patents, and has been awarded the Optical Society of America's ("OSA") Adolph Lomb Medal, Joseph 
Fraunhofer Award, the John Tyndall Award and the IET JJ Thompson Medal for Achievement in Electronics, in 
recognition of his technical contributions to the optical industry. He is a Fellow of OSA and the Institute of 
Electrical and Electronics Engineers. Dr. Welch holds a B.S. in Electrical Engineering from the University of 
Delaware and a Ph.D. in Electrical Engineering from Cornell University.

Brad Feller has served as our Chief Financial Officer since March 2014. Prior to joining us, Mr. Feller 
served as Interim Chief Financial Officer of Marvell Technology Group Ltd., a fabless semiconductor company, 
from October 2012 to December 2013, and as Marvell's Vice President, Corporate Controller, from September 
2008 to October 2012. Prior to Marvell, Mr. Feller served as Corporate Controller for Integrated Device 
Technology, Inc., a semiconductor company, from April 2005 to September 2008 and Financial Reporting 
Manager from October 2003 to April 2005. Prior to that, Mr. Feller served in various roles at Ernst & Young LLP in 
the technology practice. Mr. Feller is a certified public accountant (inactive) in the State of California and holds a 
B.S. degree in Business Administration from San Jose State University.

Robert J. Jandro has served as our Senior Vice President, Worldwide Sales, since May 2013.  Prior to 

joining us, Mr. Jandro served as Vice President of Business Development of Openwater Software, Inc., a big 
data and analytics cloud company, from January 2008 to August 2012. From February 2004 to November 2006, 
Mr. Jandro served as Chief Executive Officer and President of Nsite Software, Inc., an early cloud company 
acquired by Business Objects. From March 2000 to August 2002, Mr. Jandro served as Executive Vice President 
of Global Sales and Services for ONI Systems, an optical networking company. Prior to that, Mr. Jandro worked 
at Oracle where he last served as the Group Vice President of Oracle’s Communications and Utilities Industries. 
Mr. Jandro earned a Masters of Management degree from Northwestern University’s Kellogg Graduate School of 
Management and a B.S. in Business from the University of Missouri-St. Louis.

12

 
 
 
 
James L. Laufman has served as our Senior Vice President, General Counsel and Corporate 
Secretary since October 2014. Prior to joining us, Mr. Laufman served as Vice President and General Counsel of 
Marvell Semiconductor Inc. from October 2008 to October 2014. From September 1999 to October 2008. Mr. 
Laufman served as General Counsel and Secretary of Integrated Device Technology, Inc.  Prior to that, Mr. 
Laufman served as Senior Corporate Counsel for Quantum Corporation from January 1999 to September 1999.  
From November 1994 to December 1998, Mr. Laufman served as Vice President and General Counsel of Rohm 
Corporation. From December 1990 to November 1994, Mr. Laufman worked as an Associate Attorney at the 
Berliner Cohen and Popelka Allard law firms specializing in the litigation and resolution of commercial transaction 
matters. Mr. Laufman holds a B.S. in Business Administration, Finance (cum laude) from California State 
University, Chico and a J.D. from Santa Clara University School of Law.

Available Information

Our website address is http://www.infinera.com. Information contained on our website is not 
incorporated by reference into this Form 10-K unless expressly noted. We file reports with the Securities and 
Exchange Commission (“SEC”), which we make available on our website free of charge. These reports include 
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and amendments 
to such reports, each of which is provided on our website as soon as reasonably practicable after we 
electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we 
file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can 
obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-
SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and 
information statements, and other information regarding issuers that file electronically with the SEC, including us.

13

 
ITEM 1A. 

RISK FACTORS

Investing in our securities involves a high degree of risk. Set forth below and elsewhere in this Annual 

Report on Form 10-K, and in other documents we file with the SEC, are risks and uncertainties that could cause 
our actual results to differ materially from the results contemplated by the forward-looking statements contained 
in this Annual Report on Form 10-K. Because of the following factors, as well as other variables affecting our 
operating results, past financial performance should not be considered as a reliable indicator of future 
performance and investors should not use historical trends to anticipate results or trends in future periods.

Our quarterly results may fluctuate significantly, which could make our future results difficult to predict 
and could cause our operating results to fall below investor or analyst expectations.

Our quarterly results may fluctuate due to a variety of factors, many of which are outside of our control. 

Over the past eight fiscal quarters, our revenue has ranged from $124.6 million to $186.3 million and our 
operating income (loss) has ranged from income of $12.9 million to a loss of $14.9 million. In fiscal years prior to 
the fiscal year ended December 27, 2014, we had significant operating losses and there is no guarantee that we 
will be able to sustain profitability in the future. As of December 27, 2014, our accumulated deficit was $590.8 
million. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our 
budgeted expense levels are based, in large part, on our expectations of future revenue and the development 
efforts associated with these future revenue. Given the relatively fixed nature of our operating costs including 
those relating to our personnel and facilities, particularly for our engineering personnel, any substantial 
adjustment to our expenses to account for lower levels of revenue will be difficult and may take time. 
Consequently, if our revenue does not meet projected levels in the short-term, our inventory levels and operating 
expenses would be high relative to revenue, resulting in potential operating losses.

In addition to other risks discussed in this section, factors that may contribute to fluctuations in our 

quarterly results include:

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

fluctuations in demand, sales cycles and prices for products and services, including discounts given 
in response to competitive pricing pressures;

fluctuations in our customer or product mix, including the impact of new customer deployments, 
which typically carry lower gross margins;

changes in customers’ budgets for optical transport network equipment purchases and changes in 
their purchasing cycles;

order cancellations or reductions or delays in delivery schedules by our customers;

the payment terms offered to our customers;

our ability to control costs, including our operating expenses and the costs of components we 
purchase for our products;

readiness of customer sites for installation of our products;

the timing of product releases or upgrades by us or by our competitors. 

any significant changes in the competitive dynamics of our market, including any new entrants, or 
customer or competitor consolidation;

availability of third party suppliers to provide contract engineering and installation services for us;

the timing of recognizing revenue in any given quarter, including the impact of revenue recognition 
standards and any future changes in United States generally accepted accounting principles ("U.S. 
GAAP") or new interpretations of existing accounting rules; 

the impact of a significant natural disaster, such as an earthquake, severe weather, or tsunami or 
other flooding, as well as interruptions or shortages in the supply of utilities such as water and 
electricity, in a key location such as our Northern California facilities, which is located near major 
earthquake fault lines and in a designated flood zone; and

• 

general economic conditions in domestic and international markets.

14

 
Many factors affecting our results of operations are beyond our control and make it difficult to predict our 

results for a particular quarter or to accurately predict future revenue beyond a one-quarter time horizon. If our 
revenue or operating results fall below the expectations of investors or securities analysts or below any guidance 
we provide to the market, the price of our common stock may decline substantially.

Our gross margin may fluctuate from quarter-to-quarter and may be adversely affected by a number of 
factors, some of which are beyond our control.

Our gross margin fluctuates from period-to-period and vary by customer and by product specification. 
Over the past eight fiscal quarters, our gross margin has ranged from 34% to 48%. Our gross margin is likely to 
continue to fluctuate and will be affected by a number of factors, including:

• 

• 

• 

• 

• 

• 

• 

the mix in any period of the types of customers purchasing our products as well as the product mix;

significant new customer deployments, often with a higher portion of lower margin common 
equipment as we try to build footprint;

price discounts negotiated by our customers;

charges for excess or obsolete inventory;

changes in the price or availability of components for our products;

changes in our manufacturing costs, including fluctuations in yields and production volumes; and

increased warranty or repair costs.

It is likely that the average unit prices of our products will decrease over time in response to competitive 

pricing pressures, increased negotiated sales discounts, new product introductions by us or our competitors or 
other factors. In addition, some of our customer contracts contain annual discounts that require us to decrease 
the sales price of our products to these customers. In response, we will need to reduce the cost of our products 
through manufacturing efficiencies, design improvements and cost reductions. If these efforts are not successful 
or if we are unable to reduce our costs to a greater extent than the reduction in the price of our products, our 
revenue and gross margin will decline, causing our operating results to decline. Fluctuations in gross margin may 
make it difficult to manage our business and achieve or maintain profitability.

Aggressive business tactics by our competitors may harm our business.

The markets in which we compete are extremely competitive and have resulted in aggressive business 

tactics by our competitors, including:

• 

• 

• 

• 

• 

• 

aggressively pricing their optical transport products and other portfolio products, including offering 
significant one-time discounts and guaranteed future price decreases;

offering optical products at a substantial discount or free when bundled together with the 
customers' router or wireless equipment spend;

providing financing, marketing and advertising assistance to customers;

influencing customer requirements to emphasize different product capabilities, which better suit 
their products;

offering to repurchase our equipment from existing customers; and

asserting intellectual property rights.

The level of competition and pricing pressure tend to increase when competing for larger high-profile 

opportunities or during periods of economic weakness when there are fewer network build-out projects. If we fail 
to compete successfully against our current and future competitors, or if our current or future competitors 
continue or expand aggressive business tactics, including those described above, demand for our products could 
decline, we could experience delays or cancellations of customer orders, or we could be required to reduce our 
prices to compete in the market.

15

Our ability to increase our revenue will depend upon continued growth of demand by consumers and 
businesses for additional network capacity.

Our future success depends on factors that increase the amount of data transmitted over 

communications networks and the growth of optical transport networks to meet the increased demand for optical 
capacity. These factors include the growth of mobility, video, cloud-based services, increased broadband 
connectivity and the continuing adoption of high-capacity, revenue-generating services. If demand for such 
bandwidth does not continue, or slows down, the need for increased bandwidth across networks and the market 
for optical communications network products may not continue to grow and our product sales would be 
negatively impacted. In addition, if general economic conditions weaken, our customers and potential customers 
may slow or delay their purchase decisions, which would have an adverse effect on our business and financial 
condition.

Any delays in the development and introduction of our products or in releasing enhancements to our 
existing products may harm our business.

Because our products are based on complex technology, including, in some cases, the development of 
next-generation PICs and specialized ASICs, we may experience unanticipated delays in developing, improving, 
manufacturing or deploying these products. The development process for our PICs is lengthy, and any 
modifications to our PICs, including the development of our next-generation PICs, entail significant development 
cost and risks.

At any given time, various new product introductions and enhancements to our existing products, such 
as future products based on our next-generation PICs, are in the development phase and are not yet ready for 
commercial manufacturing or deployment. We rely on third parties, some of which are relatively early stage 
companies, to develop and manufacture components for our next-generation products, which can require custom 
development. The maturing process from laboratory prototype to customer trials, and subsequently to general 
availability, involves a significant number of simultaneous development efforts. These efforts often must be 
completed in a timely manner so that they may be introduced into the product development cycle for our 
systems, and include:

• 

• 

• 

• 

• 

• 

completion of product development, including the completion of any associated PIC development, 
such as our next-generation PICs, and the completion of associated module development, 
including modules developed by third parties;

the qualification and multiple sourcing of critical components;

validation of manufacturing methods and processes;

extensive quality assurance and reliability testing and staffing of testing infrastructure;

validation of software; and

establishment of systems integration and systems test validation requirements.

Each of these steps, in turn, presents risks of failure, rework or delay, any one of which could decrease 

the speed and scope of product introduction and marketplace acceptance of our products. New generations of 
our PICs, specialized ASICs and intensive software testing are important to the timely introduction of new 
products and enhancements to our existing products, and are subject to these development risks. In addition, 
unexpected intellectual property disputes, failure of critical design elements, and a host of other development 
execution risks may delay, or even prevent, the introduction of new products or enhancements to our existing 
products. If we do not develop and successfully introduce or enhance products in a timely manner, our 
competitive position will suffer. In addition, if we do not develop and successfully introduce or enhance products 
in sufficient time so as to satisfy our customer’s expectations, we may lose future business from such customers 
and harm our reputation and our customer relationships, either of which would harm our business and operating 
results.

16

The markets in which we compete are highly competitive and we may not be able to compete effectively.

Competition in the optical transport equipment market is intense, and we expect such competition to 

increase. In the long-haul market, our main competitors include current WDM suppliers, such as Alcatel-Lucent, 
Ciena, Coriant, Huawei and ZTE. These companies have historically set the competitive benchmarks for price 
and functionality. In the metro cloud market, our potential competitors include well established companies as well 
as a number of smaller public and private companies that have announced plans to develop or have developed 
products that would compete with us in this market. Competition in these markets is based on price, commercial 
terms, functionality, manufacturing capability, existing business and customer relationships, scalability and quality 
of services to meet our customers’ immediate and future network requirements. In addition to the current 
competitors, other companies have, or may in the future develop, products that are or could be competitive with 
our products. In particular, if a competitor develops a photonic integrated circuit with similar functionality to our 
PICs, our business could be harmed. We also expect to encounter further consolidation in the markets in which 
we compete. Consolidation among our competitors could lead to a changing competitive landscape, capabilities 
and market share, which could harm our results of operations.

Some of our competitors have substantially greater name recognition and technical, financial and 
marketing resources along with better established relationships with incumbent carriers and other potential 
customers than we have. Many of our competitors have more resources to develop or acquire, and more 
experience in developing or acquiring, new products and technologies and in creating market awareness for 
those products and technologies. In addition, many of our competitors have the financial resources to offer 
competitive products at aggressive pricing levels that could prevent us from competing effectively. Further, many 
of our competitors have built long-standing relationships with some of our prospective customers and have the 
ability to provide financing to customers and could, therefore, have an inherent advantage in selling products to 
those customers.

We also compete with low-cost producers from China that can increase pricing pressure on us and a 
number of smaller companies that provide competition for a specific product, customer segment or geographic 
market. These competitors often base their products on the latest available technologies. Due to the narrower 
focus of their efforts, these competitors may achieve commercial availability of their products more quickly than 
we can and may provide attractive alternatives to our customers.

Our large customers have substantial negotiating leverage, which may require that we agree to terms 
and conditions that result in decreased revenue due to lower average selling prices and potentially 
higher cost of sales leading to lower gross margin, all of which would harm our operating results.

Substantial changes in the optical transport networking industry have occurred over the last few years. 
Many potential customers have confronted static or declining revenue. Many of our customers have substantial 
debt burdens, many have experienced financial distress, and some have gone out of business, been acquired by 
other service providers, or announced their withdrawal from segments of the business. Consolidation in the 
markets in which we compete has resulted in changes in the structure of the communications networking 
industry, with greater concentration of purchasing power in a small number of large service providers, cable 
operators and ICPs. The increased concentration among our customer base may also lead to increased 
competition for new network deployments and increased negotiating power for our customers. This may require 
us to decrease our average selling prices, which would have an adverse impact on our operating results.

Further, many of our customers are large service providers that have substantial purchasing power and 

leverage in negotiating contractual arrangements with us. Our customers have and may continue to seek 
advantageous pricing, payment and other commercial terms. We have and may continue to be required to agree 
to unfavorable commercial terms with these customers, including reducing the average selling price of our 
products or agreeing to extended payment terms in response to these commercial requirements or competitive 
pricing pressures. To maintain acceptable operating results, we will need to comply with these commercial terms, 
develop and introduce new products and product enhancements on a timely basis and continue to reduce our 
costs.

17

We must respond to rapid technological change and comply with evolving industry standards and 
requirements for our products to be successful.

The optical transport networking equipment market is characterized by rapid technological change, 

changes in customer requirements and evolving industry standards. We continually invest in research and 
development to sustain or enhance our existing products, but the introduction of new communications 
technologies and the emergence of new industry standards or requirements could render our products obsolete. 
Further, in developing our products, we have made, and will continue to make, assumptions with respect to 
which standards or requirements will be adopted by our customers and competitors. If the standards or 
requirements adopted by our prospective customers are different from those on which we have focused our 
efforts, market acceptance of our products would be reduced or delayed and our business would be harmed.

We are continuing to invest a significant portion of our research and development efforts in the 

development of our next-generation products. We expect our competitors to continue to improve the 
performance of their existing products and to introduce new products and technologies and to influence 
customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be 
competitive, we must properly anticipate future customer requirements and we must continue to invest significant 
resources in research and development, sales and marketing, and customer support. If we do not anticipate 
these future customer requirements and invest in the technologies necessary to enable us to have and to sell the 
appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect 
on our business and financial condition. We may not have sufficient resources to make these investments and 
we may not be able to make the technological advances necessary to be competitive.

We are dependent on sole source and limited source suppliers for several key components, and if we fail 
to obtain these components on a timely basis, we will not meet our customers’ product delivery 
requirements. 

We currently purchase several key components for our products from single or limited sources. In 
particular, we rely on our own production of certain components of our products, such as PICs, and on third 
parties as sole source suppliers for certain of the components of our products, including ASICs, field-
programmable gate arrays, processors, and other semiconductor and optical components. We purchase these 
items on a purchase order basis and have no long-term contracts with many of these sole source suppliers. We 
have increased our reliance on third parties to develop and manufacture components for certain products, some 
of which require custom development. If any of our sole or limited source suppliers suffer from capacity 
constraints, lower than expected yields, deployment delays, work stoppages or any other reduction or disruption 
in output, they may be unable to meet our delivery schedule which could result in lost revenue, additional product 
costs and deployment delays that could harm our business and customer relationships. Further, our suppliers 
could enter into exclusive arrangements with our competitors, refuse to sell their products or components to us at 
commercially reasonable prices or at all, go out of business or discontinue their relationships with us. We may be 
unable to develop alternative sources for these components.

The loss of a source of supply, or lack of sufficient availability of key components, could require us to 
redesign products that use such components, which could result in lost revenue, additional product costs and 
deployment delays that could harm our business and customer relationships. If we do not receive critical 
components for our products in a timely manner, we will be unable to deliver those components to our contract 
manufacturer in a timely manner and would, therefore, be unable to meet our prospective customers’ product 
delivery requirements. In addition, the sourcing from new suppliers may require us to re-design our products, 
which could cause delays in the manufacturing and delivery of our products. In the past, we have experienced 
delivery delays because of lack of availability of components or reliability issues with components that we were 
purchasing. In addition, some of our suppliers have gone out of business, merged with another supplier, or 
limited their supply of components to us, which may cause us to experience longer than normal lead times and 
supply delays. We may in the future experience a shortage of certain components as a result of our own 
manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problem 
experiences by our suppliers or contract manufacturers, or strong demand in the industry for such components. A 
return to growth in the economy is likely to continue to create pressure on us and our suppliers to accurately 
project overall component demand and manufacturing capacity. These supplier disruptions may continue to 
occur in the future, which could limit our ability to produce our products and cause us to fail to meet a customer’s 
delivery requirements. Such events could harm our reputation and our customer relationships, either of which 
would harm our business and operating results.

18

If we fail to accurately forecast demand for our products, we may have excess or insufficient inventory, 
which may increase our operating costs, decrease our revenue and harm our business.

We are required to generate forecasts of future demand for our products several months prior to the 
scheduled delivery to our prospective customers. This requires us to make significant investments before we 
know if corresponding revenue will be recognized. Lead times for materials and components, including ASICs, 
that we need to order for the manufacture of our products vary significantly and depend on factors such as the 
specific supplier, contract terms and demand for each component at a given time. In the past, we have 
experienced lengthening in lead times for certain components. If the lead times for components are lengthened, 
we may be required to purchase increased levels of such components to satisfy our delivery commitments to our 
customers.

If we overestimate market demand for our products and, as a result, increase our inventory in 

anticipation of customer orders that do not materialize, we will have excess inventory, which could result in 
increased risk of obsolescence and significant inventory write-downs. Furthermore, this will result in reduced 
production volumes and our fixed costs will be spread across fewer units, increasing our per unit costs. If we 
underestimate demand for our products, we will have inadequate inventory, which could slow down or interrupt 
the manufacturing of our products and result in delays in shipments and our ability to recognize revenue. In 
addition, we may be unable to meet our supply commitments to customers, which could result in a loss of certain 
customer opportunities or a breach of our customer agreements resulting in payment of damages.

If our contract manufacturers do not perform as we expect, our business may be harmed.

We rely on third party contract manufacturers to perform a significant portion of the manufacturing of our 

products, and our future success will depend on our ability to have sufficient volumes of our products 
manufactured in a cost-effective and quality-controlled manner. We have engaged third parties to manufacture 
certain elements of our products at multiple contract manufacturing sites located around the world but do not 
have long-term agreements in place with some of our manufacturers and suppliers. There are a number of risks 
associated with our dependence on contract manufacturers, including:

• 

• 

• 

• 

• 

• 

• 

• 

reduced control over delivery schedules, particularly for international contract manufacturing sites;

reliance on the quality assurance procedures of third parties;

potential uncertainty regarding manufacturing yields and costs;

potential lack of adequate capacity during periods of high demand;

potential uncertainty related to the use of international contract manufacturing sites;

limited warranties on components supplied to us;

potential misappropriation of our intellectual property; and

potential manufacturing disruptions (including disruptions caused by geopolitical events, military 
actions or natural disasters).

Any of these risks could impair our ability to fulfill orders. Our contract manufacturers may not be able to 

meet the delivery requirements of our customers, which could decrease customer satisfaction and harm our 
product sales. We do not have long-term contracts or arrangements with our contract manufacturers that will 
guarantee product availability, or the continuation of particular pricing or payment terms. If our contract 
manufacturers are unable or unwilling to continue manufacturing our products or components of our products in 
required volumes or our relationship with any of our contract manufacturers is discontinued for any reason, we 
would be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet 
our supply requirements to our customers and result in the breach of our customer agreements. Qualifying a new 
contract manufacturer and commencing volume production is expensive and time-consuming and if we are 
required to change or qualify a new contract manufacturer, we could lose revenue and damage our customer 
relationships.

19

We are dependent on a small number of key customers for a significant portion of our revenue and the 
loss of, or a significant reduction in, orders from one or more of our key customers would reduce our 
revenue and harm our operating results.

A relatively small number of customers account for a large percentage of our revenue. As a result, our 

business will be harmed if any of our key customers do not generate as much revenue as we forecast, stop 
purchasing from us, or substantially reduce their orders to us. In addition, our business will be harmed if we fail to 
maintain our competitive advantage with our key customers.

Our ability to continue to generate revenue from our key customers will depend on our ability to 

maintain strong relationships with these customers and introduce new products that are desirable to these 
customers at competitive prices, and we may not be successful at doing so. In most cases, our sales are made 
to these customers pursuant to standard purchase agreements rather than long-term purchase commitments, 
and orders may be canceled or reduced readily. In the event of a cancellation or reduction of an order, we may 
not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business. 
Our operating results will continue to depend on our ability to sell our products to our key customers.

If we fail to expand sales of our products into the metro market, our ability to increase revenue will be 
harmed.

We believe that, in order to grow our revenue and business, we must successfully sell our products into 
the metro market. This will depend on our ability, to timely and in a cost-effective manner, develop new products 
with unique requirements focused on space, power consumption and cost. In order for us to address a portion of 
this market, we recently announced the introduction of the Cloud Xpress family of metro optical platforms, which 
we believe addresses a new opportunity in the metro cloud market. In order to succeed in our sales efforts, we 
believe that we must hire additional sales personnel to meet the increasing needs of these customers and 
develop the necessary relationships. We may also have to incur substantial unanticipated costs to market and 
identify the appropriate partners to increase any sales of new products. The success of new product 
introductions depends on a number of factors including, but not limited to, timely and successful product 
development, market acceptance, our ability to manage the risks associated with new product production ramp-
up issues, the effective management of purchase commitments and inventory levels in line with anticipated 
product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated 
demand, and the risk that new products may have quality or other defects or deficiencies in the early stages of 
introduction. Accordingly, if we do not succeed in our efforts to address the metro market, the size of our total 
addressable market will be limited. This, in turn, would harm our ability to grow our customer base and increase 
revenue.

Our manufacturing process is very complex and the partial or complete loss of our manufacturing 
facility, or a reduction in yields or an inability to scale capacity to meet customer demands could harm 
our business.

The manufacturing process for certain components of our products, including our PICs, is technically 

challenging. In the event that any of the manufacturing facilities utilized to build these components were fully or 
partially destroyed, as a result of fire, water damage, or otherwise, it would limit our ability to produce our 
products. Because of the complex nature of our manufacturing facilities, such loss would take a considerable 
amount of time to repair or rebuild. The partial or complete loss of any of our manufacturing facilities, or an event 
causing the interruption in our use of such facility for any extended period of time would cause our business, 
financial condition and operating results to be harmed.

Minor deviations in the PIC manufacturing process can cause substantial decreases in yields and, in 

some cases, cause production to be suspended. In the past, we have had significant variances in our PIC yields, 
including production interruptions and suspensions and may have continued yield variances, including additional 
interruptions or suspensions in the future. We expect our manufacturing yield for our next-generation PICs to be 
lower initially and increase as we achieve full production. Poor yields from our PIC manufacturing process or 
defects, integration issues or other performance problems in our products could limit our ability to satisfy 
customer demand requirements, and could cause us customer relations and business reputation problems, 
harming our business and operating results.

20

Our inability to obtain sufficient manufacturing capacity to meet demand, either in our own facilities or 

through foundry or similar arrangements with third parties, could harm our relationships with our customers, our 
business and our operating results.

If we fail to protect our intellectual property rights, our competitive position could be harmed or we could 
incur significant expense to enforce our rights.

We depend on our ability to protect our proprietary technology. We rely on a combination of methods to 
protect our intellectual property, including limiting access to certain information, and utilizing trade secret, patent, 
copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer 
only limited protection. The steps we have taken to protect our proprietary rights may be inadequate to preclude 
misappropriation or unauthorized disclosure of our proprietary information or infringement of our intellectual 
property rights, and our ability to police such misappropriation, unauthorized disclosure or infringement is 
uncertain, particularly in countries outside of the United States. This is likely to become an increasingly important 
issue as we expand our operations and product development into countries that provide a lower level of 
intellectual property protection. We do not know whether any of our pending patent applications will result in the 
issuance of patents or whether the examination process will require us to narrow our claims, and even if patents 
are issued, they may be contested, circumvented or invalidated. Moreover, the rights granted under any issued 
patents may not provide us with a competitive advantage, and, as with any technology, competitors may be able 
to develop similar or superior technologies to our own now or in the future.

Protecting against the unauthorized use of our products, trademarks and other proprietary rights is 

expensive, difficult, time consuming and, in some cases, impossible. Litigation may be necessary in the future to 
enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity or scope 
of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management 
resources, either of which could harm our business, financial condition and operating results. Furthermore, many 
of our current and potential competitors have the ability to dedicate substantially greater resources to enforce 
their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third 
parties from infringing upon or misappropriating our intellectual property.

Claims by others that we infringe their intellectual property could harm our business.

Our industry is characterized by the existence of a large number of patents and frequent claims and 

related litigation regarding patent and other intellectual property rights. In particular, many leading companies in 
the optical transport networking industry, including our competitors, have extensive patent portfolios with respect 
to optical transport networking technology. We expect that infringement claims may increase as the number of 
products and competitors in our market increases and overlaps occur. From time to time, third parties may assert 
exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards 
that are important to our business or seek to invalidate the proprietary rights that we hold. Competitors or other 
third parties have, and may continue to assert claims or initiate litigation or other proceedings against us or our 
manufacturers, suppliers or customers alleging infringement of their proprietary rights, or seeking to invalidate 
our proprietary rights, with respect to our products and technology. In addition, we have had certain patent 
licenses with third parties that have not been renewed, and if we cannot successfully renew these licenses, we 
could face claims of infringement. In the event that we are unsuccessful in defending against any such claims, or 
any resulting lawsuit or proceedings, we could incur liability for damages and/or have valuable proprietary rights 
invalidated.

Any claim of infringement from a third party, even one without merit, could cause us to incur substantial 
costs defending against the claim, and could distract our management from running our business. Furthermore, 
a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. 
A judgment could also include an injunction or other court order that could prevent us from offering our products. 
In addition, we might be required to seek a license for the use of such intellectual property, which may not be 
available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing 
technology, which would require significant effort and expense and may ultimately not be successful. Any of 
these events could harm our business, financial condition and operating results. Competitors and other third 
parties have and may continue to assert infringement claims against our customers and sales partners. Any of 
these claims would require us to initiate or defend potentially protracted and costly litigation on their behalf, 
regardless of the merits of these claims, because we generally indemnify our customers and sales partners from 
claims of infringement of proprietary rights of third parties. If any of these claims succeed, we may be forced to 

21

pay damages on behalf of our customers or sales partners, which could have an adverse effect on our business, 
financial condition and operating results.

We incorporate open source software into our products. Although we monitor our use of open source 

software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is 
a risk that such licenses could be construed in a manner that could impose unanticipated conditions or 
restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses 
from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale 
of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could 
adversely affect our business, operating results and financial condition.

We are involved in litigation with Cambrian whereby Cambrian alleged that we and seven of our 

customers infringe one of Cambrian's patents. Information regarding this matter is set forth in Part I, Item 3. 
“Legal Proceedings,” and is incorporated herein by reference.

Unfavorable macroeconomic and market conditions may adversely affect our industry, business and 
gross margin.

Our business depends on the overall demand for additional bandwidth capacity and on the economic 
health and willingness of our customers and potential customers to make capital commitments to purchase our 
products and services. As a result of macroeconomic or market uncertainty, we may face new risks that we have 
not yet identified. In addition, a number of the risks associated with our business, which are disclosed in these 
risk factors, may increase in likelihood, magnitude or duration.

In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of 
decreased demand for optical communications products. These conditions may also result in the tightening of 
credit markets, which may limit or delay our customers’ ability to obtain necessary financing for their purchases of 
our products. A lack of liquidity in the capital markets or the continued uncertainty in the global economic 
environment may cause our customers to delay or cancel their purchases, increase the time they take to pay or 
default on their payment obligations, each of which would negatively affect our business and operating results. 
Continued weakness and uncertainty in the global economy could cause some of our customers to become 
illiquid, delay payments or adversely affect our collection of their accounts, which could result in a higher level of 
bad debt expense. In addition, currency fluctuations could negatively affect our international customers’ ability or 
desire to purchase our products.

Challenging economic conditions have from time to time contributed to slowdowns in the 

telecommunications industry in which we operate. Such slowdowns may result in:

• 

• 

• 

• 

reduced demand for our products as a result of constraints on capital spending by our customers, 
particularly service providers;

increased price competition for our products, not only from our competitors, but also as a result of 
our customer’s or potential customer’s utilization of inventoried or underutilized products, which 
could put additional downward pressure on our near term gross profits;

risk of excess or obsolete inventories;

excess manufacturing capacity and higher associated overhead costs as a percentage of revenue; 
and

•  more limited ability to accurately forecast our business and future financial performance.

A lack of liquidity and economic uncertainty may adversely affect our suppliers or the terms on which we 
purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these 
impacts could limit our ability to obtain components for our products from these suppliers and could adversely 
impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more 
expensive components, or re-design our products, which could cause increases in the cost of our products and 
delays in the manufacturing and delivery of our products. Such events could harm our gross margin and harm 
our reputation and our customer relationships, either of which could harm our business and operating results.

22

Product performance problems, including undetected errors in our hardware or software, or deployment 
delays could harm our business and reputation.

The development and production of products with high technology content is complicated and often 
involves problems with software, components and manufacturing methods. Complex hardware and software 
systems, such as our products, can often contain undetected errors when first introduced or as new versions are 
released. In addition, errors associated with components we purchase from third parties, including customized 
components, may be difficult to resolve. We have experienced issues in the past in connection with the Infinera 
DTN and Infinera DTN-X platforms, including failures due to the receipt of faulty components from our suppliers. 
We suspect that errors, including potentially serious errors, may be found from time to time in our products. Our 
products may suffer degradation of performance and reliability over time.

If reliability, quality or network monitoring problems develop, a number of negative effects on our 

business could result, including:

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

delays in our ability to recognize revenue;

costs associated with fixing software or hardware defects or replacing products;

high service and warranty expenses;

delays in shipments;

high inventory excess and obsolescence expense;

high levels of product returns;

diversion of our engineering personnel from our product development efforts;

delays in collecting accounts receivable;

payment of liquidated damages, performance guarantees or similar penalties;

reduced orders from existing customers; and

declining interest from potential customers.

Because we outsource the manufacturing of certain components of our products, we may also be 

subject to product performance problems as a result of the acts or omissions of third parties.

From time to time, we encounter interruptions or delays in the activation of our products at a customer’s 
site. These interruptions or delays may result from product performance problems or from issues with installation 
and activation, some of which are outside our control. If we experience significant interruptions or delays that we 
cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our 
products could be undermined, which could cause us to lose customers and fail to add new customers.

If we lose key personnel or fail to attract and retain additional qualified personnel when needed, our 
business may be harmed. 

Our success depends to a significant degree upon the continued contributions of our key management, 

engineering, sales and marketing, and finance personnel, many of whom would be difficult to replace. For 
example, senior members of our engineering team have unique technical experience that would be difficult to 
replace. We do not have long-term employment contracts or key person life insurance covering any of our key 
personnel. Because our products are complex, we must hire and retain a large number of highly trained 
customer service and support personnel to ensure that the deployment of our products do not result in network 
disruption for our customers. We believe our future success will depend in large part upon our ability to identify, 
attract and retain highly skilled managerial, engineering, sales, marketing, finance and customer service and 
support personnel. Competition for these individuals is intense in our industry, especially in the San Francisco 
Bay Area where we are headquartered. We may not succeed in identifying, attracting and retaining appropriate 
personnel. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified 
personnel in the future or delays in hiring qualified personnel, particularly engineers and sales personnel, could 
make it difficult for us to manage our business and meet key objectives, such as timely product introductions.

23

Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on 
our future cash flows and cash resources, particularly if these obligations are settled in cash upon 
maturity or sooner upon an event of default.

In May 2013, we issued $150.0 million of 1.75% convertible senior notes due June 1, 2018 (the 

"Notes"). The degree to which we are leveraged could have important consequences, including, but not limited 
to, the following:

• 

• 

• 

our ability to obtain additional financing in the future for working capital, capital expenditures, 
acquisitions, litigation, general corporate or other purposes may be limited;

a substantial portion of our future cash balance may be dedicated to the payment of the principal of 
our indebtedness as we have the intention to pay the principal amount of the Notes in cash upon 
conversion if specified conditions are met or when due, such that we would not have those funds 
available for use in our business; and

if upon any conversion of the Notes we are required to satisfy our conversion obligation with shares 
of our common stock or if a make-whole fundamental change occurs, our existing stockholders’ 
interest in us would be diluted.

Our ability to meet our payment obligations under our debt instruments depends on our future cash flow 

performance. This, to some extent, is subject to general economic, financial, competitive, legislative and 
regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our 
business will generate positive cash flow from operations, or that additional capital will be available to us, in an 
amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are 
unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure 
our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to 
implement one or more of these alternatives, we may be unable to meet our debt payment obligations. As a 
result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less 
flexible in responding to changing business and economic conditions.

We may issue additional shares of our common stock in connection with the conversion of the Notes, 
and thereby dilute our existing stockholders and potentially adversely affect the market price of our 
common stock.

In the event that some or all of the Notes are converted into common stock, the ownership interests of 

existing stockholders will be diluted, and any sales in the public market of any shares of our common stock 
issuable upon such conversion of the Notes could adversely affect the prevailing market price of our common 
stock. In addition, the anticipated conversion of the Notes could depress the market price of our common stock.

The make-whole fundamental change provisions of the Notes may delay or prevent an otherwise 
beneficial takeover attempt of us.

If a make-whole fundamental change such as an acquisition of our company occurs prior to the maturity 

of the Notes, under certain circumstances, the conversion rate for the Notes will increase such that additional 
shares of our common stock will be issued upon conversion of the Notes in connection with such make-whole 
fundamental change. The increase in the conversion rate will be determined based on the date on which the 
make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of 
our common stock in such transaction. This increase will be dilutive to our existing stockholders. Our obligation 
to increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain 
circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.

If we need additional capital in the future, it may not be available to us on favorable terms, or at all.

Our business requires significant capital. We have historically relied on outside debt or equity financing 

as well as cash flow from operations to fund our operations, capital expenditures and expansion. We may require 
additional capital from equity or debt financings in the future to fund our operations or respond to competitive 
pressures or strategic opportunities. We have a history of significant operating losses, including a net loss of 
$32.1 million for 2013. In the event that we require additional capital, we may not be able to secure timely 
additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our 
financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt 

24

securities or other securities convertible into equity, our existing stockholders could suffer dilution in their 
percentage ownership of our company, and any new securities we issue could have rights, preferences and 
privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or 
financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to 
respond to business challenges could be limited and our business will be harmed.

Our sales cycle can be long and unpredictable, which could result in an unexpected revenue shortfall in 
any given quarter. 

Our products can have a lengthy sales cycle, which can extend from six to twelve months and may take 
even longer for larger prospective customers. Our prospective customers conduct significant evaluation, testing, 
implementation and acceptance procedures before they purchase our products. We incur substantial sales and 
marketing expenses and expend significant management effort during this time, regardless of whether we make 
a sale.

Because the purchase of our equipment involves substantial cost, most of our customers wait to 
purchase our equipment until they are ready to deploy it in their network. As a result, it is difficult for us to 
accurately predict the timing of future purchases by our customers. In addition, product purchases are often 
subject to budget constraints, multiple approvals and unplanned administrative processing and other delays. If 
sales expected from customers for a particular quarter are not realized in that quarter or at all, our revenue will 
be negatively impacted.

Our international sales and operations subject us to additional risks that may harm our operating 
results. 

We market, sell and service our products globally. During fiscal years 2014, 2013 and 2012, we derived 
approximately 29%, 36% and 32%, respectively, of our revenue from customers outside of the United States. We 
expect that significant management attention and financial resources will be required for our international 
activities over the foreseeable future as we continue to expand our international presence. We have a limited 
history and experience selling our products into developing international markets, such as Asia Pacific, Middle 
East and Africa, and Latin America. Furthermore, in some countries, our success in selling our products and 
growing revenue will depend in part on our ability to form relationships with local partners. Our inability to identify 
appropriate partners or reach mutually satisfactory arrangements for international sales of our products could 
impact our ability to maintain or increase international market demand for our products. In addition, many of the 
companies we compete against internationally have greater name recognition and a more substantial sales and 
marketing presence.

We have sales and support personnel in numerous countries worldwide. In addition, we have 

established development centers in India, China and Canada and expect to continue to increase hiring of 
personnel for these facilities. There is no assurance that our reliance upon development resources in India, 
China or Canada will enable us to achieve meaningful cost reductions or greater resource efficiency.

Our international operations are subject to inherent risks, and our future results could be adversely 

affected by a variety of factors, many of which are outside of our control, including:

• 

• 

• 

• 

• 

• 

greater difficulty in collecting accounts receivable and longer collection periods;

difficulties of managing and staffing international offices, and the increased travel, infrastructure 
and legal compliance costs associated with multiple international locations;

political, social and economic instability, including wars, terrorism, political unrest, boycotts, 
curtailment of trade and other business restrictions;

tariff and trade barriers and other regulatory requirements or contractual limitations on our ability to 
sell or develop our products in certain foreign markets;

less effective protection of intellectual property than is afforded to us in the United States or other 
developed countries;

local laws and practices that favor local companies, including business practices that we are 
prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and 
regulations;

25

• 

• 

• 

certification requirements;

potentially adverse tax consequences; and

effects of changes in currency exchange rates, particularly relative increases in the exchange rate 
of the U.S. dollar versus other currencies that could negatively affect our financial results and cash 
flows.

International customers may also require that we comply with certain testing or customization of our 

products to conform to local standards. The product development costs to test or customize our products could 
be extensive and a material expense for us.

Our international operations are subject to increasingly complex foreign and U.S. laws and regulations, 

including but not limited to anti-corruption laws, such as the Foreign Corrupt Practices Act and the UK Bribery Act 
and equivalent laws in other jurisdictions, antitrust or competition laws, and data privacy laws, among others. 
Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our 
officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products 
and services in one or more countries, and could also materially affect our reputation, our international expansion 
efforts, our ability to attract and retain employees, our business, and our operating results. Although we have 
implemented policies, procedures and training designed to ensure compliance with these laws and regulations, 
there can be no complete assurance that any individual employee, contractor, or agent will not violate our 
policies. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and 
monitoring) could also adversely affect our current or future business.

As we continue to expand our business globally, our success will depend, in large part, on our ability to 
anticipate and effectively manage these and other risks associated with our international operations. Our failure 
to manage any of these risks could harm our international operations and reduce our international sales.

We may be adversely affected by fluctuations in currency exchange rates.

A portion of our sales are to countries outside of the United States, and are in currencies other than 
U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency 
rates could have a material impact on our revenue in future periods. We also have exposure to currency 
exchange rates as a result of the growth in our non-U.S. dollar denominated operating expense in Europe, Asia 
and Canada. We currently enter into foreign currency exchange forward contracts to reduce the impact of foreign 
currency fluctuations on accounts receivable denominated in euro and the British pound. These hedging 
programs reduce the impact of currency exchange rate movements on certain transactions, but do not cover all 
foreign-denominated transactions and therefore do not entirely eliminate the impact of fluctuations in exchange 
rates that could negatively affect our results of operations and financial condition.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and 
timing of our financial reporting may be adversely affected.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the 

act require, among other things, that we maintain effective internal control over financial reporting and disclosure 
controls and procedures. Preparing our financial statements involves a number of complex processes, many of 
which are done manually and are dependent upon individual data input or review. These processes include, but 
are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our 
processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for 
the foreseeable future, many of our processes will remain manually intensive and thus subject to human error.

Any acquisitions we make could disrupt our business and harm our financial condition and operations.

We have made strategic acquisitions of businesses, technologies and other assets in the past. The 
expansion of our business through acquisitions allows us to complement our technological capabilities. In the 
event of any future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, 
or they may be viewed negatively by customers, financial markets or investors and we could:

• 

• 

issue stock that would dilute our current stockholders’ percentage ownership;

incur debt and assume other liabilities;

26

• 

• 

use a substantial portion of our cash resources; or

incur amortization expenses related to other intangible assets and/or incur large and immediate 
write-offs.

Acquisitions also involve numerous risks that could disrupt our ongoing business and distract our 

management team, including:

• 

• 

• 

• 

• 

• 

• 

problems integrating the acquired operations, technologies or products with our own;

diversion of management’s attention from our core business;

assumption of unknown liabilities;

adverse effects on existing business relationships with suppliers and customers;

increased accounting compliance risk;

risks associated with entering new markets; and

potential loss of key employees.

Our failure to adequately manage the risks associated with an acquisition could have an adverse effect 

on our business, financial condition and operating results.

Unforeseen health, safety and environmental costs could harm our business.

Our manufacturing operations use substances that are regulated by various federal, state and 

international laws governing health, safety and the environment, including the Waste Electrical and Electronic 
Equipment and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment 
regulations adopted by the European Union. If we experience a problem with these substances, it could cause 
an interruption or delay in our manufacturing operations or could cause us to incur liabilities for any costs related 
to health, safety or environmental remediation. We could also be subject to liability if we do not handle these 
substances in compliance with safety standards for storage and transportation and applicable laws. If we 
experience a problem or fail to comply with such safety standards, our business, financial condition and 
operating results may be harmed.

We are subject to governmental regulations that could adversely affect our business.

We are subject to export control laws that limit which products we sell and where and to whom we sell 

our products. U.S. export control laws also limit our ability to conduct product development activities in certain 
countries. In addition, various countries regulate the import of certain technologies and have enacted laws that 
could limit our ability to distribute our products or could limit our customers’ ability to implement our products in 
those countries. Changes in our products or changes in import and export regulations may create delays in the 
introduction of our products in international markets, prevent our customers with international operations from 
deploying our products throughout their global systems or, in some cases, prevent the import and export of our 
products to certain countries altogether. Any change in import and export regulations or related legislation, shift in 
approach to the enforcement or scope of existing regulations, or change in the countries, persons or 
technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased 
ability to export or sell our products to, existing or potential customers with international operations. Failure to 
comply with these and similar laws on a timely basis, or at all, decreased use of our products or any limitation on 
our ability to export or sell our products would adversely affect our business, financial condition and operating 
results.

Our product or manufacturing standards could also be impacted by new or revised environmental rules 

and regulations or other social initiatives. For instance, the SEC adopted new disclosure requirements in 2012 
relating to the sourcing of certain minerals from the Democratic Republic of Congo and certain other adjoining 
countries. Those rules, which required reporting for the first time in calendar 2014, could adversely affect our 
costs, the availability of minerals used in our products and our relationships with customers and suppliers.

The Federal Communications Commission (“FCC”) has jurisdiction over the entire U.S. communications 
industry and, as a result, our products and our U.S. customers are subject to FCC rules and regulations. Current 
and future FCC regulations, including any future regulation on net neutrality, affecting communications services, 

27

our products or our customers’ businesses could negatively affect our business. In addition, international 
regulatory standards could impair our ability to develop products for international customers in the future. 
Moreover, many jurisdictions are evaluating or implementing regulations relating to cyber security, privacy and 
data protection, which can affect the market and requirements for networking and communications equipment. 
Delays caused by our compliance with regulatory requirements could result in postponements or cancellations of 
product orders. Further, we may not be successful in obtaining or maintaining any regulatory approvals that may, 
in the future, be required to operate our business. Any failure to obtain such approvals could harm our business 
and operating results.

Natural disasters, terrorist attacks or other catastrophic events could harm our operations.

Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing 
facility, are located in Northern California, an area that is susceptible to earthquakes, floods and other natural 
disasters. Further, a terrorist attack aimed at Northern California or at our nation’s energy or telecommunications 
infrastructure could hinder or delay the development and sale of our products. In the event that an earthquake, 
terrorist attack or other man-made or natural catastrophe were to destroy any part of our facilities, or certain of 
our contract manufacturers’ facilities, destroy or disrupt vital infrastructure systems or interrupt our operations for 
any extended period of time, our business, financial condition and operating results would be harmed.

Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property 
and proprietary or confidential information and cause significant damage to our business and 
reputation.

In the ordinary course of our business, we maintain sensitive data on our networks, including data 
related to our intellectual property and data related to our business and that of our customers and business 
partners that is considered proprietary or confidential information. We believe that companies in the technology 
industry have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts 
to gain unauthorized access. While the secure maintenance of this information is critical to our business and 
reputation, our network and storage applications may be subject to unauthorized access by hackers or breached 
due to operator error, malfeasance or other system disruptions. It may be difficult to anticipate or immediately 
detect such security incidents or data breaches and the damage caused as a result. Accordingly, a data breach, 
cyber-attack, or unauthorized access or disclosure of our information, could compromise our intellectual property 
and reveal proprietary or confidential business information. In addition, these security incidents could also cause 
us to incur significant remediation costs and expenses, disrupt key business operations, subject us to liability and 
divert attention of management and key information technology resources, any of which could cause significant 
harm to our business and reputation.

The trading price of our common stock has been volatile and is likely to be volatile in the future.

The trading prices of our common stock and the securities of other technology companies have been 

and may continue to be highly volatile. Factors affecting the trading price of our common stock include:

• 

• 

• 

• 

• 

variations in our operating results;

announcements of technological innovations, new services or service enhancements, strategic 
alliances or agreements by us or by our competitors;

the gain or loss of customers;

recruitment or departure of key personnel;

changes in the estimates of our future operating results or external guidance on those results or 
changes in recommendations by any securities analysts that elect to follow our common stock;

•  market conditions in our industry, the industries of our customers and the economy as a whole; and

• 

adoption or modification of regulations, policies, procedures or programs applicable to our 
business.

In addition, if the market for technology stocks or the stock market in general experiences loss of 

investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, 
financial condition or operating results. The trading price of our common stock might also decline in reaction to 

28

events that affect other companies in our industry even if these events do not directly affect us. Each of these 
factors, among others, could harm the value of your investment in our common stock. Some companies that 
have had volatile market prices for their securities have had securities class action lawsuits filed against them. If 
a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert 
management’s attention and resources.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent 
a change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation 
Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in 
a business combination with an interested stockholder for a period of three years after the person becomes an 
interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, 
our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay 
or prevent a change in our management or control over us that stockholders may consider favorable. Our 
amended and restated certificate of incorporation and amended and restated bylaws:

• 

• 

• 

• 

• 

• 

authorize the issuance of “blank check” convertible preferred stock that could be issued by our 
board of directors to thwart a takeover attempt;

establish a classified board of directors, as a result of which the successors to the directors whose 
terms have expired will be elected to serve from the time of election and qualification until the third 
annual meeting following their election;

require that directors only be removed from office for cause and only upon a supermajority 
stockholder vote;

provide that vacancies on the board of directors, including newly-created directorships, may be 
filled only by a majority vote of directors then in office rather than by stockholders;

prevent stockholders from calling special meetings; and

prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the 
stockholders.

29

ITEM 1B. 

UNRESOLVED STAFF COMMENTS

Not applicable. 

ITEM 2.   

PROPERTIES

Our headquarters are located in Sunnyvale, California. We lease facilities in North America, Europe and 
Asia. The following is a summary of the locations, functions and approximate square footage of those facilities as 
of December 27, 2014: 

Location
Sunnyvale, CA

Allentown, PA

Function

Corporate headquarters and manufacturing

Manufacturing and research and development

Annapolis Junction, MD

Research and development, service and support

Bangalore, India

Beijing, China

Kanata, Canada

London, United Kingdom

Hong Kong, China

Tokyo, Japan

Software development

Research and development

Research and development

Sales, service and support

Sales, service and support

Sales and support

Square
Footage
211,000

44,000

12,000

70,000

22,000

6,000

6,000

2,000

2,000

The above leases expire between 2015 and 2023. We intend to add new facilities or to expand existing 

facilities as we add employees, and we believe that suitable additional or substitute space will be available as 
needed to accommodate any such expansion of our operations. We believe that our existing facilities are 
adequate to meet our business needs through the next 12 months.

ITEM 3.   

LEGAL PROCEEDINGS

Cambrian Science Patent Infringement Litigation

On July 12, 2011, we were notified by Level 3 that Cambrian filed suit against Level 3 and six other 

defendants, including Cox Communications, Inc., XO Communications, LLC, Global Crossing Limited, 
360Networks (USA), Inc., Integra Telecom, Inc. and IXC, Inc. dba Telekenex (collectively, the “Defendants”) in 
the U.S. District Court for the Central District of California alleging infringement of patent no. 6,775,312 (the “'312 
Patent”) and requesting damages for such alleged infringement (the “Cambrian Claim”). The nature of the 
Cambrian Claim involves allegations of infringement of the '312 Patent resulting from the Defendants’ use of 
certain products and systems in the Defendants’ networks, including the Infinera DTN platform. On August 24, 
2011, Cambrian amended the complaint to name us as a defendant. The Company assumed the defense of the 
Cambrian Claim and filed an answer to Cambrian’s complaint on September 21, 2011, in which we denied 
infringement of the '312 Patent and raised other defenses. Cambrian filed a second amended complaint on 
October 6, 2011, which included many of the same allegations as in the original complaint. We filed our answer 
to the second amended complaint on October 21, 2011, in which we maintained the same denials and defenses 
as in  our initial answer. On December 23, 2011, we filed a motion requesting that the court stay the case with 
respect to each of the above-noted customer Defendants. Cambrian filed its opposition to our motion on 
December 30, 2011. Our request was denied in the court’s decision on March 7, 2012. We presented evidence 
on the appropriate meanings of relevant key words used in the patent claims during a claim construction hearing 
on November 20, 2012. 

On June 17, 2013, the court issued an order regarding claim construction, in which the court agreed 

with almost all of our proposed claim constructions. On October 17, 2013, the parties met for a court-mandated 
mediation. On April 24, 2014, we filed two motions for summary judgment relating to non-infringement and 
Cambrian’s claim to an earlier date of invention. The court held a hearing on the summary judgment motions on 
June 9, 2014. On July 2, 2014, the court granted our motion for summary judgment on non-infringement and 
entered a final judgment of non-infringement of the '312 Patent. On August 1, 2014, Cambrian filed a notice of 

30

 
 
 
appeal regarding the ruling of non-infringement to the Court of Appeals for the Federal Circuit and Cambrian's 
appeal brief was filed on November 6, 2014. We filed our response brief on January 5, 2015, and on February 2, 
2015, Cambrian filed their reply brief. We are seeking to recover certain costs and attorney's fees from 
Cambrian.

As of December 27, 2014, we concluded that the likelihood of a loss with respect to this suit was remote 

and the amount of any loss would be insignificant. We do not believe the outcome of this matter will have a 
material adverse effect on our business, consolidated financial position, results of operations, or cash flows. 
Factors that we considered in the determination of the likelihood of a loss and the estimate of that loss in respect 
to this matter included the merits of the case, the district court granting our motion for summary judgment for 
non-infringement, the entry of final judgment of non-infringement and the current stage of the litigation. However, 
the outcome of such legal matters is inherently unpredictable and subject to uncertainty.

ITEM 4.   

MINE SAFETY DISCLOSURES

Not Applicable.

31

 
PART II

ITEM 5. 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS 
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the NASDAQ Global Select Market under the symbol “INFN.” The 

following table sets forth, for the time periods indicated, the high and low sales prices of our common stock as 
reported on the NASDAQ Global Select Market. 

High

Low

Fourth Quarter 2014 ......................................................................................... $
Third Quarter 2014 ........................................................................................... $
Second Quarter 2014 ....................................................................................... $
First Quarter 2014 ............................................................................................ $
Fourth Quarter 2013 ......................................................................................... $
Third Quarter 2013 ........................................................................................... $
Second Quarter 2013 ....................................................................................... $
First Quarter 2013 ............................................................................................ $

15.74

11.84

9.65

10.14

11.91

12.16

11.65

7.75

$

$

$

$

$

$

$

$

9.15

8.32

7.89

6.96

8.59

9.24

6.06

5.66

As of February 9, 2015, there were 105 registered holders of record of Infinera’s common stock. A 

substantially greater number of holders of Infinera common stock are “street name” or beneficial holders, whose 
shares are held by banks, brokers and other financial institutions.

We have not paid any cash dividends on our common stock and do not intend to pay any cash 

dividends on common stock in the near future.

32

 
 
 
STOCK PERFORMANCE GRAPH

The following graph compares the cumulative five-year total return provided stockholders on our 
common stock relative to the cumulative total returns of the NASDAQ Composite Index and the NASDAQ 
Telecommunications Index. An investment of $100 (with reinvestment of all dividends, if any) is assumed to have 
been made in our common stock and in each of the indexes on December 26, 2009 and its relative performance 
is tracked through December 27, 2014. The NASDAQ Telecommunications Index contains securities of 
NASDAQ-listed companies classified according to the Industry Classification Benchmark as Telecommunications 
and Telecommunications Equipment. They include providers of fixed-line and mobile telephone services, and 
makers and distributors of high-technology communication products. This graph is not deemed to be “filed” with 
the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the 
"Exchange Act"), and the graph shall not be deemed to be incorporated by reference into any prior or 
subsequent filing by Infinera under the Securities Act of 1933 or the Exchange Act.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among Infinera Corporation, the NASDAQ Composite Index,
and the NASDAQ Telecommunications Index

300

250

200

150

100

50

0

12/09

12/10

12/11

12/12

12/13

12/14

Infinera Corporation

NASDAQ Composite

NASDAQ Telecommunications

*$100 invested on 12/26/09 in stock or 12/31/09 in index, including reinvestment of dividends, if any.
Indexes calculated on month-end basis.

33

 
ITEM 6.   

SELECTED FINANCIAL DATA

You should read the following selected consolidated historical financial data below in conjunction with 

the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and 
the consolidated financial statements, related notes and other financial information included elsewhere in this 
Annual Report on Form 10-K.

We derived the statements of operations data for the years ended December 27, 2014, December 28, 

2013 and December 29, 2012 and the balance sheet data as of December 27, 2014 and December 28, 2013 
from our audited consolidated financial statements and related notes, which are included elsewhere in this 
Annual Report on Form 10-K. We derived the statements of operations data for the years ended December 31, 
2011 and December 25, 2010 and the balance sheet data as of December 29, 2012, December 31, 2011 and 
December 25, 2010 from our audited consolidated financial statements and related notes which are not included 
in this Annual Report on Form 10-K. We have not declared or distributed any cash dividends. 

December 27,
2014

December 28,
2013

December 29,
2012

December 31,
2011

December 25,
2010

Years Ended

Revenue .................................... $
Gross profit ............................... $
Net income (loss) ...................... $
Net income (loss) per common
share .........................................

668,079

288,304

13,659

Basic .................................. $
Diluted ................................ $

0.11

0.11

Weighted average number of
shares used in computing basic
and diluted net income (loss)
per common share ....................

Basic ..................................

Diluted ................................

123,672

128,565

390,816

Total cash and cash
equivalents, investments and
restricted cash ........................... $
Cost-method investment ........... $
Total assets ............................... $
Long term debt, net ................... $
Common stock and additional
paid-in capital ............................ $ 1,077,351
Stockholders’ equity .................. $

116,894

481,907

818,016

14,500

$

$

$

$

$

$

$

$

$

(In thousands, except per share data)

544,122

218,639

$

$

438,437

157,569

$

$

404,877

165,491

$

$

454,352

206,189

(32,119) $

(85,330) $

(81,744) $

(27,932)

(0.27) $

(0.27) $

(0.77) $

(0.77) $

(0.78) $

(0.78) $

(0.28)

(0.28)

117,425

117,425

110,739

110,739

105,432

105,432

99,380

99,380

$

$

$

$

$

$

187,554

9,000

528,170

$

$

$

253,116

9,000

531,704

$

$

$

295,706

4,500

551,525

— $

— $

—

930,730

356,136

$

$

877,034

387,803

$

$

817,302

410,749

365,313

9,000

700,926

109,164

$ 1,025,781

$

417,810

34

 
 
 
 
 
ITEM 7. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and 
uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to 
differ materially from those expressed or implied by such forward-looking statements. Such forward-looking 
statements include our expectations regarding earnings, revenue, gross margin, expenses, cash flows and other 
financial items; any statements of the plans, strategies and objectives of management for future operations and 
personnel; factors that may affect our operating results; anticipated customer activity; statements concerning 
new products or services, including new product costs, delivery dates and revenue; statements related to capital 
expenditures; statements related to future economic conditions, performance, market growth or our sales cycle; 
statements related to our convertible senior notes; statements related to the effects of litigation on our financial 
position, results of operations or cash flows; statements related to the timing and impact of transfer pricing 
reserves; statements as to industry trends and other matters that do not relate strictly to historical facts or 
statements of assumptions underlying any of the foregoing. These statements are often identified by the use of 
words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," or "will," and 
similar expressions or variations. These statements are based on the beliefs and assumptions of our 
management based on information currently available to management. Such forward-looking statements are 
subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to 
differ materially from future results expressed or implied by such forward-looking statements. Factors that could 
cause or contribute to such differences include, but are not limited to, those identified below, and those 
discussed in the section titled “Risk Factors” included in Item 1A of this Annual Report on Form 10-K. You should 
review these risk factors for a more complete understanding of the risks associated with an investment in our 
securities. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation 
to update any forward-looking statements to reflect events or circumstances after the date of such statements. 
The following discussion and analysis should be read in conjunction with our “Selected Consolidated Financial 
Data” and consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 
10-K.

Background

We provide optical transport networking equipment, software and services to Service Providers across 

the globe. Optical transport networks are deployed by Service Providers facing significant demands for 
transmission capacity prompted by increased use of high-speed Internet access, mobile broadband, high-
definition video streaming services, business Ethernet services and cloud-based services.

Our technologies and platforms enable Service Providers to deliver vast amounts of bandwidth with 

greater ease. We leverage our unique PICs to deliver innovative optical networking solutions for the most 
demanding network environments. The Infinera Intelligent Transport Network is an architecture that enables 
Service Providers to automate, converge and scale their data center, metro, long-haul and subsea optical 
networks. This architectural approach helps Service Providers to rapidly deploy reliable, differentiated services 
while reducing their operating costs through scale, multi-layer convergence and automation.

We manufacture large-scale Indium Phosphide PICs, which are used as a key differentiating component 
inside our Intelligent Transport Network platforms. Our first and second generation PICs transmit and receive 100 
Gbps of WDM transmission capacity and incorporate the functionality of over 60 discrete optical functions into a 
pair of PICs approximately the size of a fingernail. Our third generation PICs, commercially available since 2012, 
transmit and receive 500 Gbps, incorporating over 600 discrete optical functions into a pair of PICs. Our PICs are 
combined with the FlexCoherent Processors to deliver coherent optical transmission and with high-performance 
OTN switching capabilities to offer Service Providers a unique combination of highly-scalable transmission 
capacity and easy to use bandwidth management tools to simplify transport network operations.

 The Infinera DTN-X platform supports 100 Gbps WDM transmission capacity with 500 Gbps super-

channels and also integrates 5 Tbps of OTN switching in a single bay. The Infinera DTN-X platform leverages the 
unique capabilities of our 500 Gbps PICs to deliver our high-capacity Intelligent Transport Networks that reduce 
power, cooling and space requirements while simplifying transport network operations. The Infinera DTN platform 
currently supports 10 Gbps WDM transmission capacity combined with integrated switching capabilities. 

35

 
 
In addition to Service Providers that are looking for network architectures to respond to continued 

demand for bandwidth across their long-haul and subsea networks, Service Providers are now starting to build 
networks to support data center interconnections across metro cloud and campus environments. Our recently 
introduced Cloud Xpress platform is optimized to help Service Providers scale cloud networks with hyper-scale 
density, simplified operations and low power. 

We are headquartered in Sunnyvale, California, with employees located throughout the Americas, 
Europe, and the Asia Pacific region. We expect to continue to add some personnel in the United States and 
internationally to develop our products and provide additional geographic sales and technical support coverage. 
We primarily sell our products through our direct sales force, with a small portion sold indirectly through resellers. 
We derived 95%, 92% and 98% of our revenue from direct sales to customers for 2014, 2013 and 2012, 
respectively. We expect to continue generating a substantial majority of our revenue from direct sales in the 
future.

2014 Financial and Business Performance

Our financial results for 2014 reflect a year of winning footprint, taking care of our customers and 
increasing profitability. We continued the momentum of gaining strong market acceptance of our Intelligent 
Transport Network and the Infinera DTN-X platform. We grew revenue by 23% compared to 2013, marking the 
second consecutive year where we have grown significantly faster than the overall DWDM market. We also 
continued to experience improved gross margin in 2014, demonstrating the leverage we have achieved from our 
vertical integration and the value proposition of our Intelligent Transport Network.

Throughout the year, we had a steady flow of customers adopting the Infinera DTN-X platform to address 

their 100 Gbps needs. Since its introduction in mid-2012, we have received purchase commitments for the 
Infinera DTN-X platform from 59 customers, representing a broad array of Service Providers including Tier 1 
carriers, cable operators, ICPs and wholesale and enterprise carriers. We continued to sell the ATN and Infinera 
DTN platforms as customers leverage the full Infinera product portfolio to best meet their needs. We also started 
to ship our Cloud Xpress platform in December 2014.

In 2014, we continued to be a technology innovator, as we successfully leveraged our solutions to 

influence Service Providers to accelerate architectural shifts in the way they build networks. These innovations 
continue to enable customers to use time as a weapon while simultaneously deploying new services and 
lowering operational costs.  

As of December 27, 2014, we have sold our products for deployment in the optical networks of 140 

customers worldwide. We do not have long-term sales commitments from our customers. One individual 
customer accounted for over 10% of our revenue in 2014. Revenue from this customer was 19% of total revenue 
in 2014. No individual customer accounted for over 10% of our revenue in 2013 or 2012.

Future Business and Industry Trends

In 2015, we intend to continue to leverage the Infinera DTN-X platform to increase revenue and expand 
our market share as customers extend deployments of 100 Gbps transport solutions in their networks. This focus 
on revenue growth will be complemented with overall prudent financial management and continued efforts to 
drive cost improvements across all of our products and services. We believe that with sustained revenue growth, 
we can leverage our vertically-integrated manufacturing model, which combined with selling bandwidth capacity 
into deployed networks, can result in improved future profitability and cash flow. We will continue to make 
significant investments in the business, and management currently believes that over time, research and 
development expenses, excluding stock-based compensation expenses, will be approximately 20% of our total 
revenue, while other operating expenses will grow more slowly than our total revenue, driving additional financial 
leverage.

Our goal is to be the preeminent provider of optical transport networking systems to Service Providers 
around the world. In 2015 and beyond, we intend to increase our penetration with new and existing customers 
while leveraging our Infinera DTN-X and Cloud Xpress platforms. Our revenue growth will depend on the 
continued acceptance of our products, growth of communications traffic and the proliferation of next-generation 
bandwidth-intensive services, which are expected to drive the need for increased levels of bandwidth. 

36

 
Our near-term quarter-over-quarter revenue will likely be volatile and may be impacted by several 

factors including general economic and market conditions, time-to-market development and market acceptance 
of new products, acquisitions of new customers and the timing of large product deployments.

Results of Operations

Revenue

The following table sets forth, for periods presented, certain consolidated statements of operations 

information (in thousands, except percentages): 

Years Ended

December 27,
2014

% of total
revenue

December 28,
2013

% of total
revenue

Change

% Change

Revenue:

Product ...................... $
Services ....................

572,276

95,803

86% $

465,424

86% $ 106,852

14%

78,698

14%

17,105

Total revenue...... $

668,079

100% $

544,122

100% $ 123,957

Cost of revenue:

Product ...................... $
Services ....................

340,856

38,919

51% $

295,715

54% $ 45,141

6%

29,768

6%

9,151

Total cost of
revenue .............. $

379,775

57% $

325,483

60% $ 54,292

Gross profit ......... $

288,304

43% $

218,639

40% $ 69,665

23%

22%

23%

15%

31%

17%

32%

Years Ended

December 28,
2013

% of total
revenue

December 29,
2012

% of total
revenue

Change

% Change

Revenue:

Product ...................... $
Services ....................

465,424

78,698

86% $

380,035

87% $ 85,389

14%

58,402

13%

20,296

Total revenue...... $

544,122

100% $

438,437

100% $ 105,685

Cost of revenue:

Product ...................... $
Services ....................

295,715

29,768

54% $

259,437

59% $ 36,278

6%

21,431

5%

8,337

Total cost of
revenue .............. $

325,483

60% $

280,868

64% $ 44,615

Gross profit ......... $

218,639

40% $

157,569

36% $ 61,070

22%

35%

24%

14%

39%

16%

39%

2014 Compared to 2013. Total revenue increased by $124.0 million, or 23%, in 2014 from 2013. Total 
product revenue increased by $106.9 million, or 23%, in 2014 from 2013. This increase was primarily driven by 
the continued strong market adoption of the Infinera DTN-X platform as our customers continued to deploy our 
products to meet the growing bandwidth needs of their networks. The increase in Infinera DTN-X platform 
revenue was partially offset by a reduction in sales of the Infinera DTN platform.

Total services revenue increased by $17.1 million, or 22%, in 2014 from 2013 due to higher levels of 
deployment services as customers built new networks utilizing our teams’ expertise as well as higher on-going 
support services as we continued to grow our installed base. 

2013 Compared to 2012. Total revenue increased by $105.7 million, or 24%, in 2013 from 2012. 

Revenue was positively impacted by increased revenue from sales of the Infinera DTN-X platform in 2013. 

37

 
 
 
 
 
 
 
 
Revenue included sales to existing customers transitioning their higher-capacity network deployments to the 
Infinera DTN-X platform and new customers purchasing our Intelligent Transport Network solutions for the first 
time. This increase in Infinera DTN-X platform revenue was partially offset by a reduction in sales of our DTN 
platform. 

Total product revenue increased by $85.4 million, or 22%, in 2013 from 2012 reflecting increased sales 

of our Infinera DTN-X platform. Total services revenue increased by $20.3 million, or 35%, in 2013 from 2012 
primarily due to increased deployment services due to the introduction and deployment of new networks based 
on the Infinera DTN-X platform. 

The following table summarizes our revenue by geography and sales channel for the periods presented 

(in thousands, except percentages): 

Years Ended

December 27,
2014

% of total
revenue

December 28,
2013

% of total
revenue

Change

% Change

Total revenue by geography

Domestic ........................... $
International ......................

476,172

191,907

71% $

345,734

64% $ 130,438

29%

198,388

36%

(6,481)

$

668,079

100% $

544,122

100% $ 123,957

Total revenue by sales channel

Direct ................................. $
Indirect ..............................

633,619

34,460

95% $

501,375

92% $ 132,244

5%

42,747

8%

(8,287)

$

668,079

100% $

544,122

100% $ 123,957

38 %

(3)%

23 %

26 %

(19)%

23 %

Years Ended

December 28,
2013

% of total
revenue

December 29,
2012

% of total
revenue

Change

% Change

Total revenue by geography

Domestic ........................... $

345,734

64% $

296,849

68% $ 48,885

International ......................

198,388

36%

141,588

32%

56,800

$

544,122

100% $

438,437

100% $ 105,685

Total revenue by sales channel

Direct ................................. $

501,375

92% $

428,734

98% $ 72,641

Indirect ..............................

42,747

8%

9,703

2%

33,044

$

544,122

100% $

438,437

100% $ 105,685

16%

40%

24%

17%

341%

24%

2014 Compared to 2013. Domestic revenue increased by $130.4 million to 71% of total revenue for 

2014 from 64% of total revenue in 2013. Our revenue in North America continued to grow as many of our largest 
customers, including a Tier-1 carrier and the ICPs, are based in this region. International revenue decreased by 
$6.5 million to 29% of total revenue for 2014 from 36% of total revenue in 2013. International revenue decreased 
in absolute dollars and as a percentage of revenue during 2014 primarily due to lower demand and reduced 
spending by Service Providers in Europe in light of the challenging economic conditions in that region. In 2014, 
our revenue increased in the Latin America region through the use of indirect sales partners.

We believe that the Infinera DTN-X platform is well positioned across our diverse customer base, as 

existing customers continue to build out their networks and as we gain opportunities to deploy our products with 
new customers. We continue to see strong demand across multiple regions and customer verticals. We also 
expect growing momentum with our Cloud Xpress platform as we ramp up shipments in 2015. We currently 
expect overall revenue in the first quarter of 2015 to be roughly flat from the fourth quarter of 2014.

38

 
 
 
 
 
 
 
2013 Compared to 2012. Domestic revenue decreased by $48.9 million to 64% of total revenue in 2013 

from 68% of total revenue in 2012. International revenue increased by $56.8 million to 36% of total revenue in 
2013 from 32% of total revenue in 2012. This increase was primarily due to a number of network deployments in 
the Asia Pacific region, which increased to 7% of total revenue in 2013 compared to 3% of total revenue in 2012. 

Cost of Revenue and Gross Margin

2014 Compared to 2013. Gross margin increased to 43% in 2014 from 40% in 2013. This increase was 
due to a combination of the following: financial leverage gained from our vertically integrated operating model as 
volumes continue to grow and we are able to spread a primarily fixed cost over a much broader base of units; 
yield improvements in our manufacturing operation; and the composition of our revenue included an improved 
ratio of capacity additions to existing networks versus new network builds. 

2013 Compared to 2012. Gross margin increased to 40% in 2013 from 36% in 2012. This increase 

reflected  improvements in manufacturing yields and product costs as Infinera DTN-X platform volumes 
increased and we ramped production in our manufacturing facilities. These improvements were somewhat offset 
by a greater mix of lower margin network footprint sales in 2013 as we added new customers and expanded 
market share with existing customers.     

We currently expect that gross margin in the first quarter of 2015 will be slightly lower than the prior 

quarter.

Operating Expenses 

The following table summarizes our operating expenses for the periods presented (in thousands, except 

percentages):  

Years Ended

December 27,
2014

% of total
revenue

December 28,
2013

% of total
revenue

Change

%
Change

Research and development ....... $

133,484

20% $

124,794

23% $ 8,690

Sales and marketing ..................
General and administrative ........

79,026

48,452

12%

7%

72,778

45,253

14%

8%

6,248

3,199

Total operating expenses .... $

260,962

39% $

242,825

45% $ 18,137

7%

9%

7%

7%

Years Ended

December 28,
2013

% of total
revenue

December 29,
2012

% of total
revenue

Change

%
Change

Research and development ....... $

124,794

23% $

117,233

27% $ 7,561

Sales and marketing ..................
General and administrative ........

72,778

45,253

14%

8%

75,862

47,475

17%

11%

(3,084)

(2,222)

Total operating expenses .... $

242,825

45% $

240,570

55% $ 2,255

6 %

(4)%

(5)%

1 %

The following table summarizes the stock-based compensation expense included in our operating 

expenses for the periods presented (in thousands): 

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Research and development ................................................... $

8,927

$

10,900

$

Sales and marketing ..............................................................

General and administration ....................................................

7,477

6,383

7,624

5,956

Total

............................................................................... $

22,787

$

24,480

$

13,306

10,450

9,529

33,285

39

 
 
 
 
 
 
 
 
 
 
 
 
Research and Development Expenses

2014 Compared to 2013. Research and development expenses increased $8.7 million, or 7%, in 2014 
from 2013 primarily due to increased compensation expenses of $6.9 million related to higher bonus expense in 
connection with the improved financial results and increased headcount to allow us to execute to our product 
roadmap. In addition, we had increased facilities and depreciation costs of $3.0 million, increased costs of 
professional outside services of $2.1 million to support Cloud Xpress development activities, and increased other 
discretionary spending of $0.7 million in order to support our growing business. These increases were partially 
offset by a decrease in prototype and non-recurring engineering expense of $2.0 million due to timing of certain 
projects  and decreased stock-based compensation expense of $2.0 million due to lower equity activity as 
compared to 2013. 

2013 Compared to 2012. Research and development expenses increased $7.6 million, or 6%, in 2013 

from 2012. This increase was primarily due to increases in compensation expenses of $8.7 million and 
professional outside services and other costs of $1.3 million as we continued to add software engineering 
resources to support the development of our future products. These increases were offset by decreased stock-
based compensation expenses of $2.4 million.

Sales and Marketing Expenses

2014 Compared to 2013. Sales and marketing expenses increased $6.2 million, or 9%, in 2014 from 
2013 primarily due to increased compensation expenses of $3.6 million from higher headcount to support the 
continued expansion of our business and higher sales commissions associated with revenue growth that was 
higher than our plan for the year. We also had increased travel, trade show and other marketing related 
expenses of $2.0 million and other discretionary spending of $0.9 million in order to support our growing 
business. These increases were partially offset by lower lab trial and related expenses of $0.3 million.

2013 Compared to 2012. Sales and marketing expenses decreased $3.1 million, or 4%, in 2013 from 

2012 primarily due to decreased Infinera DTN-X platform related customer lab trial expenses of $4.9 million, 
stock-based compensation of $2.8 million, and outside services and related expenses of $2.1 million. These 
reductions were offset by increased compensation and personnel-related expenses of $6.7 million related to 
higher sales commissions and incremental sales headcount.

General and Administrative Expenses

2014 Compared to 2013. General and administrative expenses increased $3.2 million, or   7%, in 2014 
from 2013 primarily due to higher compensation expenses of $2.7 million due to an increase in headcount as we 
continue to expand our team to support our growing business. In addition, we had increased equipment and 
software expenses and other discretionary spending of $1.0 million. These increases were partially offset by 
decreased depreciation expense of $0.5 million.

2013 Compared to 2012. General and administrative expenses decreased $2.2 million, or 5%, in 2013 
from 2012 primarily due to decreased stock-based compensation expense of $3.6 million, and lower consulting 
services and other costs of $1.0 million, offset by increased compensation and personnel-related expenses of 
$2.4 million.

Other Income (Expense), Net

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

(In thousands)

Interest income ...................................................................... $

1,456

$

923

$

Interest expense ....................................................................

Other gain (loss), net .............................................................

(11,021)

(1,365)

(6,061)

(1,141)

Total other income (expense), net ................................... $

(10,930) $

(6,279) $

911

—

(1,050)

(139)

2014 Compared to 2013. Interest income increased mainly due to a higher average investment balance 

due to having the proceeds from the Notes for the full year and cash generated from the business. Interest 
expense for 2014 and 2013 consisted of amortization of debt discount costs, debt issuance costs and contractual 

40

 
 
 
 
 
 
 
 
 
interest expense related to the Notes issued in May 2013. See Note 9, “Convertible Senior Notes,” to the Notes 
to Consolidated Financial Statements for more information. Other gain (loss), net for 2014 was mainly comprised 
of $1.4 million of losses due to foreign currency exchange. Other gain (loss), net for 2013 included $1.4 million of 
losses due to foreign currency exchange, partially offset by a gain of $0.2 million from auction rate securities 
(“ARS”) sold.

2013 Compared to 2012. Interest income increased by an insignificant amount in 2013 compared to 

2012 mainly due to higher interest income earned on our foreign cash balance partially offset by a lower return 
on domestic investments, despite the higher average investment balance as a result of the proceeds from the 
Notes. Interest expense for 2013 consisted of contractual interest expense and amortization of debt discount and 
debt issuance costs related to the Notes issued in May 2013. See Note 9, “Convertible Senior Notes,” to the 
Notes to Consolidated Financial Statements for more information. Other gain (loss), net for 2013 included $1.4 
million of losses due to foreign currency exchange, partially offset by a gain of $0.2 million from ARS sold. Other 
gain (loss), net for 2012 includes $1.5 million of losses due to foreign currency exchange, partially offset by a 
gain of $0.5 million from ARS called at par value. 

Income Tax Provision

We recognized income tax expense of $2.8 million on income before income taxes of $16.4 million, $1.7 
million on loss before income taxes of $30.5 million and $2.2 million on loss before income taxes of $83.1 million 
in fiscal years 2014, 2013 and 2012, respectively. The 2014 effective tax rate differs from the expected statutory 
rate of 35% based upon the utilization of unbenefited U.S. loss carryforwards, offset by state income taxes and 
foreign taxes provided on foreign subsidiary earnings.  The 2013 and 2012 effective tax rates reflect unbenefited 
current U.S. losses and foreign taxes provided on our profitable foreign subsidiaries.  The increase in 2014 tax 
expense compared to 2013 tax expense relates primarily to higher state income taxes because of the profitable 
position of our U.S. operations, additional tax reserves and an increase in taxable foreign profits. The decrease 
in 2013 tax expense compared to 2012 tax expense relates primarily to the release of tax reserves due to the 
lapsing of the statute of limitations.

The valuation allowance for deferred tax assets as of December 27, 2014 and December 28, 2013 was 

$199.7 million and $202.7 million, respectively. The net change in the valuation allowance were decreases of 
$3.0 million and $10.7 million for the years ended December 27, 2014 and December 28, 2013, respectively.

As of December 27, 2014, we had net operating loss carryforwards of approximately $309.1 million for 

federal tax purposes and $278.7 million for state tax purposes. The carryforward balance reflects expected 
utilization of both federal and state net operating losses for the year ended December 27, 2014. Additionally, we 
have federal and California research and development credits available to reduce future income taxes payable of 
approximately $28.0 million and $29.3 million, respectively. Infinera Canada Inc., an indirect wholly owned 
subsidiary, has Scientific Research and Experimental Development Expenditures (“SRED”) credits available of 
$2.1 million to offset future Canadian income tax payable. The federal research credits will begin to expire in the 
year 2021 if not utilized and the California research credits have no expiration date. Canadian SRED credits will 
begin to expire in the year 2030 if not fully utilized.

We maintain net operating losses generated from excess tax benefits associated with the accumulated 

stock award attributes in a memo account, not included in the deferred tax balances. The additional tax benefit 
associated with these stock award attributes, of which the net operating loss amounts are included in the 
carryforward amounts noted above is not recognized until the deduction reduces cash taxes payable. At 
December 27, 2014, we had unbenefited stock option deductions for federal and state tax purposes of $42.0 
million and $37.8 million, respectively. When utilized, the estimated tax benefits of approximately $17.8 million 
will result in a credit to stockholders’ equity.

Under the Tax Reform Act of 1986, the amount of benefit from net operating loss and tax credit 
carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount 
of net operating losses that we may utilize in any one year include, but are not limited to, a cumulative ownership 
change of more than 50 percent as defined over a three-year testing period. As of December 27, 2014, we had 
determined that while ownership changes had occurred in the past, the resulting limitations were not significant 
enough to impact the utilization of the tax attributes against our taxable profits earned to date. 

41

 
 
 
 
 
 
In determining future taxable income, we make assumptions to forecast federal, state and international 
operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax 
planning strategies. The assumptions require significant judgment regarding the forecasts of future taxable 
income, and are consistent with our income forecasts used to manage our business. We intend to maintain the 
remaining valuation allowance until sufficient further positive evidence exists to support a reversal of, or 
decrease, in the existing valuation allowance.

Liquidity and Capital Resources

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

(In thousands)

Net cash flow provided by (used in):

Operating activities ......................................................... $
Investing activities .......................................................... $
Financing activities ......................................................... $

35,963

$

35,180

$

(49,466)

(96,059) $

(180,800) $

22,861

$

166,110

$

48,868

10,698

Years Ended

December 27,
2014

December 28,
2013

Cash and cash equivalents ............................................................................... $
Short-term and long-term investments ..............................................................

Long-term restricted cash .................................................................................

(In thousands)

86,495

$

124,330

298,861

5,460

237,079

3,904

$

390,816

$

365,313

Cash, cash equivalents and short-term investments consist of highly-liquid investments in certificates of 
deposits, money market funds, commercial paper, corporate bonds and U.S. treasuries. Long-term investments 
primarily consist of corporate bonds. The restricted cash balance amounts are primarily pledged as collateral for 
certain stand-by and commercial letters of credit related to customer proposal guarantees, value added tax 
licenses and property leases.

Operating Activities

Net cash provided by operating activities for 2014 was $36.0 million as compared to net cash provided 
by operating activities of $35.2 million in 2013 and net cash used in operating activities of $49.5 million in 2012. 

Net income for 2014 was $13.7 million, which included non-cash charges of $66.5 million, compared to 

a net loss of $32.1 million in 2013, which included non-cash charges of $62.3 million. Net loss for 2012 was 
$85.3 million, which included non-cash charges of $67.2 million.

Net cash used to fund working capital was $44.2 million for 2014. Accounts receivables increased by 

$54.0 million primarily due to higher revenue levels and the timing of invoicing of network deployments and 
collections during the period. Inventory levels increased by $25.5 million to support the higher expected demand. 
Accounts payable increased by $18.8 million primarily reflecting increased inventory purchases and timing of 
payments during the period. Accrued liabilities increased by $11.9 million primarily reflecting higher levels of 
compensation related accruals.

Net cash provided by working capital was $5.0 million for 2013. Accounts receivables decreased by 
$6.3 million primarily due to improved linearity of invoicing. Inventory levels increased by $3.0 million due to 
increased levels of Infinera DTN-X inventory. Accounts payable decreased by $20.2 million primarily reflecting 
the timing of inventory purchases and improved linearity of supply. Accrued liabilities increased by $11.3 million 
primarily related to the timing of vendor invoicing of external services costs. 

42

 
 
 
 
 
 
 
 
 
 
Net cash used to fund working capital was $31.3 million for 2012. This increase in working capital 

requirements was primarily related to the introduction of the Infinera DTN-X platform. Inventory levels increased 
by $40.6 million as we added inventory for the Infinera DTN-X platform while maintaining Infinera DTN platform 
levels. Accounts receivable increased by $26.5 million primarily due to the timing of acceptance and invoicing of 
Infinera DTN-X platform deployments during the second half of 2012. Accrued liabilities increased by $6.9 million 
primarily related to external services performed but not invoiced by vendors.

Investing Activities

Net cash used in investing activities in 2014 was $96.1 million. This included net cash used of $65.9 

million associated with purchases, maturities and sales of investments and $23.1 million of capital expenditures. 
We also invested an additional $5.5 million in an existing cost-method equity investment during 2014. 

Net cash used in investing activities in 2013 was $180.8 million. This included net cash used of $159.7 

million associated with purchases, maturities, calls and sales of investments and $21.1 million of capital 
expenditures. The increase in net cash used in investing activities as compared to 2012 primarily related to the 
investment of the proceeds received from the issuance of the Notes.

Net cash provided by investing activities in 2012 was $48.9 million primarily reflecting net proceeds of 

$75.0 million from maturities, calls and sales of investments, net of purchases in the period, offset by $25.4 
million of capital expenditures.

Financing Activities

Net proceeds from financing activities were $22.9 million, $166.1 million and $10.7 million in 2014, 2013 

and 2012, respectively.  Financing activities primarily included net proceeds from the exercise of stock options 
and issuance of shares under the employee stock purchase plan ("ESPP"). These proceeds were offset by the 
minimum tax withholdings paid on behalf of employees for net share settlements of restricted stock units. 
Financing activities for 2013 also included net proceeds from the issuance of the Notes of $144.5 million.

Liquidity

We believe that our current cash, cash equivalents and investments, together with cash generated from 

operations, exercise of employee stock options and purchases under our ESPP will be sufficient to meet our 
anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If these 
sources of cash are insufficient to satisfy our liquidity requirements beyond 12 months, we may require additional 
capital from equity or debt financings to fund our operations, to respond to competitive pressures or strategic 
opportunities, or otherwise. We may not be able to secure timely additional financing on favorable terms, or at all. 
The terms of any additional financing may place limits on our financial and operating flexibility. If we raise 
additional funds through further issuances of equity, convertible debt securities or other securities convertible into 
equity, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities 
we issue could have rights, preferences and privileges senior to those of holders of our common stock.

In May 2013, we issued the Notes, which will mature on June 1, 2018, unless earlier purchased by us or 

converted. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing 
December 1, 2013. The net proceeds from the Notes issuance were approximately $144.5 million and were 
intended to be used for working capital and other general corporate purposes.

Upon conversion, it is our intention to pay cash equal to the lesser of the aggregate principal amount or 

the conversion value of the Notes. For any remaining conversion obligation, we intend to pay cash, shares of 
common stock or a combination of cash and shares of common stock, at our election. The carrying value of the 
Notes was $116.9 million as of December 27, 2014, which represents the liability component of the $150.0 
million principal balance, net of $33.1 million debt discount. The debt discount is currently being amortized over 
the remaining term until maturity of the Notes on June 1, 2018. Any future redemption or conversion of the Notes 
could impact the timing of the repayment of these Notes.

As of December 27, 2014, contractual obligations related to the Notes are payments of $2.6 million due 

each year from 2015 through 2017 and $151.3 million due in 2018. These amounts represent principal and 
interest cash payments over the term of the Notes. Any future redemption or conversion of the Notes could 
impact the amount or timing of our cash payments. For more information regarding the Notes, see Note 9, 
“Convertible Senior Notes,” to the Notes to Consolidated Financial Statements.

43

As of December 27, 2014, we had $326.1 million of cash, cash equivalents, and short-term 
investments, including $15.9 million of cash and cash equivalents held by our foreign subsidiaries. Our cash in 
foreign locations is used for operational and investing activities in those locations, and we do not currently have 
the need or the intent to repatriate those funds to the United States. Our policy with respect to undistributed 
foreign subsidiaries’ earnings is to consider those earnings to be indefinitely reinvested. If we were to repatriate 
these funds, we would be required to accrue and pay U.S. taxes on such amounts, however, due to our 
significant net operating loss carryforward position for both federal and state tax purposes, as well as the full 
valuation allowance provided against our U.S. and state net deferred tax assets, we would currently be able to 
offset any such tax obligations in their entirety.  However, foreign withholding taxes may be applicable.

Contractual Obligations

The following is a summary of our contractual obligations as of December 27, 2014: 

Payments Due by Period

Total

Less than
1 year

1 - 3
years

3 - 5
years

More than
5 years

(In thousands)

Purchase obligations(1) .................................. $ 128,261
Operating leases(2) ........................................
38,053
Convertible senior notes, including interest ...

159,188
Total contractual obligations(3) ............... $ 325,502

$ 126,211

$

2,050

$

— $

7,063

2,625

11,994

156,563

10,450

—

—

8,546

—

$ 135,899

$ 170,607

$

10,450

$

8,546

(1) 

(2) 

(3) 

We have service agreements with our major production suppliers under which we are committed to purchase certain 
parts.

We lease facilities under non-cancelable operating lease agreements. These leases have varying terms, 
predominantly no longer than ten years each and contain leasehold improvement incentives, rent holidays and 
escalation clauses that range from one to 10 years. In addition, some of these leases have renewal options for up to 
five years. We also have contractual commitments to remove leasehold improvements and return certain properties 
to a specified condition when the leases terminate. At the inception of a lease with such conditions, we record an 
asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value 
of the obligation. Leasehold improvements are amortized using the straight-line method over the shorter of the lease 
term or estimated useful life of the asset. An assumption of lease renewal where a renewal option exists is used only 
when the renewal has been determined to be reasonably assured. The estimated useful life of leasehold 
improvements is one to ten years.

Tax liabilities of $2.2 million related to uncertain tax positions are not included in the table because we are unable to 
determine the timing of settlement if any, of these future payments with a reasonably reliable estimate.

We had $5.0 million of standby letters of credit outstanding as of December 27, 2014. These consisted 

of $3.0 million related to a customer proposal guarantee, $1.3 million related to a value added tax license and 
$0.7 million related to property leases. We had $3.5 million of standby letters of credit outstanding as of 
December 28, 2013. These consisted of $1.4 million related to a value added tax license, $1.4 million related to a 
customer proposal guarantee and $0.7 million related to property leases.

Off-Balance Sheet Arrangements

As of December 27, 2014, we did not have any relationships with unconsolidated entities or financial 

partnerships, such as entities often referred to as structured finance or special purpose entities, which would 
have been established for the purpose of facilitating off-balance sheet arrangements or other contractually 
narrow or limited purposes.

44

 
 
 
 
 
 
 
Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting 

principles require us to make certain estimates and judgments that can affect the reported amounts of assets 
and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenue 
and expenses during the periods presented. Significant estimates, assumptions and judgments made by 
management include revenue recognition, stock-based compensation, accounting for income taxes, fair value 
measurement of investments, inventory valuation and accrued warranty. Management believes that the 
estimates and judgments upon which they rely are reasonable based upon information available to them at the 
time that these estimates and judgments are made. To the extent there are material differences between these 
estimates and actual results, our consolidated financial statements will be affected.

Revenue Recognition

Substantially all of our product sales are sold in combination with installation, deployment and software 

support services. Periodically, our product sales are also sold with spares management, on-site hardware 
replacement services or training. Software support services, generally delivered over a one-year period, are 
comprised of software warranty or software subscription service. Software warranty provides customers with 
maintenance releases during the warranty support period. Software subscription service includes software 
warranty and additionally provides customers with rights to receive unspecified software product upgrades 
released during the support period. 

Spares management and on-site hardware replacement services include the replacement of defective 
units at customer sites in accordance with specified service level agreements and are generally delivered over a 
one-year period. Training services include the right to a specified number of instructor-led or web based training 
classes, and installation and deployment services may include customer site assessments, equipment 
installation and testing. These services are generally delivered over a 90-120 day period. 

We recognize product revenue when all of the following have occurred: (1) we have entered into a 

legally binding arrangement with the customer; (2) delivery has occurred, which is when product title and risk of 
loss have transferred to the customer; (3) customer payment is deemed fixed or determinable; and 
(4) collectability is reasonably assured.

We allocate revenue to each element in our multiple-element arrangements based upon their relative 

selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling 
price for a deliverable is based on its vendor specific objective evidence ("VSOE") if available, third party 
evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is 
available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for 
that element has been met.

VSOE of selling price is used in the selling price allocation in all instances where it exists. VSOE of 

selling price for products and services is determined when a substantial majority of the selling prices fall within a 
reasonable range when sold separately. In certain instances, we are not able to establish VSOE for all 
deliverables in an arrangement with multiple elements. This mainly occurs where insufficient standalone sales 
transactions have occurred or where pricing for that element has not been consistent.

TPE of selling price can be established by evaluating largely interchangeable competitor products or 

services in standalone sales to similarly situated customers. As our products contain a significant element of 
proprietary technology and the solution offered differs substantially from that of competitors, it is typically difficult 
to obtain the reliable standalone competitive pricing necessary to establish TPE.

ESP represents the best estimate of the price at which we would transact a sale if the product or service 

was sold on a standalone basis. We determine ESP for a product or service by considering multiple factors 
including, but not limited to market conditions, competitive landscape, gross margin objectives and pricing 
practices. The determination of ESP is made through formal approval by our management, taking into 
consideration the overall go-to-market pricing strategy.

As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could 

result in changes in selling prices, including both VSOE and ESP. As a result, our future revenue recognition for 

45

 
 
 
 
 
 
 
 
 
multiple element arrangements could differ from that recorded in the current period. We regularly review VSOE, 
TPE, and ESP and maintain internal controls over the establishment and update of these inputs.

We limit the amount of revenue recognition for delivered elements to the amount that is not contingent 

on the future delivery of products or services, future performance obligations or subject to customer-specified 
return or refund privileges. We evaluate each deliverable in an arrangement to determine whether they represent 
separate units of accounting.

We have a limited number of software offerings which are not required to deliver the tangible product’s 

essential functionality and can be sold separately. Revenue from sales of these software products and related 
post-contract support will continue to be accounted for under software revenue recognition rules. Our multiple-
element arrangements may therefore have a software deliverable that is subject to the existing software revenue 
recognition guidance. The revenue for these multiple-element arrangements is allocated to the software 
deliverable and the non-software deliverables based on the relative selling prices of all of the deliverables in the 
arrangement using the hierarchy in the new revenue recognition accounting guidance. Revenue related to these 
software offerings are not expected to be significant.

Services revenue includes software subscription services, installation and deployment services, spares 

management, on-site hardware replacement services, extended software warranty and extended hardware 
warranty services, and training. Revenue from software subscription, spares management, on-site hardware 
replacement services and extended software and hardware warranty contracts is deferred and is recognized 
ratably over the contractual support period, which is generally one year. Revenue related to training and 
installation and deployment services is recognized as the services are completed.

Contracts and customer purchase orders are generally used to determine the existence of an 
arrangement. In addition, shipping documents and customer acceptances, when applicable, are used to verify 
delivery and transfer of title. Revenue is recognized only when title and risk of loss pass to customers and when 
the revenue recognition criteria have been met. In instances where acceptance of the product occurs upon 
formal written acceptance, revenue is recognized only after such written acceptance has been received. We 
assess whether the fee is fixed or determinable based on the payment terms associated with the transaction. 
Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be 
standard payment terms. However, payment terms greater than 120 days but less than or equal to one year from 
invoice may be considered standard if payment is supported by an irrevocable commercial letter of credit (“LOC”) 
issued by a creditworthy bank or if the LOC has been accepted and confirmed by a creditworthy bank. In the 
event payment terms are provided that differ from our standard business practices, the fees are deemed to not 
be fixed or determinable and, therefore, revenue is not recognized until the fees become fixed or determinable 
which we believe is when they are legally due and payable. We assess our ability to collect from our customers 
based primarily on the creditworthiness and past payment history of the customer.

For sales to resellers, the same revenue recognition criteria apply. It is our practice to identify an end-

user prior to shipment to a reseller. We do not offer rights of return or price protection to our resellers.

Shipping charges billed to customers are included in product revenue and related shipping costs are 

included in product cost. We report revenue net of any required taxes collected from customers and remitted to 
government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant 
government authority.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award, and 

is recognized as expense over the requisite service period (generally the vesting period) under the straight-line 
amortization method.

We estimate the fair value of the stock options granted using the Black-Scholes option pricing formula 

and a single option award approach. For new-hire grants, options typically vest with respect to 25% of the shares 
one year after the option’s vesting commencement date and the remainder ratably on a monthly basis over three 
years, commencing one year after the vesting commencement date. For annual refresh grants, options typically 
vest ratably on a monthly basis over three years. 

46

 
 
 
 
 
 
 
 
We make a number of estimates and assumptions in determining stock-based compensation related to 

options including the following:

• 

• 

• 

The expected forfeiture rate is estimated based on our historical forfeiture data and compensation 
costs are recognized only for those equity awards expected to vest. The estimation of the forfeiture 
rate requires judgment, and to the extent actual forfeitures differ from expectations, changes in 
estimate will be recorded as an adjustment in the period when such estimates are revised. Actual 
results may differ substantially from the estimates. We record stock-based compensation expense 
to adjust estimated forfeiture rates to actual.

The expected term represents the weighted-average period that the stock options are expected to 
be outstanding prior to being exercised. The expected term is estimated based on our historical 
data on employee exercise patterns and post vesting termination behavior to estimate expected 
exercises over the contractual term of grants.

Expected volatility of our stock has been historically based on the weighted-average implied and 
historical volatility of Infinera and its peer group. The peer group is comprised of similar companies 
in the same industrial sector. As we gained more historical volatility data, the weighting of our own 
data in the expected volatility calculation associated with options gradually increased to 100% by 
2013.

We estimate the fair value of the rights to acquire stock under our ESPP using the Black-Scholes option 

pricing formula. Our ESPP provides for consecutive six-month offering periods and we use our own historical 
volatility data in the valuation of ESPP shares.

We account for the fair value of restricted stock units (“RSUs”) using the closing market price of our 

common stock on the date of grant. For new-hire grants, RSUs typically vest ratably on an annual basis over four 
years. For annual refresh grants, RSUs typically vest ratably on an annual basis over three years.

The Company granted performance stock units ("PSUs") to its executives in 2013 and 2014 as part of 
the Company's annual refresh grant process. These PSUs entitle the Company's executive officers to receive a 
number of shares of the Company's common stock based on its stock price performance compared to a 
specified target composite index”) for the same period. The PSUs vest over the span of one year, two years, and 
three years and the number of shares to be issued upon vesting ranges from 0 to 1.5 times the number of PSUs 
granted depending on the relative performance of the Company's common stock price compared to the target 
composite index. This performance metric is classified as a market condition.

We use the Monte Carlo simulation model to determine the fair value of PSUs on the date of grant. The 

Monte Carlo simulation model is based on a discounted cash flow approach, with the simulation of a large 
number of possible stock price outcomes for our stock and the target composite index. The use of the Monte 
Carlo simulation model requires the input of a number of assumptions including expected volatility of our stock 
price, expected volatility of target composite index, correlation between changes in our stock price and changes 
in the target composite index, risk-free interest rate, and expected dividends as applicable. Expected volatility of 
our stock is based on the weighted-average historical volatility of our stock. Expected volatility of target 
composite index is based on the historical data. Correlation is based on the historical relationship between our 
stock price and the target composite index average. The risk-free interest rate is based upon the treasury zero-
coupon yield appropriate for the term of the PSU as of the grant date. The expected dividend yield is zero for us 
as we do not expect to pay dividends in the future. The expected dividend yield for the target composite index is 
the annual dividend yield expressed as a percentage of the composite average of the target composite index on 
the grant date.

In 2012, we granted PSUs with performance conditions and estimated the fair value using the closing 
market price of our common stock on the date of grant. These PSUs entitle our executive officers to receive a 
number of shares of our common stock based on pre-established performance criteria over approximately two 
and a half years. The PSUs cliff vest at 50% upon achievement of specific revenue criteria and 50% will cliff vest 
upon achievement of specific operating profit criteria. This performance metric is classified as a performance 
condition.

47

 
 
 
 
Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate 
our taxes in each of the jurisdictions in which we operate. We estimate actual current tax expense together with 
assessing temporary differences resulting from different treatment of items, such as accruals and allowances not 
currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are 
included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be 
received when certain expenses previously recognized in our consolidated statements of operations become 
deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, 
realization of our deferred tax assets is dependent on future taxable income within the respective jurisdictions 
against which these deductions, losses and credits can be utilized within the applicable future periods.

We must assess the likelihood that some portion or all of our deferred tax assets will be recovered from 

future taxable income within the respective jurisdictions, and to the extent we believe that recovery does not 
meet the “more-likely-than-not” standard, we must establish a valuation allowance. The ultimate realization of 
deferred tax assets is dependent upon the generation of future taxable income during the periods in which those 
temporary differences become deductible. Management judgment is required in determining our provision for 
income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net 
deferred tax assets. At December 27, 2014 and December 28, 2013, our domestic net deferred tax assets were 
fully reserved with a valuation allowance because, based on the available evidence, we believed at that time it 
was more likely than not
that we would not be able to utilize those deferred tax assets in the future. We intend to maintain a valuation 
allowance until sufficient evidence exists to support the reversal of the valuation allowance. We make estimates 
and judgments about our future taxable income, by jurisdiction, based on assumptions that are consistent with 
our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation 
allowance could be materially impacted.

Fair Value Measurement of Investments

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair 

value is defined as the price that would be received from selling an asset or paid to transfer a liability in an 
orderly transaction between market participants at the measurement date. When determining the fair value 
measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the 
principal or most advantageous market in which it would transact and it considers assumptions that market 
participants would use when pricing the asset or liability.

Valuation techniques used by us are based upon observable and unobservable inputs. Observable or 

market inputs reflect market data obtained from independent sources, while unobservable inputs reflect our 
assumptions about market participant assumptions based on best information available. Observable inputs are 
the preferred source of values. These two types of inputs create the following fair value hierarchy:

Level 1

– Quoted prices in active markets for identical assets or liabilities.

Level 2

– Quoted prices for similar instruments in active markets, quoted prices for identical or similar

instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.

Level 3

–

Prices or valuations that require management inputs that are both significant to the fair value
measurement and unobservable.

We measure our cash equivalents, foreign currency exchange forward contracts and debt securities at 
fair value and classifies our securities in accordance with the fair value hierarchy. Our money market funds and 
U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in 
active markets for identical securities.

48

 
 
 
 
 
 
We classify our certificates of deposit, commercial paper, corporate bonds and foreign currency 

exchange forward contracts within Level 2 of the fair value hierarchy as follows:

Certificates of Deposit

We review market pricing and other observable market inputs for the same or similar securities 
obtained from a number of industry standard data providers. In the event that a transaction is observed 
for the same or similar security in the marketplace, the price on that transaction reflects the market price 
and fair value on that day. In the absence of any observable market transactions for a particular 
security, the fair market value at period end would be equal to the par value. These inputs represent 
quoted prices for similar assets or these inputs have been derived from observable market data.

Commercial Paper

We review market pricing and other observable market inputs for the same or similar securities 
obtained from a number of industry standard data providers. In the event that a transaction is observed 
for the same or similar security in the marketplace, the price on that transaction reflects the market price 
and fair value on that day and then follows a revised accretion schedule to determine the fair market 
value at period end. In the absence of any observable market transactions for a particular security, the 
fair market value at period end is derived by accreting from the last observable market price. These 
inputs represent quoted prices for similar assets or these inputs have been derived from observable 
market data accreted mathematically to par.

Corporate Bonds

We review trading activity and pricing for each of the corporate bond securities in our portfolio 

as of the measurement date and determines if pricing data of sufficient frequency and volume in an 
active market exists in order to support Level 1 classification of these securities. If sufficient quoted 
pricing for identical securities is not available, we obtain market pricing and other observable market 
inputs for similar securities from a number of industry standard data providers. In instances where 
multiple prices exist for similar securities, these prices are used as inputs into a distribution-curve to 
determine the fair market value at period end. 

Foreign Currency Exchange Forward Contracts

As discussed in Note 5, “Derivative Instruments,” to the Notes to Consolidated Financial 
Statements, we mainly hold non-speculative foreign exchange forward contracts to hedge certain 
foreign currency exchange exposures. We estimate the fair values of derivatives based on quoted 
market prices or pricing models using current market rates. Where applicable, these models project 
future cash flows and discount the future amounts to a present value using market-based observable 
inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for 
currencies. 

We classified our ARS within Level 3 of the fair value hierarchy. Our ARS were classified within Level 3 
because they were valued, in part, by using inputs that were unobservable in the market and were significant to 
the valuation. During 2013, we disposed of our remaining ARS. As of December 27, 2014, none of our existing 
securities were classified as Level 3 securities.

Inventory Valuation

Inventories consist of raw materials, work-in-process and finished goods and are stated at standard cost 
adjusted to approximate the lower of actual cost (first-in, first-out method) or market. Market value is based upon 
an estimated selling price reduced by the estimated cost of disposal. The determination of market value involves 
numerous judgments including estimated average selling prices based upon recent sales volumes, industry 
trends, existing customer orders, current contract price, future demand and pricing and technological 
obsolescence of our products.

Inventory that is obsolete or in excess of our forecasted demand or is anticipated to be sold at a loss is 

written down to its estimated net realizable value based on historical usage and expected demand. In valuing our 
inventory costs and deferred inventory costs, we considered whether the utility of the products delivered or 

49

 
 
 
 
 
 
 
 
expected to be delivered at less than cost, primarily comprised of common equipment, had declined. We 
concluded that, in the instances where the utility of the products delivered or expected to be delivered was less 
than cost, it was appropriate to value the inventory costs and deferred inventory costs at cost or market, 
whichever is lower, thereby recognizing the cost of the reduction in utility in the period in which the reduction 
occurred or can be reasonably estimated. We have, therefore, recognized inventory write-downs as necessary in 
each period in order to reflect inventory at the lower of cost or market.

We consider whether we should accrue losses on firm purchase commitments related to inventory 

items. Given that the net realizable value of common equipment is below contracted purchase price, we have 
also recorded losses on these firm purchase commitments in the period in which the commitment is made. When 
the inventory parts related to these firm purchase commitments are received, that inventory is recorded at the 
purchase price less the accrual for the loss on the purchase commitment.

Accrued Warranty

We warrant that our products will operate substantially in conformity with product specifications. Upon 

delivery of our products, we provide for the estimated cost to repair or replace products that may be returned 
under warranty. Our hardware warranty periods range from one to five years from date of acceptance for 
hardware and 90 days for software warranty. The hardware warranty accrual is based on actual historical returns 
and cost of repair experience and the application of those historical rates to our in-warranty installed base. The 
provision for warranty claims fluctuates depending upon the installed base of products and the failure rates and 
costs of repair associated with these products under warranty. Furthermore, our costs of repair vary based on 
repair volume and our ability to repair, rather than replace, defective units.  In the event that actual product failure 
rates and costs to repair differ from our estimates, revisions to the warranty provision are required. Consequently, 
we regularly assess the adequacy of our warranty liabilities and adjust the amounts as necessary. In addition, we 
have software warranty support obligations and the costs associated with providing these software warranties 
have been insignificant to our consolidated financial statements to date.

Recent Accounting Pronouncements

See Note 2, “Significant Accounting Policies,” to the Notes to Consolidated Financial Statements for a 
full description of recent accounting pronouncements including the respective expected dates of adoptions and 
effects on us.

ITEM 7A. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Foreign Currency Risk

A majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. 

However, we do incur some operating costs in other currencies. In addition, certain of our sales contracts are not 
priced in U.S. dollars and, therefore, a portion of our revenue is subject to foreign currency risks. Our operating 
expenses and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, 
particularly changes in the India rupee, Chinese yuan, British pound and the euro.

The effect of an immediate 10% adverse change in foreign exchange rates on our foreign currency 

denominated transactions at December 27, 2014 would not be material to our results of operations or financial 
condition. We enter into foreign currency exchange forward contracts to reduce the impact of foreign currency 
fluctuations on accounts receivable and restricted cash denominated in currencies other than our functional 
currency, which is the U.S. dollar. As a result, we do not expect a significant impact to our results from a change 
in exchange rates on foreign denominated accounts receivable balances in the near-term. 

If our international operations grow, our risks associated with fluctuation in currency rates will become 

greater and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or 
a weakening U.S. dollar may increase the costs of our international operations. 

50

 
 
 
 
 
 
Interest Rate Sensitivity

We had cash and cash equivalents, short-term and long-term investments and short-term and long-term 

restricted cash totaling $390.8 million and $365.3 million as of December 27, 2014 and December 28, 2013, 
respectively. As of December 27, 2014, we have invested in certificates of deposit, money market funds, 
commercial paper, corporate bonds and U.S. treasuries. The unrestricted cash and cash equivalents are held for 
working capital purposes. We do not enter into investments for speculative purposes. We believe that we do not 
have any material exposure to changes in the fair value as a result of changes in interest rates. Declines in 
interest rates, however, will reduce future investment income. If overall interest rates fell by 10% in 2014 and 
2013, our interest income would have declined approximately $0.1 million and $0.1 million, respectively, 
assuming consistent investment levels.

Market Risk and Market Interest Risk

  Holders may convert the Notes prior to maturity upon the occurrence of certain circumstances. Upon 
conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of 
cash and shares of our common stock, at our election.

  As of December 27, 2014, the fair value of the Notes was $198.9 million. The fair value was determined 
based on the quoted bid price of the Notes in an over-the-counter market on December 26, 2014. The fair value 
of the Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair 
value of the Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the 
fair value of the Notes will generally increase as our common stock price increases and will generally decrease 
as our common stock price declines in value. The interest and market value changes affect the fair value of the 
Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the 
debt obligation. Additionally, we do not carry the Notes at fair value. We present the fair value of the Notes for 
required disclosure purposes only.  

See Note 9, “Convertible Senior Notes,” to the Notes to Consolidated Financial Statements for further 

information.

51

 
 
 
ITEM 8.   

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm........................................

Consolidated Balance Sheets ....................................................................................................................

Consolidated Statements of Operations .....................................................................................................

Consolidated Statements of Comprehensive Income (Loss) ......................................................................

Consolidated Statements of Stockholders’ Equity ......................................................................................

Consolidated Statements of Cash Flows ....................................................................................................

Notes to Consolidated Financial Statements ..............................................................................................

Page

53

55

56

57

58

60

61

52

 
 
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Infinera Corporation

We have audited the accompanying consolidated balance sheets of Infinera Corporation as of 

December 27, 2014 and December 28, 2013, and the related consolidated statements of operations, 
comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended 
December 27, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. 
These financial statements and schedule are the responsibility of the Company’s management. Our 
responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the 

consolidated financial position of Infinera Corporation at December 27, 2014 and December 28, 2013, and the 
consolidated results of its operations and its cash flows for each of the three years in the period ended 
December 27, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the 
related financial statement schedule, when considered in relation to the basic financial statements taken as a 
whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight 
Board (United States), Infinera Corporation’s internal control over financial reporting as of December 27, 2014, 
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2015 
expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP        

San Jose, California
February 18, 2015

53

 
 
 
 
 
 
 
 
 
 
 
 
 
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Infinera Corporation

We have audited Infinera Corporation’s internal control over financial reporting as of December 27, 

2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of 
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Infinera 
Corporation’s management is responsible for maintaining effective internal control over financial reporting, and 
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying 
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an 
opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight 

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether effective internal control over financial reporting was maintained in all material 
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the 
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal 
control based on the assessed risk, and performing such other procedures as we considered necessary in the 
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over 
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in 
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; 
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial 
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of 
the company are being made only in accordance with authorizations of management and directors of the 
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized 
acquisition, use or disposition of the company’s assets that could have a material effect on the financial 
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect 

misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that 
controls may become inadequate because of changes in conditions, or that the degree of compliance with the 
policies or procedures may deteriorate.

In our opinion, Infinera Corporation maintained, in all material respects, effective internal control over 

financial reporting as of December 27, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight 

Board (United States), the consolidated balance sheets of Infinera Corporation as of December 27, 2014 and 
December 28, 2013, and the related consolidated statements of operations, comprehensive income (loss), 
stockholders’ equity and cash flows for each of the three years in the period ended December 27, 2014 of 
Infinera Corporation and our report dated February 18, 2015 expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP        

San Jose, California
February 18, 2015

54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INFINERA CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)

December 27,
2014

December 28,
2013

ASSETS

Current assets:

Cash and cash equivalents ........................................................................ $
Short-term investments ..............................................................................

86,495

$

239,628

Accounts receivable, net of allowance for doubtful accounts of $38 in
2014 and $43 in 2013 ................................................................................

Inventory ...................................................................................................

Prepaid expenses and other current assets ...............................................

Total current assets ............................................................................

Property, plant and equipment, net ...................................................................

Long-term investments .....................................................................................

Cost-method investment ...................................................................................

Long-term restricted cash .................................................................................

Other non-current assets ..................................................................................

154,596

146,500

24,636

651,855

81,566

59,233

14,500

5,460

5,402

124,330

172,660

100,643

123,685

17,752

539,070

79,668

64,419

9,000

3,904

4,865

Total assets ........................................................................................ $

818,016

$

700,926

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable ...................................................................................... $
Accrued expenses .....................................................................................

Accrued compensation and related benefits ..............................................

Accrued warranty .......................................................................................

Deferred revenue .......................................................................................

Total current liabilities .........................................................................

Long-term debt, net

...................................................................................

Accrued warranty, non-current ...................................................................

Deferred revenue, non-current ...................................................................

Other long-term liabilities ...........................................................................

Commitments and contingencies (Note 10)

Stockholders’ equity:

Preferred stock, $0.001 par value
Authorized shares—25,000 and no shares issued and outstanding ..........
Common stock, $0.001 par value
Authorized shares—500,000 in 2014 and 2013 
Issued and outstanding shares—126,160 in 2014 and 119,887 in 2013 ....
Additional paid-in capital ............................................................................

Accumulated other comprehensive loss ....................................................

Accumulated deficit

...................................................................................

Total stockholders’ equity ...........................................................................

61,533

$

26,441

38,795

12,241

35,321

174,331

116,894

14,799

10,758

19,327

—

126

39,843

22,431

33,899

12,374

32,402

140,949

109,164

10,534

4,888

17,581

—

120

1,077,225

1,025,661

(4,618)

(590,826)

481,907

(3,486)

(604,485)

417,810

700,926

Total liabilities and stockholders’ equity .............................................. $

818,016

$

The accompanying notes are an integral part of these consolidated financial statements.

55

INFINERA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Revenue:

Product ........................................................................... $
Services .........................................................................

Total revenue .................................................

Cost of revenue:

Cost of product ...............................................................

Cost of services ..............................................................

Total cost of revenue ......................................

Gross profit ............................................................................

Operating expenses:

Research and development ............................................

Sales and marketing .......................................................

General and administrative .............................................

Total operating expenses ...............................

Income (loss) from operations ...............................................

Other income (expense), net:

Interest income ...............................................................

Interest expense .............................................................

Other gain (loss), net ......................................................

Total other income (expense), net ..................

Income (loss) before income taxes ........................................

Provision for income taxes .....................................................

Net income (loss) ................................................................... $
Net income (loss) per common share:

572,276

$

465,424

$

380,035

95,803

668,079

340,856

38,919

379,775

288,304

133,484

79,026

48,452

260,962

27,342

1,456

(11,021)

(1,365)

(10,930)

16,412

2,753

78,698

544,122

295,715

29,768

325,483

218,639

124,794

72,778

45,253

242,825

(24,186)

923

(6,061)

(1,141)

(6,279)

(30,465)

1,654

58,402

438,437

259,437

21,431

280,868

157,569

117,233

75,862

47,475

240,570

(83,001)

911

—

(1,050)

(139)

(83,140)

2,190

13,659

$

(32,119) $

(85,330)

Basic .............................................................................. $
Diluted ............................................................................ $

0.11

0.11

$

$

(0.27) $

(0.27) $

(0.77)

(0.77)

Weighted average shares used in computing net income
(loss) per common share:

Basic ..............................................................................

Diluted ............................................................................

123,672

128,565

117,425

117,425

110,739

110,739

The accompanying notes are an integral part of these consolidated financial statements.

56

 
 
 
INFINERA CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Net income (loss) ..................................................................... $
Other comprehensive loss:

13,659

$

(32,119) $

(85,330)

Reclassification of realized gain on auction rate securities

Unrealized gain (loss) on all other available-for-sale
investments ......................................................................

Foreign currency translation adjustment ...........................

Tax effect on items related to available-for-sale
investment

........................................................................

—

(320)

(812)

—

(166)

(140)

(952)

—

Net change in accumulated other comprehensive loss ............

(1,132)

(1,258)

(141)

158

(43)

(7)

(33)

Comprehensive income (loss) .................................................. $

12,527

$

(33,377) $

(85,363)

The accompanying notes are an integral part of these consolidated financial statements.

57

 
 
 
INFINERA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 29, 2012, December 28, 2013 and December 27, 2014
(In thousands, except per share data)

Balance at December 31, 2011............

106,976

$

107

$

876,927

$

(2,195) $ (487,036) $ 387,803

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total

Stock options exercised..................

ESPP shares issued .......................

Shares withheld for tax obligations .

Restricted stock units released.......

Stock-based compensation ............

Comprehensive loss:

Unrealized gain on auction rate
securities classified as
available-for-sale investments...

Unrealized gain on all other
available-for-sale investments...

Foreign currency translation
adjustment ................................

Tax effect on items related to
available-for-sale investment ....

Net loss .....................................

Total comprehensive loss ............

Balance at December 29, 2012 ...........

Stock options exercised..................

ESPP shares issued .......................

Shares withheld for tax obligations .

Restricted stock units released.......

Warrants exercised.........................

Stock-based compensation ............

Conversion option related to
convertible senior notes, net of
allocated costs ................................
Comprehensive loss:

Unrealized gain on auction rate
securities classified as
available-for-sale investments...

Unrealized gain on all other
available-for-sale investments...

Foreign currency translation
adjustment ................................

Tax effect on items related to
available-for-sale investment ....

Net loss .....................................

Total comprehensive loss ...............

Balance at December 28, 2013 ...........

582

1,653

(128)

3,378

—

—

—

—

—

—

1

1

—

3

—

—

—

—

—

—

2,552

9,029

(882)

(3)

42,995

—

—

—

—

—

—

—

—

—

—

(141)

158

(43)

(7)

—

—

—

—

—

—

—

—

—

—

2,553

9,030

(882)

—

42,995

(141)

158

(43)

(7)

(85,330)

(85,330)

(85,363)

112,461

$

112

$

930,618

$

(2,228) $ (572,366) $ 356,136

2,217

1,656

(223)

3,754

22

—

—

—

—

—

—

—

2

2

—

4

—

—

—

—

—

—

—

—

14,616

8,557

(1,544)

(4)

—

30,077

43,341

—

—

—

—

—

—

—

—

—

—

—

—

(166)

(140)

(952)

—

—

—

—

—

—

—

—

—

—

—

—

—

14,618

8,559

(1,544)

—

—

30,077

43,341

(166)

(140)

(952)

—

(32,119)

(32,119)

(33,377)

119,887

$

120

$ 1,025,661

$

(3,486) $ (604,485) $ 417,810

The accompanying notes are an integral part of these consolidated financial statements.

58

 
 
 
INFINERA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 29, 2012, December 28, 2013 and December 27, 2014 —
(Continued)
(In thousands, except per share data)

Balance at December 28, 2013..................

119,887

$

120

$

1,025,661

$

(3,486) $

(604,485) $

417,810

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total

Stock options exercised ........................

ESPP shares issued .............................

Shares withheld for tax obligations .......

Restricted stock units released .............

Stock-based compensation ..................

Comprehensive income:

Unrealized loss on available-for-
sale investments .............................

Foreign currency translation
adjustment .......................................

Net income ......................................

Total comprehensive income ................

Balance at December 27, 2014..................

2,001

1,438

(217)

3,051

—

—

—

—

2

1

—

3

—

—

—

—

13,981

10,727

(1,846)

(3)

28,705

—

—

—

—

—

—

—

(320)

(812)

—

—

—

—

—

—

—

13,659

13,983

10,728

(1,846)

—

28,705

(320)

(812)

13,659

12,527

126,160

$

126

$

1,077,225

$

(4,618) $

(590,826) $

481,907

The accompanying notes are an integral part of these consolidated financial statements.

59

 
 
 
INFINERA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

December 27,
2014

Years Ended
December 28,
2013

December 29,
2012

13,659

$

(32,119) $

(85,330)

Cash Flows from Operating Activities:
Net income (loss) .......................................................................... $
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:

Depreciation and amortization .................................................
Amortization of debt discount and issuance costs ....................
Amortization of premium on investments .................................
Stock-based compensation expense .......................................
Other gain ................................................................................
Changes in assets and liabilities:

Accounts receivable ..........................................................
Inventory ...........................................................................
Prepaid expenses and other assets ..................................
Accounts payable .............................................................
Accrued liabilities and other expenses ..............................
Deferred revenue ..............................................................
Accrued warranty ..............................................................
Net cash provided by (used in) operating activities..

Cash Flows from Investing Activities:

Purchase of available-for-sale investments ..............................
Purchase of cost-method investment .......................................
Proceeds from sales of available-for-sale investments.............
Proceeds from maturities and calls of investments ..................
Purchase of property and equipment .......................................
Reimbursement of manufacturing capacity advance ................
Change in restricted cash ........................................................
Net cash provided by (used in) investing activities...

Cash Flows from Financing Activities:

Proceeds from issuance of debt, net ........................................
Proceeds from issuance of common stock ...............................
Minimum tax withholding paid on behalf of employees for net
share settlement

......................................................................

Net cash provided by financing activities .................
Effect of exchange rate changes on cash ................................
Net change in cash and cash equivalents ................................
Cash and cash equivalents at beginning of period ...................
Cash and cash equivalents at end of period ............................ $

25,917
8,395
3,772
28,394
(9)

(53,951)
(25,486)
(8,324)
18,810
11,866
8,788
4,132
35,963

(302,398)
(5,500)
28,481
208,051
(23,122)
—
(1,571)
(96,059)

—
24,707

(1,846)
22,861
(600)
(37,835)
124,330
86,495

24,562
4,522
1,539
31,976
(276)

6,341
(3,036)
(3,162)
(20,202)
11,272
7,337
6,426
35,180

(288,140)
—
2,850
125,624
(21,065)
—
(69)
(180,800)

144,469
23,185

(1,544)
166,110
(826)
19,664
104,666
124,330

2,135
1,320

$

$
$

$

$
$

23,661
—
2,068
41,819
(388)

(26,517)
(40,623)
6,140
15,410
6,915
3,763
3,616
(49,466)

(54,150)
—
11,584
117,605
(25,394)
50
(827)
48,868

—
11,580

(882)
10,698
108
10,208
94,458
104,666

923
—

275
3,222
—

Supplemental disclosures of cash flow information:

Cash paid for income taxes, net of refunds .............................. $
Cash paid for interest ............................................................... $

1,697
2,625

Supplemental schedule of non-cash financing activities

Non-cash settlement for manufacturing capacity advance ....... $
Transfer of inventory to fixed assets ......................................... $
Warrant exercise ...................................................................... $

2,569

— $
$
— $

— $
$
$

5,458
500

The accompanying notes are an integral part of these consolidated financial statements.

60

 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 

Organization and Basis of Presentation

Infinera Corporation (“Infinera” or the “Company”), headquartered in Sunnyvale, California, was founded 

in December 2000 and incorporated in the State of Delaware. Infinera provides optical transport networking 
equipment, software and services to Tier 1 and Tier 2 telecommunications service providers, Internet content 
providers (“ICPs”), cable operators, wholesale and enterprise carriers, research and education institutions, and 
government entities (collectively, “Service Providers”) across the globe. Optical transport networks are deployed 
by Service Providers facing significant demands for transmission capacity prompted by increased use of high-
speed Internet access, mobile broadband, high-definition video streaming services, business Ethernet services 
and cloud-based services.

Our technologies and platforms enable Service Providers to deliver vast amounts of bandwidth with 

greater ease. We leverage our unique large scale photonic integrated circuits (“PICs”) to deliver innovative 
optical networking solutions for the most demanding network environments. The Infinera Intelligent Transport 
Network is an architecture that enables Service Providers to automate, converge and scale their long-haul, 
subsea, data center and metro optical networks.

The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the 

last Saturday of December in each year. Accordingly, fiscal years 2014, 2013 and 2012 were 52-week years that 
ended on December 27, 2014, December 28, 2013 and December 29, 2012, respectively. The next 53-week 
year will end on December 31, 2016.

The consolidated financial statements include the accounts of the Company and its wholly-owned 
subsidiaries. All intercompany balances and transactions have been eliminated. The Company reclassified 
certain amounts reported in previous periods to conform to the current presentation. 

2. 

Significant Accounting Policies 

Use of Estimates

The consolidated financial statements are prepared in accordance with U.S. generally accepted 

accounting principles (“U.S. GAAP”). These accounting principles require the Company to make certain 
estimates, assumptions and judgments that can affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as 
the reported amounts of revenue and expenses during the periods presented. Significant estimates, assumptions 
and judgments made by management include revenue recognition, stock-based compensation, inventory 
valuation, accrued warranty, fair value measurement of investments and accounting for income taxes. Other 
estimates, assumptions and judgments made by management include allowances for sales returns, allowances 
for doubtful accounts, useful life of property, plant and equipment, fair value measurement of the liability 
component of the convertible senior notes, other-than-temporary impairments and derivative instruments. 
Management believes that the estimates and judgments upon which they rely are reasonable based upon 
information available to them at the time that these estimates and judgments are made. To the extent there are 
material differences between these estimates and actual results, the Company’s consolidated financial 
statements will be affected.

Revenue Recognition 

Substantially all of the Company's product sales are sold in combination with installation, deployment 

and software support services. Periodically, the Company's product sales are also sold with spares management, 
on-site hardware replacement services or training. Software support services, generally delivered over a one-
year period, are comprised of software warranty or software subscription service. Software warranty provides 
customers with maintenance releases during the warranty support period. Software subscription service includes 
software warranty and additionally provides customers with rights to receive unspecified software product 
upgrades released during the support period. 

Spares management and on-site hardware replacement services include the replacement of defective 
units at customer sites in accordance with specified service level agreements and are generally delivered over a 

61

 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

one-year period. Training services include the right to a specified number of instructor-led or web based training 
classes, and installation and deployment services may include customer site assessments, equipment 
installation and testing. These services are generally delivered over a 90-120 day period. Software warranty 
provides customers with maintenance releases and patches during the warranty support period. 

The Company recognizes product revenue when all of the following have occurred: (1) it has entered 
into a legally binding arrangement with the customer; (2) delivery has occurred, which is when product title and 
risk of loss have transferred to the customer; (3) customer payment is deemed fixed or determinable; and 
(4) collectability is reasonably assured.

The Company allocates revenue to each element in its multiple-element arrangements based upon their 

relative selling prices. The Company determines the selling price for each deliverable based on a selling price 
hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (“VSOE”) if 
available, third party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE 
nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition 
criteria for that element has been met.

VSOE of selling price is used in the selling price allocation in all instances where it exists. VSOE of 

selling price for products and services is determined when a substantial majority of the selling prices fall within a 
reasonable range when sold separately. In certain instances, the Company is not able to establish VSOE for all 
deliverables in an arrangement with multiple elements. This mainly occurs where insufficient standalone sales 
transactions have occurred or where pricing for that element has not been consistent.

TPE of selling price can be established by evaluating largely interchangeable competitor products or 
services in standalone sales to similarly situated customers. As the Company’s products contain a significant 
element of proprietary technology and the solution offered differs substantially from that of competitors, it is 
typically difficult to obtain the reliable standalone competitive pricing necessary to establish TPE.

ESP represents the best estimate of the price at which the Company would transact a sale if the 

product or service was sold on a standalone basis. The Company determines ESP for a product or service by 
considering multiple factors including, but not limited to market conditions, competitive landscape, gross margin 
objectives and pricing practices. The determination of ESP is made through formal approval by the Company’s 
management, taking into consideration the overall go-to-market pricing strategy.

As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the 
future, which could result in changes in selling prices, including both VSOE and ESP. As a result, the Company’s 
future revenue recognition for multiple element arrangements could differ from that recorded in the current 
period. The Company regularly reviews VSOE, TPE and ESP and maintains internal controls over the 
establishment and update of these inputs.

The Company limits the amount of revenue recognition for delivered elements to the amount that is not 

contingent on the future delivery of products or services, future performance obligations or subject to customer-
specified return or refund privileges. The Company evaluates each deliverable in an arrangement to determine 
whether they represent separate units of accounting.

The Company has a limited number of software offerings which are not required to deliver the tangible 
product’s essential functionality and can be sold separately. Revenue from sales of these software products and 
related post-contract support will continue to be accounted for under software revenue recognition rules. The 
Company’s multiple-element arrangements may therefore have a software deliverable that is subject to the 
existing software revenue recognition guidance. The revenue for these multiple-element arrangements is 
allocated to the software deliverable and the non-software deliverables based on the relative selling prices of all 
of the deliverables in the arrangement using the hierarchy in the new revenue recognition accounting guidance. 
Revenue related to these software offerings are not expected to be significant.

Services revenue includes software subscription services, installation and deployment services, spares 

management, on-site hardware replacement services, extended software warranty and extended hardware 
warranty services, and training. Revenue from software subscription, spares management, on-site hardware 
replacement services and extended software and hardware warranty contracts is deferred and is recognized 

62

 
 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ratably over the contractual support period, which is generally one year. Revenue related to training and 
installation and deployment services is recognized as the services are completed.

Contracts and customer purchase orders are generally used to determine the existence of an 
arrangement. In addition, shipping documents and customer acceptances, when applicable, are used to verify 
delivery and transfer of title. Revenue is recognized only when title and risk of loss pass to customers and when 
the revenue recognition criteria have been met. In instances where acceptance of the product occurs upon 
formal written acceptance, revenue is recognized only after such written acceptance has been received. The 
Company assesses whether the fee is fixed or determinable based on the payment terms associated with the 
transaction. Payment terms to customers generally range from net 30 to 120 days from invoice, which are 
considered to be standard payment terms. However, payment terms greater than 120 days but less than or equal 
to one year from invoice may be considered standard if payment is supported by an irrevocable commercial letter 
of credit (“LOC”) issued by a creditworthy bank or the LOC has been accepted and confirmed by a creditworthy 
bank. In the event payment terms are provided that differ from the Company’s standard business practices, the 
fees are deemed to not be fixed or determinable and, therefore, revenue is not recognized until the fees become 
fixed or determinable which the Company believes is when they are legally due and payable. The Company 
assesses its ability to collect from its customers based primarily on the creditworthiness and past payment 
history of the customer.

For sales to resellers, the same revenue recognition criteria apply. It is the Company’s practice to 

identify an end-user prior to shipment to a reseller. The Company does not offer rights of return or price 
protection to its resellers.

Shipping charges billed to customers are included in product revenue and related shipping costs are 

included in product cost. The Company reports revenue net of any required taxes collected from customers and 
remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the 
relevant government authority.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award, and 

is recognized as expense over the requisite service period (generally the vesting period) under the straight-line 
amortization method.

The Company estimates the fair value of the stock options granted using the Black-Scholes option 

pricing formula and a single option award approach. For new-hire grants, options typically vest with respect to 
25% of the shares one year after the option’s vesting commencement date and the remainder ratably on a 
monthly basis over three years, commencing one year after the vesting commencement date. For annual refresh 
grants, options typically vest ratably on a monthly basis over three years. 

The Company makes a number of estimates and assumptions in determining stock-based 

compensation related to options including the following:

• 

• 

• 

The expected forfeiture rate is estimated based on the Company’s historical forfeiture data and 
compensation costs are recognized only for those equity awards expected to vest. The estimation 
of the forfeiture rate requires judgment, and to the extent actual forfeitures differ from expectations, 
changes in estimate will be recorded as an adjustment in the period when such estimates are 
revised. Actual results may differ substantially from the estimates. The Company records stock-
based compensation expense to adjust estimated forfeiture rates to actual.

The expected term represents the weighted-average period that the stock options are expected to 
be outstanding prior to being exercised. The expected term is estimated based on the Company’s 
historical data on employee exercise patterns and post vesting termination behavior to estimate 
expected exercises over the contractual term of grants.

Expected volatility of the Company’s stock has been historically based on the weighted-average 
implied and historical volatility of Infinera and its peer group. The peer group is comprised of similar 
companies in the same industrial sector. As the Company gained more historical volatility data, the 

63

 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

weighting of its own data in the expected volatility calculation associated with options gradually 
increased to 100% by 2013.

The Company estimates the fair value of the rights to acquire stock under its Employee Stock Purchase 

Plan ("ESPP") using the Black-Scholes option pricing formula. The Company’s ESPP provides for consecutive 
six-month offering periods and the Company uses its own historical volatility data in the valuation of ESPP 
shares.

The Company accounts for the fair value of restricted stock units (“RSUs”) using the closing market 

price of the Company’s common stock on the date of grant. For new-hire grants, RSUs typically vest ratably on 
an annual basis over four years. For annual refresh grants, RSUs typically vest ratably on an annual basis over 
three years. 

The Company granted performance stock units ("PSUs") to its executives in 2013 and 2014 as part of 
the Company's annual refresh grant process. These PSUs entitle the Company's executive officers to receive a 
number of shares of the Company's common stock based on its stock price performance compared to a 
specified target composite index for the same period. The PSUs vest over the span of one year, two years and 
three years, and the number of shares to be issued upon vesting ranges from 0 to 1.5 times the number of PSUs 
granted depending on the relative performance of the Company's common stock price compared to the targeted 
composite index. This performance metric is classified as a market condition.

The Company uses the Monte Carlo simulation model to determine the fair value of PSUs on the date 
of grant. The Monte Carlo simulation model is based on a discounted cash flow approach, with the simulation of 
a large number of possible stock price outcomes for the Company's stock and the target composite index. The 
use of the Monte Carlo simulation model requires the input of a number of assumptions including expected 
volatility of the Company's stock price, expected volatility of target composite index, correlation between changes 
in the Company's stock price and changes in the target composite index, risk-free interest rate, and expected 
dividends as applicable. Expected volatility of the Company's stock is based on the weighted-average historical 
volatility of its stock. Expected volatility of target composite index is based on the historical and implied data. 
Correlation is based on the historical relationship between the Company's stock price and the target composite 
index average. The risk-free interest rate is based upon the treasury zero-coupon yield appropriate for the term 
of the PSU as of the grant date. The expected dividend yield is zero for the Company as it does not expect to 
pay dividends in the future. The expected dividend yield for the target composite index is the annual dividend 
yield expressed as a percentage of the composite average of the target composite index on the grant date.

In 2012, the Company granted PSUs with performance conditions and estimated the fair value using the 

closing market price of the Company’s common stock on the date of grant. These PSUs entitle the Company’s 
executive officers to receive a number of shares of the Company’s common stock based on pre-established 
performance criteria over approximately two and a half years. The PSUs cliff vest at 50% upon achievement of 
specific revenue criteria and 50% will cliff vest upon achievement of specific operating profit criteria. This 
performance metric is classified as a performance condition.

Research and Development

All costs to develop the Company’s hardware products are expensed as incurred. Software 

development costs are capitalized beginning when a product’s technological feasibility has been established and 
ending when a product is available for general release to customers. Generally, the Company’s software 
products are released soon after technological feasibility has been established. As a result, costs subsequent to 
achieving technological feasibility have not been significant and all software development costs have been 
expensed as incurred.

Advertising

All advertising costs are expensed as incurred. Advertising expenses in 2014, 2013 and 2012 were $1.5 

million, $1.3 million and $1.6 million, respectively.

64

 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting for Income Taxes

As part of the process of preparing the Company’s consolidated financial statements, the Company is 

required to estimate its taxes in each of the jurisdictions in which it operates. The Company estimates actual 
current tax expense together with assessing temporary differences resulting from different treatment of items, 
such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred 
tax assets and liabilities, which are included in the Company’s consolidated balance sheets. In general, deferred 
tax assets represent future tax benefits to be received when certain expenses previously recognized in the 
Company’s consolidated statements of operations become deductible expenses under applicable income tax 
laws or loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is 
dependent on future taxable income within the respective jurisdictions against which these deductions, losses 
and credits can be utilized within the applicable future periods.

The Company must assess the likelihood that some portion or all of its deferred tax assets will be 

recovered from future taxable income within the respective jurisdictions, and to the extent the Company believes 
that recovery does not meet the “more-likely-than-not” standard, the Company must establish a valuation 
allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable 
income during the periods in which those temporary differences become deductible. Management judgment is 
required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and 
liabilities and any valuation allowance recorded against its net deferred tax assets. At December 27, 2014 and 
December 28, 2013, the Company’s domestic net deferred tax assets were fully reserved with a valuation 
allowance because, based on the available evidence, the Company believed at that time it was more likely than 
not that it would not be able to utilize those deferred tax assets in the future. The Company intends to maintain a 
valuation allowance until sufficient evidence exists to support the reversal of the valuation allowance. The 
Company makes estimates and judgments about its future taxable income, by jurisdiction, based on assumptions 
that are consistent with its plans and estimates. Should the actual amounts differ from the Company’s estimates, 
the amount of its valuation allowance could be materially impacted.

Foreign Currency Translation and Transactions

The Company considers the functional currencies of its foreign subsidiaries to be the local currency. 

Assets and liabilities recorded in foreign currencies are translated at the exchange rate as of the balance sheet 
date, and costs and expenses are translated at average exchange rates in effect during the period. Equity 
transactions are translated using historical exchange rates. The effects of foreign currency translation 
adjustments are recorded as a separate component of Accumulated Comprehensive Loss in the accompanying 
consolidated balance sheets.

For all non-functional currency account balances, the re-measurement of such balances to the 

functional currency will result in either a foreign exchange transaction gain or loss which is recorded to Other 
gain (loss), net in the same period that the re-measurement occurred. Aggregate foreign exchange transaction 
loss recorded in 2014, 2013 and 2012 were $1.4 million, $1.4 million and $1.6 million, respectively. 

The Company entered into foreign currency exchange forward contracts to reduce the impact of foreign 
exchange fluctuations on earnings from accounts receivable balances denominated in euros and British pounds, 
and restricted cash denominated in euros.

Cash, Cash Equivalents and Short-term and Long-term Investments

The Company considers all highly liquid instruments with an original maturity at the date of purchase of 

90 days or less to be cash equivalents. These instruments may include cash, money market funds and 
commercial paper. The Company maintains its cash in bank deposit accounts which, at times, may exceed 
federally insured limits. The Company has not experienced any losses in such accounts.

Cash, cash equivalents and short-term investments consist of highly-liquid investments in certificates of 
deposits, money market funds, commercial paper, corporate bonds and U.S. treasuries. Long-term investments 
primarily consist of corporate bonds. The Company considers all debt instruments with original maturities at the 
date of purchase greater than 90 days and remaining time to maturity of one year or less to be short-term 
investments. The Company classifies debt instruments with remaining maturities greater than one year as long-

65

 
 
 
 
 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

term investments, unless the Company intends to settle its holdings within one year or less and in such case it is 
considered to be short-term investments. The Company determines the appropriate classification of its 
marketable securities at the time of purchase and re-evaluates such designations as of each balance sheet date.

Available-for-sale investments are stated at fair market value with unrealized gains and losses recorded 

in Accumulated other comprehensive loss in the Company’s consolidated balance sheets. The Company 
evaluates its available-for-sale marketable debt securities for other-than-temporary impairments and records any 
credit loss portion in Other income (expense), net in the Company’s consolidated statements of operations. The 
amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity 
and for any credit losses incurred on these securities. Gains and losses are recognized when realized in the 
Company’s consolidated statements of operations under the specific identification method.

Fair Value Measurement of Investments

Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair 

value is defined as the price that would be received from selling an asset or paid to transfer a liability in an 
orderly transaction between market participants at the measurement date. When determining the fair value 
measurements for assets and liabilities required or permitted to be recorded at fair value, the Company 
considers the principal or most advantageous market in which it would transact and it considers assumptions that 
market participants would use when pricing the asset or liability.

Valuation techniques used by the Company are based upon observable and unobservable inputs. 

Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs 
reflect the Company’s assumptions about market participant assumptions based on the best information 
available. Observable inputs are the preferred source of values. These two types of inputs create the following 
fair value hierarchy:

Level 1

– Quoted prices in active markets for identical assets or liabilities.

Level 2

– Quoted prices for similar instruments in active markets, quoted prices for identical or similar

instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.

Level 3

–

Prices or valuations that require management inputs that are both significant to the fair value
measurement and unobservable.

The Company measures its cash equivalents, foreign currency exchange forward contracts and debt 
securities at fair value and classifies its securities in accordance with the fair value hierarchy. The Company’s 
money market funds and U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued 
based on quoted prices in active markets for identical securities.

The Company classifies its certificates of deposit, commercial paper, corporate bonds and foreign 

currency exchange forward contracts within Level 2 of the fair value hierarchy as follows:

Certificates of Deposit

The Company reviews market pricing and other observable market inputs for the same or 

similar securities obtained from a number of industry standard data providers. In the event that a 
transaction is observed for the same or similar security in the marketplace, the price on that transaction 
reflects the market price and fair value on that day. In the absence of any observable market 
transactions for a particular security, the fair market value at period end would be equal to the par value. 
These inputs represent quoted prices for similar assets or these inputs have been derived from 
observable market data.

Commercial Paper

The Company reviews market pricing and other observable market inputs for the same or 

similar securities obtained from a number of industry standard data providers. In the event that a 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

transaction is observed for the same or similar security in the marketplace, the price on that transaction 
reflects the market price and fair value on that day and then follows a revised accretion schedule to 
determine the fair market value at period end. In the absence of any observable market transactions for 
a particular security, the fair market value at period end is derived by accreting from the last observable 
market price. These inputs represent quoted prices for similar assets or these inputs have been derived 
from observable market data accreted mathematically to par.

Corporate Bonds

The Company reviews trading activity and pricing for each of the corporate bond securities in 

its portfolio as of the measurement date and determines if pricing data of sufficient frequency and 
volume in an active market exists in order to support Level 1 classification of these securities. If 
sufficient quoted pricing for identical securities is not available, the Company obtains market pricing and 
other observable market inputs for similar securities from a number of industry standard data providers. 
In instances where multiple prices exist for similar securities, these prices are used as inputs into a 
distribution-curve to determine the fair market value at period end. 

Foreign Currency Exchange Forward Contracts

As discussed in Note 5, "Derivative Instruments," to the Notes to Condensed Consolidated 

Financial Statements, the Company mainly holds non-speculative foreign exchange forward contracts to 
hedge certain foreign currency exchange exposures. The Company estimates the fair values of 
derivatives based on quoted market prices or pricing models using current market rates. Where 
applicable, these models project future cash flows and discount the future amounts to a present value 
using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, 
and forward and spot prices for currencies. 

The Company classified its auction rate securities ("ARS") within Level 3 of the fair value hierarchy. The 

Company’s ARS were classified within Level 3 because they were valued, in part, by using inputs that were 
unobservable in the market and were significant to the valuation. During 2013, the Company disposed of its 
remaining ARS. As of December 27, 2014, none of the Company’s existing securities were classified as Level 3 
securities.

Other-Than-Temporary Impairments

The Company reviews its available-for-sale marketable debt securities on a regular basis to evaluate 

whether or not a security has experienced an other-than-temporary decline in fair value. If a debt security’s 
market value is below amortized cost and the Company either intends to sell the security or it is more likely than 
not that the Company will be required to sell the security before its anticipated recovery, the Company records an 
other-than-temporary impairment (“OTTI”) charge to earnings for the entire amount of the impairment.

When the Company does not intend to sell an impaired security and it is not more likely than not that 
the Company will be required to sell prior to recovery of its amortized cost basis, the Company separates the 
OTTI into credit and non-credit loss portions. The amount representing the credit loss is recognized in Other 
income (expense), net, and the amount related to all other factors is recognized in Accumulated other 
comprehensive loss.

In determining if a credit loss has occurred, it is the Company’s policy to isolate the credit loss related 

portion of the discount rate used to derive the fair market value of the security and apply this to the expected 
cash flows in order to determine the portion of the OTTI that is credit loss related. This credit related portion of 
the discount rate is based on the financial condition of the issuer, changes in rating agency credit ratings for the 
security or increases in credit related yield spreads on similar securities offered by the same issuer.

Once a credit impairment loss has been recognized in the Company’s consolidated statements of 

operations, the amortized cost basis of that available-for-sale security is reduced by the amount of the credit 
impairment loss, resulting in a new cost basis for the security. Any non-credit related unrealized gains and losses 
are recorded in Accumulated other comprehensive loss in the Company’s consolidated balance sheets. The 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company will continue to monitor the security’s credit rating and credit spread and will accrete any reduction in 
the credit impairment loss to interest income over the expected life of the security.

Accounts Receivable and Allowances for Doubtful Accounts

Accounts receivable consist of trade receivables recorded upon recognition of revenue for product and 
services, reduced by reserves for estimated bad debts. Trade accounts receivable are recorded at the invoiced 
amount and do not bear interest. Credit is extended based on evaluation of the customer’s financial condition. 
Management makes judgments as to its ability to collect outstanding receivables and provides allowances for a 
portion of receivables when collection becomes doubtful. Provisions are made based upon a review of all 
significant outstanding invoices.

Allowances for Sales Returns

Customer product returns are approved on a case by case basis. Specific reserve provisions are made 

based upon a specific review of all the approved product returns where the customer has yet to return the 
products to generate the related sales return credit at the end of a period. Estimated sales returns are provided 
for as a reduction to revenue in 2014, 2013 and 2012. At December 27, 2014, December 28, 2013 and 
December 29, 2012, revenue was reduced for estimated sales returns by $0.2 million, $0.1 million and $1.3 
million, respectively.

Concentration of Risk

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash 

equivalents, short-term investments, long-term investments, cost-method investments and accounts receivable. 
Investment policies have been implemented that limit investments to investment-grade securities.

As of December 27, 2014 and December 28, 2013, the Company has invested $14.5 million and $9.0 
million in a privately-held company. This investment has been accounted for as a cost-basis investment, as the 
Company owns less than 20% of the voting securities and does not have the ability to exercise significant 
influence over operating and financial policies of the entity. See Note 4, “Cost-method Investment,” to the Notes 
to Consolidated Financial Statements for more information.

The risk with respect to accounts receivable is mitigated by ongoing credit evaluations that the 

Company performs on its customers. As the Company expands its sales internationally, it may experience 
increased levels of customer credit risk associated with those regions. Collateral is generally not required for 
accounts receivable but may be used in the future to mitigate credit risk associated with customers located in 
certain geographical regions.

As of December 27, 2014, one customer accounted for approximately 13% of the Company’s accounts 

receivable balance. As of December 28, 2013, one customer accounted for approximately 13% of the Company’s 
accounts receivable balance.

To date, a few of the Company’s customers have accounted for a significant portion of its revenue. One 

customer accounted for over 10% of total revenue in 2014. Revenue from this customer was 19% of total 
revenue in 2014. No individual customer accounted for over 10% of the Company’s revenue in 2013 or 2012.

The Company depends on a single or limited number of suppliers for components and raw materials. 
The Company generally purchases these single or limited source components and materials through standard 
purchase orders and does not have long-term contracts with many of these limited-source suppliers. While the 
Company seeks to maintain sufficient reserve stock of such components and materials, the Company’s business 
and results of operations could be adversely affected by a stoppage or delay in receiving such components and 
materials, the receipt of defective parts, an increase in the price of such components and materials or the 
Company’s inability to obtain reduced pricing from its suppliers in response to competitive pressures.

Derivative Instruments

The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its 

business. As part of its risk management strategy, the Company uses derivative instruments, specifically forward 
68

 
 
 
 
 
 
 
 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

contracts, to reduce the impact of foreign exchange fluctuations on earnings. The forward contracts are with one 
high-quality institution and the Company monitors the creditworthiness of the counter party consistently. The 
Company’s objective is to offset gains and losses resulting from these exposures with gains and losses on the 
derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of 
assets. None of the Company’s derivative instruments contain credit-risk related contingent features, any rights 
to reclaim cash collateral or any obligation to return cash collateral. The Company does not have any leveraged 
derivatives. The Company does not use derivative contracts for trading or speculative purposes.

The Company enters into foreign currency exchange forward contracts to manage its exposure to 

fluctuations in foreign exchange rates that arise primarily from its euro and British pound denominated 
receivables and euro denominated restricted cash balance amounts that are pledged as collateral for certain 
stand-by letters of credit. Gains and losses on these contracts are intended to offset the impact of foreign 
exchange rate changes on the underlying foreign currency denominated accounts receivables and restricted 
cash, and therefore, do not subject the Company to material balance sheet risk. The forward contracts are with 
one high-quality institution and the Company consistently monitors the creditworthiness of the counterparty. The 
forward contracts entered into during 2014 were denominated in euros and British pounds, and typically had 
maturities of no more than 35 days. The contracts are settled for U.S. dollars at maturity at rates agreed to at 
inception of the contracts.

Inventory Valuation

Inventories consist of raw materials, work-in-process and finished goods and are stated at standard cost 
adjusted to approximate the lower of actual cost (first-in, first-out method) or market. Market value is based upon 
an estimated selling price reduced by the estimated cost of disposal. The determination of market value involves 
numerous judgments including estimated average selling prices based upon recent sales volumes, industry 
trends, existing customer orders, current contract price, future demand and pricing and technological 
obsolescence of the Company’s products.

Inventory that is obsolete or in excess of the Company’s forecasted demand or is anticipated to be sold 
at a loss is written down to its estimated net realizable value based on historical usage and expected demand. In 
valuing its inventory costs and deferred inventory costs, the Company considered whether the utility of the 
products delivered or expected to be delivered at less than cost, primarily comprised of common equipment, had 
declined. The Company concluded that, in the instances where the utility of the products delivered or expected to 
be delivered was less than cost, it was appropriate to value the inventory costs and deferred inventory costs at 
cost or market, whichever is lower, thereby recognizing the cost of the reduction in utility in the period in which 
the reduction occurred or can be reasonably estimated. The Company has, therefore, recognized inventory write-
downs as necessary in each period in order to reflect inventory at the lower of cost or market (“LCM”). 

The Company considers whether it should accrue losses on firm purchase commitments related to 

inventory items. Given that the net realizable value of common equipment is below contractual purchase price, 
the Company has also recorded losses on these firm purchase commitments in the period in which the 
commitment is made. When the inventory parts related to these firm purchase commitments are received, that 
inventory is recorded at the purchase price less the accrual for the loss on the purchase commitment.

Deferred Inventory Costs

When the Company’s products have been delivered and ownership (typically defined as title and risk of 

loss) has transferred to the customer, but the product revenue associated with the arrangement has been 
deferred as a result of not meeting the revenue recognition criteria, the Company also defers the related 
inventory costs for the delivered items and recognizes the inventory costs either ratably or when the related 
revenue meets the revenue recognition criteria.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. This includes enterprise-level business software that 

the Company customizes to meets its specific operational needs. Depreciation is calculated using the straight-
line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized 
using the straight-line method over the shorter of the lease term or estimated useful life of the asset. An 
assumption of lease renewal where a renewal option exists is used only when the renewal has been determined 
to be reasonably assured. Repair and maintenance costs are expensed as incurred. The estimated useful life for 
each asset category is as follows: 

Laboratory and manufacturing equipment ...................................................................

Furniture and fixtures ..................................................................................................

Computer hardware and software ...............................................................................

Leasehold improvements ............................................................................................

Estimated Useful Lives

1.5 to 10 years

3 to 5 years

1.5 to 7 years

1 to 10 years

The Company regularly reviews long-lived assets for impairment whenever events or changes in 

circumstances indicate that the carrying amount of these assets may not be recoverable or that the useful life is 
shorter than originally estimated. If impairment indicators are present and the projected future undiscounted cash 
flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value. If 
assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the carrying 
value of the assets is depreciated over the newly determined remaining useful lives.

Accrued Warranty

The Company warrants that its products will operate substantially in conformity with product 
specifications. Upon delivery of the Company's products, we provide for the estimated cost to repair or replace 
products that may be returned under warranty. The Company's hardware warranty periods range from one to five 
years from date of acceptance for hardware and 90 days for software warranty. The hardware warranty accrual is 
based on actual historical returns and cost of repair experience and the application of those historical rates to the 
Company's in-warranty installed base. The provision for warranty claims fluctuates depending upon the installed 
base of products and the failure rates and costs of repair associated with these products under warranty. 
Furthermore, the Company's costs of repair vary based on repair volume and its ability to repair, rather than 
replace, defective units.  In the event that actual product failure rates and costs to repair differ from the 
Company's estimates, revisions to the warranty provision are required. Consequently, the Company regularly 
assesses the adequacy of its warranty liabilities and adjusts the amounts as necessary. In addition, the Company 
has software warranty support obligations and the costs associated with providing these software warranties 
have been insignificant to the Company's consolidated financial statements to date.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 

2013-11, "Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry 
Forward, a Similar Tax Loss, or a Tax Credit Carry Forwards Exists" ("ASU 2013-11"). ASU 2013-11 requires 
entities to present the unrecognized tax benefits in the financial statements as a reduction to a deferred tax asset 
for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. ASU 2013-11 is effective for 
annual and interim periods for fiscal years beginning on or after December 15, 2013. The Company's adoption of 
ASU 2013-11 during the first quarter of 2014 had no impact on the Company’s financial position, results of 
operations or cash flow.  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In May 2014, the FASB issued Accounting Standards Update 2014-09, "Revenue from Contracts from 

Customers" ("ASU 2014-09"). ASU 2014-09 provides a single comprehensive model for entities to use in 
accounting for revenue arising from contracts with customers and supersedes most current revenue recognition 
guidance, including industry-specific guidance. ASU 2014-09 will require an entity to recognize revenue when it 
transfers promised goods or services to customers in an amount that reflects the consideration to which the 
entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that 
requires entities to exercise judgment when considering the terms of the contract(s), which include (i) identifying 
the contract(s) with the customer; (ii) identifying the separate performance obligations in the contract; (iii) 
determining the transaction price; (iv) allocating the transaction price to the separate performance obligations; 
and (v) recognizing revenue when each performance obligation is satisfied. ASU 2014-09 will be effective for the 
Company’s first quarter of 2017. The Company has the option to apply the provisions of ASU 2014-09 either 
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of applying 
this ASU recognized at the date of initial application. Early adoption is not permitted. The Company is currently 
evaluating the method and impact the adoption of ASU 2014-09 will have on the Company's consolidated 
financial statements. 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Accounting for Share-

Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the 
Requisite Service Period" ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting 
and could be achieved after the requisite service period be treated as a performance condition. A reporting entity 
should apply existing guidance in Accounting Standard Codification ("ASC") 718, "Compensation—Stock 
Compensation" ("ASC 718"), as it relates to such awards. ASU 2014-12 will be effective for the Company's first 
quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards 
granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are 
outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new 
or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the 
opening retained earnings balance as of the beginning of the earliest annual period presented in the financial 
statements. The Company is currently evaluating the impact of the pending adoption of ASU 2014-12 on the 
Company's consolidated financial statements. 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Disclosure of 
Uncertainties about an Entity’s Ability to Continue as a Going Concern" ("ASU 2014-15"). ASU 2014-15 provides 
guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s 
ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for 
the Company in its fourth quarter of fiscal 2017 with early adoption permitted. The Company is currently 
evaluating the impact of the pending adoption of ASU 2014-15 on its consolidated financial statements.  

In January 2015, the FASB issued Accounting Standards Update 2015-01, "Income Statement - 

Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating 
the Concept of Extraordinary Items" (“ASU 2015-01”). ASU 2015-01 eliminates the concept of an extraordinary 
item from GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results 
of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after 
income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an 
extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that 
are unusual in nature and occur infrequently. ASU 2015-01 will be effective for the Company in its first quarter of 
fiscal 2017. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s 
consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update 2015-02, "Consolidation (Topic 10): 

Amendments to the Consolidation Analysis" (“ASU 2015-02”). ASU 2015-02 provides guidance on the 
consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate 
certain legal entities. In accordance with ASU 2015-02, all legal entities are subject to reevaluation under the 
revised consolidation model. ASU 2015-02 will be effective for the Company in its first quarter of fiscal 2016. The 
Company is currently evaluating the impact of the pending adoption of ASU 2015-02 on its consolidated financial 
statements.”

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INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. 

Fair Value Measurements and Other-Than-Temporary Impairments

Fair Value Measurements

The following tables represent the Company’s fair value hierarchy for its marketable securities 

measured at fair value on a recurring basis (in thousands): 

As of December 27, 2014

Fair Value Measured Using

As of December 28, 2013

Fair Value Measured Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets

Money market funds ... $21,478
Certificates of deposit .

—

Commercial paper ......

Corporate bonds .........

$

— $ — $ 21,478

$51,749

$

— $ — $ 51,749

8,060

—

46,072

—

—

8,060

46,072

—

—

3,840

85,860

—

—

3,840

85,860

— 235,285

— 235,285

— 150,595

— 150,595

U.S. treasuries ............

14,810

—

—

14,810

4,804

—

—

4,804

Foreign currency
exchange forward
contracts ..................... $

— $

— $ — $

— $

— $

29

$ — $

29

Total assets ......... $36,288

$289,417

$ — $325,705

$56,553

$240,324

$ — $296,877

Liabilities

Foreign currency
exchange forward
contracts ..................... $

— $

(64) $ — $

(64) $

— $

(26) $ — $

(26)

During 2014 and 2013, there were no transfers of assets or liabilities between Level 1 and Level 2 and 

there were no transfers into or out of Level 3 financial assets.

During 2013, the Company disposed of its remaining $3.1 million (par value) of ARS, with $0.1 million of 

ARS called at par value and $3.0 million of ARS tendered at 95% of par value. The following table presents a 
reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant 
unobservable inputs (in thousands):

December 29,
2012

Total Net Gains
Included in Other
Comprehensive Income

Calls

Sold

December 28,
2013

ARS—available-for-sale .... $

2,873

$

— $

(92) (1)

$ (2,781) (2) $

—

(1)  Amount represents the fair market value of the securities called. Realized gains on these calls were not 

significant in 2013.

(2)  Amount represents the fair market value of the securities sold at 95% par value. Realized gains for 2013 

were $0.2 million.

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INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investments were as follows (in thousands): 

December 27, 2014

Adjusted
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

21,478

$

— $

— $

Money market funds ..................................... $
Certificates of deposit ...................................

Commercial paper ........................................

Corporate bonds ..........................................

U.S. treasuries .............................................

8,060

46,073

235,713

14,825

—

(1)

(430)

(16)

21,478

8,060

46,072

235,285

14,810

—

—

2

1

3

Total available-for-sale investments ...... $

326,149

$

$

(447) $

325,705

December 28, 2013

Adjusted
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Money market funds .................................... $
Certificates of deposit ..................................

Commercial paper .......................................

Corporate bonds ..........................................

U.S. treasuries .............................................

51,749

$

— $

— $

3,840

85,870

150,711

4,802

—

2

27

2

—

(12)

(143)

—

51,749

3,840

85,860

150,595

4,804

Total available-for-sale investments...... $

296,972

$

31

$

(155) $

296,848

As of December 27, 2014, the Company’s available-for-sale investments in certificates of deposit, 

commercial paper, corporate bonds and U.S. treasuries have a contractual maturity term of up to 18 months. 
Proceeds from sales, maturities and calls of available-for-sale investments were $236.5 million, $128.5 million 
and $129.2 million in 2014, 2013 and 2012, respectively. Gross realized gains (losses) on short-term and long-
term investments were insignificant for these periods. The specific identification method is used to account for 
gains and losses on available-for-sale investments.

Other-Than-Temporary Impairments

As a result of the Company’s disposal of $3.1 million of ARS (par value) during 2013, it recorded an 

approximately $0.2 million gain, which was recognized as Other gain (loss) in the Company’s consolidated 
statements of operations. There were no other-than-temporary impairments during 2014.

A roll-forward of amortized cost, cumulative OTTI recognized in earnings and Accumulated other 

comprehensive loss is as follows (in thousands): 

Amortized
Cost

Cumulative
OTTI in
Earnings

Unrealized
Gain

OTTI Loss in
Accumulated
Other
Comprehensive
Loss

Accumulated
Other
Comprehensive
Income (Loss)

Balance at December 29, 2012... $
Call on investments ....................

Investments sold .........................

2,707

$

(394)

$

784

$

(618) $

(87)

(2,620)

13

381

(25)

(759)

20

598

Balance at December 28, 2013... $

— $

— $

— $

— $

166

(5)

(161)

—

73

 
 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. 

Cost-method Investment

As of December 27, 2014 and December 28, 2013, the Company’s investment in a privately-held 
company was $14.5 million and $9.0 million, respectively. This investment is accounted for as a cost-basis 
investment as the Company owns less than 20% of the voting securities and does not have the ability to exercise 
significant influence over operating and financial policies of the entity. The Company’s investment is in an entity 
that is not publicly traded and, therefore, no established market for the securities exists. The Company’s 
investment is carried at historical cost in its consolidated financial statements and will be measured at fair value 
on a nonrecurring basis if indicators of impairment exist in the future. If the Company believes that the carrying 
value of the cost basis investment is in excess of estimated fair value, the Company’s policy is to record an 
impairment charge in Other income (expense), net in the accompanying consolidated statements of operations to 
adjust the carrying value to estimated fair value, when the impairment is deemed other-than-temporary. The 
Company regularly evaluates the carrying value of this cost-method investment for impairment. As of December 
27, 2014 and December 28, 2013, no event had occurred that would be considered an indicator of impairment, 
therefore, the fair value of the cost-method investment is not estimated. The Company did not record any 
impairment charges for this cost-method investment during 2014, 2013 and 2012.

5. 

Derivative Instruments

Foreign Currency Exchange Forward Contracts

As of December 27, 2014, the Company did not designate foreign currency exchange forward contracts 

related to euro and British pound denominated receivables and restricted cash as hedges for accounting 
purposes, and, accordingly, changes in the fair value of these instruments are included in Other gain (loss), net 
in the accompanying consolidated statements of operations. The before-tax effect of foreign currency exchange 
forward contracts for euro and British pound denominated receivables and restricted cash not designated as 
hedging instruments was a gain of $1.6 million for 2014, a loss of $2.2 million for 2013, and a gain of $1.4 million 
in 2012, included in Other gain (loss), net in the consolidated statements of operations.

The fair value of derivative instruments not designated as hedging instruments in the Company’s 

consolidated balance sheets was as follows (in thousands): 

As of December 27, 2014

As of December 28, 2013

Gross
Notional

(1)

Prepaid
Expenses
and Other
Assets

Other
Accrued
Liabilities

Gross
Notional

(1)

Prepaid
Expenses
and Other
Assets

Other
Accrued
Liabilities

Foreign currency exchange
forward contracts ...................

Related to euro
denominated
receivables ..................... $
Related to British pound
denominated
receivables ..................... $
Related to restricted
cash ............................... $
Total ........................

34,445

$

— $

(53) $

16,867

$

27

$

—

2,678

1,236

$

$

$

— $

(9) $

13,271

— $

— $

(2) $

1,391

(64)

$

$

$

— $

2

29

$

$

(26)

—

(26)

(1)  Represents the face amounts of forward contracts that were outstanding as of the period noted.

6. 

Balance Sheet Details

Restricted Cash

The Company’s long-term restricted cash balance is primarily comprised of certificates of deposit, of 

which the majority is not insured by the Federal Deposit Insurance Corporation. These amounts primarily 
collateralize the Company’s issuances of stand-by and commercial letters of credit. Additionally, the Company’s 
74

 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

restricted cash balance includes a leave encashment fund for India employees and a corporate bank card 
deposit for employees in the United Kingdom.

The following table provides details of selected balance sheet items (in thousands):

December 27,
2014

December 28,
2013

Inventory:

Raw materials ............................................................................................ $
Work in process .........................................................................................

Finished goods(1)
Total(2)

......................................................................................

................................................................................................. $

Property, plant and equipment, net:

Computer hardware ................................................................................... $
Computer software(3)
.................................................................................
Laboratory and manufacturing equipment .................................................

Furniture and fixtures .................................................................................

Leasehold improvements ...........................................................................

Construction in progress ............................................................................

15,169

$

50,046

81,285

14,311

49,172

60,202

146,500

$

123,685

8,785

$

17,684

162,004

1,340

37,825

14,726

9,692

16,988

146,834

1,347

35,913

8,950

Subtotal

.............................................................................................. $

242,364

$

219,724

Less accumulated depreciation and amortization(4) ...................................

(160,798)

(140,056)

Total

................................................................................................... $

81,566

$

79,668

Accrued expenses:

Loss contingency related to non-cancelable purchase commitments......... $
Professional and other consulting fees ......................................................

Taxes payable ...........................................................................................

Royalties ...................................................................................................

Accrued rebate and customer prepay liability ............................................

Accrued interest on convertible senior notes .............................................

Other accrued expenses ............................................................................

5,390

$

1,831

3,993

2,648

941

219

11,419

5,120

1,411

2,372

1,540

3,807

219

7,962

Total

................................................................................................... $

26,441

$

22,431

(1) 

Included in finished goods inventory at December 27, 2014 and December 28, 2013 were $10.2 million 
and $9.2 million, respectively, of inventory at customer locations for which product acceptance had not 
occurred.

(2)  As of December 27, 2014 and December 28, 2013, the Company’s inventory value had been reduced by 
$10.1 million and $8.7 million, respectively, for excess and obsolescence, and $7.1 million and $5.0 
million, respectively, for LCM adjustments.

(3) 

Included in computer software at December 27, 2014 and December 28, 2013 were $7.9 million and $7.9 
million, respectively, related to an enterprise resource planning (“ERP”) system that the Company 
implemented during 2012. The unamortized ERP costs at December 27, 2014 and December 28, 2013 
were $5.2 million and $6.3 million, respectively.

(4)  Depreciation expense was $25.9 million, $24.5 million and $23.5 million (which includes depreciation of 

capitalized ERP costs of $1.1 million, $1.1 million and $0.4 million, respectively) for 2014, 2013 and 2012, 
respectively.

75

 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. 

Comprehensive Loss

Other comprehensive loss includes certain changes in equity that are excluded from net loss. The 

following table sets forth the changes in accumulated other comprehensive loss by component for the periods 
presented (in thousands): 

Unrealized 
Gain (Loss)
on Auction 
Rate    
Securities

Unrealized 
Gain (Loss)
on Other
Available-
for-Sale
Securities

Foreign
Currency
Translation     

Accumulated     

Tax Effect

Total        

Balance at December 31, 2011.................. $

307

$

(142) $

(1,607) $

(753) $ (2,195)

Other comprehensive loss before
reclassifications ..................................

Amounts reclassified from
accumulated other comprehensive
loss .....................................................

Net current-period other comprehensive
loss ............................................................

—

(141)

(141)

158

—

158

(43)

—

(43)

(7)

108

—

(7)

(141)

(33)

Balance at December 29, 2012.................. $

166

$

16

$

(1,650) $

(760) $ (2,228)

Other comprehensive loss before
reclassifications ..................................

Amounts reclassified from
accumulated other comprehensive
loss .....................................................

Net current-period other comprehensive
loss ............................................................

—

(140)

(952)

—

(1,092)

(166)

(166)

—

—

(140)

(952)

—

—

(166)

(1,258)

Balance at December 28, 2013.................. $

— $

(124) $

(2,602) $

(760) $ (3,486)

Other comprehensive loss before
reclassifications ..................................

Amounts reclassified from
accumulated other comprehensive
loss .....................................................

Net current-period other comprehensive
loss ............................................................

—

—

—

(320)

(812)

—

(1,132)

—

—

(320)

(812)

—

—

—

(1,132)

Balance at December 27, 2014.................. $

— $

(444) $

(3,414) $

(760) $ (4,618)

The following table provides details about reclassifications out of accumulated other comprehensive loss 

for the periods presented (in thousands):  

Details about Accumulated Other
Comprehensive Loss Components

Amount Reclassified from Accumulated Other
Comprehensive Loss

Affected Line Item in
the Statement Where
Net Loss is Presented

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Unrealized gain on auction rate
securities ....................................... $

Total reclassifications for the
period ............................................ $

— $

—

(166) $

(141) Other gain (loss), net

—

— Provision for income taxes

— $

(166) $

(141) Total, net of income tax

76

 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. 

Basic and Diluted Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted 
average number of common shares outstanding during the period. Diluted net income (loss) per common share 
is computed using net income (loss) and the weighted average number of common shares outstanding plus 
potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the 
assumed exercise of outstanding stock options, assumed release of outstanding restricted stock units ("RSUs") 
and performance stock units ("PSUs"), assumed conversion of convertible senior notes from conversion spread, 
and assumed issuance of stock under the Company’s ESPP using the treasury stock method. The Company 
includes the common shares underlying PSUs in the calculation of diluted net income per share only when they 
become contingently issuable. In net loss periods, these potentially diluted common shares have been anti-
dilutive and therefore, excluded from the diluted net loss calculation.

The following table sets forth the computation of net income (loss) per common share—basic and 

diluted (in thousands, except per share amounts): 

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Numerator:

Net income (loss) ................................................................... $
Denominator:

13,659

$

(32,119) $

(85,330)

Basic weighted average common shares outstanding ...........

123,672

117,425

110,739

Effect of dilutive securities:

Employee equity plans ..........................................................

Assumed conversion of convertible senior notes from
conversion spread .................................................................

4,778

115

—

—

—

—

Dilutive weighted average common shares outstanding ........

128,565

117,425

110,739

Net income (loss) per common share ....................................

Basic ..................................................................................... $
Diluted ................................................................................... $

0.11

0.11

$

$

(0.27) $

(0.27) $

(0.77)

(0.77)

The number of shares outstanding used in the computation of basic and diluted net income (loss) per 

share does not include the effect of the potential outstanding common stock listed in the following table. The 
effects of these potentially outstanding shares were not included in the calculation of diluted net income (loss) 
per share because their effect would have been anti-dilutive under the treasury stock method or the performance 
condition of the award has not been met (in thousands):

Stock options outstanding ......................................................

Restricted stock units ............................................................

Performance stock units ........................................................

Employee stock purchase plan shares ..................................

Warrants to purchase common stock .....................................

As of

December 27,
2014

December 28,
2013

December 29,
2012

362

331

124

741

—

6,367

6,583

721

661

—

9,008

6,703

1,368

1,100

93

Total ....................................................................................

1,558

14,332

18,272

77

 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2014, the Company included the dilutive effects of the Company's convertible senior notes in the 
calculation of diluted net income per common share as the average market price was above the conversion 
price. The dilutive impact of the Company's convertible senior notes was based on the difference between the 
Company's average stock price and the conversion price of the convertible senior notes, provided there is a 
spread. In 2013, the Company excluded the potential shares issuable upon conversion of the convertible senior 
notes in the calculation of diluted earnings per share because the market price was below the conversion price. 
Upon conversion of the convertible senior notes, it is the Company’s intention to pay cash equal to the lesser of 
the aggregate principal amount or the conversion value of the Notes being converted, therefore, only the 
conversion spread relating to the notes would be included in the Company’s diluted earnings per share 
calculation unless their effect is anti-dilutive.

9. 

Convertible Senior Notes

In May 2013, the Company issued $150.0 million of 1.75% convertible senior notes due June 1, 2018 
(the “Notes”). The Notes will mature on June 1, 2018, unless earlier purchased by the Company or converted. 
Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 
2013. The net proceeds to the Company were approximately $144.5 million.

The Notes are governed by an indenture dated as of May 30, 2013 (the “Indenture”), between the 
Company, as issuer, and U.S. Bank National Association, as trustee. The Notes are unsecured and do not 
contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or 
other indebtedness, or the issuance or repurchase of securities by the Company.

Upon conversion, it is the Company's intention to pay cash equal to the lesser of the aggregate principal 

amount or the conversion value of the Notes. For any remaining conversion obligation, The Company intends to 
pay cash, shares of common stock or a combination of cash and shares of common stock, at the Company's 
election. The initial conversion rate is 79.4834 shares of common stock per $1,000 principal amount of Notes, 
subject to anti-dilution adjustments. The initial conversion price is approximately $12.58 per share of common 
stock.

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain 

events, including for any cash dividends. Holders of the Notes will not receive any cash payment representing 
accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in 
full upon conversion rather than canceled, extinguished or forfeited. Holders may convert their Notes under the 
following circumstances:

• 

• 

• 

• 

during any fiscal quarter commencing after the fiscal quarter ending on September 28, 2013 (and 
only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 
trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on 
the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of 
the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period (the 
“measurement period”) in which the trading price per $1,000 principal amount of Notes for each 
trading day of the measurement period was less than 98% of the product of the last reported sale 
price of the Company’s common stock and the conversion rate on each such trading day;

upon the occurrence of specified corporate events described under the Indenture, such as a 
consolidation, merger or binding share exchange; or

at any time on or after December 1, 2017 until the close of business on the second scheduled 
trading day immediately preceding the maturity date, holders may convert their Notes at any time, 
regardless of the foregoing circumstances.

If the Company undergoes a fundamental change as defined in the Indenture governing the Notes, 

holders may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price 
equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but 

78

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

excluding, the fundamental change repurchase date. In addition, upon the occurrence of a “make-whole 
fundamental change” (as defined in the Indenture), the Company will, in certain circumstances, increase the 
conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with 
such make-whole fundamental change.

The carrying amounts of the liability components of the Notes were as follows (in thousands):

December 27,
2014

December 28,
2013

Principal
Unamortized discount (1)

............................................................................................................ $

...................................................................................

Carrying amount

...............................................................................................

150,000

$

150,000

(30,257)

119,743

(37,322)

112,678

(1)  Unamortized discount includes debt conversion discount and issuance costs, which will be amortized over 

the remaining life of the Notes, which is approximately 4 years.

As of December 27, 2014 and December 28, 2013, the carrying amount of the equity components of the 

Notes was as follows (in thousands):

Debt discount related to value of conversion option .....................................................................

Debt issuance cost

......................................................................................................................

Total

.............................................................................................................................................

45,000

(1,659)

43,341

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity 

components. The carrying amount of the liability component was calculated by measuring the fair value of a 
similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity 
component representing the conversion option was determined by deducting the fair value of the liability 
component from the par value of the Notes. The equity component is not remeasured as long as it continues to 
meet the conditions for equity classification. The excess of the principal amount of the liability component over its 
carrying amount (“debt discount”) is amortized to interest expense over the term of the Notes. The remaining 
debt conversion discount amount to be amortized over the remaining years until maturity of the Notes was $33.1 
million as of December 27, 2014.

In accounting for the issuance costs of $5.5 million related to the Notes, the Company allocated the total 

amount incurred to the liability and equity components of the Notes based on their relative values. Issuance 
costs attributable to the liability component were recorded as other non-current assets and will be amortized to 
interest expense over the term of the Notes. The issuance costs attributable to the equity component were netted 
with the equity component in stockholders’ equity. Additionally, the Company initially recorded a deferred tax 
liability of $17.0 million in connection with the issuance of the Notes, and a corresponding reduction in valuation 
allowance. The impact of both was recorded to stockholders’ equity.

The Company determined that the embedded conversion option in the Notes does not require separate 

accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and 
would be classified in stockholder’s equity if freestanding.

79

 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth total interest expense recognized related to the Notes (in thousands): 

Years Ended

December 27,
2014

December 28,
2013

Contractual interest expense ........................................................................... $
Amortization of debt issuance costs .................................................................

Amortization of debt discount ...........................................................................

2,626

$

665

7,730

Total interest expense ...................................................................................... $

11,021

$

1,539

358

4,164

6,061

The coupon rate was 1.75%. For the years ended December 27, 2014 and December 28, 2013, the 

debt discount and debt issuance costs were amortized, using an annual effective interest rate of 10.23%, to 
interest expense over the term of the Notes.

As of December 27, 2014, the fair value of the Notes was $198.9 million. The fair value was determined 
based on the quoted bid price of the Notes in an over-the-counter market on December 26, 2014. The Notes are 
classified as Level 2 of the fair value hierarchy. Based on the closing price of the Company’s common stock of 
$14.91 on December 26, 2014, the if-converted value of the Notes exceeded their principal amount by 
approximately $27.8 million. 

During the fourth quarter of 2014, the closing price of our common stock did not meet or exceed 130% 

of the applicable conversion price of our Notes on at least 20 of the last 30 consecutive trading days of the 
quarter; furthermore, no other conditions allowing holders of the Notes to convert have been met as of December 
27, 2014. Therefore, the Notes are not convertible as of December 27, 2014 and are classified as long-term 
debt. 

10. 

Commitments and Contingencies 

Operating Leases

The Company leases facilities under non-cancelable operating lease agreements. These leases have 

varying terms that range from one to ten years, predominantly no longer than ten years each and contain 
leasehold improvement incentives, rent holidays and escalation clauses. In addition, some of these leases have 
renewal options for up to five years. The Company has contractual commitments to remove leasehold 
improvements and return certain properties to a specified condition when the leases terminate. At the inception 
of a lease with such conditions, the Company records an asset retirement obligation liability and a corresponding 
capital asset in an amount equal to the estimated fair value of the obligation. Asset retirement obligations were 
$2.7 million and $2.6 million as of December 27, 2014 and December 28, 2013, respectively. These obligations 
are classified as other long-term liabilities on the accompanying consolidated balance sheets. 

The Company recognizes rent expense on a straight-line basis over the lease period factoring in 

leasehold improvement incentives, rent holidays and escalation clauses. Rent expense for all leases was $7.2 
million, $6.8 million and $6.7 million for 2014, 2013 and 2012, respectively. The Company did not have any 
sublease rental income for 2014, 2013 and 2012.

Future annual minimum operating lease payments at December 27, 2014 were as follows (in 

thousands): 

Operating lease
payments ......... $

2015

2016

2017

2018

2019

Thereafter

Total

7,063

$

6,419

$

5,575

$

5,106

$

5,344

$

8,546

$

38,053

Purchase Commitments

The Company has service agreements with its major production suppliers, where the Company is 

committed to purchase certain parts. These obligations are typically less than the Company’s purchase needs. 

80

 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 27, 2014, December 28, 2013 and December 29, 2012, these non-cancelable purchase 
commitments were $128.3 million, $69.6 million and $52.7 million, respectively. 

Future purchase commitments at December 27, 2014 were as follows (in thousands):

Purchase
obligations .......

2015
$ 126,211

2016

2017

2018

2019

Thereafter

Total

$

2,050

$

— $

— $

— $

— $ 128,261

The contractual obligation tables above exclude tax liabilities of $2.2 million related to uncertain tax 

positions because the Company is unable to determine the timing of settlement, if any, of these future payments 
with a reasonably reliable estimate.

Indemnification Obligations

From time to time, the Company enters into certain types of contracts that contingently require it to 
indemnify parties against third party claims. These contracts primarily relate to: (i) certain real estate leases 
under which the Company may be required to indemnify property owners for environmental and other liabilities, 
and other claims arising from the Company’s use of the applicable premises; (ii) certain agreements with the 
Company’s officers, directors and certain key employees, under which the Company may be required to 
indemnify such persons for liabilities; and (iii) certain provisions in the Company’s customer agreements that may 
require the Company to indemnify their customers and their affiliated parties against certain liabilities, including if 
the Company’s products infringe a third party’s intellectual property rights.

The terms of such indemnification obligations vary. Because the maximum obligated amounts under 

these agreements generally are not explicitly stated, the maximum potential amount of future payments the 
Company could be required to make under these indemnification agreements is generally unlimited.

To date, the Company has not incurred any material costs as a result of the indemnification obligations 

and has not accrued any liabilities related to such obligations in the Company’s consolidated financial 
statements. The Company may be obligated to indemnify the Company's customers in connection with the 
lawsuit filed by Cambrian Science Corporation (“Cambrian”) on July 7, 2011, to the extent the Company’s product 
is found to infringe the Cambrian patent at issue (Patent No. 6,775,312) (see Note 12, “Legal Matters,” to the 
Notes to Consolidated Financial Statements).

As permitted under Delaware law and the Company’s charter and bylaws, the Company has 
agreements whereby it indemnifies certain of its officers and each of its directors for certain events or 
occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term 
of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future 
payments the Company could be required to make under these indemnification agreements is unlimited; 
however, the Company has a Director and Officer insurance policy that may reduce its exposure and enable it to 
recover all or a portion of any future amounts paid. As a result of its insurance policy coverage, the Company 
believes the estimated fair value of these indemnification agreements is minimal.

11.  

Guarantees

Product Warranties

Upon delivery of products, the Company provides for the estimated cost to repair or replace products or 
the related components that may be returned under hardware warranties. In general, hardware warranty periods 
range from one to five years. Hardware warranties provide the purchaser with protection in the event that the 
product does not perform to product specifications. During the warranty period, the purchaser’s sole and 
exclusive remedy in the event of such defect or failure to perform is limited to the correction of the defect or 
failure by repair, refurbishment or replacement, at the Company’s sole option and expense. The Company 
estimates its hardware warranty obligations based on the Company’s historical and industry experience of 
product failure rates, use of materials to repair or replace defective products, and service delivery costs incurred 
in correcting product failures. In addition, from time to time, specific hardware warranty accruals may be made if 

81

 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

unforeseen technical problems arise with specific products. Management periodically assesses the adequacy of 
the Company’s recorded warranty liabilities and adjusts the amounts as necessary.

Activity related to product warranty was as follows (in thousands): 

Beginning balance ............................................................................................ $
Charges to operations ......................................................................................

Utilization ..........................................................................................................

Change in estimate(1)
Balance at the end of the period ....................................................................... $

........................................................................................

22,908

$

22,697

(10,860)

(7,705)

16,482

21,193

(9,404)

(5,363)

27,040

$

22,908

December 27,
2014

December 28,
2013

(1)  The Company records hardware warranty liabilities based on the latest quality and cost information available 
as of that date. The changes in estimate shown here are due to changes in overall actual failure rates and 
the resulting impact of these changes on the Company’s estimate of expected future returns, as well as 
changes in the estimated cost and the mix of new versus used units related to replacement of failed units.

Letters of Credit

The Company had $5.0 million of standby letters of credit outstanding as of December 27, 2014. These 

consisted of $3.0 million related to a customer proposal guarantee, $1.3 million related to a value added tax 
license and $0.7 million related to property leases. The Company had $3.5 million of standby letters of credit 
outstanding as of December 28, 2013. These consisted of $1.4 million related to a customer proposal guarantee, 
$1.4 million related to a value added tax license and $0.7 million related to property leases.

12. 

Legal Matters

Cambrian Science Patent Infringement Litigation

On July 12, 2011, the Company was notified by Level 3 that Cambrian Science Corporation 

("Cambrian") filed suit against Level 3 and six other defendants, including Cox Communications, Inc., XO 
Communications, LLC, Global Crossing Limited, 360Networks (USA), Inc., Integra Telecom, Inc. and IXC, Inc. 
dba Telekenex (collectively, the "Defendants") in the U.S. District Court for the Central District of California 
alleging infringement of patent no. 6,775,312 (the "'312 Patent") and requesting damages for such alleged 
infringement (the "Cambrian Claim"). The nature of the Cambrian Claim involves allegations of infringement of 
the '312 Patent resulting from the Defendants’ use of certain products and systems in the Defendants’ networks, 
including the Infinera DTN platform. On August 24, 2011, Cambrian amended the complaint to name the 
Company as a defendant. The Company assumed the defense of the Cambrian Claim and filed an answer to 
Cambrian’s complaint on September 21, 2011, in which the Company denied infringement of the '312 Patent and 
raised other defenses. Cambrian filed a second amended complaint on October 6, 2011, which included many of 
the same allegations as in the original complaint. The Company filed its answer to the second amended 
complaint on October 21, 2011, in which the Company maintained the same denials and defenses as in the 
Company’s initial answer. On December 23, 2011, the Company filed a motion requesting that the court stay the 
case with respect to each of the above-noted customer Defendants. Cambrian filed its opposition to the 
Company’s motion on December 30, 2011. The Company’s request was denied in the court’s decision on March 
7, 2012. The Company presented evidence on the appropriate meanings of relevant key words used in the 
patent claims during a claim construction hearing on November 20, 2012. 

On June 17, 2013, the court issued an order regarding claim construction, in which the court agreed 

with almost all of the Company’s proposed claim constructions. On October 17, 2013, the parties met for a court-
mandated mediation. On April 24, 2014, the Company filed two motions for summary judgment relating to non-
infringement and Cambrian’s claim to an earlier date of invention.  The court held a hearing on the summary 
judgment motions on June 9, 2014. On July 2, 2014, the court granted the Company's motion for summary 
judgment on non-infringement and entered a final judgment of non-infringement of the '312 Patent. On August 1, 
82

 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2014, Cambrian filed a notice of appeal regarding the ruling of non-infringement to the Court of Appeals for the 
Federal Circuit and Cambrian's appeal brief was filed on November 6, 2014. The Company filed its responsive 
brief on January 5, 2015, and on February 5, 2015, Cambrian filed their reply brief. The Company is seeking to 
recover certain costs and attorney's fees from Cambrian.

As of December 27, 2014, the Company concluded that the likelihood of a loss with respect to this suit 

was remote and the amount of any loss would be insignificant. The Company does not believe the outcome of 
this matter will have a material adverse effect on the Company's business, consolidated financial position, results 
of operations, or cash flows. Factors that the Company considered in the determination of the likelihood of a loss 
and the estimate of that loss in respect to this matter included the merits of the case, the district court granting 
the Company's motion for summary judgment for non-infringement, the entry of final judgment of non-
infringement and the current stage of the litigation. However, the outcome of such legal matters is inherently 
unpredictable and subject to uncertainty.

Loss Contingencies

The Company is subject to the possibility of various losses arising in the ordinary course of business. 

These may relate to disputes, litigation and other legal actions. In the preparation of its quarterly and annual 
financial statements, the Company considers the likelihood of loss or the incurrence of a liability, including 
whether it is probable, reasonably possible or remote that a liability has been incurred, as well as the Company’s 
ability to reasonably estimate the amount of loss, in determining loss contingencies. In accordance with U.S. 
GAAP, an estimated loss contingency is accrued when it is probable that a liability has been incurred and the 
amount of loss can be reasonably estimated. The Company regularly evaluates current information to determine 
whether any accruals should be adjusted and whether new accruals are required. As of December 27, 2014, the 
Company has not accrued or recorded any such material liabilities.

13. 

Stockholders’ Equity 

2000 Stock Plan, 2007 Equity Incentive Plan and Employee Stock Purchase Plan

In December 2000, the Company adopted the 2000 Stock Plan (“2000 Plan”). Under the 2000 Plan, as 
amended, the Company had reserved an aggregate of 14.2 million shares of its common stock for issuance. As 
of December 27, 2014, options to purchase 0.8 million shares of the Company’s common stock were outstanding 
under the 2000 Plan. The Company’s board of directors decided not to grant any additional options or other 
awards under the 2000 Plan following the Company’s IPO in 2007. The 2000 Plan expired on December 6, 2010. 
However, the 2000 Plan will continue to govern the terms and conditions of the outstanding options previously 
granted under the 2000 Plan.

In February 2007, the Company’s board of directors adopted the 2007 Equity Incentive Plan (“2007 

Plan”) and the Company’s stockholders approved the 2007 Plan in May 2007. The Company has reserved a total 
of 46.8 million shares of common stock for issuance under the 2007 Plan. Pursuant to the 2007 Plan, the 
Company may award stock options, restricted stock, RSUs, PSUs, performance shares and stock appreciation 
rights to employees, consultants and members of the Company’s board of directors. The 2007 Plan has a 
maximum term of 10 years from the date of adoption, or it can be earlier terminated by the Company’s board of 
directors.

The ESPP was adopted by the board of directors in February 2007 and approved by the stockholder in 

May 2007. The ESPP was last amended by the stockholders in May 2014 to increase the shares authorized 
under the ESPP to 16.6 million shares of common stock. The ESPP has a 20-year term. Eligible employees may 
purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the 
fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll 
deductions under the ESPP are limited to 15% of the employee’s compensation and employees may not 
purchase more than $25,000 of stock during any calendar year.

83

 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Shares Reserved for Future Issuances

Common stock reserved for future issuance was as follows (in thousands): 

Outstanding stock options and awards ........................................................................................

Reserved for future option and award grants ...............................................................................

Reserved for future ESPP ............................................................................................................

Total common stock reserved for stock options and awards

December 27,
2014

11,217

17,256

7,262

35,735

Stock-based Compensation Plans

The Company has stock-based compensation plans pursuant to which the Company has granted stock 
options, RSUs and PSUs. The Company also has an ESPP for all eligible employees. As of December 27, 2014, 
there were a total of 17.3 million shares of common stock available for grant under the Company’s 2007 Plan. 
The following tables summarize the Company’s equity award activity and related information (in thousands, 
except per share data):  

Number of
Options

Weighted-Average
Exercise Price
Per Share

Aggregate
Intrinsic
Value

Outstanding at December 31, 2011 ..................................

Options granted ...........................................................

Options exercised ........................................................

Options canceled .........................................................

Outstanding at December 29, 2012 ..................................

Options granted ...........................................................

Options exercised ........................................................

Options canceled .........................................................

Outstanding at December 28, 2013 ..................................

Options granted ...........................................................

Options exercised ........................................................

Options canceled .........................................................

Outstanding at December 27, 2014 ..................................

Vested and expected to vest as of December 27, 2014 ..

Exercisable at December 27, 2014 ...................................

9,873

127

$

$

(582) $

(410) $

9,008

$

— $

(2,217) $

(424) $

6,367

25

$

$

(2,001) $

(93) $

4,298

$

4,296

4,219

$

7.03

$

7,924

7.18

4.39

$

1,484

8.50

7.13

$

5,726

—

6.59

$

7,583

8.04

7.26

$

17,452

9.02

6.99

$

8,182

12.38

7.29

7.28

$

$

$

32,833

32,814

32,261

84

 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Number of
Restricted
Stock Units

Weighted-Average
Grant Date
Fair Value
Per Share

Aggregate
Intrinsic
Value

Outstanding at December 31, 2011 ..................................

RSUs granted ..............................................................

RSUs released .............................................................

RSUs canceled ............................................................

Outstanding at December 29, 2012 ..................................

RSUs granted ..............................................................

RSUs released .............................................................

RSUs canceled ............................................................

Outstanding at December 28, 2013 ..................................

RSUs granted ..............................................................

RSUs released .............................................................

RSUs canceled ............................................................

Outstanding at December 27, 2014 ..................................

Expected to vest as of December 27, 2014 ......................

5,957

3,620

$

$

(2,495) $

(379) $

6,703

3,602

$

$

(3,070) $

(652) $

6,583

2,705

$

$

(2,797) $

(449) $

6,042

$

5,850

8.77

7.51

9.07

8.27

8.01

7.63

8.26

7.63

7.72

8.80

7.84

7.85

8.14

$

$

$

$

$

$

$

$

37,407

17,742

38,873

25,028

64,443

24,858

90,085

87,221

Number of
Performance
Stock Units

Weighted-Average
Grant Date
Fair Value Per Share

Aggregate
Intrinsic
Value

Outstanding at December 31, 2011 .............................

PSUs granted ..........................................................

PSUs released ........................................................

PSUs canceled .......................................................

Outstanding at December 29, 2012 .............................

PSUs granted ..........................................................

PSUs released ........................................................

PSUs canceled .......................................................

Outstanding at December 28, 2013 .............................

PSUs granted ..........................................................

PSUs released ........................................................

PSUs canceled .......................................................

Outstanding at December 27, 2014 .............................

Expected to vest as of December 27, 2014.................

2,595

515

$

$

(883) $

(859) $

1,368

552

$

$

(684) $

(515) $

721

508

$

$

(255) $

(98) $

$

876

663

10.51

$

16,304

7.85

9.40

$

5,448

10.04

10.53

$

7,933

6.63

10.53

$

4,284

11.31

7.04

$

7,054

8.34

6.36

$

2,097

7.18

7.49

$

$

13,067

9,884

The aggregate intrinsic value of unexercised options is calculated as the difference between the closing 
price of the Company’s common stock of $14.91 at December 26, 2014 and the exercise prices of the underlying 
stock options. The aggregate intrinsic value of the options which have been exercised  is calculated as the 
difference between the fair market value of the common stock at the date of exercise and the exercise price of 
the underlying stock options. The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is 
calculated using the closing price of the Company's common stock of $14.91 at December 26, 2014. The 
aggregate intrinsic value of RSUs and PSUs released is calculated using the fair market value of the common 
stock at the date of release.

85

 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents total stock-based compensation cost for instruments granted but not yet 

amortized, net of estimated forfeitures, of the Company’s equity compensation plans as of December 27, 2014. 
These costs are expected to be amortized on a straight-line basis over the following weighted-average periods 
(in thousands, except for weighted-average period): 

Stock options ........................................................................................ $
RSUs .................................................................................................... $
PSUs .................................................................................................... $

239

28,287

2,055

1.5

2.3

1.5

The following table summarizes information about options outstanding at December 27, 2014. 

Unrecognized
Compensation
Expense, Net

Weighted-
Average Period
(in years)

Options Outstanding

Number of
Shares

Weighted-
Average
Remaining
Contractual Life

Weighted-
Average
Exercise
Price

(In thousands)

(In years)

Vested and Exercisable
Options

Weighted-
Average
Exercise
Price

Number of
Shares

(In thousands)

754

536

706

1,069

627

606

4,298

1.51

5.29

3.72

3.91

6.01

3.91

3.94

$

$

$

$

$

$

$

2.06

6.87

7.54

8.12

8.57

11.05

7.29

754

504

704

1,049

627

581

4,219

$

$

$

$

$

$

$

2.06

6.88

7.54

8.13

8.57

11.14

7.28

Exercise Price

$0.76 - $ 4.04 ...............

$6.30 - $ 7.25 ...............

$7.45 - $ 7.61 ...............

$7.68 - $ 8.19 ...............

$8.39 - $ 8.58 ...............

$8.85 - $ 22.36 .............

Employee Stock Options

In February 2012, the Compensation Committee of the Company’s board of directors shortened the 
maximum term of future option grants under the 2007 Plan from 10 years to 7 years. The weighted-average 
remaining contractual term of options outstanding and exercisable was 3.9 years as of December 27, 2014. Total 
fair value of stock options granted to employees and directors that vested during 2014, 2013 and 2012 was 
approximately $0.8 million, $3.2 million and $10.0 million, respectively, based on the grant date fair value.

The estimated values of stock options, as well as assumptions used in calculating these values were 

based on estimates as follows (expense amounts in thousands): 

Employee and Director Stock Options
Volatility .....................................................................

Risk-free interest rate .................................................

December 27,
2014

52%

1.3%

Expected life ..............................................................

4.3 years

Estimated fair value ...................................................

Total stock-based compensation expense..................

3.85

$702

Years Ended

December 28,
2013

N/A

N/A

N/A

N/A

December 29,
2012

65% - 68%

0.7% - 1.0%

4.0 - 5.3 years

$3.75 - $3.76

$2,792

$8,436

N/A       Not applicable because the Company did not grant any options to employees for the period presented.

86

 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:

December 27,
2014

Years Ended

December 28,
2013

December 29,
2012

Volatility .....................................................................

46% - 51%

46% - 49%

54% - 57%

Risk-free interest rate .................................................

0.02% - 0.11%

0.10% - 0.14%

0.16% - 0.17%

Expected life ..............................................................

0.3 - 0.5 years

0.5 years

0.5 years

Estimated fair value ...................................................

$2.05 - $2.57

$1.87 - $3.00

$1.73 - $2.63

The Company’s ESPP activity for the following periods was as follows (in thousands): 

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Stock-based compensation expense ..................................... $
Employee contributions ......................................................... $
Shares purchased .................................................................

$

$

3,760

10,728

1,438

$

$

3,022

8,559

1,656

3,586

9,030

1,653

Restricted Stock Units

During 2014, 2013 and 2012, the Company granted RSUs to employees and members of the 

Company’s board of directors to receive an aggregate of 2.7 million, 3.6 million and 3.6 million shares of the 
Company’s common stock, respectively. The Company accounted for the fair value of the RSUs using the 
closing market price of the Company’s common stock on the date of grant. Amortization of stock-based 
compensation expense related to RSUs in 2014, 2013 and 2012 was approximately $21.6 million, $23.8 million 
and $27.9 million, respectively.

Performance Stock Units

Pursuant to the 2007 Plan, during 2014, the Company granted 0.4 million shares of PSUs to certain of 
the Company's executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 
times the number of PSUs granted depending on the relative performance of the Company's common stock price 
compared to the IGN Index over the span of one, two and three years of total shareholder returns.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these 

values were based on estimates as follows:

Infinera Volatility ................................................................................................................

IGN Index Volatility ............................................................................................................

Risk-free interest rate ........................................................................................................

Correlation with IGN Index .................................................................................................

Estimated fair value ...........................................................................................................

Year Ended

December 27, 2014

49% - 50%

25%

0.66% - 0.71%

0.60

$6.59 - $7.60

Pursuant to the 2007 Plan, during 2014, the Company granted 0.1 million shares of PSUs to several 
employees. These PSUs will only vest upon the achievement of certain specific performance criteria and are 

87

 
 
 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

subject to each employee's continued service to the Company. If the specific performance metrics are not met 
within the time limits specified in the award agreements, the PSUs will be canceled.

Pursuant to the 2007 Plan, during 2013, the Company granted 0.6 million shares of PSUs to certain of 

its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the 
number of PSUs granted depending on the relative performance of the Company’s common stock price 
compared to the NASDAQ Telecom Composite Index over the span of one, two and three years of total 
shareholder returns. If the specific performance metrics are not met within the time limits specified in the award 
agreements, the PSUs will be cancelled. During 2014, the Company released 0.3 million shares of PSUs based 
on a payout of 1.5 times of the target number of PSUs.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these 

values were based on estimates as follows:

Infinera Volatility .......................................................................................................................

NASDAQ Telecom Composite Index Volatility ..........................................................................

Risk-free interest rate ..............................................................................................................

Correlation with NASDAQ Telecom Composite Index ..............................................................

Year Ended

December 28,
2013

55%

23%

0.42%

0.56

Estimated fair value .................................................................................................................

$6.27 - $7.06

Pursuant to the 2007 Plan, during 2012, the Company granted 0.5 million shares of PSUs to certain of 
its executive officers. These PSUs will only vest upon the achievement of certain specific revenue and operating 
profit criteria and are subject to each named executive officer’s continued service to the Company. If the financial 
performance metrics are not met within the time limits specified in the award agreements, the PSUs will be 
canceled. During 2014, the Company did not release any shares subject to these PSUs.

During 2009, the Company granted PSUs primarily to members of the Company’s board of directors 

and executive officers. The number of shares to be issued upon vesting of PSUs range from 0.5 to 2.0 times the 
number of PSUs granted depending on the relative performance of the Company’s common stock price 
compared to the NASDAQ Composite Index over a three-year and four-year periods. If the specific performance 
metrics are not met within the time limits specified in the award agreements, the PSUs will be cancelled. During 
2013, the Company released 0.5 million shares of these PSUs based on a payout of 0.5 of the target number of 
PSUs. 

Amortization of stock-based compensation related to PSUs in 2014, 2013 and 2012 was approximately 

$2.2 million, $0.7 million and $3.3 million, respectively. Amortization of stock-based compensation in 2013 
included $2.1 million of expense offset by a $1.4 million decrease in fair value for one award classified as a 
liability award, in accordance with ASC 718.

Common Stock Warrants

During 2013, warrants to purchase 92,592 shares of common stock were net exercised. The aggregate 

consideration for such exercises was approximately $0.5 million. As of December 27, 2014, there were no 
warrants of common stock outstanding.

88

 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based Compensation Expense

The following tables summarize the effects of stock-based compensation on the Company’s 

consolidated balance sheets and statements of operations for the periods presented (in thousands):

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Stock-based compensation effects in inventory ....................... $
Stock-based compensation effects in deferred inventory cost.. $
Stock-based compensation effects in fixed assets ................... $

3,088

13

119

$

$

$

3,189

15

145

$

$

$

4,891

42

146

Stock-based compensation effects in net income (loss)
before income taxes

Cost of revenue ....................................................................... $
Research and development .....................................................

Sales and marketing ................................................................

General and administrative ......................................................

Cost of revenue—amortization from balance sheet (1) ..............
Total stock-based compensation expense................................ $

1,921

$

1,871

$

8,927

7,477

6,383

24,708

3,686

10,900

7,624

5,956

26,351

5,625

28,394

$

31,976

$

2,710

13,306

10,450

9,529

35,995

5,824

41,819

(1)  Represents stock-based compensation expense deferred to inventory and deferred inventory costs in prior 

periods and recognized in the current period.

14. 

Income Taxes

The following is a geographic breakdown of the provision for income taxes (in thousands):

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

Current:

Federal ........................................................................... $
State ...............................................................................

Foreign ...........................................................................

— $

— $

446

2,423

(135)

1,719

Total current ............................................................ $

2,869

$

1,584

$

Deferred:

Federal ........................................................................... $
State ...............................................................................

Foreign ...........................................................................

Total deferred .......................................................... $
Total provision ....................................................................... $

— $

— $

—

(116)

(116) $

2,753

$

—

70

70

1,654

$

$

(133)

22

2,169

2,058

—

—

132

132

2,190

Income before provision for income taxes from international operations was $5.6 million, $5.8 million 

and $5.5 million for the years ended December 27, 2014, December 28, 2013 and December 29, 2012, 
respectively.

89

 
 
 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The provisions for income taxes differ from the amount computed by applying the statutory federal 

income tax rates as follows: 

Expected tax at federal statutory rate ....................................

State taxes, net of federal benefit ..........................................

Research credits ....................................................................

Stock-based compensation ...................................................

Change in valuation allowance ..............................................

Other .....................................................................................

Effective tax rate .............................................................

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

35.0 %

1.8 %

(11.4)%

14.7 %

(25.3)%

2.0 %

16.8 %

35.0 %

0.3 %

4.9 %

(12.2)%

(34.2)%

0.8 %

(5.4)%

35.0 %

— %

— %

(3.9)%

(33.5)%

(0.2)%

(2.6)%

The Company recognized income tax expense of $2.8 million on income before income taxes of $16.4 
million, $1.7 million on loss before income taxes of $30.5 million and $2.2 million on loss of $83.1 million in fiscal 
years 2014, 2013 and 2012, respectively. The resulting effective tax rates were 16.8%, (5.4)% and (2.6)% for 
2014, 2013 and 2012, respectively.  The 2014 effective tax rate differs from the expected statutory rate of 35% 
based upon the utilization of unbenefited U.S. loss carryforwards , offset by state income taxes and foreign taxes 
provided on foreign subsidiary earnings.  The 2013 and 2012 effective tax rates reflect unbenefited current U.S. 
losses and foreign taxes provided on our profitable foreign subsidiaries.  The increase in 2014 tax expense 
compared to 2013 tax expense relates primarily to higher state income taxes because of the  profitable position 
of the U.S. operations, additional tax reserves and an increase in taxable foreign profits. The decrease in 2013 
tax expense compared to 2012 tax expense relates primarily to the release of tax reserves due to the lapsing of 
the statute of limitations.

90

 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of 
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant 
components of the Company’s deferred tax assets are as follows (in thousands):

Years Ended

December 27,
2014

December 28,
2013

Deferred tax assets:

Net operating losses .................................................................................. $
Research credits ........................................................................................

Nondeductible accruals .............................................................................

Inventory valuation ....................................................................................

Property, plant and equipment ...................................................................

Intangible assets ........................................................................................

Stock-based compensation .......................................................................

107,601

$

123,908

37,435

31,151

19,625

1,387

2,119

12,830

33,647

26,365

13,540

1,453

3,446

15,454

Total deferred tax assets .................................................................... $

212,148

$

217,813

Valuation allowance ..........................................................................................

(199,698)

(202,747)

Net deferred tax assets ...................................................................... $

12,450

$

15,066

Deferred tax liabilities:

Depreciation ..............................................................................................

Convertible senior notes ............................................................................

Total deferred tax liabilities ................................................................. $
Net deferred tax assets (liabilities) .................................................................... $

(203)

(12,167)

(12,370) $

80

$

(161)

(14,941)

(15,102)

(36)

The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, 

of an appropriate character, in the periods the items are scheduled to be deductible or taxable. Based on the 
available objective evidence, management believes it is more likely than not that the domestic net deferred tax 
assets will not be realizable. Accordingly, the Company has provided a full valuation allowance against its 
domestic deferred tax assets, net of deferred tax liabilities, as of December 27, 2014 and December 28, 2013. In 
determining future taxable income, the Company makes assumptions to forecast federal, state and international 
operating income, the reversal of taxable temporary differences, and the implementation of any feasible and 
prudent tax planning strategies. The assumptions require judgment regarding the forecasts of future taxable 
income and are consistent with the Company’s forecasts used to manage its business. The Company intends to 
maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or 
decrease, in the valuation allowance.

As of December 27, 2014, the Company has net operating loss carryforwards of approximately $309.1 

million for federal tax purposes and $278.7 million for state tax purposes. The carryforward balance reflects 
expected utilization of both federal and state net operating losses for the year ended December 27, 2014. 
Additionally, the Company has federal and California research and development credits available to reduce 
future income taxes payable of approximately $28.0 million and $29.3 million, respectively, as of December 27, 
2014. Infinera Canada Inc., an indirect wholly owned subsidiary, has Scientific Research and Experimental 
Development Expenditures ("SRED") credits available of $2.1 million to offset future Canadian income tax 
payable as of December 27, 2014. The federal research credits will begin to expire in the year 2021 if not utilized 
and the California research credits have no expiration date. Canadian SRED credits will begin to expire in the 
year 2030 if not fully utilized.

The Company maintains net operating losses generated from excess tax benefits associated with the 

accumulated stock award attributes in a memo account, not included in the deferred tax balances. The additional 
tax benefit associated with these stock award attributes, of which the net operating loss amounts are included in 

91

 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the carryforward amounts noted above is not recognized until the deduction reduces cash taxes payable. At 
December 27, 2014, the Company had unbenefited stock option deductions for federal and state tax purposes of 
$42.0 million and $37.8 million, respectively. When utilized, the estimated tax benefits of approximately $17.8 
million will result in a credit to stockholders’ equity.

Under the Tax Reform Act of 1986, the amount of benefit from net operating loss and tax credit 
carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount 
of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative 
ownership change of more than 50 percent as defined over a three-year testing period. As of December 27, 
2014, the Company had determined that while ownership changes had occurred in the past, the resulting 
limitations were not significant enough to impact the utilization of the tax attributes against its taxable profits 
earned to date.

The Company’s policy with respect to its undistributed foreign subsidiaries’ earnings is to consider those 

earnings to be indefinitely reinvested and, accordingly, no related provision for U.S. federal and state income 
taxes has been provided. Upon distribution of those earnings in the form of dividends or otherwise, the Company 
may be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes 
in the various foreign countries. At December 27, 2014, the undistributed earnings approximated $20.3 million. 
The future tax consequence of the remittance of these earnings is negligible because of the significant net 
operating loss carryforwards for U.S. and state purposes and full valuation allowance provided against such 
carryforwards.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in 

thousands): 

December 27,
2014

December 28,
2013

December 29,
2012

Beginning balance ................................................................. $
Tax position related to current year ........................................

15,148

$

13,902

$

13,066

Additions ........................................................................

1,990

1,676

1,437

Tax positions related to prior years ........................................

Additions ........................................................................

Reductions .....................................................................

Lapses of statute of limitations .......................................

140

(76)

(224)

32

(132)

(330)

75

(580)

(96)

Ending balance ...................................................................... $

16,978

$

15,148

$

13,902

As of December 27, 2014, the cumulative unrecognized tax benefit was $17.0 million, of which $15.1 

million was netted against deferred tax assets, which would have otherwise been subjected with a full valuation 
allowance. Of the total unrecognized tax benefit as of December 27, 2014, approximately $1.8 million, if 
recognized, would impact the Company’s effective tax rate.

As of December 27, 2014, December 28, 2013 and December 29, 2012, the Company had $0.4 million, 
$0.2 million and $0.2 million, respectively, of accrued interest or penalties related to unrecognized tax benefits, of 
which less than $0.2 million was included in the Company’s provision for income taxes in the year ended 
December 27, 2014, and less than $0.1 million was included in the Company’s provision for income taxes each 
for the years ended December 28, 2013 and December 29, 2012.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the 

Company’s provision for income taxes.

The Company is potentially subject to examination by the Internal Revenue Service and the relevant 

state income taxing authorities under the statute of limitations for years 2002 and forward.

92

 
 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has received assessments of tax resulting from a transfer pricing examinations in India 
for fiscal years ended March 31, 2008 through March 31, 2009. The Company is appealing the assessment and 
does not expect a significant adjustment to unrecognized tax benefits as a result of this inquiry. Fiscal years 
subsequent to March 2009 remain open to examination in India.

The Company does not currently believe there to be a reasonable possibility of a significant change in 
total unrecognized tax benefits that would occur within the next 12 months and, as such, amounts are classified 
as other long-term liabilities on the accompanying consolidated balance sheets as of December 27, 2014.

15. 

Segment Information

Operating segments are defined as components of an enterprise about which separate financial 

information is available that is evaluated regularly by the chief operating decision maker, or decision making 
group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating 
decision maker is the Company’s Chief Executive Officer ("CEO"). The Company’s CEO reviews financial 
information presented on a consolidated basis, accompanied by information about revenue by geographic region 
for purposes of allocating resources and evaluating financial performance. The Company has one business 
activity. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.

Revenue by geographic region is based on the shipping address of the customer. The following tables 

set forth revenue and long-lived assets by geographic region (in thousands):

Revenue 

Americas:

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

United States .................................................................. $
Other Americas ...............................................................

476,172

$

345,734

$

296,849

34,379

10,377

11,811

Europe, Middle East and Africa ..............................................

Asia Pacific ............................................................................

132,271

25,257

150,912

37,099

116,663

13,114

Total revenue .................................................................. $

668,079

$

544,122

$

438,437

$

510,551

$

356,111

$

308,660

Property, plant and equipment, net 

United States .................................................................................................... $
Other Americas .................................................................................................

Asia Pacific .......................................................................................................

Europe, Middle East and Africa .........................................................................

79,025

$

76,850

196

1,477

868

319

1,451

1,048

Total property, plant and equipment, net ........................................................... $

81,566

$

79,668

December 27,
2014

December 28,
2013

16. 

Employee Benefit Plan

The Company has established a savings plan under Section 401(k) of the Internal Revenue Code (the 

“Plan”). As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary 
contributions for eligible U.S. employees. Employee contributions are limited to a maximum annual amount as 
set periodically by the Internal Revenue Code. Expenses related to the Company’s 401(k) plan were insignificant 
for 2014, 2013 and 2012.

93

 
 
 
 
 
 
 
INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. 

Financial Information by Quarter (Unaudited)

The following table sets forth the Company’s unaudited quarterly consolidated statements of operations 

data for 2014 and 2013. The data has been prepared on the same basis as the audited consolidated financial 
statements and related notes included in this report. The table includes all necessary adjustments, consisting 
only of normal recurring adjustments that the Company considers necessary for a fair presentation of this data.

For the Three Months Ended (Unaudited)

2014

2013

Dec. 27

Sep. 27

Jun. 28

Mar. 29

Dec. 28

Sep. 28

Jun. 29

Mar. 30

(In thousands, except per share data)

Revenue:

Product ............................ $158,492
Services ...........................

27,814

$147,178

$142,364

$124,242

$115,102

$121,332

$120,647

$108,343

26,381

23,035

18,573

23,990

20,688

17,738

16,282

Total revenue ...................

186,306

173,559

165,399

142,815

139,092

142,020

138,385

124,625

Cost of revenue:

Cost of product ................

Cost of services ...............

89,809

12,154

Total cost of revenue.............

101,963

Gross profit ...........................

Operating expenses ..............

Income (loss) from
operations .............................

84,343

71,477

86,703

11,554

98,257

75,302

67,822

85,906

9,240

95,146

70,253

62,201

78,438

73,385

66,685

80,198

75,447

5,971

9,795

6,964

6,533

6,476

84,409

83,180

73,649

86,731

81,923

58,406

59,462

55,912

62,993

68,371

61,926

51,654

60,262

42,702

57,644

Other income (expense), net.

(2,773)

(2,432)

(2,655)

12,866

7,480

8,052

(1,056)

(3,070)

(7,081)

(2,683)

6,445

(8,608)

(14,942)

(2,790)

(800)

(6)

Income (loss) before income
taxes .....................................

10,093

Provision for income taxes ....
1,683
Net income (loss) .................. $ 8,410
Net income (loss) per
common share ......................

5,048

205

5,397

617

(4,126)

(9,764)

248

414

3,655

308

(9,408)

(14,948)

601

331

$ 4,843

$ 4,780

$ (4,374) $ (10,178) $ 3,347

$ (10,009) $ (15,279)

Basic ................................ $

Diluted ............................. $

0.07

0.06

$

$

0.04

0.04

$

$

0.04

0.04

$

$

(0.04) $

(0.08) $

(0.04) $

(0.08) $

0.03

0.03

$

$

(0.09) $

(0.09) $

(0.13)

(0.13)

The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the 

last Saturday of December in each year. Accordingly, fiscal years 2014 and 2013 were 52-week years that ended 
on December 27, 2014 and December 28, 2013, respectively. The quarters for fiscal years 2014 and 2013 were 
13-week quarters. 

94

 
 
 
 
 
 
 
 
 
 
 
ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

None.

ITEM 9A. 

CONTROLS AND PROCEDURES

Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer (“CEO”) and 

Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This 
“Controls and Procedures” section includes information concerning the internal controls and controls evaluation 
referred to in the certifications.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by our management, with the participation of our CEO and our CFO, of 

the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under 
the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be 
disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and 
reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated 
and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions 
regarding required disclosure.  Based on this evaluation, our CEO and CFO concluded that, as of December 27, 
2014, our disclosure controls and procedures were effective.

Inherent Limitations Over Internal Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our 

internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter 
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s 
objectives will be met. The design of a control system must reflect the fact that there are resource constraints, 
and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations 
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error 
or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of 
any system of controls is based in part on certain assumptions about the likelihood of future events, and there 
can be no assurance that any design will succeed in achieving its stated goals under all potential future 
conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. 
Over time, controls may become inadequate because of changes in business conditions or deterioration in the 
degree of compliance with policies or procedures. 

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, with the participation of our CEO and CFO, is responsible for establishing and 

maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under 
the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the 
preparation of financial statements for external purposes in accordance with U.S. GAAP.

Management assessed the effectiveness of our internal control over financial reporting as of 

December 27, 2014, the end of our fiscal year. Management based its assessment on the framework established 
in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the 
Treadway Commission (“2013 COSO framework”). Management’s assessment included evaluation of elements 
such as the design and operating effectiveness of key financial reporting controls, process documentation, 
accounting policies, and our overall control environment. This assessment is supported by testing and monitoring 
performed by our internal audit and finance personnel utilizing the 2013 COSO framework.

Based on our assessment, management has concluded that our internal control over financial reporting 
was effective as of December 27, 2014, the end of our fiscal year, to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external reporting purposes in 
accordance with U.S. generally accepted accounting principles.

Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on 

our internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K.
95

 
 
 
 
 
 
 
 
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the most recently 
completed fiscal year ended December 27, 2014 (as defined in Rules 13a-15(f) and 15d-15(f) under the 
Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over 
financial reporting.

ITEM 9B. 

OTHER INFORMATION

None.

96

 
 
PART III

ITEM 10. 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this item is incorporated herein by reference to our definitive proxy statement 
with respect to our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of 
the fiscal year covered by this Annual Report on Form 10-K. This includes information regarding our directors, 
compliance with Section 16(a) of the Exchange Act, procedures by which our stockholders may recommend 
nominees to our board of directors and the Audit Committee. For information pertaining to our executive offers, 
refer to the section entitled “Executive Officers of the Company” in Part 1, Item 1 of this Annual Report on Form 
10-K.

As part of our system of corporate governance, our board of directors has adopted a code of business 
conduct and ethics. The code applies to all of our employees, officers (including our principal executive officer, 
principal financial officer, principal accounting officer or controller, or persons performing similar functions), 
agents and representatives, including our independent directors and consultants, who are not employees of 
Infinera, with regard to their Infinera-related activities. The full text of our code of business conduct and ethics is 
posted on our web site at http://www.infinera.com. We intend to disclose future amendments to certain provisions 
of our code of business conduct and ethics, or waivers of such provisions, applicable to any principal executive 
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions 
or our directors on our web site identified above. The inclusion of our web site address in this report does not 
include or incorporate by reference the information on our web site into this report.

ITEM 11. 

EXECUTIVE COMPENSATION

Information responsive to this item is incorporated herein by reference to our definitive proxy statement 
with respect to our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of 
the fiscal year covered by this Annual Report on Form 10-K.

ITEM 12. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 
RELATED STOCKHOLDER MATTERS

Information responsive to this item is incorporated herein by reference to our definitive proxy statement 
with respect to our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of 
the fiscal year covered by this Annual Report on Form 10-K.

ITEM 13. 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR 
INDEPENDENCE

Information responsive to this item is incorporated herein by reference to our definitive proxy statement 
with respect to our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of 
the fiscal year covered by this Annual Report on Form 10-K.

ITEM 14. 

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information responsive to this item is incorporated herein by reference to our definitive proxy statement 
with respect to our 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of 
the fiscal year covered by this Annual Report on Form 10-K.

97

 
 
 
 
 
 
 
 
 
 
 
ITEM 15. 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Consolidated Financial Statements

PART IV

This Annual Report on Form 10-K contains the following financial statements which appear under Part 

II, Item 8 of this Form 10-K on the pages noted below: 

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm.....................................

Consolidated Balance Sheets .................................................................................................................

Consolidated Statements of Operations ..................................................................................................

Consolidated Statement of Comprehensive Income (Loss) .....................................................................

Consolidated Statements of Stockholders’ Equity ...................................................................................

Consolidated Statements of Cash Flows .................................................................................................

Notes to Consolidated Financial Statements ...........................................................................................

Page

53

55

56

57

58

60

61

(a)(2) Financial Statement Schedule

Schedule II: Valuation and Qualifying Accounts

Years Ended

December 27,
2014

December 28,
2013

December 29,
2012

(In thousands)

Deferred tax asset, valuation allowance

Beginning balance ................................................................. $
Additions ...............................................................................

Reductions ............................................................................

Ending balance ...................................................................... $
Allowance for doubtful accounts

Beginning balance ................................................................. $
Additions ...............................................................................

Reductions ............................................................................

Ending balance ...................................................................... $
Provision for other receivables

Beginning balance ................................................................. $
Additions ...............................................................................

Reductions ............................................................................

202,747

$

213,449

$

188,351

17,276

(20,325)

5,706

(16,408)

25,098

—

199,698

$

202,747

$

213,449

$

43

18

(23)

38

$

$

94

56

(107)

43

$

— $

— $

—

—

—

—

—

94

—

94

563

—

(563)

—

Ending balance ...................................................................... $

— $

— $

Schedules not listed above have been omitted because the information required to be set forth therein 

is not applicable or is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits.

See Index to Exhibits. The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated 

by reference as part of this Annual Report on Form 10-K.

98

 
 
 
 
 
 
 
 
 
 
 
Exhibit No.
3.1

3.2

4.1

4.2

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14

10.15

10.16

INDEX TO EXHIBITS

  Description

Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit
3.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on
June 12, 2007.

Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on February 17,
2009.

Form of Common Stock Certificate, incorporated herein by reference to Exhibit 4.1 of the
Registrant’s Form S-1/A (No. 333-140876), filed with the SEC on April 27, 2007.

Indenture dated May 30, 2013, between the Registrant and U.S. Bank National Association, as
trustee, incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on
Form 8-K (No. 001-33486), filed with the SEC on May 30, 2013.

Form of Indemnification Agreement between Registrant and each of its directors and executive
officers, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form S-1
(No. 333-140876), filed with the SEC on February 26, 2007.

2000 Stock Plan, as amended, and forms of stock option agreements thereunder, incorporated
herein by reference to Exhibit 10.2 of the Registrant’s Form S-1 (No. 333-140876), filed with the
SEC on February 26, 2007.

  2007 Equity Incentive Plan.

Infinera Corporation 2007 Employee Stock Purchase Plan, incorporated herein by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K (no. 001-33486), filed with the SEC
on May 20, 2014.

Form of 2007 Employee Stock Purchase Plan Subscription Agreement, incorporated herein by
reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K (no. 001-33486), filed
with the SEC on May 20, 2014.

Bonus Plan, incorporated by reference herein to Exhibit 10.1 of the Registrant’s Current Report
on 8-K (No. 001-33486), filed with the SEC on February 14, 2011.

Form of Section 16 Officer Restricted Stock Unit Agreement under the 2007 Equity Incentive
Plan.

  Form of Section 16 Officer Performance Share Agreement under the 2007 Equity Incentive Plan.

Form of Director Restricted Stock Unit Agreement under the 2007 Equity Incentive Plan.

Form of Stock Option Agreement under the 2007 Equity Incentive Plan, incorporated herein by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (No. 001-33486),
filed with the SEC on May 5, 2010.

Form of CEO Amended and Restated Change of Control Severance Agreement, incorporated
herein by reference to Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K
(No. 001-33486), filed with the SEC on March 5, 2013.

Form of Section 16 Officer Amended and Restated Change of Control Severance Agreement,
incorporated herein by reference to Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K
(No. 001-33486), filed with the SEC on March 5, 2013.

Executive Clawback Policy, incorporated herein by reference to Exhibit 10.2 of the Registrant’s
Current Report on Form 8-K (No. 001-33486), filed with the SEC on January 17, 2013.

Separation Agreement and General Release of All Claims between Ronald D. Martin and the
Registrant dated January 15, 2013, incorporated herein by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on January 17,
2013.

Consulting Agreement dated April 10, 2013, between the Registrant and Michael O. McCarthy III,
incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
(No. 001-33486), filed with the SEC on April 11, 2013.

Purchase Agreement dated May 23, 2013, between the Registrant and Morgan Stanley and Co.
LLC and Goldman, Sachs & Co., as representatives of the initial purchasers, incorporated herein
by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486),
filed with the SEC on May 24, 2013.

99

 
 
 
 
 
 
 
 
 
 
 
Exhibit No.

Description

10.17

10.18

Consulting Agreement between Ita Brennan and the Company dated February 28, 2014,
Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
(No. 001-33486), filed with the SEC on March 3, 2014.

Separation Agreement and General Release of All Claims between Alastair A. Short and the
Company, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
Form 8-K (No. 001-33486), filed with the SEC on July 17, 2014.

10.19*

Executive Severance Policy.

21.1

23.1

31.1

31.2

32.1**

32.2**

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

  Subsidiaries.
  Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

  XBRL Instance Document
  XBRL Taxonomy Extension Schema Document
  XBRL Taxonomy Extension Calculation Linkbase Document
  XBRL Taxonomy Extension Definition Linkbase Document
  XBRL Taxonomy Extension Label Linkbase Document
  XBRL Taxonomy Extension Presentation Linkbase Document

* 

** 

Management contracts or compensation plans or arrangements in which directors or executive officers 
are eligible to participate.

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 
1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by 
reference in any filings under the Securities Act of 1933 or the Securities Act of 1934, whether made 
before or after the date hereof and irrespective of any general incorporation language in any filings.

100

 
 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the 

Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Dated: February 18, 2015 

Infinera Corporation

By:

/s/  BRAD FELLER

Brad Feller
Chief Financial Officer
Principal Financial and Accounting Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below 

constitutes and appoints Thomas J. Fallon and Brad Feller, and each of them individually, his or her attorneys-in-
fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this 
Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection 
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said 
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below 

by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name and Signature

Title

Date

/s/    THOMAS J. FALLON        

Thomas J. Fallon

Chief Executive Officer and Director
and Principal Executive Officer

February 18, 2015

/s/    BRAD FELLER

Brad Feller

Chief Financial Officer, Principal
Financial and
Accounting Officer

February 18, 2015

/s/    DAVID F. WELCH, PH.D.        

Co-founder, President and Director

February 18, 2015

David F. Welch, Ph.D.

/s/    KAMBIZ Y. HOOSHMAND

Kambiz Y. Hooshmand

/s/    JAMES DOLCE

James Dolce

/s/    MARCEL GANI

Marcel Gani

/s/    PAUL J. MILBURY

Paul J. Milbury

/s/    CARL REDFIELD

Carl Redfield

Chairman of the Board

February 18, 2015

Director

February 18, 2015

Director

February 18, 2015

Director

February 18, 2015

Director

February 18, 2015

/s/    MARK A. WEGLEITNER

Mark A. Wegleitner

Director

February 18, 2015

101

 
[THIS PAGE INTENTIONALLY LEFT BLANK]

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 31.1

I, Thomas J. Fallon, certify that:

1. I have reviewed this Annual Report on Form 10-K of Infinera Corporation;

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 officer 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 (the registrant’s fourth fiscal 
quarter in the case of an annual report) 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 officer 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 the 
registrant’s board of directors (or persons performing the equivalent functions):

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: February 18, 2015 

By:

/s/    THOMAS J. FALLON        

Thomas J. Fallon
Chief Executive Officer
(Principal Executive Officer)

 
 
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 31.2

I, Brad Feller, certify that:

1. I have reviewed this Annual Report on Form 10-K of Infinera Corporation;

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 officer 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 (the registrant’s fourth fiscal 
quarter in the case of an annual report) 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 officer 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 the 
registrant’s board of directors (or persons performing the equivalent functions):

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: February 18, 2015 

By:

/s/  BRAD FELLER
Brad Feller
Chief Financial Officer
(Principal Financial and Accounting Officer)

 
 
INFINERA CORPORATION
Written Statement of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 32.1

I, Thomas J. Fallon, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of 

the Sarbanes-Oxley Act of 2002, as amended, that, to my knowledge on the date hereof:

(a) 

(b) 

the Annual Report on Form 10-K of Infinera Corporation for the year ended December 27, 
2014 (the “Annual Report”) fully complies with the requirements of Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934; and

the information contained in the Annual Report on Form 10-K fairly presents, in all material 
respects, the financial condition and results of operations of Infinera Corporation.

Date: February 18, 2015 

/s/    THOMAS J. FALLON        

Thomas J. Fallon
Chief Executive Officer
(Principal Executive Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 

has been provided to Infinera Corporation and will be retained by Infinera Corporation and furnished to the 
Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Annual Report on Form 10-K to which it relates, is not deemed filed 

with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the 
Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended 
(whether made before or after the date of the Annual Report on Form 10-K), irrespective of any general 
incorporation language contained in such filing.

 
 
 
 
INFINERA CORPORATION
Written Statement of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 32.2

I, Brad Feller, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the 

Sarbanes-Oxley Act of 2002, as amended, that, to my knowledge on the date hereof:

(a) 

(b) 

that the Annual Report on Form 10-K of Infinera Corporation for the year ended December 27, 
2014 (the “Annual Report”) fully complies with the requirements of Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934; and

the information contained in the Annual Report on Form 10-K fairly presents, in all material 
respects, the financial condition and results of operations of Infinera Corporation.

Date: February 18, 2015 

/s/  BRAD FELLER

Brad Feller
Chief Financial Officer
(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 

has been provided to Infinera Corporation and will be retained by Infinera Corporation and furnished to the 
Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Annual Report on Form 10-K to which it relates, is not deemed filed 

with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the 
Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended 
(whether made before or after the date of the Annual Report on Form 10-K), irrespective of any general 
incorporation language contained in such filing.